Document:

EXHIBIT
        4.3

       

      THIS
        WARRANT, THE SHARES OF CLASS A-2 PREFERRED STOCK ISSUABLE UPON EXERCISE OF
        THIS
        WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE CLASS
        A-2 PREFERRED STOCK (COLLECTIVELY, THE “SECURITIES”) HAVE NOT BEEN REGISTERED
        UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
        THE
        SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
        THE
        ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES
        UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
        COUNSEL
        REASONABLY SATISFACTORY TO SMALL WORLD KIDS, INC. THAT SUCH REGISTRATION
        IS NOT
        REQUIRED.

       

      Right
        to
        purchase up «M_1» shares of Class A-2 Convertible Preferred Stock of Small World
        Kids, Inc. (subject to adjustment as provided herein)

       

      CLASS
        A-2 CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT

       

      No.
        «M_2»Issue
        Date: April 23 2007

       

      SMALL
        WORLD KIDS, INC.,
        a
        corporation organized under the laws of the State of Nevada (the “Company”),
        hereby certifies that, for value received, «M_3», or assigns (the “Holder”), is
        entitled, subject to the terms set forth below, to purchase from the Company
        from and after the Issue Date of this Warrant and at any time thereafter
        up to
        and including April 30, 2012 (the “Expiration Date”), up to «M_4» («M_1») fully
        paid and non-assessable shares of Class A-2 Convertible Preferred Stock (the
        “Warrant Shares”), for a cash price of $1.00 per share (the “Exercise
        Price”).

       

      This
        Warrant is one of a series of Warrants (the “Warrants”) being issued
        concurrently by the Company pursuant to the terms of (i) that certain Note
        Purchase Agreement, dated as of April 23, 2007, between the Company, the
        Holder
        and others, and (ii) that certain Note Purchase Agreement, dated as of October
        6, 2006, as amended (collectively, the “Purchase Agreements”).

       

      The
        capitalized terms used in this Warrant that are not defined herein shall
        have
        the meanings ascribed to them in the Purchase Agreements.

       

      1.  Exercise
        of Warrant; Issuance of Stock Certificates.
        This
        Warrant is exercisable at the option of the Holder of record hereof on or
        prior
        to the Expiration Date for all or any part of the Warrant Shares (but not
        a
        fraction of a share) which may be purchased hereunder by delivery to the
        Company
        of an original or fax copy of an exercise notice in the form attached hereto
        as
        Exhibit A (the “Exercise Notice”) duly filled in and signed and upon payment in
        cash or by check of the aggregate Exercise Price for the number of shares
        for
        which this Warrant is being exercised. The Company agrees that the Warrant
        Shares purchased upon exercise of this Warrant shall be deemed to be issued
        to
        the Holder as the record owner of such shares as of the close of business
        on the
        date on which this Warrant shall have been surrendered, the completed and
        executed Exercise Notice delivered, and payment made for such Warrant Shares
        in
        accordance herewith. As soon as practicable after the exercise of this Warrant
        in full or in part, and in any event within three (3) business days thereafter,
        the Company at its expense (including the payment by it of any applicable
        issue
        taxes) will cause to be issued in the name of and delivered to the Holder
        of
        record, or as the Holder (upon payment by the Holder of any applicable transfer
        taxes) may direct in compliance with applicable securities laws, a certificate
        or certificates for the number of duly and validly issued, fully paid and
        nonassessable Warrant Shares to which the Holder shall be entitled on such
        exercise. In the case of a purchase of less than all of the Warrant Shares
        which
        may be purchased under this Warrant, the Company shall cancel this Warrant
        and
        execute and deliver to the Holder hereof within a reasonable time a new Warrant
        or Warrants of like tenor for the balance of the Warrant Shares purchasable
        under the Warrant surrendered upon such purchase.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      2.  Warrant
        Shares to be Fully Paid.
        The
        Company covenants and agrees that all Warrant Shares will, upon issuance
        and
        payment of the applicable Exercise Price, be duly authorized, validly issued,
        fully paid and nonassessable, and free of all preemptive rights, liens and
        encumbrances, except for restrictions on transfer provided for herein or
        under
        applicable federal and state securities laws.

       

      3.  Reservation
        of Stock Issuable Upon Exercise.
        The
        Company shall at all times reserve and keep available out of its authorized
        but
        unissued shares of Class A-2 Preferred Stock and Common Stock, as the case
        may
        be, solely for the purpose of effecting the exercise of the Warrants such
        number
        of its Warrant Shares and shares of Common Stock as shall from time to time
        be
        sufficient to effect the exercise of the Warrants and the conversion of the
        Warrant Shares; as the case may be, and if at any time the number of authorized
        but unissued Warrant Shares or shares of Common Stock shall not be sufficient
        to
        effect the exercise of the Warrants, in addition to such other remedies as
        shall
        be available to the Holder of this Warrant, the Company will use its best
        efforts to take such corporate action as may, in the opinion of its counsel,
        be
        necessary to increase its authorized but unissued Warrant Shares or shares
        of
        Common Stock, as the case may be, to such number of shares as shall be
        sufficient for such purposes.

       

      4.  No
        Impairment.
        The
        Company will not, by amendment of its Articles of Incorporation or through
        any
        reorganization, transfer of assets, consolidation, merger, dissolution, issue
        or
        sale of securities or any other voluntary action, avoid or seek to avoid
        the
        observance or performance of any of the terms to be observed or performed
        hereunder by the Company, but will at all times in good faith assist in the
        carrying out of all the provisions of this Warrant and in the taking of all
        such
        action as may be necessary or appropriate in order to protect the conversion
        rights of the Holder against impairment.

       

      5.  No
        Voting or Dividend Rights.
        Nothing
        contained in this Warrant shall be construed as conferring upon the Holder
        hereof the right to vote or to consent to receive notice as a shareholder
        of the
        Company or any other matters or any rights whatsoever as a shareholder of
        the
        Company except as expressly provided in Section 11 hereof. No dividends or
        interest shall be payable or accrued in respect of this Warrant or the interest
        represented hereby or the Warrant Shares purchasable hereunder until, and
        only
        to the extent that, this Warrant shall have been exercised.

       

      6.  Compliance
        with Securities Law; Transferability.
        The
        Holder of this Warrant, by acceptance hereof, agrees that this Warrant and
        the
        Warrant Shares to be issued upon exercise hereof, and the shares of Common
        Stock
        to be issued upon conversion of the Warrant Shares, are being acquired for
        investment and that it will not offer, sell or otherwise dispose of this
        Warrant, the Warrant Shares or any shares of Common Stock issuable upon the
        conversion of the Warrant Shares except under circumstances which will not
        result in a violation of the Securities Act of 1933, as amended, or applicable
        state securities laws. Subject to the foregoing, this Warrant, and the rights
        evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”) in whole or in part. On the surrender for exchange of this
        Warrant, with the Transferor’s endorsement in the form of Exhibit B attached
        hereto (the “Transferor Endorsement Form”) and together with evidence reasonably
        satisfactory to the Company demonstrating compliance with applicable securities
        laws, which shall include, without limitation, a legal opinion from the
        Transferor’s counsel (at the Company’s expense) that such transfer is exempt
        from the registration requirements of applicable securities laws, the Company
        at
        its expense (but with payment by the Transferor of any applicable transfer
        taxes) will issue and deliver to or on the order of the Transferor thereof
        a new
        Warrant of like tenor, in the name of the Transferor and/or the transferee(s)
        specified in such Transferor Endorsement Form (each a “Transferee”), calling in
        the aggregate on the face or faces thereof for the number of Warrant Shares
        called for on the face or faces of the Warrant so surrendered by the
        Transferor.

