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CONTINUING GUARANTY

BORROWER:               SMALL WORLD TOYS

GUARANTOR:              SMALL WORLD KIDS, INC.

DATE:                   DECEMBER 15, 2004

      THIS  CONTINUING  GUARANTY  is executed  by the  above-named  guarantor(s)
(jointly and severally, the "Guarantor"),  as of the above date, in favor of PNC
BANK,  NATIONAL  ASSOCIATION  ("PNC"),  with an address at 2 North Lake  Avenue,
Suite 440,  Pasadena,  California  91101,  as agent ("Agent") for itself and the
other  Lenders  (PNC,   the  other  Lenders  and  Agent  shall  be  referred  to
collectively  and  individually,  as  "Bank")  under the  Revolving  Credit  and
Security  Agreement  (the  "Loan  Agreement")  among  Bank  and the  above-named
borrower ("Borrower"), with respect to the Indebtedness of Borrower.

      1. CONTINUING GUARANTY.  Guarantor hereby  unconditionally  guarantees and
promises  to pay on demand to Agent,  for the  benefit of Bank,  at the  address
indicated  above, or at such other address as Agent may direct,  in lawful money
of the United States,  and to perform for the benefit of Bank, all  Indebtedness
of Borrower now or hereafter  owing to or held by PNC, and all  Indebtedness  of
Borrower now or hereafter  owing to or held by Bank pursuant to or in connection
with the Loan Agreement.  As used herein, the term "Indebtedness" is used in its
most comprehensive sense and shall mean and include without limitation:  (a) any
and all debts, duties, obligations, liabilities, representations, warranties and
guaranties of Borrower or any one or more of them, heretofore, now, or hereafter
made,  incurred,  or created,  whether  directly or  acquired by  assignment  or
otherwise,  or held on behalf of others,  however arising,  whether voluntary or
involuntary, due or not due, absolute or contingent, liquidated or unliquidated,
certain or  uncertain,  determined  or  undetermined,  monetary or  nonmonetary,
written or oral, and whether Borrower may be liable individually or jointly with
others,  and regardless of whether  recovery  thereon may be or hereafter become
barred  by any  statute  of  limitations,  discharged  or  uncollectible  in any
bankruptcy,  insolvency or other proceeding, or otherwise unenforceable; and (b)
any and all amendments,  modifications, renewals and extensions of any or all of
the foregoing, including without limitation amendments,  modifications, renewals
and extensions which are evidenced by any new or additional instrument, document
or agreement;  and (c) any and all attorneys'  fees, court costs, and collection
charges  incurred  in  endeavoring  to collect or enforce  any of the  foregoing
against Borrower,  Guarantor, or any other person liable thereon (whether or not
suit be brought) and any other  expenses  of, for or  incidental  to  collection
thereof.  As used herein, the term "Borrower" shall include any successor to the
business and assets of Borrower, and shall also include Borrower in its capacity
as a debtor or debtor in possession  under the federal  Bankruptcy Code, and any
trustee,  custodian  or  receiver  for  Borrower  or any of its  assets,  should
Borrower   hereafter   become  the  subject  of  any  bankruptcy  or  insolvency
proceeding,  voluntary or  involuntary;  and all  indebtedness,  liabilities and
obligations  incurred by any such person  shall be included in the  Indebtedness
guaranteed hereby.  This Guaranty is given in consideration for credit and other
financial  accommodations  which  may,  from  time to time,  be given by Bank to
Borrower in Bank's sole discretion,  but Guarantor  acknowledges and agrees that
acceptance  by Bank of this  Guaranty  shall not  constitute a commitment of any
kind by Bank to extend such credit or other financial  accommodation to Borrower
or to permit  Borrower to incur  Indebtedness  to Bank.  All sums due under this
Guaranty  shall  bear  interest  from the date due  until  the date  paid at the
highest rate charged with respect to any of the Indebtedness.

      2. WAIVERS.  Guarantor hereby waives: (a) presentment for payment,  notice
of dishonor,  demand, protest, and notice thereof as to any instrument,  and all
other  notices  and  demands to which  Guarantor  might be  entitled,  including
without  limitation notice of all of the following:  the acceptance  hereof; the
creation,  existence,  or  acquisition  of any  Indebtedness;  the amount of the
Indebtedness  from  time to time  outstanding;  any  foreclosure  sale or  other
disposition  of any property  which  secures any or all of the  Indebtedness  or
which  secures  the  obligations  of any  other  guarantor  of any or all of the
Indebtedness;  any adverse change in Borrower's  financial  position;  any other
fact which might  increase  Guarantor's  risk; any default,  partial  payment or
non-payment of all or any part of the Indebtedness;  the occurrence of any other
Event  of  Default  (as  hereinafter  defined);   any  and  all  agreements  and
arrangements  between  Bank and  Borrower  and any  changes,  modifications,  or

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                                                   CONTINUING GUARANTY
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extensions thereof, and any revocation,  modification or release of any guaranty
of any or all of the Indebtedness by any person  (including  without  limitation
any other  person  signing  this  Guaranty);  (b) any right to  require  Bank to
institute suit against, or to exhaust its rights and remedies against,  Borrower
or any other  person,  or to  proceed  against  any  property  of any kind which
secures all or any part of the Indebtedness,  or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with Bank or any indebtedness of Bank to Borrower,  or to exercise
any other  right or power,  or pursue any other  remedy  Bank may have,  and any
rights or  defenses  by reason of any  election  of  remedies  by Bank;  (c) any
defense  arising by reason of any disability or other defense of Borrower or any
other guarantor or any endorser,  co-maker or other person,  or by reason of the
cessation  from any cause  whatsoever  of any liability of Borrower or any other
guarantor or any endorser,  co-maker or other person, with respect to all or any
part of the Indebtedness,  or by reason of any act or omission of Bank or others
which directly or indirectly  results in the discharge or release of Borrower or
any other  guarantor  or any other  person or any  Indebtedness  or any security
therefor,  whether by operation of law or otherwise;  (d) any defense arising by
reason of any failure of Bank to obtain, perfect,  maintain or keep in force any
security  interest in, or lien or encumbrance  upon, any property of Borrower or
any  other  person;  (e) any  defense  based  upon any  failure  of Bank to give
Guarantor notice of any sale or other  disposition of any property  securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any  failure  of Bank to  comply  with any  provision  of  applicable  law in
enforcing any security interest in or lien upon any property securing any or all
of the  Indebtedness  including,  but not  limited  to,  any  failure by Bank to
dispose  of  any  property  securing  any  or  all  of  the  Indebtedness  in  a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy,  insolvency,  reorganization,  arrangement,  readjustment  of  debt,
liquidation or dissolution  proceeding  commenced by or against  Borrower or any
other  guarantor or any endorser,  co-maker or other person,  including  without
limitation any discharge of, or bar against collecting,  any of the Indebtedness
(including without  limitation any interest  thereon),  in or as a result of any
such proceeding;  and (g) the benefit of any and all statutes of limitation with
respect to any action  based upon,  arising out of or related to this  Guaranty.
Until all of the Indebtedness has been paid, performed,  and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor  hereunder  except
the full  performance  and payment of all of the  Indebtedness.  If any claim is
ever made upon Bank for repayment or recovery of any amount or amounts  received
by Bank in payment of or on account of any of the  Indebtedness,  because of any
claim that any such payment  constituted a  preferential  transfer or fraudulent
conveyance,  or for any other reason whatsoever,  and Bank repays all or part of
said  amount  by  reason  of any  judgment,  decree  or  order  of any  court or
administrative body having jurisdiction over Bank or any of its property,  or by
reason of any  settlement or compromise of any such claim  effected by Bank with
any such claimant  (including without limitation the Borrower),  then and in any
such event, Guarantor agrees that any such judgment,  decree, order,  settlement
and compromise shall be binding upon Guarantor,  notwithstanding  any revocation
or release of this Guaranty or the  cancellation of any note or other instrument
evidencing any of the  Indebtedness,  or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Bank under this Guaranty for the
amount so repaid or  recovered,  to the same  extent as if such amount had never
originally  been received by Bank,  and the  provisions  of this sentence  shall
survive,  and continue in effect,  notwithstanding  any revocation or release of
this Guaranty.  Guarantor hereby expressly and unconditionally  waives (i) until
all of the  Indebtedness  has been  irrevocably  paid and performed in full, all
rights of subrogation,  reimbursement,  indemnity and contribution of every kind
against  Borrower,  and all  rights of  recourse  to any assets or  property  of
Borrower,  and all rights to any collateral or security held for the payment and
performance  of any  Indebtedness,  including  (but not  limited  to) any of the
foregoing  rights which  Guarantor may have under any present or future document
or agreement  with any Borrower or other person,  and including (but not limited
to) any of the  foregoing  rights which  Guarantor  may have under any equitable
doctrine of subrogation,  implied contract,  or unjust enrichment,  or any other
equitable or legal doctrine,  and (ii) any other rights and defenses that are or
may  become  available  to the  Guarantor  by reason of  Sections  2787 to 2855,
inclusive, of the California Civil Code. Neither Bank, nor any of its directors,
officers,  employees,  agents,  attorneys or any other person affiliated with or
representing Bank shall be liable for any claims, demands, losses or damages, of
any kind  whatsoever,  made,  claimed,  incurred or suffered by Guarantor or any
other party through the ordinary  negligence  of Bank, or any of its  directors,
officers,  employees,  agents,  attorneys or any other person affiliated with or
representing Bank.

      3. CONSENTS.  Guarantor hereby consents and agrees that, without notice to
or by Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor  hereunder,  Bank may, from time to time, before or after
revocation of this Guaranty,  do any one or more of the following in Bank's sole
and absolute discretion: (a) accelerate,  accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse  to  enforce,  and  release  all or  any  parties  to,  any or all of the
Indebtedness;  (b) grant any other indulgence to Borrower or any other person in
respect  of any or all of the  Indebtedness  or any other  matter;  (c)  accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the time
for the performance,  discharge, or payment of, any and all property of any kind
securing  any or all of the  Indebtedness  or any  guaranty of any or all of the
Indebtedness, or on which Bank at any time may have a lien, or refuse to enforce
its rights or make any compromise or settlement or agreement therefor in respect
of any or all of such  property;  (d)  substitute  or add, or take any action or

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                                                   CONTINUING GUARANTY
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omit to take  any  action  which  results  in the  release  of,  any one or more
endorsers  or  guarantors  of all or any  part of the  Indebtedness,  including,
without  limitation  one or more  parties to this  Guaranty,  regardless  of any
destruction  or  impairment  of any  right of  contribution  or  other  right of
Guarantor;  (e) amend,  alter or change in any  respect  whatsoever  any term or
provision  relating  to any or all of the  Indebtedness,  including  the rate of
interest  thereon;  (f)  apply  any  sums  received  from  Borrower,  any  other
guarantor,  endorser, or co-signer, or from the disposition of any collateral or
security,  to any  indebtedness  whatsoever owing from such person or secured by
such collateral or security,  in such manner and order as Bank determines in its
sole  discretion,  and  regardless of whether such  indebtedness  is part of the
Indebtedness,  is secured,  or is due and payable;  (g) apply any sums  received
from Guarantor or from the  disposition  of any collateral or security  securing
the  obligations  of Guarantor,  to any of the  Indebtedness  in such manner and
order as Bank  determines in its sole  discretion,  regardless of whether or not
such  Indebtedness  is secured or is due and  payable.  Guarantor  consents  and
agrees that Bank shall be under no  obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness. Guarantor
further  consents and agrees that Bank shall have no duties or  responsibilities
whatsoever with respect to any property securing any or all of the Indebtedness.
Without limiting the generality of the foregoing,  Bank shall have no obligation
to monitor,  verify,  audit,  examine,  or obtain or maintain any insurance with
respect to, any property securing any or all of the Indebtedness.

