Document:

THIS
      NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
      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.

     

    PROMISSORY
      NOTE

     

    FOR
      VALUE
      RECEIVED, Small World Kids, Inc. a Nevada corporation ("Parent"), and Small
      World Toys, a California corporation ("Subsidiary") (Parent and Subsidiary,
      each
      a "Borrower" and collectively the "Borrowers"), with principal offices located
      at 5711 Buckingham Parkway, Culver City, California 90230, hereby jointly and
      severally promise to pay to KERSHAW MACKIE & COMPANY, 2405 South Broadway,
      Santa Ana, California 92707 (the "Holder") or order, without demand, the sum
      of
      TWENTY SEVEN THOUSAND FIVE HUNDRED DOLLARS ($27,500.00) (the "Face Amount")
      with
      interest on the Face Amount at the rate of 10% per annum. The Face Amount of
      the
      Note shall be due and payable on the Maturity Date (as hereinafter defined).
      Capitalized terms used herein but not otherwise defined shall have the meaning
      assigned to those terms in 

     

    This
      Note
      is one of a series of Notes being issued concurrently by Borrowers pursuant
      to
      the terms of that certain Note Purchase Agreement dated as of September 29,
      2006, between the Borrowers, the Holder and others (the "Agreement").
      Capitalized terms used herein but not otherwise defined shall have the meaning
      assigned to those terms in the Agreement.

     

    The
      following terms shall apply to this Note:

     

    ARTICLE
      I

    PAYMENT

     

    1.1 Payment.
      Interest hereunder shall accrue and is payable monthly in arrears on the last
      day of each month until the Maturity Date. During the occurrence and
      continuation of an Event of Default the interest rate shall be increased by
      two
      percent (2%) per annum commencing on the date when the Event of Default was
      declared by Holder, and the applicable payments shall be increased
      accordingly.

     

    1.2 Maturity
      Date.
      On the
      Maturity Date, the entire Face 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 March 31, 2008.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.3 Prepayment.
      The
      Note may be prepaid in whole or in part. If paid in part, such prepayment shall
      be applied first against the accrued but unpaid interest with the balance
      applied to the unpaid Face Amount.

     

    1.4 Priority.
      The
      Note shall be subordinated to Laurus Master Funds, Ltd. pursuant to that certain
      Subordination Agreement of even date herewith and to St. Cloud Capital Partners
      L.P. pursuant to those certain Subordination Agreements of even date
      herewith.

     

    ARTICLE
      II

    CONVERSION
      RIGHTS

     

    The
      Holder shall have the right to convert this Note into shares of the Parent’s
      Common Stock as set forth below.

     

    2.1 Conversion
      into the Borrower’s Common Stock.

     

    (a) The
      Holder shall have the right from and after the issuance of this Note and then
      at
      any time until this Note is fully paid, to convert the Face Amount of this
      Note
      by Parent Notice of Conversion substantially in the form of Exhibit
      A
      (the
      date of giving of such notice of conversion being a "Conversion Date") into
      fully paid and nonassessable shares of Common Stock of the Parent as such stock
      exists on the date of issuance of this Note, or any shares of capital stock
      of
      the Parent into which such stock shall hereafter be changed or reclassified
      (the
      "Common Stock") at the conversion price as defined in Section 2.1(b) hereof
      (the
      "Conversion Price"), determined as provided herein. Upon delivery to Parent
      of a
      Notice of Conversion, Borrowers shall issue and deliver to the Holder within
      three business days from the Conversion Date that number of shares of Common
      Stock for the portion of the Note converted in accordance with the foregoing
      together with all accrued and unpaid interest. The number of shares of Common
      Stock to be issued upon such conversion of this Note shall be determined by
      dividing that portion of the Face Amount of the Note to be converted, by the
      Conversion Price.

     

    (b) Subject
      to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
      share shall be $1.10.