       

      7.  Registration
        Rights.
        The
        Holder has been granted certain registration rights by the Company pursuant
        to
        the terms of that certain First Amended and Restated Registration Rights
        Agreement entered into by the Company, Holder and others, as the same may
        be
        amended, modified and/or supplemented from time to time.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      8.  Warrant
        Agent.
        The
        Company may, by written notice to the each Holder of the Warrant, appoint
        an
        agent for the purpose of issuing the Warrant Shares on the exercise of this
        Warrant, exchanging this Warrant or replacing this Warrant, and thereafter
        any
        such issuance, exchange or replacement, as the case may be, shall be made
        at
        such office by such agent.

       

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

       

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

       

      11.  Amendment,
        Waiver or Discharge.
        Any
        provision of this Warrant may be amended, waived, or modified upon the written
        consent of the Company and the Holders of Warrants representing a majority
        of
        the unexercised Warrant Shares thereunder (collectively, the “Majority
        Holders”), and such amendment, waiver or modification shall be binding on the
        Holder. Any amendment to the Certificate of Designation creating the Warrant
        Shares or waiver of any rights with respect to the Warrant Shares shall be
        approved by the Company and the Majority Holders.

       

      12.  Applicable
        Law; Venue.
        This
        Warrant shall be governed by and interpreted in accordance with the laws
        of the
        State of California without regard to the principles of conflict of laws.
        In the
        event of any litigation regarding the interpretation or enforcement of this
        Warrant, the parties irrevocably consent to jurisdiction in any federal or
        state
        court located in the City of Los Angeles, California, and waive their rights
        to
        object to venue in such court, regardless of convenience or inconvenience
        thereof to any party. Service of process in any civil action relating to
        or
        arising out of this Warrant may be accomplished in any manner provided by
        law.
        The Company and the Holder each agrees that a final, non-appealable judgment
        in
        any such suit or proceeding shall be conclusive and may be enforced in other
        jurisdictions by suit on such judgment or in any other lawful
        manner.

       

      13.  Attorneys’
        Fees.
        The
        prevailing party shall be entitled to recover from the other party its
        reasonable attorneys’ fees and costs.

       

      14.  Interpretation.
        In the
        event that any provision of this Warrant is invalid or unenforceable under
        any
        applicable statute or rule of law, then such provision shall be deemed
        inoperative to the extent that it may conflict therewith and shall be deemed
        modified to conform with such statute or rule of law. Any such provision
        which
        may prove invalid or unenforceable under any law shall not affect the validity
        or enforceability of any other provision of this Warrant. The headings in
        this
        Warrant are for purposes of reference only, and shall not limit or otherwise
        affect any of the terms hereof. The Company acknowledges that legal counsel
        participated in the preparation of this Warrant and, therefore, stipulates
        that
        the rule of construction that ambiguities are to be resolved against the
        drafting party shall not be applied in the interpretation of this Warrant
        to
        favor any party against the other party.

       

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

       

      
        	 	 	 
	WITNESS:	SMALL
                WORLD KIDS,
                INC.
	 
 	 
 	 
 
	 	By:  	 
	
                
 	
                
Name: Debra
                Fine
	 	
                Title: President

              

      

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

       

      FORM
        OF
        SUBSCRIPTION

       

      (To
        Be
        Signed Only On Exercise Of Warrant)

      

        
          	
                  TO:

                	
                  Small
                    World Kids, Inc.

                

        

        
          	 	
                  5711
                    Buckingham Parkway 

                

        

        
          	 	
                  Culver
                    City, CA 90230

                

        

        
          	 	
                  Attention:
                    Chief Financial Officer

                

        

         

      

      The
        undersigned, pursuant to the provisions set forth in the attached Warrant
        (No._____), hereby irrevocably elects to purchase ______________ shares of
        the
        Series A-2 Preferred Stock covered by such warrant.

       

      The
        undersigned herewith makes payment of the full Exercise Price for such shares
        at
        the Exercise Price per share provided for in such Warrant, the aggregate
        Exercise Price of which is $_________________. Payment of the aggregate Exercise
        Price shall be in lawful money of the United States by check, cash or wire
        transfer.

       

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

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable upon exercise of the within Warrant shall be made
        pursuant to registration of the Class A-2 Preferred Stock under the Securities
        Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from
        registration under the Securities Act.

       

      
        	
                Dated:

                 

              	 

	 	
                (Signature
                  must conform to name of holder as specified on the face of the
                  Warrant)

              
	 	 	 
	 	
                Address:
                  

              	 
	 	 

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        B

       

      FORM
        OF
        TRANSFEROR ENDORSEMENT

      (To
        Be
        Signed Only On Transfer Of Warrant)

       

      For
        value
        received, the undersigned hereby sells, assigns, and transfers unto the
        person(s) named below under the heading “Transferees” the right represented by
        the within Warrant to purchase the percentage and number of shares of Class
        A-2
        Preferred Stock of Small World Kids, Inc. into which the within Warrant relates
        specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
        person Attorney to transfer its respective right on the books of Small World
        Kids, Inc. with full power of substitution in the premises.

      

      
        	
                Transferees

              	
                Address

              	
                Percentage
                  Transferred

              	
                Number
                  Transferred

              
	 	 	 	 

      

       

      
 

      
        	
                Dated:

                 

              	 

	 	
                (Signature
                  must conform to name of holder as specified on the face of the
                  Warrant)

              
	 	 	 
	 	
                Address:
                  

              	 
	 	 
	 	 
	 	
                SIGNED
                  IN THE PRESENCE OF:

                 

              
	 	
                (Name)

              
	
                ACCEPTED
                  AND AGREED:[TRANSFEREE]

              	 
	 	 
	
                (Name)EXHIBIT
      10.1

     

    NOTE
      PURCHASE AGREEMENT

     

    THIS
      NOTE
      PURCHASE AGREEMENT (“Agreement”) is made and entered into as of _____________,
      2007 by and among Small World Kids, Inc., a Nevada corporation (the “Parent”),
      SMALL WORLD TOYS, a California corporation (“Subsidiary”) (the Parent and the
      Subsidiary, each a “Company” and collectively the “Companies”), the investors
      listed on Exhibit A
      attached
      hereto (each a “Purchaser” and collectively the “Purchasers”).

     

    RECITALS

     

    A. The
      Companies are willing to sell to the Purchasers secured subordinated convertible
      notes (the “Notes”) in the face amount of not less than $833,332 (the “Face
      Amount”) with an investment amount of not less than $750,000 (the “Investment
      Amount”), upon the terms and subject to the conditions set forth in this
      Agreement.

     

    B. Purchasers
      desire to purchase the Notes from the Companies upon the terms and subject
      to
      the conditions set forth in this Agreement.

     

    C. The
      capitalized terms used in this Agreement shall have the meanings assigned to
      them in Annex A.

     

    TERMS
      AND CONDITIONS

     

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

     

    1.  Issuance
      of the Notes and Warrants.

     

     1.1  Note
      Terms.
      Subject
      to the terms and conditions set forth in this Agreement, and in reliance upon
      the representations and warranties contained herein, the Companies, in
      consideration for the receipt of the Investment Amount, agree to issue to
      Purchasers, and each Purchaser, severally and not jointly, agrees to purchase
      and accept from the Companies a Note in the amount of its Face Amount. Interest
      on the Face Amount shall accrue and be payable monthly in arrears until March
      31, 2008, at which time all accrued and unpaid interest, and the unpaid Face
      Amount, shall become immediately due and payable. The Notes will be convertible
      into shares of Class A-2 Convertible Preferred Stock of the Parent (the “Class
      A-2 Preferred Stock”) at a conversion price of $1.00 per share. The Notes shall
      be substantially in the form of Exhibit B.