      4. ACCOUNT STATED. Bank's books and records showing the account between it
and the Borrower  shall be admissible in evidence in any action or proceeding as
prima facie  proof of the items  therein set forth.  Bank's  monthly  statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor  receives  copies  thereof),  and shall  constitute an account  stated
between Bank and the Borrower,  unless Bank receives a written  statement of the
Borrower's  exceptions  within 30 days  after the  statement  was  mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of such
monthly statements from the Borrower, if the Guarantor desires such copies.

      5. EXERCISE OF RIGHTS AND REMEDIES;  FORECLOSURE OF TRUST DEEDS. Guarantor
consents  and  agrees  that,  without  notice  to or by  Guarantor  and  without
affecting  or  impairing  in any way the  obligations  or liability of Guarantor
hereunder,  Agent  may,  on behalf of Bank,  from time to time,  before or after
revocation  of this  Guaranty,  exercise  any  right or  remedy it may have with
respect to any or all of the Indebtedness or any property securing any or all of
the Indebtedness or any guaranty thereof,  including without limitation judicial
foreclosure,  nonjudicial foreclosure, exercise of a power of sale, and taking a
deed, assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy,  notwithstanding  the effect thereof upon any of Guarantor's  rights,
including   without   limitation,   any  destruction  of  Guarantor's  right  of
subrogation  against  Borrower  and any  destruction  of  Guarantor's  right  of
contribution  or other right  against any other  guarantor  of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d  or 726 of the  California  Code  of  Civil  Procedure,  or any  comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the generality
of the  foregoing,  (a) The  guarantor  waives all rights and defenses  that the
Guarantor may have because the  Indebtedness  is secured by real property.  This
means,  among other  things:  (1) Agent may collect from the  Guarantor  without
first  foreclosing on any real or personal  property  collateral  pledged by the
Borrower. (2) If Agent forecloses on any real property collateral pledged by the
Borrower:  (A) The amount of the  Indebtedness  may be reduced only by the price
for  which  that  collateral  is  sold  at the  foreclosure  sale,  even  if the
collateral  is worth more than the sale price.  (B) Agent may  collect  from the
Guarantor even if Agent,  by foreclosing  on the real property  collateral,  has
destroyed any right the Guarantor may have to collect from the Borrower. This is
an unconditional and irrevocable waiver of any rights and defenses the Guarantor
may have because the Indebtedness is secured by real property.  These rights and
defenses  include,  but are not limited  to, any rights or  defenses  based upon
Section  580a,  580b,  580d,  or 726 of the  Code of  Civil  Procedure.  (b) The
Guarantor waives all rights and defenses that the Guarantor may have because the
guaranty of another  guarantor is secured by real  property.  This means,  among
other things: (1) Agent may collect from the Guarantor without first foreclosing
on any real or personal property collateral pledged by the other guarantor.  (2)
If Agent  forecloses  on any  real  property  collateral  pledged  by the  other
guarantor:  (A) The amount of the  Indebtedness may be reduced only by the price
for  which  that  collateral  is  sold  at the  foreclosure  sale,  even  if the
collateral  is worth more than the sale price.  (B) Agent may  collect  from the
Guarantor even if Agent,  by foreclosing  on the real property  collateral,  has
destroyed any right the Guarantor may have to obtain contribution from the other
guarantor.  This is an  unconditional  and irrevocable  waiver of any rights and
defenses the Guarantor may have because the  obligations of the other  guarantor
are secured by real  property.  These rights and defenses  include,  but are not
limited to, any rights or defenses based upon Section 580a,  580b,  580d, or 726
of the Code of Civil Procedure.

      6.  ACCELERATION.  Notwithstanding  the  terms  of all or any  part of the
Indebtedness,  the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, immediately upon the occurrence of an event described
in "g" below,  and immediately at the option of Agent upon the occurrence of any
other of the  following  events,  become due and payable,  without  notice,  and
without  regard to the expressed  maturity of any of the  Indebtedness:  (a) any
warranty, representation, statement, report, or certificate

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                                                   CONTINUING GUARANTY
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made or  delivered  to  Bank by  Guarantor,  or any of its  officers,  partners,
employees,  or agents, is incorrect,  false, untrue, or misleading when given in
any  material  respect;  or (b) an event of  default  shall  occur  under any of
Borrower's  agreements  with Lender,  or Guarantor  shall fail to pay or perform
when due all or any part of the Indebtedness; or (c) Guarantor shall fail to pay
or perform when due any  indebtedness  or  obligation of Guarantor to Bank or to
any parent,  subsidiary  or  corporate  affiliate  of Bank,  whether  under this
Guaranty or any other instrument, document, or agreement heretofore or hereafter
entered  into;  or (d) any event  shall  occur  which may or does  result in the
acceleration  of the  maturity  of  any  indebtedness  of  Guarantor  to  others
(regardless of any requirement of notice, opportunity to cure or other condition
prior to the exercise of any right of acceleration); or (e) Guarantor shall fail
promptly to perform or comply with any term or condition of any  agreement  with
any third  party  which does or may result in a material  adverse  effect on the
business of Guarantor; or (f) there shall be made or exist any levy, assessment,
attachment,  seizure,  lien, or encumbrance  for any cause or reason  whatsoever
upon all or any part of the property of Guarantor (unless discharged by payment,
release or bond not more than ten days after  such event has  occurred);  or (g)
Guarantor  shall (i) apply for,  consent to or suffer the appointment of, or the
taking of possession by, a receiver,  custodian,  trustee, liquidator or similar
fiduciary of itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of creditors, (iii) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter in effect), (iv)
be  adjudicated  a bankrupt or  insolvent,  (v) file a petition  seeking to take
advantage of any other law providing for the relief of debtors,  (vi)  acquiesce
to, or fail to have  dismissed,  within  thirty (30) days,  any  petition  filed
against it in any involuntary case under such bankruptcy laws, or (vii) take any
action for the purpose of  effecting  any of the  foregoing;  or (h) there shall
occur the dissolution or termination of existence of Guarantor; or (i) Guarantor
shall  be  deceased  or  declared  incompetent  by any  court or a  guardian  or
conservator shall be appointed for Guarantor or for any of its property;  or (j)
Guarantor  shall  generally  not pay its debts as they become due or shall enter
into any agreement  (whether  written or oral),  or offer to enter into any such
agreement,  with all or a  significant  number of its  creditors  regarding  any
moratorium or other indulgence with respect to its debts or the participation of
such  creditors or their  representatives  in the  supervision,  management,  or
control of its business; or (k) Guarantor shall conceal,  remove or permit to be
concealed or removed any part of its property,  with intent to hinder,  delay or
defraud its  creditors,  or make or suffer any  transfer of any of its  property
which may be fraudulent under any bankruptcy,  fraudulent  conveyance or similar
law,  or shall make any  transfer  of its  property to or for the benefit of any
creditor at a time when other creditors  similarly  situated have not been paid;
or (l) the board of  directors  or  shareholders  of  Guarantor  shall adopt any
resolution  or  plan  for  its   dissolution  or  the   liquidation  of  all  or
substantially  all of its assets; or (m) Guarantor shall revoke this Guaranty or
contest  or  deny  liability  under  this  Guaranty.  All of the  foregoing  are
hereinafter referred to as "Events of Default".

      7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that,  notwithstanding the
existence of any property  securing any or all of the  Indebtedness,  Agent,  on
behalf  of Bank,  shall  have all of the  rights  of an  unsecured  creditor  of
Guarantor,  including  without  limitation  the  right  to  obtain  a  temporary
protective  order and writ of attachment  against  Guarantor with respect to any
sums due under this  Guaranty.  Guarantor  further  agrees that in the event any
property secures the obligations of Guarantor under this Guaranty, to the extent
that  Agent,  in its  sole  and  absolute  discretion,  determines  prior to the
disposition  of such property that the amount to be realized by Agent  therefrom
may be less than the  indebtedness of the Guarantor under this Guaranty,  Agent,
on behalf of Bank,  shall have all the rights of an unsecured  creditor  against
Guarantor,  including  without  limitation  the  right  of  Agent,  prior to the
disposition of said property, to obtain a temporary protective order and writ of
attachment against Guarantor. Guarantor waives the benefit of Section 483.010(b)
of the California  Code of Civil Procedure and of any and all other statutes and
rules of law now or  hereafter in effect  requiring  Agent to first resort to or
exhaust all such  collateral  before seeking or obtaining any attachment  remedy
against  Guarantor.  Bank  shall  have no  liability  to  Guarantor  as a result
thereof,  whether or not the actual deficiency realized by Bank is less than the
anticipated  deficiency  on  the  basis  of  which  Agent  obtains  a  temporary
protective order or writ of attachment.

      8.  INDEMNITY.  Guarantor  hereby  agrees to indemnify  Bank and hold Bank
harmless  from and  against  any and all claims,  debts,  liabilities,  demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which  Bank  may  sustain  or  incur  based  upon or  arising  out of any of the
Indebtedness,  any  actual  or  alleged  failure  to  collect  and pay  over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Bank and Borrower, any actual or alleged failure of Bank to
comply with any writ of attachment  or other legal process  relating to Borrower
or any of its property, or any other matter, cause or thing whatsoever occurred,
done,  omitted or suffered to be done by Bank relating in any way to Borrower or
the Indebtedness (except any such amounts sustained or incurred as the result of
the gross  negligence  or willful  misconduct  of Bank or any of its  directors,
officers,  employees,  agents, attorneys, or any other person affiliated with or
representing  Bank).  Notwithstanding  any  provision  in this  Guaranty  to the
contrary,  the  indemnity  agreement set forth in this Section shall survive any
termination  or revocation of this Guaranty and shall for all purposes  continue
in full force and effect.