     

    (c) The
      Conversion Price described in Section 2.1(b) above and the number and kind
      of
      shares or other securities to be issued upon conversion determined pursuant
      to
      Section 2.1(a) shall be subject to adjustment from time to time upon the
      happening of certain events while this conversion right remains outstanding,
      as
      follows:

     

    (i) If
      Parent
      at any time shall consolidate with or merge into or sell or convey all or
      substantially all its assets to any other corporation, this Note, as to the
      unpaid Face Amount thereof, shall thereafter be deemed to evidence the right
      to
      purchase such number and kind of shares or other securities and property as
      would have been issuable or distributable on account of such consolidation,
      merger, sale or conveyance, upon or with respect to the securities subject
      to
      the conversion or purchase right immediately prior to such consolidation,
      merger, sale or conveyance. The foregoing provision shall similarly apply to
      successive transactions of a similar nature by any such successor or purchaser.
      Without limiting the generality of the foregoing, the anti-dilution provisions
      of this Section shall apply to such securities of such successor or purchaser
      after any such consolidation, merger, sale or conveyance.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    (ii) If
      Parent
      at any time shall, by reclassification or otherwise, changes the Common Stock
      into the same or a different number of securities of any class or classes,
      this
      Note, as to the unpaid Face Amount thereof, shall thereafter be deemed to
      evidence the right to purchase an adjusted number of such securities and kind
      of
      securities as would have been issuable as the result of such change with respect
      to the Common Stock immediately prior to such reclassification or other
      change.

     

    (iii) If
      the
      shares of Common Stock are subdivided or combined into a greater or smaller
      number of shares of Common Stock, or if a dividend is paid on the Common Stock
      in shares of Common Stock, the Conversion Price shall be proportionately reduced
      in case of subdivision of shares or stock dividend or proportionately increased
      in the case of combination of shares, in each such case by the ratio which
      the
      total number of shares of Common Stock outstanding immediately after such event
      bears to the total number of shares of Common Stock outstanding immediately
      prior to such event.

     

    (iv) Parent
      will reserve from its authorized and unissued Common Stock a sufficient number
      of shares to provide for the issuance of Common Stock upon the full conversion
      of this Note. Parent represents that upon issuance, such shares will be duly
      and
      validly issued, fully paid and non-assessable. Borrowers agree that their
      issuance of this Note shall constitute full authority to its officers, agents,
      and transfer agents who are charged with the duty of executing and issuing
      stock
      certificates to execute and issue the necessary certificates for shares of
      Common Stock upon the conversion of this Note.

     

    2.2 Method
      of Conversion.
      This
      Note may be converted by the Holder in whole or in part as described in Section
      2.1(a) hereof. Upon partial conversion of this Note, a new Note containing
      the
      same date and provisions of this Note shall, at the request of the Holder,
      be
      issued by the Borrowers to the Holder for the principal balance of this Note
      which shall not have been converted or paid.

     

    ARTICLE
      III

    EVENTS
      OF DEFAULT

     

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

     

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

     

    (b) Event
      of Default.
      The
      occurrence of any "Event of Default" under the Agreement or any Ancillary
      Agreement.

     

    (c) Receiver
      or Trustee.
      Either
      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.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    (d) 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 for against either Borrower and, if instituted,
      are not dismissed within sixty days of initiation.

     

    (e) Cross-Default.
      Any
      Event of Default, or other similar event which constitutes a breach or default
      or requires any waiver consent or approval, under any credit facility or loan
      provided to the Borrowers by Laurus, St. Cloud or Goldwasser.

     

    (f) Termination
      of Interim Manager.
      If the
      consulting agreement with Kershaw Mackie & Co. ("KM & Co.") dated
      September 16, 2006, is terminated without cause prior to March 31,
      2007.

     

    3.2 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
      IV

    MISCELLANEOUS

     

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

     

    4.2 Notices.
      Any
      notice herein required or permitted to be given shall be in writing and may
      be
      personally served or sent by fax transmission (with copy sent by certified
      or
      registered mail or by overnight courier). For the purposes hereof, the address
      and fax number of the Borrowers is 5711 Bunkingham Parkway, Culver City,
      California 90230, facsimile (310) 258-1194. The Borrowers may change their
      address and fax number as provided in the Agreement.