     

    (a)  Stock
      Purchase Warrants.
      Concurrently with the issuance of the Notes, the Companies hereby agree to
      issue
      to each Purchaser a Class A-2 Preferred Stock Purchase Warrants (each a
“Warrant” and collectively, the “Warrants”) providing fifty percent (50%)
      warrant coverage with respect to the Face Amount of such Purchaser’s Note and
      having an Exercise Price of $1.00 per share of Class A-2 Preferred Stock. The
      Warrants shall be substantially in the form of Exhibit C.

     

     1.2  Closing.

     

    (a)  The
      initial closing of the issuance of the Notes and the Warrants (the “Closing”)
      shall take place remotely via exchange of the documents and signatures by 5:00
      p.m. P.D.T. on April 20, 2007, at such other time and place as the Companies
      and
      Purchasers mutually agree upon, orally or in writing (which time and place
      and
      designated as the “Initial Closing”). In the event there is more than one
      closing, the term “Closing” shall apply to each such closing unless otherwise
      specified.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  At
      each
      Closing, the Companies shall deliver the Notes and the Warrants to Purchasers,
      and Purchasers shall pay to the Companies their respective Investment
      Amounts.

     

    (c)  The
      date
      of the Closing is referred to herein as the Closing Date.

     

    2.  Security
      Interest.

     

     2.1  Grant
      of Security Interest.
      To
      secure prompt payment to Purchasers of the Obligations, each Company hereby
      assigns, pledges and grants to Purchasers, to the extent of their respective
      interests, a continuing security interest in and Lien upon all of the
      Collateral. The security interest granted to Purchasers hereunder shall be
      of
      even priority and in pari passu with the security interest granted to Purchasers
      pursuant to that certain Note Purchase Agreement, dated as of October 6, 2006,
      as amended.

     

     2.2  Perfection
      of Security Interest.
      Each
      Company hereby authorizes Purchasers, to the extent of their respective
      interests, to file any financing statements, continuation statements or
      amendments thereto that (a) indicate the Collateral (i) as all assets and
      personal property of such Company or words of similar effect, regardless of
      whether any particular asset comprised in the Collateral falls within the scope
      of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal
      or
      lesser scope or with greater detail, and (b) contain any other information
      required by Part 5 of Article 9 of the UCC for the sufficiency or filing office
      acceptance of any financing statement, continuation statement or
      amendment.

     

     2.3  Non-Exclusive
      License.
      Each
      Company hereby grants to Purchasers, to the extent of their respective
      interests, an irrevocable, non-exclusive license (exercisable upon the
      termination of this Agreement due to an occurrence and during the continuance
      of
      an Event of Default without payment of royalty or other compensation to such
      Company) to use, transfer, license or sublicense any Intellectual Property
      now
      owned, licensed to, or hereafter acquired by such Company, and wherever the
      same
      may be located, and including in such license access to all media in which
      any
      of the licensed items may be recorded.

     

    3.  Purchaser’s
      Representations and Warranties.
      Each
      Purchaser, severally but not jointly, hereby represents and warrants to the
      Companies as follows:

     

     3.1  Investment
      Purposes; Compliance With Securities Act.
      Purchaser is acquiring its Note, and upon conversion thereof, the shares of
      Class A-2 Preferred Stock issuable upon such conversion (the “Note Shares”), and
      the Warrants, and upon exercise thereof, the shares of Class A-2 Preferred
      Stock
      issuable upon such exercise (the “Warrant Shares”) (collectively, the
“Securities”) for its own account, for investment only and not with a view
      towards, or in connection with, the public sale or distribution thereof, except
      pursuant to sales registered under or exempt from the Securities Act of 1933,
      as
      amended (the “Securities Act”).

     

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

     

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

     

     3.4  Information.
      Purchaser and the advisors of the Purchaser, if any, have been furnished with
      all material information relating to the business, finances and operations
      of
      the Company and material information relating to the offer and sale of the
      Securities that have been requested by the Purchaser. Purchaser and Purchaser’s
      advisors, if any, have been afforded the opportunity to ask all questions of
      the
      Companies as they have in their discretion deemed advisable.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

     3.5  Transfer
      or Resale.
      Purchaser understands that: (i) none of the Securities has been registered
      under
      the Securities Act or any state securities laws, and may not be offered for
      sale, sold, assigned or transferred unless either (a) subsequently registered
      thereunder or (b) Purchaser shall have delivered to the Parent an opinion by
      counsel reasonably satisfactory to the Parent, in form, scope and substance
      reasonably satisfactory to the Parent, to the effect that the Note, the Note
      Shares, the Warrant or the Warrants Shares, as the case may be, to be sold,
      assigned or transferred may be sold, assigned or transferred pursuant to an
      exemption from such registration, and (ii) except as expressly provided herein,
      neither the Companies nor any other person is under any obligation to register
      the Securities under the Securities Act or any state securities laws or to
      comply with the terms and conditions of any exemption thereunder.

     

     3.6  Authority,
      Validity and Enforceability.
      This
      Agreement has been duly and validly authorized, executed and delivered by
      Purchaser and is the valid and binding agreement of Purchaser enforceable in
      accordance with its terms, except as enforceability may be limited by
      bankruptcy, insolvency, moratorium, liquidation, or similar laws relating to,
      or
      affecting, generally the enforcement of creditors’ rights and remedies or by
      other equitable principles of general application.

     

    4.  Representations
      and Warranties of the Company.
      Each
      Company, jointly and severally, hereby represents and warrants to Purchasers
      as
      follows:

     

     4.1  Organization
      and Qualification.
      It is a
      corporation, duly organized, validly existing and in good standing under the
      laws of its jurisdictions or organization. It has the corporate power and
      authority to own and operate its properties and assets and, insofar as it is
      or
      shall be a party thereto, (i) to execute and deliver this Agreement and the
      Ancillary Agreements, (ii) to issue and sell the Notes and the Notes Shares
      upon
      conversion of the Notes, (iii) to issue and sell the Warrants and the Warrant
      Shares upon exercise of the Warrants, and (iv) to carry out the provisions
      of
      this Agreement and the Ancillary Agreements and to carry on its business as
      presently conducted. It is duly qualified and is authorized to do business
      and
      is in good standing as a foreign corporation in all jurisdictions in which
      the
      nature or location of its activities and of its properties (both owned and
      leased) makes such qualification necessary, except for those jurisdictions
      in
      which failure to do so has not had, or could not reasonably be expected to
      have,
      individually or in the aggregate, a Material Adverse Effect.

     

     4.2  Capitalization.

     

    (a)  The
      authorized capital stock of the Parent, as of the date hereof, consists of
      the
      following: 115,000,000 shares, of which 100,000,000 are shares of Common Stock,
      par value $0.001 per share, 5,410,575 shares of which are issued and
      outstanding, and [15,000,000] are shares of Convertible Preferred Stock, no
      par
      value, of which 12,000,000 shares of 6% Class A-1 Convertible Preferred Stock
      are authorized and 10,312,703 shares are issued and outstanding, 5,000,000
      shares of 10% Class A Convertible Preferred Stock are authorized and 2,500,000
      shares are issued and outstanding, and 2,500,000 shares of Class A-2 Convertible
      Preferred Stock are authorized and no shares are issued and
      outstanding.