      9. SUBORDINATION. Any and all rights of Guarantor under any and all debts,
liabilities  and  obligations  owing from Borrower to  Guarantor,  including any
security for and  guaranties  of any such  obligations,  whether now existing or
hereafter  arising,  are  hereby  subordinated  in right of payment

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to the prior payment in full of all of the  Indebtedness.  No payment in respect
of any such subordinated obligations shall at any time be made to or accepted by
Guarantor if at the time of such payment any Indebtedness is outstanding. If any
Event of Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver,  or any other  person  having  custody or  control  over any or all of
Borrower's  property  are hereby  authorized  and  directed  to pay to Agent the
entire unpaid balance of the Indebtedness  before making any payments whatsoever
to Guarantor,  whether as a creditor,  shareholder, or otherwise; and insofar as
may be necessary for that  purpose,  Guarantor  hereby  assigns and transfers to
Agent, for the benefit of Bank, all rights to any and all debts, liabilities and
obligations  owing from  Borrower to  Guarantor,  including any security for and
guaranties of any such obligations,  whether now existing or hereafter  arising,
including without limitation any payments, dividends or distributions out of the
business or assets of Borrower.  Any amounts  received by Guarantor in violation
of the  foregoing  provisions  shall be  received  and held as  trustee  for the
benefit of Bank and shall  forthwith  be paid over to Agent to be applied to the
Indebtedness  in such order and  sequence as Agent shall in its sole  discretion
determine,  without  limiting or affecting  any other right or remedy which Bank
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor  hereunder.  Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.

      10.  REVOCATION.  This is a  Continuing  Guaranty  relating  to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from  time to time  continue  the  Indebtedness  or  renew  it after it has been
satisfied.  Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor  hereunder may not be terminated or
revoked  in any  manner  except  by giving 90 days'  advance  written  notice of
revocation to Agent at its address above by registered  first-class  U.S.  mail,
postage prepaid, return receipt requested, and only as to new loans made by Bank
to Borrower  more than 90 days after actual  receipt of such  written  notice by
Agent. No termination or revocation of this Guaranty shall be effective until 90
days  following the date of actual  receipt of said written notice of revocation
by Agent.  Notwithstanding such written notice of revocation or any other act of
Guarantor  or any  other  event or  circumstance,  Guarantor  agrees  that  this
Guaranty and all consents, waivers and other provisions hereof shall continue in
full force and effect as to any and all Indebtedness  which is outstanding on or
before  the  90th  day  following  actual  receipt  of said  written  notice  of
revocation by Agent,  and all  extensions,  renewals and  modifications  of said
Indebtedness (including without limitation amendments,  extensions, renewals and
modifications which are evidenced by new or additional instruments, documents or
agreements  executed before or after expiration of said 90-day period),  and all
interest thereon, accruing before or after expiration of said 90-day period, and
all attorneys'  fees,  court costs and collection  charges,  incurred  before or
after expiration of said 90-day period, in endeavoring to collect or enforce any
of the foregoing against Borrower,  Guarantor or any other person liable thereon
(whether or not suit be brought) and any other expenses of, for or incidental to
collection thereof.

      11.  INDEPENDENT  LIABILITY.  Guarantor  hereby  agrees  that  one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in which  Borrower may be sued or in separate  actions,  as often as
deemed advisable by Agent. The liability of Guarantor hereunder is exclusive and
independent  of any other  guaranty  of any or all of the  Indebtedness  whether
executed by Guarantor or by any other guarantor  (including  without  limitation
any other persons signing this Guaranty).  The liability of Guarantor  hereunder
shall not be affected,  revoked,  impaired, or reduced by any one or more of the
following:  (a) the fact that the  Indebtedness  exceeds the  maximum  amount of
Guarantor's  liability,  if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing  signed by Agent or set forth in this  Guaranty);  or (b)
any  direction  as to the  application  of payment by  Borrower  or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor  (whether under this Guaranty
or under any other  agreement);  or (d) any payment on or  reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other  guaranty or  undertaking;  or (f) any  dissolution or
termination of, or increase,  decrease, or change in membership of any Guarantor
which is a partnership.  Guarantor hereby  expressly  represents that he was not
induced  to give  this  Guaranty  by the  fact  that  there  are or may be other
guarantors  either under this Guaranty or otherwise,  and Guarantor  agrees that
any  release  of any one or more of such  other  guarantors  shall  not  release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If  Guarantor  is a married  person,  Guarantor  hereby  expressly  agrees  that
recourse may be had against his or her  separate  property for all of his or her
obligations hereunder.

      12.  FINANCIAL  CONDITION  OF  BORROWER.  Guarantor  is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's  request and based solely upon his own independent  investigation  of
all matters  pertinent  hereto,  and Guarantor is not relying in any manner upon
any  representation  or  statement  of  Bank  with  respect  thereto.  Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's  financial  condition  and  any  other  matter  pertinent  hereto  as
Guarantor  may desire,  and  Guarantor is not relying upon or expecting  Bank to
furnish to him any information now or hereafter in Bank's possession  concerning
the same or any other matter.  By executing this Guaranty,  Guarantor  knowingly
accepts  the full range of risks  encompassed  within a contract  of  continuing
guaranty,  which risks Guarantor  acknowledges  include  without  limitation the

                                      -5-
<PAGE>

                                                   CONTINUING GUARANTY
--------------------------------------------------------------------------------

possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's  financial condition or ability to pay
such  Indebtedness  has  deteriorated  and/or  after  bankruptcy  or  insolvency
proceedings have been commenced by or against Borrower.  Guarantor shall have no
right to require Bank to obtain or disclose any information  with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness,  the filing by or
against  Borrower of any bankruptcy or insolvency  proceeding,  the existence of
any  other  guaranties  of all or any part of the  Indebtedness,  any  action or
non-action  on the part of Bank,  Borrower,  or any other  person,  or any other
matter, fact, or occurrence.

      13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at its
sole cost and expense, at any time and from time to time, prepare or cause to be
prepared, and provide to Bank upon Agent's request (i) such financial statements
and  reports  concerning  Guarantor  for  such  periods  of  time as  Agent  may
designate, (ii) any other information concerning Guarantor's business, financial
condition  or  affairs  as Agent may  request,  and (iii)  copies of any and all
foreign,  federal,  state and local tax  returns  and  reports of or relating to
Guarantor as Agent may from time to time request. Guarantor hereby intentionally
and  knowingly  waives  any and all  rights  and  privileges  it may have not to
divulge or deliver said tax  returns,  reports and other  information  which are
requested by Agent  hereunder or in any litigation in which Bank may be involved
relating  directly or indirectly to Borrower or to Guarantor.  Guarantor further
agrees  immediately  to give  written  notice to Agent of any adverse  change in
Guarantor's  financial condition and of any condition or event which constitutes
an Event of Default under this Guaranty.  All reports and information  furnished
to Bank  hereunder  shall be  complete,  accurate  and correct in all  respects.
Whenever  requested  by  Agent,  Guarantor  shall  further  deliver  to  Agent a
certificate  signed by Guarantor  (and,  if Guarantor is a  partnership,  by all
general partners of Guarantor, in their individual capacities, and, if Guarantor
is a  corporation,  by the  president  and  secretary  of  Guarantor,  in  their
individual capacities)  warranting and representing that all reports,  financial
statements  and  other  documents  and  information  delivered  or  caused to be
delivered to Bank under this Guaranty, are complete,  correct and thoroughly and
accurately present the financial  condition of Guarantor,  and that there exists
on the date of delivery of said certificate to Agent no condition or event which
constitutes an Event of Default under this Guaranty.

      14.  REPRESENTATIONS  AND  WARRANTIES.  Guarantor  hereby  represents  and
warrants that (i) it is in  Guarantor's  direct  interest to assist  Borrower in
procuring credit, because Borrower is an affiliate of Guarantor, furnishes goods
or  services  to  Guarantor,  purchases  or  acquires  goods  or  services  from
Guarantor,  and/or  otherwise  has a direct or  indirect  corporate  or business
relationship  with  Guarantor,  (ii) this  Guaranty  has been  duly and  validly
authorized,  executed  and  delivered  and  constitutes  the valid  and  binding
obligation of Guarantor, enforceable in accordance with its terms, and (iii) the
execution and delivery of this Guaranty does not violate or constitute a default
under (with or without the giving of notice,  the passage of time,  or both) any
order, judgment,  decree,  instrument or agreement to which Guarantor is a party
or by which it or its assets are affected or bound.

      15.  COSTS.  Whether  or not  suit  be  instituted,  Guarantor  agrees  to
reimburse  Bank on  demand  for all  reasonable  attorneys'  fees and all  other
reasonable  costs and expenses  incurred by Bank in enforcing this Guaranty,  or
arising out of or relating in any way to this  Guaranty,  or in enforcing any of
the  Indebtedness  against  Borrower,  Guarantor,  or any  other  person,  or in
connection  with  any  property  of any  kind  securing  all or any  part of the
Indebtedness,  including,  without  limitation,  any and all allocated  costs of
in-house  counsel.  Without  limiting the  generality of the  foregoing,  and in
addition  thereto,  Guarantor  shall reimburse Bank on demand for all reasonable
attorneys' fees and costs (including,  without limitation, any and all allocated
costs of  in-house  counsel)  Bank  incurs  in any way  relating  to  Guarantor,
Borrower or the Indebtedness,  in order to: obtain legal advice; enforce or seek
to enforce any of its rights; commence,  intervene in, respond to, or defend any
action or proceeding;  file, prosecute or defend any claim or cause of action in
any action or  proceeding  (including  without  limitation  any  probate  claim,
bankruptcy  claim,   third-party  claim,  secured  creditor  claim,  reclamation
complaint,  and complaint for relief from any stay under the Bankruptcy  Code or
otherwise);  protect, obtain possession of, sell, lease, dispose of or otherwise
enforce any security  interest in or lien on any  property of any kind  securing
any or all of the Indebtedness; or represent Bank in any litigation with respect
to  Borrower's  or  Guarantor's  affairs.  In the event either Bank or Guarantor
files any lawsuit against the other predicated on a breach of this Guaranty, the
prevailing party in such action shall be entitled to recover its attorneys' fees
and costs of suit from the non-prevailing party.

      16. NOTICES. Any notice which a party shall be required or shall desire to
give to the other  hereunder  (except for notice of  revocation,  which shall be
governed by Section 10 of this Guaranty) shall be given by personal  delivery or
by telecopier or by depositing  the same in the United States mail,  first class
postage pre-paid,  addressed to Agent at its address set forth in the heading of
this  Guaranty  and to  Guarantor  at his address set forth under his  signature
hereon,  and such  notices  shall be deemed  duly given on the date of  personal
delivery or one day after the date  telecopied or 3 business days after the date
of mailing as  aforesaid.  Agent and  Guarantor  may change  their  address  for
purposes of receiving  notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Agent immediate written
notice of any change in his address.