     

    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 Borrowers and their 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, Borrowers shall pay the Holder
      hereof all reasonable costs of collection, including reasonable attorneys’ fees
      and costs.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    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 Borrowers to the
      Holder and thus refunded to the Borrowers.

     

    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 Note 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.

     

    IN
      WITNESS WHEREOF, the Borrowers have caused this Note to be signed in its name
      on
      this 6th
      day of
      October 2006.

     

    
      	 	 	 
	 	SMALL WORLD KIDS, INC.
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:
                Debra Fine
                
                Title:
                  Chief Executive
                  officer

              

            

    

     

    
      	 	 	 
	 	SMALL WORLD TOYS
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:
                Debra Fine

              Title:
                Chief Executive officer

            

    

    
      
         

      

      
        -5-THIS
      WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
      STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
      OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
      IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER
      SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
      REASONABLY SATISFACTORY TO SMALL WORLD KIDS, INC. THAT SUCH REGISTRATION IS
      NOT
      REQUIRED.

     

    Right
      to
      Purchase up 137,500 Shares of Common Stock of

    Small
      World Kids, Inc.

    (subject
      to adjustment as provided herein)

     

    COMMON
      STOCK PURCHASE WARRANT

     

    
      	
              No. 1

            	
               

            	
              Issue
                Date: October 6, 2006

            

    

     

    SMALL
      WORLD KIDS, INC., a corporation organized under the laws of the State of Nevada
      (the “Company”), hereby certifies that, for value received, SBI ADVISORS, LLC,
      or assigns (the “Holder”), is entitled, subject to the terms set forth below, to
      purchase from the Company (as defined herein) from and after the Issue Date
      of
      this Warrant and at any time thereafter up to and including the Expiration
      Date,
      up to One Hundred Thirty-Seven Thousand Five Hundred (137,500) fully paid and
      nonassessable shares of Common Stock (as hereinafter defined), $0.001 par value
      per share, at the applicable Exercise Price per share (as defined below). 
The number and character of such shares of Common Stock and the applicable
      Exercise Price per share are subject to adjustment as provided
      herein.

     

    As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings:

     

    (a)          
      The term “Company” shall include Small World Kids, Inc. and any person or
      entity which shall succeed, or assume the obligations of, Small World
      Kids, Inc. hereunder.

     

    (b)          
      The term “Common Stock” includes (i) the Company’s Common Stock, par value
      $0.001 per share; and (ii) any other securities into which or for which any
      of the securities described in the preceding clause (i) may be converted or
      exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
      of assets or otherwise.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)          
      The term “Other Securities” refers to any stock (other than Common Stock) and
      other securities of the Company or any other person (corporate or otherwise)
      which the holder of the Warrant at any time shall be entitled to receive, or
      shall have received, on the exercise of the Warrant, in lieu of or in addition
      to Common Stock, or which
      at
      any time shall be issuable or shall have been issued in exchange for or in
      replacement of Common Stock or Other Securities pursuant to Section 4 or
      otherwise.

     

    (d)          The
      “Expiration Date" is the date that is the fifth anniversary the Issue Date.
      

     

    (e)          The
      “Exercise Price” applicable under this Warrant shall be $1.10 per
      share.

     

    (f)          The
      capitalized terms used in this Warrant that are not defined herein shall have
      the meanings ascribed to them in that certain Note Purchase Agreement of even
      date herewith between the Company, Holder and others.

     

    1.            
      Exercise
      of Warrant.

     

    1.1          
      Number
      of Shares Issuable upon Exercise. 
      From
      and
      after the date hereof, the Holder shall be entitled to receive, upon exercise
      of
      this Warrant in whole or in part, by delivery of an original or fax copy of
      an
      exercise notice in the form attached hereto as Exhibit A (the “Exercise
      Notice”), shares of Common Stock of the Company, subject to adjustment pursuant
      to Section 4.