     

    (b)  Except
      as
      disclosed on Schedule 4.2,
      other
      than: (i) the shares reserved for issuance upon the Parent’s stock option plans;
      and (ii) shares which may be issued pursuant to this Agreement and the Ancillary
      Agreements, there are no outstanding options, warrants, rights (including
      conversion or preemptive rights and rights of first refusal), proxy or
      stockholder agreements, or arrangements or agreements of any kind for the
      purchase or acquisition from the Companies of any of its securities. Except
      as
      disclosed on Schedule 4.2,
      neither
      the offer, issuance or sale of any of the Notes or Warrants or the issuance
      of
      any of the Note Shares or Warrant Shares, nor the consummation of any
      transaction contemplated hereby will result in a change in the price or number
      of any securities of the Companies outstanding, under anti-dilution or other
      similar provisions contained in or affecting any such securities.

     

    
      
        
        

      

      
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    (c)  All
      issued and outstanding shares of the Companies’ Common Stock and Preferred
      Stock: (i) have been duly authorized and validly issued and are fully paid
      and
      non-assessable; and (ii) were issued in compliance with all applicable state
      and
      federal laws concerning the issuance of securities.

     

    (d)  The
      rights, preferences, privileges and restrictions of the shares of Common Stock
      and Preferred Stock are as stated in the Certificate of Incorporation, as
      amended by Certificate(s) of Designation (collectively, the “Charter”) of the
      Companies. The Note Shares and the Warrant Shares have been duly and validly
      reserved for issuance. When issued in compliance with the provisions of this
      Agreement and the Parent’s Charter, the Note Shares and the Warrant Shares will
      be validly issued, fully paid and non-assessable and will be free of any liens
      or encumbrances; provided, however, that such Note Shares and Warrant Shares
      may
      be subject to restrictions on transfer under state and/or federal securities
      laws as set forth herein or as otherwise required by such laws at the time
      a
      transfer is proposed.

     

     4.3  Authorization;
      Binding Obligations.
      All
      corporate action on its part (including its officers and directors) necessary
      for the authorization of this Agreement and the Ancillary Agreements, the
      performance of all of its obligations hereunder and under the Ancillary
      Agreement on the Closing Date and, the authorization, issuance and delivery
      of
      the Notes and the Warrants have been taken or will be taken prior to the Closing
      Date. This Agreement and the Ancillary Agreements, when executed and delivered
      and to the extent it is a party there, will be its valid and binding obligations
      enforceable against it in accordance with its terms, except (i) as limited
      by
      applicable bankruptcy, insolvency, reorganization, moratorium or other laws
      of
      general application affecting the enforcement of creditors’ rights; and (ii)
      general principals of equity that restrict the availability of equitable or
      legal remedies. The issuance of the Notes and the subsequent conversion of
      the
      Notes for the Note Shares is not and will not be subject to any preemptive
      rights or rights of first refusal that have not been properly waived or complied
      with. The issuance of the Warrants and the subsequent exercise of the Warrants
      for the Warrant Shares is not and will not be subject to any preemptive rights
      or rights of first refusal that have not been properly waived or complied
      with.

     

     4.4  Liabilities.
      Neither
      it nor any of its Subsidiaries has any liability, except current liabilities
      incurred in the ordinary course of business and liabilities disclosed in any
      Exchange Act Filings.

     

     4.5  Agreements.
      Except
      as set forth on Schedule 4.5
      or as
      disclosed in any Exchange Act Filings:

     

    (a)  There
      are
      no agreements, understandings, instruments, contracts, proposed transactions,
      judgments, orders, writs or decrees to which it or any of its Subsidiaries
      is a
      party or to its knowledge by which it is bound which may involve: (i)
      obligations (contingent or otherwise) of, or payments to, it or any of its
      Subsidiaries in excess of $50,000 (other than obligations of, or payments to,
      it
      or any of its Subsidiaries arising from purchase or sale agreements entered
      into
      in the ordinary course of business); or (ii) the transfer or license of any
      patent, copyright, trade secret or other proprietary right to or from it (other
      than licenses arising from the purchase of “off the shelf” or other standard
      products); or (iii) provisions restricting the development, manufacture or
      distribution or its or any of its Subsidiaries’ products or services; or (iv)
      indemnification by it or any of its Subsidiaries with respect to infringements
      of proprietary rights.

     

    (b)  Since
      December 31, 2006 (the “Balance Sheet Date”) neither it nor any of its
      Subsidiaries has: (i) declared or paid any dividend or authorized or made any
      distribution upon or with respect to any class or series of its capital stock;
      (ii) incurred any indebtedness for money borrowed or other liabilities (other
      than ordinary course obligations) individually in excess of $50,000 or, in
      the
      case of indebtedness and/or liabilities individually less than $50,000, in
      excess of $100,000 in the aggregate, except for draw downs under the existing
      credit facilities provided by Laurus Master Fund, Ltd. (“Laurus”) and Horizon
      Financial Services Group USA (“Horizon”); (iii) made any loans or advances to
      any Person not in excess, individually or in the aggregate, of $100,000, other
      than ordinary course advances for travel expenses; or (iv) sold, exchanged
      or
      otherwise disposed or any of its assets or rights, other than the sale of its
      inventory in the ordinary course of business.

     

    
      
        
        

      

      
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     4.6  Title
      to Properties and Assets; Liens, Etc.
      Except
      as set forth on Schedule 4.6,
      it and
      each of its Subsidiaries has good and marketable title to its and their
      respective properties and assets, and good title to its and their leasehold
      interests, in each case subject to no Liens. All facilities, Equipment,
      Fixtures, vehicles and other properties owned, leased or used by it or any
      of
      its Subsidiaries are in good operating condition and repair and are reasonably
      fit and usable for the purposes for which they are being used. Except as set
      forth on Schedule 4.6,
      it and
      each of its Subsidiaries is in compliance with al material terms of each lease
      to which it is a party or otherwise bound.

     

     4.7  Intellectual
      Property.

     

    (a)  It
      and
      each of its Subsidiaries owns or possesses sufficient legal rights to all
      Intellectual Property necessary for their respective businesses as now conducted
      and, to its knowledge as presently proposed to be conducted, without any known
      infringement of the right of others. There are no outstanding options, licenses
      or agreements of any kind relating to its or any of its Subsidiaries’
Intellectual Property, nor is it or any of its Subsidiaries bound by or a party
      to any options, licenses or agreements of any kind with respect to the
      Intellectual Property of any other Person other than such licenses or agreements
      arising from the purchase of “of the shelf” or standard products.

     

    (b)  Neither
      it nor any of its Subsidiaries has received any communication alleging that
      it
      or any of its Subsidiaries has violated the Intellectual Property or other
      proprietary rights or any other Person, nor is it or any of its Subsidiaries
      aware of any basis therefore.

     

    (c)  Neither
      it nor any of its Subsidiaries believes it is or will be necessary to utilize
      any inventions, trade secrets or proprietary information of any of its employees
      made prior to their employment by it or any of its Subsidiaries, except for
      inventions, trade secrets or proprietary information that have been rightfully
      assigned to it or any of its Subsidiaries.

     

     4.8  Compliance
      with Other Instruments.
      Neither
      it nor any of its Subsidiaries is in violation or default of (i) any term of
      its
      Charter or Bylaws, or (ii) any provisions of any indebtedness, mortgage,
      indenture, contract, agreement, or instrument to which it is a party or by
      which
      it is bound or any judgment, decree, order or writ, which violation or default,
      in the cause of this clause (ii) has had, or could reasonably be expected to
      have, either individually or in the aggregate, a Material Adverse Effect. The
      execution, delivery and performance of and compliance with this Agreement and
      the Ancillary Agreements to which it is a party, and the issuance of the Notes
      and the Warrants and the other Securities each pursuant hereto and thereto,
      will
      not, with or without the passage of time or giving of notice, result in any
      such
      material violation, or be in conflict with or constitute a default under any
      such term or provision, or result in the creation of any Lien upon any of its
      or
      any of its Subsidiary’s properties or assets or the suspension, revocation,
      impairment, forfeiture or non-renewal of any permit, license, authorization
      or
      approval applicable to it or any of its Subsidiaries, their businesses or
      operations or any of their assets or properties.