      17.  CLAIMS.  Guarantor  agrees  that any  claim or  cause  of  action  by
Guarantor against Bank, or any of Bank's directors, officers, employees, agents,
accountants  or  attorneys,  based

                                      -6-
<PAGE>

                                                   CONTINUING GUARANTY
--------------------------------------------------------------------------------

upon,  arising  from,  or relating to this  Guaranty,  or any other  transaction
contemplated hereby or relating hereto,  occurred,  done, omitted or suffered to
be  done  by  Bank,  or  by  Bank's  directors,   officers,  employees,  agents,
accountants or attorneys,  whether sounding in contract or in tort or otherwise,
shall be barred unless asserted by Guarantor by the commencement of an action or
proceeding in a court of competent  jurisdiction  within the County of New York,
New York,  by the  filing of a  complaint  within  one year after the first act,
occurrence  or  omission  upon which such claim or cause of action,  or any part
thereof,  is based and service of a summons and  complaint on an officer of Bank
or any other person  authorized to accept  service of process on behalf of Bank,
within 30 days  thereafter.  Guarantor  agrees  that  such one year  period is a
reasonable  and sufficient  time for Guarantor to  investigate  and act upon any
such claim or cause of action.  The one year period provided herein shall not be
waived, tolled, or extended except by a specific written agreement of Bank. This
provision shall survive any termination of this Guaranty or any other agreement.

      18.  RIGHT OF SETOFF.  In  addition to all liens upon and rights of setoff
against the Guarantor's money, securities or other property given to the Bank by
law,  Bank shall  have,  with  respect to the  Guarantor's  obligations  to Bank
hereunder and to the extent permitted by law, a contractual  possessory security
interest in and a contractual right of setoff against,  and the Guarantor hereby
assigns, conveys, delivers, pledges and transfers to Bank all of the Guarantor's
right,  title and interest in and to, all of the Guarantor's  deposits,  moneys,
securities  and other  property  now or  hereafter  in the  possession  of or on
deposit with, or in transit to, Bank including without  limitation any direct or
indirect subsidiary of The PNC Financial Services Group, Inc., whether held in a
general or special  account or deposit,  whether held jointly with someone else,
or whether held for  safekeeping  or  otherwise,  excluding,  however,  all IRA,
Keogh, and trust accounts.  Every such security interest and right of setoff may
be exercised without demand upon or notice to the Guarantor.

      19. EQUAL CREDIT  OPPORTUNITY  ACT. If the  Guarantor is not an "applicant
for credit" under Section 202.2 (e) of the Equal Credit  Opportunity Act of 1974
("ECOA"), the Guarantor acknowledges that (i) this Guaranty has been executed to
provide  credit  support for the  Obligations,  and (ii) the  Guarantor  was not
required to execute this Guaranty in violation of Section 202.7(d) of the ECOA.

      20. CONSTRUCTION;  SEVERABILITY. If more than one person has executed this
Guaranty,  the term  "Guarantor"  as used herein shall be deemed to refer to all
and any one or more such persons and their obligations  hereunder shall be joint
and several.  Without limiting the generality of the foregoing, if more than one
person has  executed  this  Guaranty,  this  Guaranty  shall in all  respects be
interpreted  as though each person  signing this  Guaranty had signed a separate
Guaranty, and references herein to "other guarantors" or words of similar effect
shall include without limitation other persons signing this Guaranty. As used in
this Guaranty,  the term "property" is used in its most comprehensive  sense and
shall mean all property of every kind and nature  whatsoever,  including without
limitation real property,  personal property, mixed property,  tangible property
and intangible property. Words used herein in the masculine gender shall include
the neuter and  feminine  gender,  words used herein in the neuter  gender shall
include the  masculine  and  feminine,  words used herein in the singular  shall
include  the plural and words used in the plural  shall  include  the  singular,
wherever the context so reasonably  requires.  If any provision of this Guaranty
or the application  thereof to any party or circumstance is held invalid,  void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such  provision  to other  parties  or  circumstances  shall not be  affected
thereby, the provisions of this Guaranty being severable in any such instance.

      21. GENERAL PROVISIONS.  Agent, on behalf of Bank, shall have the right to
seek recourse  against  Guarantor to the full extent  provided for herein and in
any other instrument or agreement  evidencing  obligations of Guarantor to Bank,
and against Borrower to the full extent of the Indebtedness.  No election in one
form of action or proceeding, or against any party, or on any obligation,  shall
constitute  a waiver of Bank's  right to  proceed in any other form of action or
proceeding or against any other party. The failure of Bank to enforce any of the
provisions  of this  Guaranty at any time or for any period of time shall not be
construed  to be a waiver  of any such  provision  or the  right  thereafter  to
enforce the same.  All remedies  hereunder  shall be cumulative  and shall be in
addition to all rights,  powers and  remedies  given to Bank by law or under any
other  instrument or  agreement.  Time is of the essence in the  performance  by
Guarantor of each and every  obligation  under this  Guaranty.  If Borrower is a
corporation,  partnership  or other  entity,  Guarantor  hereby agrees that Bank
shall have no  obligation  to inquire into the power or authority of Borrower or
any of its officers, directors,  partners, or agents acting or purporting to act
on its  behalf,  and any  Indebtedness  made or  created  in  reliance  upon the
professed  exercise  of any such power or  authority  shall be  included  in the
Indebtedness  guaranteed hereby.  This Guaranty is the entire and only agreement
between  Guarantor and Bank with respect to the guaranty of the  Indebtedness of
Borrower by  Guarantor,  and all  representations,  warranties,  agreements,  or
undertakings  heretofore  or  contemporaneously  made,  which  are not set forth
herein,  are superseded  hereby.  No course of dealings between the parties,  no
usage of the trade,  and no parol or  extrinsic  evidence of any nature shall be
used or be relevant to  supplement or explain or modify any term or provision of
this  Guaranty.  There  are no  conditions  to the  full  effectiveness  of this
Guaranty. The terms and provisions hereof may not be waived, altered,  modified,
or amended  except in a writing  executed  by  Guarantor  and a duly  authorized
officer of Agent. All rights,  benefits and privileges  hereunder shall inure to
the benefit of Bank and its  successors  and  assigns and shall be binding  upon
Guarantor and his heirs, executors,  administrators,  personal  representatives,
successors  and assigns.  Neither the death of

                                      -7-
<PAGE>

                                                   CONTINUING GUARANTY
--------------------------------------------------------------------------------

Guarantor  nor notice  thereof to Bank shall  terminate  this Guaranty as to his
estate,  and,  notwithstanding the death of Guarantor or notice thereof to Bank,
this  Guaranty  shall  continue  in full  force and effect  with  respect to all
Indebtedness,  including  without  limitation  Indebtedness  incurred or created
after the death of Guarantor and notice  thereof to Bank.  Section  headings are
used herein for convenience only.  Guarantor  acknowledges that the same may not
describe completely the subject matter of the applicable  Section,  and the same
shall not be used in any manner to construe, limit, define or interpret any term
or provision hereof.

      22.  GOVERNING LAW; VENUE AND  JURISDICTION.  This instrument and all acts
and  transactions  pursuant or relating hereto and all rights and obligations of
the parties hereto shall be governed,  construed,  and interpreted in accordance
with the internal laws of the State of New York. Any judicial proceeding brought
by or against Guarantor with respect to any of the Indebtedness,  this Guaranty,
or any related  agreement may be brought in any court of competent  jurisdiction
in the State of New York,  United  States of  America,  and,  by  execution  and
delivery of this Guaranty,  Guarantor  accepts for itself and in connection with
its properties, generally and unconditionally, the non-exclusive jurisdiction of
the  aforesaid  courts,  and  irrevocably  agrees  to be bound  by any  judgment
rendered  thereby in  connection  with this  Guaranty.  Guarantor  hereby waives
personal  service  of any and all  process  upon it and  consents  that all such
service of process may be made by  registered  mail (return  receipt  requested)
directed to  Guarantor  and service so made shall be deemed  completed  five (5)
days  after the same  shall  have been so  deposited  in the mails of the United
States of America. Nothing herein shall affect the right to serve process in any
manner  permitted  by law or shall limit the right of Bank to bring  proceedings
against Guarantor in the courts of any other jurisdiction.  Guarantor waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not  assert any  defense  based on lack of  jurisdiction  or venue or based upon
forum  non  conveniens.  Guarantor  waives  the  right to  remove  any  judicial
proceeding  brought  against  Guarantor in any state court to any federal court.
Any  judicial  proceeding  by  Guarantor  against  Bank  involving,  directly or
indirectly,  any  matter  or  claim in any way  arising  out of,  related  to or
connected with this Guaranty or any related agreement,  shall be brought only in
a federal or state court located in the County of New York, State of New York.

      23. MUTUAL WAIVER OF RIGHT TO JURY TRIAL.  BANK AND GUARANTOR HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION,  CLAIM,  LAWSUIT OR  PROCEEDING  BASED
UPON,  ARISING  OUT OF, OR IN ANY WAY  RELATING  TO: (I) THIS  GUARANTEE  OR ANY
SUPPLEMENT OR AMENDMENT THERETO;  OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN BANK AND GUARANTOR;  OR (III) ANY BREACH,  CONDUCT, ACTS OR
OMISSIONS OF BANK OR GUARANTOR OR ANY OF THEIR RESPECTIVE  DIRECTORS,  OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
BANK OR GUARANTOR;  IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.

      24.  RECEIPT  OF COPY.  Guarantor  acknowledges  receipt of a copy of this
Guaranty.

      SMALL WORLD KIDS, INC.

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

      Title:
            -------------------------------------------------

   Address:  5711 Buckingham Parkway
             Culver City, California  90230

                                      -8-SECURITY AGREEMENT

      THIS SECURITY AGREEMENT (this  "AGREEMENT"),  dated as of this 15th day of
December,  2004,  is made by SMALL WORLD KIDS,  INC.  (the  "GRANTOR"),  with an
address at 5711 Buckingham Parkway,  Culver City,  California 90230, in favor of
PNC BANK, NATIONAL ASSOCIATION ("PNC"),  with an address at 2 North Lake Avenue,
Suite 440,  Pasadena,  California  91101,  as agent ("AGENT") for itself and the
other  Lenders  (PNC,   the  other  Lenders  and  Agent  shall  be  referred  to
collectively  and  individually,  as  "BANK")  under the  Revolving  Credit  and
Security  Agreement  (the  "LOAN  AGREEMENT")  among  Bank and Small  World Toys
("BORROWER").

      Under the  terms  hereof,  the Agent  desires  to obtain  and the  Grantor
desires to grant the Agent security for all of the  Obligations  (as hereinafter
defined).