     

    1.2          
      Fair
      Market Value. 
      For
      purposes hereof, the “Fair Market Value” of a share of Common Stock as of a
      particular date (the “Determination Date”) shall mean:

     

    (a)          If
      the
      Company’s Common Stock is traded on the American Stock Exchange or another
      national exchange or is quoted on the National or Capital Market of The Nasdaq
      Stock Market, Inc. (“Nasdaq”), then the closing or last sale price,
      respectively, reported for the last business day immediately preceding the
      Determination Date.

     

    (b)          If
      the
      Company’s Common Stock is not traded on the American Stock Exchange or another
      national exchange or on the Nasdaq but is traded on the NASD Over The Counter
      Bulletin Board, then the mean of the average of the closing bid and asked prices
      reported for the last business day immediately preceding the Determination
      Date.

     

    (c)          Except
      as
      provided in clause (d) below, if the Company’s Common Stock is not publicly
      traded, then as the Holder and the Company agree or in the absence of agreement
      by arbitration in accordance with the rules then in effect of the American
      Arbitration Association, before a single arbitrator to be chosen from a panel
      of
      persons qualified by education and training to pass on the matter to be
      decided.

     

    (d)          If
      the
      Determination Date is the date of a liquidation, dissolution or winding up,
      or
      any event deemed to be a liquidation, dissolution or winding up pursuant to
      the
      Company’s charter, then all amounts to be payable per share to holders of the
      Common Stock pursuant to the charter in the event of such liquidation,
      dissolution or winding up, plus all other amounts to be payable per share in
      respect of the Common Stock in liquidation under the charter, assuming for
      the
      purposes of this clause (d) that all of the shares of Common Stock then
      issuable upon exercise of the Warrant are outstanding at the Determination
      Date.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    1.3          
      Company
      Acknowledgment. 
      The Company will, at the time of the exercise of this Warrant, upon the request
      of the holder hereof acknowledge in writing its continuing obligation to afford
      to such holder any rights to which such holder shall continue to be entitled
      after such exercise in accordance with the provisions of this Warrant. If the
      holder shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such holder any such
      rights.

    

    1.4          
      Trustee
      for Warrant Holders. 
      In
      the
      event that a bank or trust company shall have been appointed as trustee for
      the
      holders of this Warrant pursuant to Subsection 3.2, such bank or trust
      company shall have all the powers and duties of a warrant agent (as hereinafter
      described) and shall accept, in its own name for the account of the Company
      or
      such successor person as may be entitled thereto, all amounts otherwise payable
      to the Company or such successor, as the case may be, on exercise of this
      Warrant pursuant to this Section 1.

     

    2.            
      Procedure
      for Exercise.

     

    2.1          
      Delivery
      of Stock Certificates, Etc., on Exercise. 
      The
      Company agrees that the shares of Common Stock purchased upon exercise of this
      Warrant shall be deemed to be issued to the Holder as the record owner of such
      shares as of the close of business on the date on which this Warrant shall
      have
      been surrendered and payment made for such shares in accordance herewith. 
As soon as practicable after the exercise of this Warrant in full or in part,
      and in any event within three  business days thereafter, the Company at its
      expense (including the payment by it of any applicable issue taxes) will cause
      to be issued in the name of and delivered to the Holder, or as such Holder
      (upon
      payment by such Holder of any applicable transfer taxes) may direct in
      compliance with applicable securities laws, a certificate or certificates for
      the number of duly and validly issued, fully paid and nonassessable shares
      of
      Common Stock (or Other Securities) to which such Holder shall be entitled on
      such exercise, plus, in lieu of any fractional share to which such holder would
      otherwise be entitled, cash equal to such fraction multiplied by the then Fair
      Market Value of one full share, together with any other stock or other
      securities and property (including cash, where applicable) to which such Holder
      is entitled upon such exercise pursuant to Section 1 or
      otherwise.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    2.2          
      Exercise.