     

     4.9  Compliance
      with Laws; Permits.
      Neither
      it nor any of its Subsidiaries is in violation of the Sarbanes-Oxley Act of
      2002
      or any regulation or rule promulgated thereunder or any rule or regulation
      related thereto adopted at any time by the Securities and Exchange Commission
      (the “SEC”) or any other applicable statute, rule, regulation, order or
      restriction of any domestic or foreign government or any instrumentality or
      agency thereof in respect of the conduct of its business or the ownership of
      its
      properties which has had, or could reasonably be expected to have, either
      individually or in the aggregate, a Material Adverse Effect. No governmental
      orders, permissions, consents, approvals or authorizations are required to
      be
      obtained and no registration or declarations are required to be filed in
      connection with the execution and delivery of this Agreement and any Ancillary
      Agreement and with the issuance of any of the Securities, except as such as
      have
      been duly and validly obtained or file, or with respect to any filings that
      must
      be made after the Closing Date, as will be filed in a timely manner. It and
      each
      of its Subsidiaries has all material franchises, permits, licenses and any
      similar authority necessary for the conduct of its business as now being
      conducted by it, the lack of which could, either individually or in the
      aggregate, reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

      
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     4.10  SEC
      Reports.
      Except
      as set forth on Schedule 4.10,
      the
      Companies have filed all proxy statements, reports and other documents required
      to be filed by it under the Securities Exchange Act of 1934 as amended (the
      “Exchange Act”). The Companies have furnished, or when they are filed will
      furnish, Purchasers with copies of: (i) its Annual Report on Form 10-K for
      the
      fiscal year ended December 31, 2006, and (ii) its Quarterly Report on Form
      10-Q
      for the fiscal quarter ended March 31, 2007, (collectively, the “SEC Reports”).
      Except as set forth on Schedule 4.10,
      each
      SEC Report was, at the time of its filing, in substantial compliance with the
      requirements of its respective form and none of the SEC Reports, nor the
      financial statements (and the notes thereto) included in the SEC Reports, as
      of
      their respective filing dates, contained any untrue statement of a material
      fact
      or omitted to state a material fact required to be stated therein or necessary
      to make the statements therein, in light of the circumstances under which they
      were made, not misleading. Such financial statements have been prepared in
      accordance with GAAP applied on a consistent basis during the periods involved
      (except (i) as may be otherwise indicated in such financial statements or the
      notes thereto or (ii) in the case of unaudited interim statements, to the extent
      they may not include footnotes or may be condensed) and fairly present in all
      material respects the financial condition, the results of operations and cash
      flows of the Companies and Subsidiaries, or a consolidated basis, as of, and
      for, the periods presented in each such SEC Report.

     

     4.11  Absence
      of Certain Changes.
      Since
      December 31, 2006, there has been no material adverse change in the business,
      properties,  operation, financial condition, results of operations or
      prospects of the Companies.

     

     4.12  Absence
      of Litigation.
      Except
      as set forth on Schedule 4.12,
      there
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board or body pending or, to the knowledge of the Company, threatened
      against or affecting the Company, wherein an unfavorable decision, ruling or
      finding would have a Material Adverse Effect or which would adversely affect
      the
      validity or enforceability of, or the authority or ability of the Company to
      perform its obligations under, this Agreement or any of the documents
      contemplated herein.

     

     4.13  Registration
      Rights.
      Except
      as set forth on Schedule 4.13,
      and
      except as disclosed in Exchange Act Filings, neither it nor any of its
      Subsidiaries is presently under any obligation, and neither it nor any of its
      Subsidiaries has granted any rights, to register any of its or any of its
      Subsidiaries’ presently outstanding securities or any of its securities that may
      hereafter be issued. 

     

     4.14  Valid
      Offering.
      Assuming the accuracy of the representations and warranties of Purchasers
      contained in this Agreement, the offer and issuance of the Notes and the
      Warrants, the offer and issuance of the Note Shares upon the conversion of
      the
      Notes, and the offer issuance of the Warrant Shares upon exercise of the
      Warrants, will be exempt for the registration requirements of the Securities
      Act, and will have been registered or qualified (or exempt from registration
      and
      qualification) under the registration, permit or qualification requirement
      of
      all applicable state securities laws.

     

     4.15  No
      Integrated Offering.
      Neither
      it nor any of its subsidiaries or Affiliates, nor any Person acting on its
      or
      their behalf, has directly or indirectly made ay offers or sales of any security
      or solicited any offers to buy any security under circumstances that would
      cause
      the offering of the Securities pursuant to this Agreement or any Ancillary
      Agreement to be integrated with prior offerings by it for purposes of the
      Securities Act which would prevent it from issuing such Securities, or any
      of
      them, pursuant to Rule 506 under the Securities Act, or any applicable
      exchange-related stockholder approval provisions, nor will it or any of its
      Affiliates or Subsidiaries take any action or steps that would cause the
      offering of the Securities to be integrated with other offerings.

     

    
      
        
        

      

      
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     4.16  Stop
      Transfer.
      The
      Securities are restricted securities as of the date of this Agreement. Neither
      Company will issue any stop transfer order or other order impeding the sale
      and
      delivery of any of the Securities at such time as the Securities are registered
      for public sale or an exemption form registration is available, except as
      required by state and federal securities laws.

     

     4.17  Dilution.
      It
      specifically acknowledges that the Parent’s obligation to issue the Note Shares
      upon conversion of the Notes and the Warrant Shares upon exercise of the
      Warrants is binding upon the Parent and enforceable regardless of the dilution
      such issuances may have on the ownership interests of other shareholders of
      the
      Parent.

     

     4.18  Patriot
      Act.
      It
      certifies that, to the best of its knowledge, neither it nor any of its
      Subsidiaries, has been designated, nor is or shall be owned or controlled,
      by a
“suspected terrorist” as defined in Executive Order 13224. It hereby
      acknowledges that Purchasers seek to comply with all applicable laws concerning
      money laundering and related activities. In furtherance of those efforts, it
      hereby represents and warrants and covenants that: (i) none of the cash or
      property that it or any of its Subsidiaries will pay or will contribute to
      Purchasers has been or shall be derived from, or related to, any activity that
      is deemed criminal under United States law; and (ii) no contribution or payment
      by it or any of its Subsidiaries to Purchasers, to the extent that they are
      within its or any such Subsidiary’s control shall cause Purchasers to be in
      violation of the United States Bank Secrecy Act, the United States International
      Money Laundering Control Act of 1986 or the United States International Money
      Laundering Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly
      notify Purchasers if any of these representations, warranties and covenants
      cease to be true and accurate regarding it or any of its Subsidiaries. It shall
      provide Purchasers with any additional information regarding it and each
      Subsidiary thereof that Purchasers deem necessary or convenient to ensure
      compliance with all applicable laws concerning money laundering and similar
      activities. It understands and agrees that if at any time it is discovered
      that
      any of the foregoing representations, warranties and covenants are incorrect,
      or
      if otherwise required by applicable law or regulation related to money
      laundering or similar activities, Purchasers may undertake appropriate action
      to
      ensure compliance with applicable law and regulation, including, but not limited
      to, segregation and/or redemption of Purchasers’ investment in it. It further
      understands that Purchasers may release confidential information about it and
      its Subsidiaries and, if applicable, any underlying beneficial owners, to proper
      authorities if Purchasers, in their sole discretion, determine that it is in
      their best interests in light of relevant rules and regulations under the laws
      set for in subsection (ii) above.