      NOW, THEREFORE,  the Grantor and the Agent, intending to be legally bound,
hereby agree as follows:

1.    DEFINITIONS.

      (a)  "COLLATERAL"  shall  include all  personal  property of the  Grantor,
including the following,  all whether now owned or hereafter acquired or arising
and wherever located: (i) accounts (including health-care-insurance  receivables
and credit card receivables); (ii) securities entitlements, securities accounts,
commodity accounts,  commodity contracts and investment property;  (iii) deposit
accounts;   (iv)  instruments   (including   promissory  notes);  (v)  documents
(including warehouse receipts); (vi) chattel paper (including electronic chattel
paper and tangible  chattel paper);  (vii)  inventory,  including raw materials,
work in process, or materials used or consumed in Grantor's business, items held
for sale or lease or furnished or to be  furnished  under  contracts of service,
sale or lease, goods that are returned,  reclaimed or repossessed;  (viii) goods
of every nature, including stock-in-trade, goods on consignment, standing timber
that is to be cut and  removed  under a  conveyance  or contract  for sale,  the
unborn young of animals,  crops  grown,  growing,  or to be grown,  manufactured
homes,  computer  programs  embedded  in such  goods  and  farm  products;  (ix)
equipment,  including  machinery,  vehicles and  furniture;  (x) fixtures;  (xi)
agricultural  liens;  (xii)  as-extracted  collateral;  (xiii)  commercial  tort
claims, if any, described on Exhibit "A" hereto;  (xiv) letter of credit rights;
(xv)  general  intangibles,  of every kind and  description,  including  payment
intangibles, software, computer information, source codes, object codes, records
and data,  all  existing and future  customer  lists,  choses in action,  claims
(including claims for  indemnification or breach of warranty),  books,  records,
patents   and   patent   applications,   copyrights,   trademarks,   tradenames,
tradestyles, trademark applications, goodwill, blueprints, drawings, designs and
plans, trade secrets, contracts, licenses, license agreements, formulae, tax and
any other types of refunds, returned and unearned insurance premiums, rights and
claims under insurance policies;  (xvi) all supporting obligations of all of the
foregoing  property;  (xvii) all property of the Grantor now or hereafter in the
Bank's  possession or in transit to or from, or under the custody or control of,
the Bank or any  affiliate  thereof;  (xviii)  all  cash  and  cash  equivalents
thereof;  and (xix) all cash and noncash proceeds (including insurance proceeds)
of all of the  foregoing  property,  all products  thereof and all additions and
accessions  thereto,   substitutions  therefor  and  replacements  thereof.  The
Collateral shall also include any and all other tangible or intangible  property
that is described as being part of the Collateral pursuant to one or more Riders
to Security  Agreement  that may be attached  hereto or delivered in  connection
herewith,  including the Rider to Security Agreement - Copyrights,  the Rider to
Security  Agreement - Patents,  the Rider to Security Agreement - Trademarks and
the Rider to Security Agreement - Cash Collateral Account.

      (b) "EXISTING  NOTES" shall mean,  collectively,  the  following:  (i) the
Secured  Promissory  Note,  dated May 20, 2004, by Savon Team Sports,  Inc. (now
known as Small World Kids,  Inc.),  in favor of Eddy  Goldwasser,  in the stated
principal amount of $1,000,000,  and the Promissory Note, dated May 20, 2004, by

                                      -1-
<PAGE>

Savon Team Sports,  Inc. (now known as Small World Kids, Inc.), in favor of Eddy
Goldwasser, in the stated principal amount of "$700,000 (Subject to Adjustment)"
(collectively,  the "SELLER NOTE"),  (ii) the Term Note,  dated May 20, 2004, by
Savon Team Sports,  Inc. (now known as Small World Kids, Inc.), in favor of SWT,
LLC, in the stated  principal  amount of $5,000,000 (the "SWT NOTE"),  (iii) the
Promissory  Note,  dated  September __, 2004, by Grantor,  in favor of St. Cloud
Capital  Partners L.P., in the stated  principal  amount of $2,000,000 (the "ST.
CLOUD  NOTE"),  and (iv) the  Promissory  Note,  dated  September  17, 2004,  by
Grantor, in favor of Strome Hedgecap Ltd and/or Strome Investment Management, in
the stated principal amount of $1,200,000 (the "STROME NOTE"). The SWT Note, the
St.  Cloud  Note  and  the  Strome  Note  are  collectively  referred  to as the
"NONSELLER NOTES".

      (c) "OBLIGATIONS" shall include all loans, advances,  debts,  liabilities,
obligations,  covenants  and duties  owing by the Grantor  under the  Continuing
Guaranty ("GUARANTY"), of even date herewith, by Grantor, in favor of Bank, with
respect to the  indebtedness  of Borrower,  this  Agreement,  and any  agreement
entered into in connection herewith or therewith, of any kind or nature, present
or future (including any interest accruing thereon after maturity,  or after the
filing of any petition in bankruptcy,  or the  commencement  of any  insolvency,
reorganization  or like  proceeding  relating to the  Grantor,  whether or not a
claim for post-filing or post-petition  interest is allowed in such proceeding),
whether  direct  or  indirect   (including   those  acquired  by  assignment  or
participation),  absolute or contingent, joint or several, due or to become due,
now existing or  hereafter  arising,  whether or not (i)  evidenced by any note,
guaranty or other  instrument,  (ii) arising under any agreement,  instrument or
document, (iii) for the payment of money, (iv) arising by reason of an extension
of credit,  opening of a letter of credit,  loan,  equipment lease or guarantee,
(v) under any interest or currency swap,  future,  option or other interest rate
protection or similar agreement, (vi) under or by reason of any foreign currency
transaction,  forward,  option or other  similar  transaction  providing for the
purchase of one currency in exchange for the sale of another currency, or in any
other manner,  (vii)  arising out of overdrafts on deposit or other  accounts or
out of electronic funds transfers (whether by wire transfer or through automated
clearing  houses or  otherwise) or out of the return unpaid of, or other failure
of the Bank to receive final payment for, any check, item,  instrument,  payment
order or other  deposit or credit to a deposit or other  account,  or out of the
Bank's  non-receipt of or inability to collect funds or otherwise not being made
whole in  connection  with  depository or other  similar  arrangements;  and any
amendments,  extensions,  renewals and increases of or to any of the  foregoing,
and  all  costs  and  expenses  of  the  Bank  incurred  in  the  documentation,
negotiation,  modification,  enforcement, collection and otherwise in connection
with any of the foregoing, including reasonable attorneys' fees and expenses.

      (d)  "PERMITTED  ENCUMBRANCES"  shall mean (i) liens in favor of Agent for
the  benefit  of Agent and Bank;  (ii)  liens for  taxes,  assessments  or other
governmental  charges not  delinquent  or being  contested  in good faith and by
appropriate  proceedings  and with  respect to which proper  reserves  have been
taken by Grantor;  provided, that, the lien shall have no effect on the priority
of the  liens in favor of Agent or the value of the  assets  in which  Agent has
such a lien and a stay of enforcement of any such lien shall be in effect; (iii)
liens with respect to which Agent has consented to in writing;  (iv) deposits or
pledges to secure  obligations under worker's  compensation,  social security or
similar laws, or under unemployment insurance; (v) deposits or pledges to secure
bids,  tenders,  contracts  (other  than  contracts  for the  payment of money),
leases, statutory obligations,  surety and appeal bonds and other obligations of
like nature  arising in the ordinary  course of business;  (vi) liens arising by
virtue of the rendition,  entry or issuance against Grantor,  or any property of
Grantor,  of any judgment,  writ, order, or decree for so long as each such lien
(y) is in existence for less than 20  consecutive  days after it first arises or
is being  "Properly  Contested" (as defined in the Loan Agreement) and (z) is at
all times junior in priority to any liens in favor of Agent;  (vii)  mechanics',
workers',  materialmen's  or other like liens arising in the ordinary  course of
business  with  respect  to  obligations  which  are not due or which  are being
contested  in good faith by Grantor;  and (viii)  liens placed upon fixed assets
hereafter  acquired to secure a portion of the purchase price thereof,  provided
that (y) any such lien shall not encumber any other  property of Grantor and (z)
the aggregate amount of indebtedness  secured by such liens incurred as a result
of such  purchases  during any fiscal year shall not exceed the amount  provided
for in Section 6(g).

                                      -2-
<PAGE>

      (e) "UCC" means the Uniform Commercial Code, as adopted and enacted and as
in effect  from time to time in the State  whose  law  governs  pursuant  to the
Section of this Agreement entitled "Governing Law and Jurisdiction."  Terms used
herein which are defined in the UCC and not otherwise  defined herein shall have
the  respective  meanings  ascribed  to such terms in the UCC. To the extent the
definition of any category or type of  collateral is modified by any  amendment,
modification  or  revision  to the UCC,  such  modified  definition  will  apply
automatically as of the date of such amendment, modification or revision.

2. GRANT OF  SECURITY  INTEREST.  To secure the  Obligations,  the  Grantor,  as
debtor,  hereby  assigns  and grants to the Agent,  as  secured  party,  for the
benefit of Bank, a continuing lien on and security interest in the Collateral.

3. CHANGE IN NAME OR LOCATIONS.  The Grantor  hereby agrees that if the location
of the  Collateral  changes from the locations  listed on Exhibit "A" hereto and
made part hereof,  or if the Grantor changes its name, its type of organization,
its  state of  organization  (if  Grantor  is a  registered  organization),  its
principal  residence (if Grantor is an individual),  its chief executive  office
(if  Grantor  is  a  general  partnership  or  non-registered  organization)  or
establishes a name in which it may do business that is not listed as a tradename
on Exhibit "A" hereto,  the Grantor will immediately notify the Agent in writing
of the additions or changes.

4.  REPRESENTATIONS  AND  WARRANTIES.  The  Grantor  represents,   warrants  and
covenants  to the  Agent  that:  (a)  all  information,  including  its  type of
organization,  jurisdiction of organization,  chief executive  office,  and (for
individuals only) principal residence are as set forth on Exhibit "A" hereto and
are true and correct on the date  hereof;  (b) the Grantor has good,  marketable
and indefeasible  title to the Collateral,  has not made any prior sale, pledge,
encumbrance,  assignment or other disposition of any of the Collateral,  and the
Collateral is free from all encumbrances and rights of setoff of any kind except
the lien in favor of the Bank created by this  Agreement and the liens,  if any,
listed on Exhibit "A" hereto;  (c) except as herein  provided,  the Grantor will
not hereafter without the Agent's prior written consent sell, pledge,  encumber,
assign or  otherwise  dispose  of any of the  Collateral  or permit any right of
setoff,  lien or security  interest to exist thereon except to the Bank; (d) the
Grantor will defend the Collateral against all claims and demands of all persons
at any time  claiming the same or any interest  therein;  (e) Exhibit "A" hereto
contains a list of all of Grantor's  (i)  federally  registered  trademarks  and
service  marks,  and  all  applications  therefor,   (ii)  federally  registered
copyrights,   mask  works,  software,  computer  programs  and  other  works  of
authorship,  and all  applications  therefor,  and (iii) U.S. patents and patent
applications (collectively, "IP APPLICATIONS/REGISTRATIONS");  (f) Borrower is a
wholly-owned  subsidiary of Grantor, and Grantor has no other subsidiaries,  and
(g)  Grantor  received  all of the  membership  units of Fine  Ventures,  LLC in
exchange for shares of  Grantor's  stock,  and at the time of the exchange  Fine
Ventures, LLC's assets were less than $25,000 in value.