     

    (a)          Payment
      may be made either (i) in cash or by certified or official bank check
      payable to the order of the Company equal to the applicable aggregate Exercise
      Price, (ii) by delivery of this Warrant, or shares of Common Stock and/or
      Common Stock receivable upon exercise of this Warrant in accordance with the
      formula set forth in subsection (b) below, or (iii) by a
      combination of any of the foregoing methods, for the number of Common Shares
      specified in such Exercise Notice (as such exercise number shall be adjusted
      to
      reflect any adjustment in the total number of shares of Common Stock issuable
      to
      the Holder per the terms of this Warrant) and the Holder shall thereupon be
      entitled to receive the number of duly authorized, validly issued, fully-paid
      and non-assessable shares of Common Stock (or Other Securities) determined
      as
      provided herein.

     

    (b)          Notwithstanding
      any provisions herein to the contrary, if the Fair Market Value of one share
      of
      Common Stock is greater than the Exercise Price (at the date of calculation
      as
      set forth below), in lieu of exercising this Warrant for cash, the Holder may
      elect to receive shares equal to the value (as determined below) of this Warrant
      (or the portion thereof being exercised) by surrender of this Warrant at the
      principal office of the Company together with the properly endorsed Exercise
      Notice in which event the Company shall issue to the Holder a number of shares
      of Common Stock computed using the following formula:

     

    
      	
              X=

            	
               

            	
              Y(A-B)

            	
               

            
	
               

            	
               

            	
              A

            	
               

            
	
               

            	
               

            	
               

            
	
              Where
                X =

            	
               

            	
              the
                number of shares of Common Stock to be issued to the
                Holder

            
	
               

            	
               

            	
               

            
	
              Y
                =

            	
               

            	
              the
                number of shares of Common Stock purchasable under this Warrant or,
                if
                only a portion of this Warrant is being exercised, the portion of
                this
                Warrant being exercised (at the date of such
                calculation)

            
	
               

            	
               

            	
               

            
	
              A
                =

            	
               

            	
              the
                Fair Market Value of one share of the Company’s Common Stock (at the date
                of such calculation)

            
	
               

            	
               

            	
               

            
	
              B
                =

            	
               

            	
              the
                Exercise Price per share (as adjusted to the date of such
                calculation)

            

    

     

    3.            
      Effect
      of Reorganization, Etc.; Adjustment of Exercise Price.

     

    3.1          
      Reorganization,
      Consolidation, Merger, Etc. 
      In
      case
      at any time or from time to time, the Company shall (a) effect a
      reorganization, (b) consolidate with or merge into any other person, or
      (c) transfer all or substantially all of its properties or assets to any
      other person under any plan or arrangement contemplating the dissolution of
      the
      Company, then, in each such case, as a condition to the consummation of such
      a
      transaction, proper and adequate provision shall be made by the Company whereby
      the Holder, on the exercise hereof as provided in Section 1 at any time
      after the consummation of such reorganization, consolidation or merger or the
      effective date of such dissolution, as the case may be, shall receive, in lieu
      of the Common Stock (or Other Securities) issuable on such exercise prior to
      such consummation or such effective date, the stock and other securities and
      property (including cash) to which such Holder would have been entitled upon
      such consummation or in connection with such dissolution, as the case may be,
      if
      such Holder had so exercised this Warrant, immediately prior thereto, all
      subject to further adjustment thereafter as provided in
      Section 4.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    3.2          
      Dissolution. 
      In
      the
      event of any dissolution of the Company following the transfer of all or
      substantially all of its properties or assets, the Company, concurrently with
      any distributions made to holders of its Common Stock, shall at its expense
      deliver or cause to be delivered to the Holder the stock and other securities
      and property (including cash, where applicable) receivable by the Holder
      pursuant to Section 3.1, or, if the Holder shall so instruct the Company,
      to a bank or trust company specified by the Holder and having its principal
      office in New York, NY as trustee for the Holder.