     

     4.19  Company
      Name; Location of Offices.
      Schedule 4.19
      sets
      forth each Company’s name as its appears in official filings in the state of its
      organization, the type of entity of each Company, the organizational
      identification number issued by each Company’s state of organization or a
      statement that no such number has been issued, each Company’s state of
      organization, and the location of each Company’s chief executive office,
      corporate offices, warehouses, other locations of Collateral and locations
      where
      records with respect to Collateral are kept (including in each case the county
      of such locations) and, except as set forth on Schedule 4.19,
      such
      locations have not changed during the preceding twelve months. As of the Closing
      Date, during the prior five years, except as set forth on Schedule 4.19,
      no
      company has been known as or conducted business in any other name (including
      trade names). Each Company has only one state of organization.

     

     4.20  Full
      Disclosure.
      Neither
      this Agreement or the Ancillary Agreements nor the exhibits or schedules hereto
      or thereto nor any other document delivered by it to Purchasers or their
      attorneys or agents in connection herewith or therewith or with the transactions
      contemplated hereby or thereby, contain any untrue statement of a material
      fact
      not omit to state a material fact necessary in order to make the statements
      contained herein or therein, in light of the circumstances in which they are
      made, not misleading. 

     

    5.  Negative
      Covenants.
      So long
      as any Obligations are owed under the Notes, without the prior written consent
      of Purchasers holding at least a majority in Face Amount of the Notes issued
      hereunder (the “Majority Purchasers”), neither of the Companies
      shall:

     

    
      
        
        

      

      
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     5.1  Incur
      Indebtedness.
      Incur
      any debt for borrowed money except for indebtedness owing to Laurus, Horizon
      and
      St. Cloud Capital Partners, L.P. (“St. Cloud”) as such facilities may exist from
      time to time, including any extensions or modifications thereto, and existing
      obligations owed to Eddy Goldwasser;

     

     5.2  Distributions.
      Make
      any cash payments in respect of its capital stock whether by dividends,
      redemption or otherwise;

     

     5.3  Sell
      or Encumber Assets.
      Sell,
      transfer, mortgage, assign, pledge, lease, exchange, grant a security interest
      in, or encumber any such Company’s assets, except to Purchasers, Laurus, St.
      Cloud or otherwise in the ordinary course of business;

     

     5.4  Change
      of Business.
      Engage
      in any business activities substantially different than those in which such
      Company is presently engaged, or cease operations, liquidate, merge, transfer,
      acquire, or consolidate with any other entity or dissolve;

     

     5.5  Change
      Name or Location.
      Change
      its legal name or trade name or any location of it chief executive offices,
      corporate offices, warehouses or other locations of Collateral.

     

    6.  Conditions
      to Issuance and Acceptance of the Notes and the Warrants.

     

     6.1  Conditions
      to Companies’ Obligations to Issue the Notes and the Warrants.
      The
      obligations of the Companies hereunder are subject to the satisfaction, on
      or
      before the Closing, unless otherwise specified, of each of the following
      conditions, provided that these conditions are for the Companies’ sole benefit
      and may be waived by the Companies at any time in its sole
      discretion:

     

    (a)  Each
      Company and Purchaser shall have executed this Agreement and all of the
      Ancillary Agreements as to which it is a party.

     

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

     

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

     

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

     

    (e)  Purchasers
      shall execute such reasonable subordination agreements with Laurus, St. Cloud
      and the Goldwassers necessary to affirm that the Obligations of the Company
      under the Notes are and will continue to be subordinated to existing
      indebtedness owed to Laurus, St. Cloud and the Goldwassers.

     

    (f)  The
      Companies shall have received the requisite consent and approval from the
      holders of the Class A-1 Convertible Preferred Stock to the creation of the
      Class A-2 Preferred Stock.

     

    
      
        
        

      

      
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     6.2  Conditions
      to Purchasers’ Obligation to Accept the Notes and the Warrants.
      The
      obligations of Purchasers are subject to the satisfaction, on or before the
      Closing, unless otherwise specified, of each of the following conditions,
      provided that these conditions are for the sole benefit of Purchasers and may
      be
      waived by Purchasers at any time in their sole discretion:

     

    (a)  Each
      Company and Purchaser shall have executed this Agreement and all Ancillary
      Agreements as to which it is a party.

     

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

     

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

     

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

     

    (e)  The
      Company shall have executed and delivered to the Purchasers a First Amended
      and
      Restated Registration Rights Agreement substantially in the form of Exhibit D.

     

    (f)  The
      Companies shall have received the requisite consent and approval from the
      holders of the Class A-1 Convertible Preferred Stock to the creation of the
      Class A-2 Preferred Stock.

     

    (g)  With
      respect to the initial Closing, the Company shall have received Investment
      Amounts aggregating at least $750,000.

     

    7.  Expenses.
      The
      Companies shall jointly and severally pay all of Purchasers’ out-of-pocket costs
      and expenses, including reasonable fees and disbursements of in-house or outside
      counsel and appraisers, in connection with (i) the preparation, execution and
      delivery of this Agreement and the Ancillary Agreements; (ii) any amendments
      hereto or thereto or consents proposed or executed in connection with the
      transactions contemplated by this Agreement or the Ancillary Agreements; (iii)
      the prosecution or defense of any action, contest, dispute, suit or proceeding
      concerning any matters in nay way arising out of, related to or connected with
      this Agreement or any Ancillary Agreement; and (iv) any attempts to inspect,
      verify, protect, collect, sell, liquidate or otherwise dispose of any
      Collateral.

     

    8.  Event
      of Default.
      Any one
      or more of the following events shall constitute an “Event of Default” by the
      Companies under this Agreement:

     

     8.1  Payment
      Default.
      If the
      Companies fails to pay, within three days after the date such payment is due,
      any of the Obligations;

     

     8.2  Covenant
      Default.

     

    (a)  If
      either
      of the Companies fails to perform any obligation (other than payment
      obligations) under this Agreement or any of the Ancillary Agreements within
      thirty days after the Companies have been given notice thereof, provided,
      however, that if the default cannot by its nature be cured within such thirty
      period or cannot after diligent attempts by the Companies be cured within such
      thirty day period, and such default is likely to be cured within a reasonable
      time, then the Companies shall have an additional reasonable period (which
      shall
      not in any case exceed an additional thirty days so that the total duration
      of
      the cure period will not exceed sixty days) to attempt to cure such default,
      and
      within such reasonable time period the failure to have cured such default shall
      not be deemed an Event of Default; or

     

    
      
        
        

      

      
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    (b)  If
      there
      occurs any circumstance or circumstances that would reasonably be expected
      to
      have a Material Adverse Effect;

     

    (c)  If
      any
      portion of either of the Companies’ assets is attached, seized, subjected to a
      writ or distress warrant, or is levied upon, or comes into the possession of
      any
      trustee, receiver or person acting in a similar capacity and such attachment,
      seizure, writ or distress warrant or levy has not been removed, discharged
      or
      rescinded within thirty days, or if either of the Companies is enjoined,
      restrained, or in any way prevented by court order from continuing to conduct
      all or any material part of its business affairs, or if a judgment or other
      claim becomes a lien or encumbrance upon any material portion of either of
      the
      Companies’ assets, or if a notice of lien, levy, or assessment is filed of
      record with respect to any of either Company’s assets by the United States
      Government, or any department, agency, or instrumentality thereof, or by any
      state, county, municipal, or governmental agency, and the same is not paid
      within thirty days after notice thereof; provided that none of the foregoing
      shall constitute an Event of Default where such action or event is stayed or
      an
      adequate bond has been posted pending a good faith contest by the
      Companies;

     

    (d)  If
      either
      Company becomes Insolvent, or if an Insolvency Proceeding is commenced by
      Borrower, or if an Insolvency Proceeding is commenced against Borrower and
      is
      not dismissed or stayed within thirty days;

     

    (e)  If
      there
      is any Event of Default under any agreement with or obligation owed by either
      Company to Laurus, Horizon, St. Cloud or Goldwasser and such Event of Default
      has not been cured or waived; or

     

    (f)  If
      any
      material misrepresentation or material misstatement exists now or hereafter
      in
      any warranty or representation set forth herein or in any Ancillary Agreement
      or
      in any exhibit hereto or thereto or any certificate delivered to Purchasers
      pursuant to this Agreement or any Ancillary Agreements.