5.    GRANTOR'S COVENANTS. The Grantor covenants that it shall:

      (a) from time to time and at all reasonable  times allow the Agent,  by or
through any of its officers,  agents,  attorneys, or accountants,  to examine or
inspect the Collateral,  and obtain valuations and audits of the Collateral,  at
the Grantor's  expense,  wherever located.  The Grantor shall do, obtain,  make,
execute  and deliver  all such  additional  and  further  acts,  things,  deeds,
assurances and instruments as the Agent may require to vest in and assure to the
Agent the rights of Bank hereunder and in or to the Collateral, and the proceeds
thereof,  including  waivers from landlords,  warehousemen  and mortgagees.  The
Grantor agrees that the Agent has the right to notify (on invoices or otherwise)
account debtors and other obligors or payors on any Collateral of its assignment
to the Agent,  and that all  payments  thereon  should be made  directly  to the
Agent,  and that the Agent has full power and authority to collect,  compromise,
endorse,  sell or otherwise  deal with the Collateral in its own name or that of
the Grantor at any time upon an Event of Default;

      (b)  keep the  Collateral  in good  order  and  repair  at all  times  and
immediately  notify the Agent of any event causing a material loss or decline in
value of the Collateral,  whether or not covered by insurance, and the amount of
such loss or depreciation;

                                      -3-
<PAGE>

      (c) only use or permit the  Collateral to be used in  accordance  with all
applicable federal, state, county and municipal laws and regulations; and

      (d)  have  and  maintain  insurance  at  all  times  with  respect  to all
Collateral against risks of fire (including so-called extended coverage), theft,
sprinkler leakage, and other risks (including risk of flood if any Collateral is
maintained  at a location in a flood hazard  zone) as the Agent may require,  in
such form, in such amount,  for such period and written by such companies as may
be  satisfactory  to the  Agent  in its  sole  discretion.  Each  such  casualty
insurance policy shall contain a standard Lender's Loss Payable Clause issued in
favor of the Agent under which all losses  thereunder shall be paid to the Agent
as the Agent's interests may appear.  Such policies shall expressly provide that
the requisite  insurance  cannot be altered or canceled  without at least thirty
(30)  days  prior  written  notice  to the  Agent  and  shall  insure  the Agent
notwithstanding the act or neglect of the Grantor.  Upon the Agent's demand, the
Grantor shall furnish the Agent with duplicate original policies of insurance or
such other  evidence  of  insurance  as the Agent may  require.  In the event of
failure to provide  insurance as herein provided,  the Agent may, at its option,
obtain such  insurance  and the Grantor shall pay to the Agent,  on demand,  the
cost  thereof.  Proceeds of insurance  may be applied by the Agent to reduce the
Obligations  or to  repair  or  replace  Collateral,  all  in the  Agent's  sole
discretion.

      (e)    immediately     advise    Agent    in    writing    of    any    IP
Applications/Registrations  not specified in this Agreement, which are hereafter
acquired  by  Grantor.  Grantor  shall not  register  any  maskworks,  software,
computer  programs  or other  works  of  authorship  subject  to  United  States
copyright  protection  with the United  States  Copyright  Office  without first
complying  with the following:  (i) providing  Agent with at least 30 days prior
written notice thereof,  (ii) providing Agent with a copy of the application for
any such registration and (iii) executing and filing such other instruments, and
taking such further actions as Agent may reasonably request from time to time to
perfect  or  continue  the  perfection  of Bank's  interest  in the  Collateral,
including without limitation the filing with the United States Copyright Office,
simultaneously  with the  filing  by  Grantor  of the  application  for any such
registration,  of a copy  of  this  Agreement  or a  Supplement  hereto  in form
acceptable to Agent  identifying the maskworks,  software,  computer programs or
other  works of  authorship  being  registered  and  confirming  the  grant of a
security interest therein in favor of Bank.

6.    NEGATIVE COVENANTS. The Grantor will not:

      (a)  MERGER,   CONSOLIDATION  OR  ACQUISITION.   Enter  into  any  merger,
consolidation or other  reorganization  with or into any other person or acquire
all or a substantial  portion of the assets or ownership interests of any person
or permit any other  person to  consolidate  with or merge with it,  except that
with Agent's prior written  consent  Grantor may acquire  assets of  Educational
Insights,  Inc.,  or  acquire  Educational  Insights,  Inc.  as  a  wholly-owned
subsidiary.  Agent may  decline to consent  if,  without  limitation,  (i) Agent
receives  unsatisfactory results from an audit of Educational Insights,  Inc. or
its collateral or from other due diligence,  (ii) liens exist against the assets
of Educational  Insights,  Inc. which survive the acquisition and they would not
have been "Permitted  Encumbrances" if they had related to Grantor,  (iii) Agent
determines that the  acquisition  may adversely  affect the Collateral or Bank's
security interest therein,  or Grantor's  financial  condition,  both before and
after  giving  affect to such  acquisition,  or (iv) an Event of Default  exists
prior to the acquisition or Agent  determines that an Event of Default is likely
to occur as a result of the acquisition.

      (b) SALE OF ASSETS.  Sell, lease,  transfer or otherwise dispose of any of
its properties or assets, except for the disposition or transfer of obsolete and
worn-out  equipment  in the ordinary  course of business  during any fiscal year
having an aggregate  fair market value of not more than $100,000 and only to the
extent  that (i) the  proceeds  of any  such  disposition  are  used to  acquire
replacement  equipment  which is  subject  to Agent's  first  priority  security
interest or (ii) the  proceeds  of which are  remitted to Agent to be applied to
the obligations of Borrower under the Loan Agreement.

                                      -4-
<PAGE>

      (c) CREATION OF LIENS. Create or suffer to exist any lien or transfer upon
or against any of its property or assets now owned or hereafter acquired.

      (d)  GUARANTEES.  Become  liable  upon the  obligations  of any  person by
assumption,  endorsement or guaranty  thereof or otherwise  (other than to Bank)
except for the endorsement of checks in the ordinary course of business.

      (e) INVESTMENTS. Purchase or acquire obligations or stock of, or any other
interest in, any person (including, without limitation, any subsidiary),  except
(i)  obligations  issued or  guaranteed  by the United  States of America or any
agency thereof,  (ii) commercial paper with maturities of not more than 180 days
and a published  rating of not less than A-1 or P-1 (or the equivalent  rating),
(iii) certificates of time deposit and bankers' acceptances having maturities of
not more  than 180  days and  repurchase  agreements  backed  by  United  States
government  securities  of a  commercial  bank if (1) such  bank has a  combined
capital and surplus of at least  $500,000,000,  or (2) its debt obligations,  or
those of a holding company of which it is a subsidiary,  are rated not less than
A (or the  equivalent  rating)  by a  nationally  recognized  investment  rating
agency, (iv) U.S. money market funds that invest solely in obligations issued or
guaranteed by the United States of America or an agency  thereof,  (v) the stock
of Borrower, and (vi) in acquisitions permitted under Section 6(a).

      (f) LOANS.  Make  advances,  loans or  extensions of credit to any person,
including any parent, subsidiary or affiliate,  except with respect to (i) loans
to its employees in the ordinary  course of business not to exceed the aggregate
amount  (including for purposes of such aggregation all loans made by any of its
subsidiaries  to  employees of such  subsidiaries  or Grantor) of $50,000 at any
time outstanding, and (ii) loans to Borrower.

      (g) CAPITAL  EXPENDITURES.  Contract for, purchase or make any expenditure
or commitments for fixed or capital assets (including  capitalized  leases),  in
any  fiscal  year in an  amount  that,  when  aggregated  with  all  other  such
purchases,  expenditures and commitments for Grantor and Borrower for such year,
exceed $200,000.

      (h) DIVIDENDS.  Declare,  pay or make any dividend or  distribution on any
shares of its common stock,  preferred stock or other ownership interests (other
than  dividends  or  distributions   payable  in  its  stock,  or  split-ups  or
reclassifications of its stock) or apply any of its funds, property or assets to
the  purchase,  redemption or other  retirement  of any common stock,  preferred
stock, or other ownership interests or of any options to purchase or acquire any
such shares of common stock, preferred stock, or ownership interests.

      (i)  INDEBTEDNESS.   Create,   incur,   assume  or  suffer  to  exist  any
"Indebtedness" (as that term is used in the Loan Agreement),  exclusive of trade
debt, except in respect of (i) Indebtedness to Bank; (ii) Indebtedness  incurred
for capital  expenditures  permitted under Section 6(g) of this  Agreement;  and
(iii) the Indebtedness evidenced by the Existing Notes.

      (j) NATURE OF BUSINESS. Substantially change the nature of the business in
which it is  presently  engaged,  nor except as  specifically  permitted  hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the ordinary  course of business for assets or property  which are useful in,
necessary for and are to be used in its business as presently conducted.

      (k)  TRANSACTIONS  WITH  AFFILIATES.  Directly  or  indirectly,  purchase,
acquire or lease any property from, or sell,  transfer or lease any property to,
or otherwise  enter into any  transaction or deal with,  any  affiliate,  except
transactions  disclosed  to the  Agent,  which  are in the  ordinary  course  of
business,  on an  arm's-length  basis on terms and  conditions no less favorable
than terms and conditions  which would have been  obtainable from a person other
than an affiliate.

                                      -5-
<PAGE>

      (l)  LEASES.  Enter as  lessee  into  any  lease  arrangement  for real or
personal  property (unless  capitalized and permitted under Section 6(g) of this
Agreement) if after giving effect thereto,  aggregate annual rental payments for
all property  leased by Grantor and all property leased by Borrower would exceed
$750,000 in any one fiscal year.

      (m) SUBSIDIARIES. Form any subsidiary or enter into any partnership, joint
venture  or  similar  arrangement,   except  for  purposes  of  effectuating  an
acquisition permitted under Section 6(a).

      (n) FISCAL  YEAR AND  ACCOUNTING  CHANGES.  Change  its  fiscal  year from
December  31 or make any  significant  change (i) in  accounting  treatment  and
reporting  practices  except  as  required  by GAAP  or  (ii)  in tax  reporting
treatment except as required by law.