     

    3.3          
      Continuation
      of Terms. 
      Upon
      any
      reorganization, consolidation, merger or transfer (and any dissolution following
      any transfer) referred to in this Section 3, this Warrant shall continue in
      full force and effect and the terms hereof shall be applicable to the shares
      of
      stock and other securities and property receivable on the exercise of this
      Warrant after the consummation of such reorganization, consolidation or merger
      or the effective date of dissolution following any such transfer, as the case
      may be, and shall be binding upon the issuer of any such stock or other
      securities, including, in the case of any such transfer, the person acquiring
      all or substantially all of the properties or assets of the Company, whether
      or
      not such person shall have expressly assumed the terms of this Warrant as
      provided in Section 4.  In the event this Warrant does not continue in
      full force and effect after the consummation of the transactions described
      in
      this Section 3, then the Company’s securities and property (including cash,
      where applicable) receivable by the Holder will be delivered to the Holder
      or
      the Trustee as contemplated by Section 3.2.

     

    4.            Extraordinary
      Events Regarding Common Stock. 
      In
      the
      event that the Company shall (a) issue additional shares of the Common
      Stock as a dividend or other distribution on outstanding Common Stock or any
      preferred stock issued by the Company, (b) subdivide its outstanding shares
      of Common Stock, (c) combine its outstanding shares of the Common Stock
      into a smaller number of shares of the Common Stock, then, in each such event,
      the Exercise Price shall, simultaneously with the happening of such event,
      be
      adjusted by multiplying the then Exercise Price by a fraction, the numerator
      of
      which shall be the number of shares of Common Stock outstanding immediately
      prior to such event and the denominator of which shall be the number of shares
      of Common Stock outstanding immediately after such event, and the product so
      obtained shall thereafter be the Exercise Price then in effect. The Exercise
      Price, as so adjusted, shall be readjusted in the same manner upon the happening
      of any successive event or events described herein in this Section 4. 
The number of shares of Common Stock that the holder shall thereafter, on the
      exercise hereof as provided in Section 1, be entitled to receive shall be
      adjusted to a number determined by multiplying the number of shares of Common
      Stock that would otherwise (but for the provisions of this Section 4) be
      issuable on such exercise by a fraction of which (a) the numerator is the
      Exercise Price that would otherwise (but for the provisions of this
      Section 4) be in effect, and (b) the denominator is the Exercise Price
      in effect on the date of such exercise (taking into account the provisions
      of
      this Section 4).

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    5.            Certificate
      as to Adjustments. 
      In
      each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities) issuable on the exercise of this Warrant, the Company at its expense
      will promptly cause its Chief Financial Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of this
      Warrant and prepare a certificate setting forth such adjustment or readjustment
      and showing in detail the facts upon which such adjustment or readjustment
      is
      based, including a statement of (a) the consideration received or
      receivable by the Company for any additional shares of Common Stock (or Other
      Securities) issued or sold or deemed to have been issued or sold, (b) the
      number of shares of Common Stock (or Other Securities) outstanding or deemed
      to
      be outstanding, and (c) the Exercise Price and the number of shares of
      Common Stock to be received upon exercise of this Warrant, in effect immediately
      prior to such adjustment or readjustment and as adjusted or readjusted as
      provided in this Warrant.  The Company will forthwith mail a copy of each
      such certificate to the holder and any Warrant agent of the Company (appointed
      pursuant to Section 11 hereof).

     

    6.            Reservation
      of Stock, Etc., Issuable on Exercise of Warrant. 
      The
      Company will at all times reserve and keep available, solely for issuance and
      delivery on the exercise of this Warrant, shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of this
      Warrant.