     

    8.3  Change
      of Control.
      If
      there is a Change of Control which has not been approved by the Majority
      Purchasers.

     

    9.  Purchasers’
      Rights and Remedies.

     

     9.1  Rights
      and Remedies.
      Upon
      the occurrence of an Event of Default and the giving of any notice required
      pursuant to Section 8, the Majority Purchasers may without further notice of
      their election and without demand, do any one or more of the following, all
      of
      which are authorized by the Companies:

     

    (a)  Declare
      all Obligations, whether evidenced by this Agreement or any of the Ancillary
      Agreements, or otherwise, immediately due and payable;

     

    (b)  Settle
      or
      adjust disputes and claims directly with account debtors for amounts, upon
      terms
      and in whatever order that the Majority Purchasers reasonably consider
      advisable;

     

    (c)  Make
      such
      payments and do such acts as the Majority Purchasers considers necessary or
      reasonable to protect its security interest in the Collateral. The Companies
      agree to assemble the Collateral if the Majority Purchasers so require, and
      to
      make the Collateral available to the Majority Purchasers as the Majority
      Purchasers may designate. The Companies authorize any representative of the
      Majority Purchasers to enter the premises where the Collateral is located,
      to
      take and maintain possession of the Collateral, or any part of it, and to pay,
      purchase, contest, or compromise any encumbrance, charge, or lien which in
      the
      Majority Purchasers’ determination appears to be prior or superior to its
      security interest and to pay all expenses incurred in connection therewith.
      With
      respect to any of the Companies’ owned premises, the Companies hereby grant any
      authorized representative of the Majority Purchasers a license to enter into
      possession of such premises and to occupy the same, without charge, in order
      to
      exercise any of the Majority Purchasers’ rights or remedies provided herein, at
      law, in equity, or otherwise;

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (d)  Ship,
      reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
      for sale, and sell (in the manner provided for herein) the Collateral. The
      Majority Purchasers are hereby granted a license or other right to use, without
      charge, the Companies’ labels, patents, copyrights, rights of use of any name,
      trade secrets, trade names, trademarks, service marks, and advertising matter,
      or any property of a similar nature, as it pertains to the Collateral, in
      completing production of, advertising for sale, and selling any Collateral
      and,
      in connection with the Majority Purchasers’ exercise of its rights hereunder,
      the Companies’ rights under all licenses and all franchise agreements shall
      inure to the benefit of the Majority Purchasers;

     

    (e)  Dispose
      of the Collateral by way of one or more contracts or transactions, for cash
      or
      on terms, in such manner and at such places (including the Companies’ premises)
      as the Majority Purchasers determine is commercially reasonable, and apply
      any
      proceeds to the Obligations in whatever manner or order the Majority Purchasers
      deem appropriate;

     

    (f)  Any
      Purchaser may credit bid and purchase at any public sale; and

     

    (g)  Any
      deficiency that exists after disposition of the Collateral as provided above
      will be paid immediately by the Companies.

     

     9.2  Power
      of Attorney.
      Effective only upon the occurrence and during the continuance of an Event of
      Default, the Companies hereby irrevocably appoints the Majority Purchasers,
      or
      their authorized representative, as the Companies’ true and lawful attorney to:
      (i) send requests for verification of Accounts or notify account debtors of
      the
      Purchasers’ security interest in the Accounts; (ii) endorse the Companies’ names
      on any checks or other forms of payment or security that may come into the
      Majority Purchasers’ possession; (iii) sign Companies’ names on any invoice or
      bill of lading relating to any Account, drafts against account debtors,
      schedules and assignments of Accounts, verifications of Accounts, and notices
      to
      account debtors; (iv) dispose of any Collateral; (v) make, settle, and adjust
      all claims under and decisions with respect to the Companies’ policies of
      insurance; (vi) settle and adjust disputes and claims respecting the Accounts
      directly with account debtors, for amounts and upon terms which the Majority
      Purchasers determine to be reasonable; (vii) to file, in its sole discretion,
      one or more financing or continuation statements and amendments thereto,
      relative to any of the Collateral; and (viii) to transfer the Intellectual
      Property Collateral into the name of the Majority Purchasers or their authorized
      representative or a third party to the extent permitted under the UCC. The
      appointment of the Majority Purchasers or their authorized representative as
      the
      Companies’ attorney in fact, and each and every one of their rights and powers,
      being coupled with an interest, is irrevocable until all of the Obligations
      have
      been fully repaid and performed.

     

     9.3  Accounts
      Collection.
      At any
      time upon the occurrence and during the continuance of an Event of Default,
      the
      Majority Purchasers or their authorized representative may notify any Person
      owing funds to any of the Companies of Purchasers’ security interest in such
      funds and verify the amount of such Account. The Companies shall collect all
      amounts owing to the Companies for the Purchasers, receive in trust all payments
      as the Purchasers’ trustee, and immediately deliver such payments to the
      Majority Purchasers of their authorized representative in their original form
      as
      received from the account debtor, with proper endorsements for
      deposit.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     9.4  Purchasers’
      Expenses.
      If the
      Companies fail to pay any amounts or furnish any required proof of payment
      due
      to third persons or entities, as required under the terms of this Agreement
      or
      any Ancillary Agreements, then the Majority Purchasers or their authorized
      representative may do any or all of the following after reasonable notice to
      the
      Companies: (i) make payment of the same or any part thereof; or (ii) obtain
      and
      maintain insurance policies of the type typically carried by the Companies,
      and
      take any action with respect to such policies as the Majority Purchasers deem
      prudent. Any amounts so paid or deposited by any Purchasers shall be immediately
      due and payable, and shall bear interest at the then applicable default rate
      under the Notes, and shall be secured by the Collateral. Any payments made
      by or
      on behalf of any Purchasers shall not constitute an agreement by Purchasers,
      or
      any of them, to make similar payments in the future or a waiver by Purchasers
      of
      any Event of Default under this Agreement or any Ancillary
      Agreements.

     

     9.5  Liability
      for Collateral.
      So long
      as Purchasers are not grossly negligent and do not engage in willful misconduct,
      Purchasers shall not in any way or manner be liable or responsible for: (i)
      the
      safekeeping of the Collateral; (ii) any loss or damage thereto occurring or
      arising in any manner or fashion from any cause; (iii) any diminution in the
      value thereof; or (iv) any act or default of any carrier, warehouseman, bailee,
      forwarding agency, or other person whomsoever. All risk of loss, damage or
      destruction of the Collateral shall be borne by the Companies.

     

     9.6  Remedies
      Cumulative.
      Purchasers’ rights and remedies under this Agreement and any Ancillary
      Agreements shall be cumulative. Purchasers shall have all other rights and
      remedies not inconsistent herewith as provided under the UCC, by law, or in
      equity. No exercise by Purchasers, or any of them, of one right or remedy shall
      be deemed an election, and no waiver by Purchasers, or any of them. of any
      Event
      of Default on the Companies’ part shall be deemed a continuing waiver. No delay
      by Purchasers, or any of them, shall constitute a waiver, election, or
      acquiescence by it. No waiver by Purchasers, or any of them, shall be effective
      unless made in a written document signed by the Majority Purchasers on behalf
      of
      Purchasers and then shall be effective only in the specific instance and for
      the
      specific purpose for which it was given.