      (o)  PAYMENT  OF  INDEBTEDNESS.  Except as set forth  below,  at any time,
directly or indirectly,  prepay any  "Indebtedness" (as that term is used in the
Loan Agreement) or make any payments on the Existing Notes.  Notwithstanding the
foregoing,  Grantor  shall be entitled to make each of the  following  payments,
provided  that  (x) no Event  of  Default  exists  hereunder  or under  the Loan
Agreement or would  result from such  payment,  (y) Borrower  would have been in
compliance with the Fixed Charge  Coverage Ratio  requirements of Section 6.5(b)
of the Loan  Agreement  for the quarter that ended  immediately  preceding  such
payment if all amounts paid by Borrower to Grantor since the end of such quarter
had been given effect as of such quarter for purposes of  calculating  the Fixed
Charge Coverage Ratio, and (z) based upon Borrower's financial trends,  Borrower
will be in compliance  with said Fixed Charge  Coverage Ratio  requirements  for
future  quarters (as  determined  by Agent in its good faith  business  judgment
based upon information provided by Borrower):

            (i) The regularly  scheduled  payments of principal,  in the amounts
and when due in the ordinary  course of business,  under the terms of the Seller
Note (as in effect on the date hereof),

            (ii)  The   regularly   scheduled   payments  of  interest  (at  the
non-default  rate),  in the  amounts  and when  due in the  ordinary  course  of
business  under  the  terms of the  NonSeller  Notes  (as in  effect on the date
hereof), provided that, at the time of such payments, the Borrower has "Adjusted
Undrawn  Availability"  (as  defined  in the Loan  Agreement)  of not less  than
$500,000,

            (iii) The regularly scheduled payments of principal,  in the amounts
and  when  due in the  ordinary  course  of  business,  under  the  terms of the
NonSeller  Notes (as in effect on the date  hereof),  provided that no "Seasonal
Advance" (as defined in the Loan  Agreement) is outstanding  and, at the time of
such payments,  the Borrower has "Undrawn  Availability" (as defined in the Loan
Agreement) of not less than $1,000,000, and

            (iv) Prepayments of principal and interest (at the non-default rate)
owed under the Existing  Notes (as in effect on the date hereof),  provided that
(i) no "Seasonal  Advance" (as defined in the Loan  Agreement)  is  outstanding,
(ii) at the time of such payments,  the Borrower has "Undrawn  Availability" (as
defined in the Loan Agreement) of not less than $1,000,000,  (iii) the aggregate
of the payments allowed pursuant to this subsection shall not at any time exceed
an  amount  equal  to 75% of the  aggregate  of the cash  consideration,  net of
related  expenses,  that  Grantor  has  received  for  the  issuance  of  equity
securities  of Grantor after the date hereof and for which Grantor has delivered
to Agent evidence  satisfactory  to Agent that such cash has been received,  and
(iv)  no  payments  on the  SWT  Note  shall  be  allowed  hereunder  until  all
indebtedness under the St. Cloud Note and the Strome Note has been paid in full.

      (p)  ANTI-TERRORISM  LAWS.  Grantor  shall  not,  nor shall it permit  any
affiliate or agent to: (i) Conduct any business or engage in any  transaction or
dealing  with any Blocked  Person (as that term is used in the Loan  Agreement),
including the making or receiving any  contribution of funds,  goods or services
to or for the benefit of any Blocked Person;  (ii) Deal in, or otherwise  engage
in any  transaction  relating to, any property or interests in property  blocked
pursuant to the Executive Order No. 13224; (iii) Engage in or conspire to engage
in

                                      -6-
<PAGE>

any  transaction  that  evades or  avoids,  or has the  purpose  of  evading  or
avoiding,  or  attempts  to violate,  any of the  prohibitions  set forth in the
Executive Order No. 13224, the USA Patriot Act (as that term is used in the Loan
Agreement)  or any  other  Anti-Terrorism  Law (as that term is used in the Loan
Agreement).  Grantor shall deliver to Bank any  certification  or other evidence
requested  from  time to time by any  Bank in its  sole  discretion,  confirming
Grantor's compliance with this Section.

      (q) [OMITTED]

      (r)  TRADING  WITH THE ENEMY ACT.  Engage in any  business  or activity in
violation  of the  Trading  with the Enemy Act (as that term is used in the Loan
Agreement).

      (s) SUBORDINATION  AGREEMENTS.  At any time, directly or indirectly,  pay,
prepay, repurchase,  redeem, retire or otherwise acquire, or make any payment on
account of any principal of,  interest on or premium  payable in connection with
the repayment or redemption of any  indebtedness  or other  obligation  that has
been  subordinated  to the  Obligations,  except as  expressly  permitted in the
applicable subordination agreement.

7.    COVENANTS  FOR  ACCOUNTS.  If accounts are included in the  definition  of
      Collateral:

      (a) The Grantor  will,  on the Agent's  demand after the  occurrence of an
Event of Default,  make  available to the Agent  shipping and delivery  receipts
evidencing  the  shipment of the goods that gave rise to an account,  completion
certificates  or other proof of the  satisfactory  performance  of services that
gave rise to an account,  a copy of the  invoice for each  account and copies of
any written  contract or order from which an account  arose.  The Grantor  shall
promptly  notify  the Agent if an  account  becomes  evidenced  or secured by an
instrument or chattel paper and upon the Agent's request,  will promptly deliver
any such  instrument  or  chattel  paper to the Agent,  including  any letter of
credit  delivered  to the  Grantor  to support a shipment  of  inventory  by the
Grantor.

      (b) After the  occurrence of an Event of Default,  the Grantor will comply
with any  instructions  that the  Agent  may  give  regarding  the sale or other
disposition  of any  return of goods  from the sale of which an  account  arose.
After  the  occurrence  of an Event of  Default,  from  time to time  with  such
frequency  as the Agent may  request,  the Grantor  will report to the Agent all
credits given to account debtors on all accounts.

      (c) The Grantor will  immediately  notify the Agent if any account  arises
out  of  contracts  with  the  United  States  or  any  department,   agency  or
instrumentality  thereof,  and will execute any  instruments  and take any steps
required  by the  Agent so that all  monies  due and to become  due  under  such
contract  shall be assigned to the Agent and notice of the  assignment  given to
and  acknowledged  by the appropriate  government  agency or authority under the
Federal Assignment of Claims Act.

      (d) At any time after the  occurrence of an Event of Default,  and without
notice to the Grantor,  the Agent may direct any persons who are indebted to the
Grantor on any Collateral  consisting of accounts or general intangibles to make
payment  directly to the Agent of the amounts  due. The Agent is  authorized  to
collect, compromise,  endorse and sell any such Collateral in its own name or in
the  Grantor's  name and to give  receipts to such account  debtors for any such
payments and the account  debtors  will be protected in making such  payments to
the Agent.

8. FURTHER  ASSURANCES.  By its signature hereon, the Grantor hereby irrevocably
authorizes  the Agent to execute (on behalf of the Grantor) and file against the
Grantor one or more financing,  continuation or amendment statements pursuant to
the UCC in form  satisfactory to the Agent, and the Grantor will pay the cost of
preparing  and filing  the same in all  jurisdictions  in which  such  filing is
deemed by the Agent to be necessary  or desirable in order to perfect,  preserve
and protect its security  interests.  If required by the Agent, the Grantor will
execute  all  documentation  necessary  for the  Agent to  obtain  and  maintain
perfection of its security interests in the Collateral.

                                      -7-
<PAGE>

At the Agent's request,  the Grantor will execute,  in form  satisfactory to the
Agent, a Rider to Security Agreement - Copyrights (if any Collateral consists of
registered or unregistered copyrights),  a Rider to Security Agreement - Patents
(if any  Collateral  consists  of  patents or patent  applications),  a Rider to
Security Agreement - Trademarks (if any Collateral consists of trademarks, trade
names,  tradestyles or trademark  applications).  If any Collateral  consists of
letter  of  credit  rights,   electronic  chattel  paper,  deposit  accounts  or
supporting  obligations  not maintained with the Agent or one of its affiliates,
or  any  securities  entitlement,   securities  account,   commodities  account,
commodities contract or other investment  property,  then at the Agent's request
the  Grantor  will  execute,  and  will  cause  the  depository  institution  or
securities  intermediary upon whose books and records the ownership  interest of
the Grantor in such  Collateral  appears,  to execute  such  Pledge  Agreements,
Notification  and  Control  Agreements  or other  agreements  as the Agent deems
necessary in order to perfect,  prioritize and protect its security  interest in
such Collateral, in each case in a form satisfactory to the Agent.

9.  EVENTS OF DEFAULT.  The  occurrence  of any of the  following  events  shall
constitute an "Event of Default": (a) any Event of Default (as defined in any of
the  Obligations);  (b) any default under any of the  Obligations  that does not
have a defined set of "Events of Default" (including,  without limitation, under
the  subordination  agreement  by Grantor,  in favor of Agent,  with  respect to
Borrower)  and  the  lapse  of any  notice  or  cure  period  provided  in  such
Obligations  with respect to such default;  (c) demand by the Agent under any of
the Obligations  that have a demand  feature;  (d) the failure by the Grantor to
perform any of its obligations under this Agreement; (e) falsity,  inaccuracy or
material  breach by the  Grantor  of any  written  warranty,  representation  or
statement made or furnished to the Agent by or on behalf of the Grantor;  (f) an
uninsured material loss, theft, damage, or destruction to any of the Collateral,
or the entry of any  judgment  against  the  Grantor or any lien  against or the
making of any levy,  seizure  or  attachment  of or on the  Collateral;  (g) the
failure of the Agent to have a perfected first priority security interest in the
Collateral;  (h) any  indication  or  evidence  received  by the Agent  that the
Grantor may have  directly or  indirectly  been  engaged in any type of activity
which, in the Agent's good faith judgment, might result in the forfeiture of any
property of the Grantor to any governmental entity,  federal, state or local; or
(i) the Grantor makes any payment on account of any  indebtedness  or obligation
which has been  subordinated to the  Obligations  other than as permitted in the
applicable  subordination  agreement, or if any person who has subordinated such
indebtedness  or  obligations  terminates  or in any way limits or breaches  his
subordination agreement.

10.  REMEDIES.  Upon the occurrence of any such Event of Default and at any time
thereafter, the Agent may declare all Obligations secured hereby immediately due
and payable and shall have,  in addition to any remedies  provided  herein or by
any applicable  law or in equity,  all the remedies of a secured party under the
UCC.  The  Agent's  remedies  include,  but are not limited to, the right to (a)
peaceably  by its own means or with  judicial  assistance  enter  the  Grantor's
premises  and take  possession  of the  Collateral  without  prior notice to the
Grantor or the  opportunity for a hearing,  (b) render the Collateral  unusable,
(c) dispose of the Collateral on the Grantor's premises, (d) require the Grantor
to  assemble  the  Collateral  and  make it  available  to the  Agent at a place
designated by the Agent, and (e) notify the United States Postal Service to send
the  Grantor's  mail to the  Agent.  Unless  the  Collateral  is  perishable  or
threatens  to decline  speedily in value or is of a type  customarily  sold on a
recognized market, the Agent will give the Grantor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended  disposition  thereof is to be made. The  requirements  of
commercially  reasonable  notice  shall  be met if  such  notice  is sent to the
Grantor  at  least  five  (5)  days  before  the  time of the  intended  sale or
disposition. Expenses of retaking, holding, preparing for disposition, disposing
or the like shall  include  the  Agent's  reasonable  attorneys'  fees and legal
expenses,  incurred or expended by the Agent to enforce any payment due it under
this Agreement  either as against the Grantor,  or in the prosecution or defense
of any action,  or concerning any matter  growing out of or connection  with the
subject  matter of this  Agreement and the  Collateral  pledged  hereunder.  The
Grantor waives all relief from all  appraisement  or exemption laws now in force
or hereafter enacted.