     

    7.            Assignment;
      Exchange of Warrant. 
      Subject
      to compliance with applicable securities laws, this Warrant, and the rights
      evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”) in whole or in part.  On the surrender for exchange of this
      Warrant, with the Transferor’s endorsement in the form of Exhibit B
      attached hereto (the “Transferor Endorsement Form”) and together with evidence
      reasonably satisfactory to the Company demonstrating compliance with applicable
      securities laws, which shall include, without limitation, a legal opinion from
      the Transferor’s counsel (at the Company’s expense) that such transfer is exempt
      from the registration requirements of applicable securities laws, the Company
      at
      its expense (but with payment by the Transferor of any applicable transfer
      taxes) will issue and deliver to or on the order of the Transferor thereof
      a new
      Warrant of like tenor, in the name of the Transferor and/or the transferee(s)
      specified in such Transferor Endorsement Form (each a “Transferee”),
      calling in the aggregate on the face or faces thereof for the number of shares
      of Common Stock called for on the face or faces of the Warrant so surrendered
      by
      the Transferor.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    8.            Replacement
      of Warrant. 
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant and, in the case of any such loss,
      theft or destruction of this Warrant, on delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of this Warrant,
      the
      Company at its expense will execute and deliver, in lieu thereof, a new Warrant
      of like tenor.

     

    9.            Registration
      Rights. 
      The
      Holder has been granted certain registration rights by the Company.  These
      registration rights are set forth in a Registration Rights Agreement entered
      into by the Company and Holder dated as of the date hereof, as the same may
      be
      amended, modified and/or supplemented from time to time.

     

    10.          Warrant
      Agent. 
      The
      Company may, by written notice to the each Holder of the Warrant, appoint an
      agent for the purpose of issuing Common Stock (or Other Securities) on the
      exercise of this Warrant pursuant to Section 1, exchanging this Warrant
      pursuant to Section 7, and replacing this Warrant pursuant to
      Section 8, or any of the foregoing, and thereafter any such issuance,
      exchange or replacement, as the case may be, shall be made at such office by
      such agent.

     

    11.          Transfer
      on the Company’s Books. 
      Until
      this Warrant is transferred on the books of the Company, the Company may treat
      the registered holder hereof as the absolute owner hereof for all purposes,
      notwithstanding any notice to the contrary.

     

    12.          Notices,
      Etc. 
      All
      notices and other communications from the Company to the Holder shall be mailed
      by first class registered or certified mail, postage prepaid, at such address
      as
      may have been furnished to the Company in writing by such Holder or, until
      any
      such Holder furnishes to the Company an address, then to, and at the address
      of,
      the last Holder who has so furnished an address to the Company.

     

    13.          Miscellaneous. 
      This
      Warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought; provided, however,
      if the party to be charged in the Holder, then such change, waiver, discharge
      or
      termination may be agreed to by the Purchaser or Purchasers under the Purchase
      Agreement holding unexercised warrants issued under the Purchase Agreement
      covering at least a majority of the shares of Common Stock issuable upon
      exercise of such warrants and such change, waiver, discharge or termination
      shall be binding on the Holder. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
      IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO
      PRINCIPLES OF CONFLICTS OF LAWS.  ANY ACTION BROUGHT CONCERNING THE
      TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN STATE COURTS
      OF CALIFORNIA OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA. 
The individuals executing this Warrant on behalf of the Company agree to submit
      to the jurisdiction of such courts and, subject to Section 12 of the Purchase
      Agreement, waive trial by jury.  The prevailing party shall be entitled to
      recover from the other party its reasonable attorneys’ fees and costs.  In
      the event that any provision of this Warrant is invalid or unenforceable under
      any applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law.  Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of this
      Warrant.  The headings in this Warrant are for purposes of reference only,
      and shall not limit or otherwise affect any of the terms hereof.  The
      invalidity or unenforceability of any provision hereof shall in no way affect
      the validity or enforceability of any other provision hereof.  The Company
      acknowledges that legal counsel participated in the preparation of this Warrant
      and, therefore, stipulates that the rule of construction that ambiguities
      are to be resolved against the drafting party shall not be applied in the
      interpretation of this Warrant to favor any party against the other
      party.

     

    [BALANCE
      OF PAGE INTENTIONALLY LEFT BLANK;

    SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the Company has executed this Warrant as of the date first
      written above.

     

    
      	
               

            	
              SMALL
                WORLD KIDS, INC.

            
	
               

            	
               

            
	
              WITNESS:

            	
               

            
	
               

            	
              By:

              
                

              

              Name:

            
	
               

            	
              
                

              

              Title:

            
	
              
                
 

            	
               

            	
              
                

              

            

    

    

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT A

     

    FORM OF
      SUBSCRIPTION

    (To
      Be
      Signed Only On Exercise Of Warrant)

     

    TO:     Small
      World Kids, Inc.

    5711
      Buckingham Parkway 

    Culver
      City, CA 90230

     

    Attention:      Chief
      Financial Officer

     

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.      ), hereby irrevocably elects to purchase
      (check applicable box):

     

    
      	
              o

            	
               

            	
              shares
                of the common stock covered by such warrant; or

            
	
               

            	
               

            	
               

            
	
              o

            	
               

            	
              the
                maximum number of shares of common stock covered by such warrant
                pursuant
                to the cashless exercise procedure

            
	
               

            	
               

            	
              set
                forth in Section 2.

            

    

     

    The
      undersigned herewith makes payment of the full Exercise Price for such shares
      at
      the price per share provided for in such Warrant, which is
      $                   . 
Such payment takes the form of (check applicable box or boxes):

     

    
      	
              o

            	
               

            	
              $                  in
                lawful money of the United States; and/or

            
	
               

            	
               

            	
               

            
	
              o

            	
               

            	
              the
                cancellation of such portion of the attached Warrant as is exercisable
                for
                a total of
                                
                shares of Common

            
	
               

            	
               

            	
              Stock
                (using a Fair Market Value of
                $               per
                share for purposes of this calculation); and/or

            
	
               

            	
               

            	
               

            
	
              o

            	
               

            	
              the
                cancellation of such number of shares of Common Stock as is necessary,
                in
                accordance with the formula set forth

            
	
               

            	
               

            	
              in
                Section 2.2, to exercise this Warrant with respect to the maximum
                number of shares of Common Stock purchasable pursuant to the cashless
                exercise procedure set forth in
                Section 2.

            

    

     

    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to whose address
      is                                                                                      
..

     

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the “Securities Act”) or pursuant to an exemption from registration
      under the Securities Act.

     

    
      	
              Dated:

            	
               

            	
               

            	
               

            	
               

            
	
               

            	
              (Signature
                must conform to name of holder as

              specified
                on the face of the Warrant)

            
	
               

            	
              Address:

            	
               

            	
               

            
	
               

            	
               

            	
               

            	
               

            

    

    

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT B

     

    FORM OF
      TRANSFEROR ENDORSEMENT

    (To
      Be
      Signed Only On Transfer Of Warrant)

     

    For
      value
      received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading “Transferees” the right represented by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of Small World Kids, Inc. into which the within Warrant relates
      specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
      person Attorney to transfer its respective right on the books of Small World
      Kids, Inc. with full power of substitution in the premises.

     

    
      	
              Transferees

            	
               

            	
              Address

            	
               

            	
              Percentage

              Transferred

            	
               

            	
              Number

              Transferred

            	
               

            
	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            
	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            
	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            

    

     

    
      	
              Dated:

            	
               

            	
               

            	
               

            	
               

            
	
               

            	
              (Signature
                must conform to name of holder as

              specified
                on the face of the Warrant)

            
	
               

            	
              Address:

            	
               

            	
               

            
	
               

            	
               

            	
               

            	
               

            
	
               

            	
               

            
	
               

            	
              SIGNED
                IN THE PRESENCE OF:

            
	
               

            	
               

            	
               

            
	
               

            	
              (Name)

            	
               

            
	
               

            	
               

            
	
              ACCEPTED
                AND AGREED:

              [TRANSFEREE]

            	
               

            
	
               

            	
               

            
	
               

            	
               

            	
               

            
	
              (Name)

            	
               

            	
               

            

    

     

    
      
        
        

      

      
        -10-

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