11. POWER OF ATTORNEY.  The Grantor does hereby make, constitute and appoint any
officer or agent of the Agent as the Grantor's true and lawful attorney-in-fact,
with  power to (a)  endorse  the  name of the  Grantor  or any

                                      -8-
<PAGE>

of the  Grantor's  officers  or agents  upon any notes,  checks,  drafts,  money
orders,  or other  instruments  of payment or Collateral  that may come into the
Agent's  possession  in full or part  payment of any  Obligations;  (b) sue for,
compromise,  settle and release  all claims and  disputes  with  respect to, the
Collateral;  and (c) sign, for the Grantor,  such documentation  required by the
UCC, or supplemental intellectual property security agreements;  granting to the
Grantor's said attorney full power to do any and all things necessary to be done
in and about the premises as fully and effectually as the Grantor might or could
do. The Grantor  hereby  ratifies all that said  attorney  shall  lawfully do or
cause to be done by virtue  hereof.  This power of attorney  is coupled  with an
interest, and is irrevocable.

12. PAYMENT OF EXPENSES; ATTORNEYS' FEES. At its option, the Agent may discharge
taxes, liens, security interests or such other encumbrances as may attach to the
Collateral, may pay for required insurance on the Collateral and may pay for the
maintenance,  appraisal or reappraisal,  and preservation of the Collateral,  as
determined by the Agent to be necessary. The Grantor will reimburse the Agent on
demand for any payment so made or any expense  incurred by the Agent pursuant to
the foregoing authorization, and the Collateral also will secure any advances or
payments so made or expenses so incurred by the Agent. In the event either Agent
or Grantor  files any lawsuit  against the other  predicated on a breach of this
Agreement,  the prevailing party in such action shall be entitled to recover its
attorneys' fees and costs of suit from the non-prevailing party.

13.  NOTICES.  All notices,  demands,  requests,  consents,  approvals and other
communications  required or permitted hereunder  ("NOTICES") must be in writing,
and shall be given and be effective in accordance with the notice  provision set
forth in the Guaranty.

14. PRESERVATION OF RIGHTS. No delay or omission on the Agent's part to exercise
any right or power arising  hereunder  will impair any such right or power or be
considered a waiver of any such right or power,  nor will the Agent's  action or
inaction  impair  any such  right or power.  The  Agent's  rights  and  remedies
hereunder are cumulative and not exclusive of any other rights or remedies which
the Agent may have under other agreements, at law or in equity.

15. ILLEGALITY.  If any provision contained in this Agreement should be invalid,
illegal  or  unenforceable  in any  respect,  it shall not  affect or impair the
validity,  legality  and  enforceability  of the  remaining  provisions  of this
Agreement.

16. CHANGES IN WRITING.  No modification,  amendment or waiver of, or consent to
any  departure by the Grantor  from,  any  provision of this  Agreement  will be
effective  unless made in a writing signed by the Agent, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which  given.  No notice to or demand on the Grantor will entitle the Grantor to
any  other  or  further  notice  or  demand  in  the  same,   similar  or  other
circumstance.

17. ENTIRE  AGREEMENT.  This Agreement  (including the documents and instruments
referred to herein)  constitutes  the entire  agreement and supersedes all other
prior agreements and understandings,  both written and oral, between the parties
with respect to the subject matter hereof.

18.  COUNTERPARTS.  This  Agreement  may be signed in any number of  counterpart
copies and by the parties hereto on separate  counterparts,  but all such copies
shall  constitute  one  and  the  same  instrument.   Delivery  of  an  executed
counterpart of signature page to this Agreement by facsimile  transmission shall
be  effective  as  delivery  of a manually  executed  counterpart.  Any party so
executing this  Agreement by facsimile  transmission  shall  promptly  deliver a
manually  executed  counterpart,  provided  that any  failure to do so shall not
affect the validity of the counterpart executed by facsimile transmission.

                                      -9-
<PAGE>

19. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the
benefit  of the  Grantor  and the Bank and their  respective  heirs,  executors,
administrators,  successors and assigns; provided, however, that the Grantor may
not assign this  Agreement in whole or in part without the Agent's prior written
consent and the Agent at any time may assign this Agreement in whole or in part.

20.  INTERPRETATION.  In this  Agreement,  unless  the  Agent  and  the  Grantor
otherwise agree in writing,  the singular includes the plural and the plural the
singular;  words  importing any gender include the other genders;  references to
statutes   are  to  be  construed  as   including   all   statutory   provisions
consolidating,  amending or  replacing  the statute  referred  to; the word "or"
shall be deemed to  include  "and/or";  the words  "including",  "includes"  and
"include"  shall be deemed to be  followed  by the words  "without  limitation";
references to articles,  sections (or  subdivisions of sections) or exhibits are
to those of this  Agreement;  the word "person"  includes both  individuals  and
other entities;  and references to agreements and other contractual  instruments
shall be deemed to include all subsequent  amendments and other modifications to
such instruments, but only to the extent such amendments and other modifications
are not  prohibited  by the terms of this  Agreement.  Section  headings in this
Agreement  are  included  for  convenience  of  reference  only  and  shall  not
constitute a part of this  Agreement  for any other  purpose.  Unless  otherwise
specified in this Agreement,  all accounting  terms shall be interpreted and all
accounting  determinations  shall  be  made in  accordance  with  GAAP.  If this
Agreement is executed by more than one Grantor,  the obligations of such persons
or entities will be joint and several.

21.  INDEMNITY.  The Grantor  agrees to indemnify  each of the Bank,  each legal
entity,  if any, who controls each Bank and each of their respective  directors,
officers and employees (the "Indemnified  Parties") and to hold each Indemnified
Party harmless from and against any and all claims, damages, losses, liabilities
and  expenses  (including  all fees and charges of internal or external  counsel
with whom any  Indemnified  Party may consult and all expenses of litigation and
preparation  therefor)  which  any  Indemnified  Party may incur or which may be
asserted  against any  Indemnified  Party by any person,  entity or governmental
authority (including any person or entity claiming derivatively on behalf of the
Grantor),  in  connection  with or arising  out of or  relating  to the  matters
referred to in this  Agreement or the  Obligations,  whether (a) arising from or
incurred in connection with any breach of a representation, warranty or covenant
by the Grantor, or (b) arising out of or resulting from any suit, action, claim,
proceeding or governmental investigation,  pending or threatened,  whether based
on statute,  regulation or order, or tort, or contract or otherwise,  before any
court or governmental authority; provided, however, that the foregoing indemnity
agreement  shall not  apply to any  claims,  damages,  losses,  liabilities  and
expenses  solely  attributable  to an  Indemnified  Party's gross  negligence or
willful  misconduct.  The  indemnity  agreement  contained in this Section shall
survive  the  termination  of this  Agreement,  payment of the  Obligations  and
assignment of any rights  hereunder.  The Grantor may participate at its expense
in the defense of any such claim.

22. GOVERNING LAW AND JURISDICTION. This Agreement and all acts and transactions
pursuant or relating hereto and all rights and obligations of the parties hereto
shall be governed,  construed,  and  interpreted in accordance with the internal
laws of the State of New York.  Any  judicial  proceeding  brought by or against
Grantor with respect to this Agreement,  or any related agreement may be brought
in any court of competent  jurisdiction in the State of New York,  United States
of America,  and, by execution and delivery of this  Agreement,  Grantor accepts
for itself and in connection with its properties, generally and unconditionally,
the non-exclusive  jurisdiction of the aforesaid courts,  and irrevocably agrees
to be bound by any judgment  rendered thereby in connection with this Agreement.
Grantor  hereby  waives  personal  service  of any and all  process  upon it and
consents that all such service of process may be made by registered mail (return
receipt  requested)  directed  to  Grantor  and  service so made shall be deemed
completed five (5) days after the same shall have been so deposited in the mails
of the United States of America.  Nothing herein shall affect the right to serve
process  in any  manner  permitted  by law or shall  limit the right of Agent to
bring  proceedings  against  Grantor  in the  courts of any other  jurisdiction.
Grantor waives any objection to jurisdiction and venue of any action  instituted
hereunder  and shall not assert any  defense  based on lack of  jurisdiction  or
venue or based upon forum non conveniens. Grantor waives the right to remove any
judicial  proceeding  brought  against Grantor in any state court to any federal
court.  Any judicial  proceeding by Grantor against Bank involving,  directly or
indirectly,  any

                                      -10-
<PAGE>

matter or claim in any way arising  out of,  related to or  connected  with this
Agreement or any related agreement,  shall be brought only in a federal or state
court located in the County of New York, State of New York.

23. WAIVER OF JURY TRIAL.  EACH OF THE GRANTOR AND THE BANK  IRREVOCABLY  WAIVES
ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY  ACTION,  PROCEEDING  OR
CLAIM OF ANY NATURE  RELATING  TO THIS  AGREEMENT,  ANY  DOCUMENTS  EXECUTED  IN
CONNECTION  WITH THIS AGREEMENT OR ANY  TRANSACTION  CONTEMPLATED IN ANY OF SUCH
DOCUMENTS.  THE GRANTOR AND THE BANK  ACKNOWLEDGE  THAT THE FOREGOING  WAIVER IS
KNOWING AND VOLUNTARY.

                                      -11-
<PAGE>

THE GRANTOR  ACKNOWLEDGES  THAT IT HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS  AGREEMENT,  INCLUDING  THE WAIVER OF JURY TRIAL,  AND HAS BEEN  ADVISED BY
COUNSEL AS NECESSARY OR APPROPRIATE.

WITNESS the due execution  hereof as a document under seal, as of the date first
written above.

                                SMALL WORLD KIDS, INC.

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

                                Print Name:
                                             -----------------------------------

                                Title:
                                        ----------------------------------------

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

                                Print Name:
                                             -----------------------------------

                                Title:
                                        ----------------------------------------

                                PNC BANK, NATIONAL ASSOCIATION,
                                as Agent

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

                                Print Name:
                                             -----------------------------------

                                Title:
                                        ----------------------------------------

                                      -12-
<PAGE>

                                   EXHIBIT "A"
                              TO SECURITY AGREEMENT

1.    Grantor's form of organization (i.e.,  corporation,  partnership,  limited
      liability company): CORPORATION

2.    Grantor's  State of  organization,  if a  registered  organization  (i.e.,
      corporation, limited partnership or limited liability company): NEVADA

3.    Grantor's principal residence, if a natural person or general partnership:
      N/A

4.    Address of Grantor's chief executive  office,  including the County:  5711
      BUCKINGHAM PARKWAY, CULVER CITY (LOS ANGELES COUNTY), CALIFORNIA 90230

5.    Grantor's EIN, if not a natural person: 86-06738911

6.    Grantor's SSN, if a natural person: N/A

7.    Grantor's organizational ID# (if any exists): C17565-2004

8.    Address for books and records, if different: N/A

9.    Addresses of other Collateral locations,  including Counties, for the past
      five (5) years: NONE

10.   Name and  address of  landlord  or owner if  location  is not owned by the
      Grantor:   SMALL  WORLD  TOYS,  5711  BUCKINGHAM  PARKWAY,   CULVER  CITY,
      CALIFORNIA 90230.

11.   Other names or trade names now or formerly used by the Grantor:  (A) SAVON
      TEAM SPORTS, INC. AND (B) FINE VENTURES, LLC

12.   List of all existing  Commercial Tort Claims (by case title with court and
      brief description of claim): NONE

13.   List of all IP Applications/Registrations: NONE

                                      -13-

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