     

     9.7  Demand;
      Protest.
      Each
      Company hereby waives demand, protest, notice of protest, notice of default
      or
      dishonor, notice of payment and nonpayment, notice of any default, nonpayment
      at
      maturity, release, compromise, settlement, extension, or renewal of accounts,
      documents, instruments, chattel paper, and guarantees at any time held by
      Purchasers on which such Company may in any way be liable. 

     

    10.
        Legends.
      The
      Securities, when issued, shall bear the following legend, or a substantially
      similar legend:

     

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

     

    11.
        Waiver
      of Jury Trial; Alternative Proceedings.

     

     11.1  Waiver
      of Jury Trial.
      TO THE
      FULLEST EXTENT PERMITTED BY LAW, THE COMPANIES AND PURCHASERS EACH HEREBY WAIVE
      THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
      UPON OR ARISING OUT OF ANY OF THIS AGREEMENT AND THE ANCILLARY AGREEMENTS OR
      ANY
      OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS,
      TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
      CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES
      A
      MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS
      AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
      IT
      KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
      WITH LEGAL COUNSEL.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     11.2
        Judicial
      Reference.
      If and
      only if the jury trial waiver set forth in Section 11.1 of this Agreement is
      invalidated for any reason by a court of law, statute or otherwise, the
      reference provisions set forth below shall be substituted in place of the jury
      trial waiver. So long as the jury trial waiver remains valid, the reference
      provisions set forth in this Section shall be inapplicable.

     

    (a)  Each
      controversy, dispute or claim (each, a “Claim”) between the parties arising out
      of or relating to this Agreement or any Ancillary Agreement, other than (i)
      all
      matters in connection with nonjudicial foreclosure of security interests in
      real
      or personal property; or (ii) the appointment of a receiver or the exercise
      of
      other provisional remedies (any of which may be initiated pursuant to applicable
      law) that are not settled in writing within fifteen days after the date on
      which
      a party to this Agreement or any of the Ancillary Agreements gives written
      notice to all other parties that a Claim exists (the “Claim Date”) shall be
      resolved by a reference proceeding in California in accordance with the
      provisions of Section 638 et seq. of the California Code of Civil Procedure,
      or
      their successor sections (“CCP”), which shall constitute the exclusive remedy
      for the resolution of any Claim concerning this Agreement or any of the
      Ancillary Agreements, including whether such Claim is subject to the reference
      proceeding. Except as set forth in this section, the parties waive the right
      to
      initiate legal proceedings against each other concerning each such Claim. Venue
      for these proceedings shall be in the Superior Court in Los Angeles County
      (the
“Court”). By mutual agreement, the parties shall select a retired Judge of the
      Court to serve as referee, and if they cannot so agree within fifteen days
      after
      the Claim Date, the parties shall request that the Presiding Judge of the Court
      (or his or her representative) promptly select the referee. A request for
      appointment of a referee may be heard on an ex parte or expedited basis. The
      referee shall be appointed to sit as a temporary judge, with all the powers
      for
      a temporary judge, as authorized by law, and upon selection should take and
      subscribe to the oath of office as provided for in Rule 244 of the California
      Rules of Court (or any subsequently enacted Rule). Purchasers (acting together))
      and the Companies (acting together) shall each have one peremptory challenge
      pursuant to CCP § 170.6. Upon being selected, the referee shall (a) be requested
      to set the matter for a status and trial-setting conference within fifteen
      days
      after the date of selection and (b) if practicable, try any and all issues
      of
      law or fact and report a statement of decision upon them within ninety days
      of
      the date of selection. The referee will have power to expand or limit the amount
      of discovery the parties may employ. Any decision rendered by the referee will
      be final, binding and conclusive, and judgment shall be entered pursuant to
      CCP
§ 644 in any court in the State of California having jurisdiction. The parties
      shall complete all discovery no later than fifteen days before the first trial
      date established by the referee. The referee may extend such period in the
      event
      of a party’s refusal to provide requested discovery for any reason whatsoever,
      including, without limitation, legal objections raised to such discovery or
      unavailability of a witness due to absence or illness. No party shall be
      entitled to “priority” in conducting discovery. The parties may take depositions
      upon seven days written notice, and shall respond to requests for production
      or
      inspection of documents within ten days after service. All disputes relating
      to
      discovery which cannot be resolved by the parties shall be submitted to the
      referee whose decision shall be final and binding upon the parties. Pending
      appointment of the referee as provided herein, the Court is empowered to issue
      temporary and/or provisional remedies, as appropriate.

     

    (b)  Except
      as
      expressly set forth herein, the referee shall determine the manner in which
      the
      reference proceeding is conducted including the time and place of all hearings,
      the order of presentation of evidence, and all other questions that arise with
      respect to the course of the reference proceeding. Except for trial, all
      proceedings and hearings conducted before the referee shall be conducted without
      a court reporter unless a party requests a court reporter. The party making
      such
      a request shall have the obligation to arrange for and pay for the court
      reporter. Subject to the referee’s power to award costs to the prevailing party,
      the parties shall equally bear the costs of the court reporter at the trial
      and
      the referee’s expenses.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (c)  The
      referee shall determine all issues in accordance with existing California case
      and statutory law. California rules of evidence applicable to proceedings at
      law
      will apply to the reference proceeding. The referee shall be empowered to enter
      equitable as well as legal relief, to provide all temporary and/or provisional
      remedies and to enter equitable orders that shall be binding upon the parties.
      At the close of the reference proceeding, the referee shall issue a single
      judgment at disposing of all the claims of the parties that are the subject
      of
      the reference. The parties reserve the right (i) to contest or appeal from
      the
      final judgment or any appealable order or appealable judgment entered by the
      referee and (ii) to obtain findings of fact, conclusions of laws, a written
      statement of decision, and (iii) to move for a new trial or a different
      judgment, which new trial, if granted, shall be a reference proceeding under
      this provision.

     

    (d)  If
      the
      enabling legislation which provides for appointment of a referee is repealed
      (and no successor statute is enacted), any dispute between the parties that
      would otherwise be determined by the reference procedure herein described will
      be resolved and determined by arbitration conducted by a retired judge of the
      Court, in accordance with the California Arbitration Act §§ 1280 through 1294.2
      of the CCP as amended from time to time. The limitations with respect to
      discovery as set forth in this Section shall apply to any such arbitration
      proceeding.

     

     12. 
        Further
      Assurance.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

     13. 
        Governing
      Law and Venue.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of California without regard to the principles of conflict of laws.
      In
      the event of any litigation regarding the interpretation or application of
      this
      Agreement, the parties irrevocably consent to jurisdiction in any of the state
      or federal courts located in the City of Los Angeles, State of California and
      waive their rights to object to venue in any such court, regardless of the
      convenience or inconvenience thereof to any party. Service of process in any
      civil action relating to or arising out of this Agreement (including also all
      Exhibits or Schedules hereto) or the transaction(s) contemplated herein may
      be
      accomplished in any manner provided by law. The parties hereto agree that a
      final, non-appealable judgment in any such suit or proceeding shall be
      conclusive and may be enforced in other jurisdictions by suit on such judgment
      or in any other lawful manner.

     

     14. 
        Notices.
      Any
      notices required or permitted to be given under the terms of this Amendment
      shall be sent by U.S. Mail or delivered personally or by courier or via
      facsimile (if via facsimile, to be followed within three business days by an
      original of the notice document via U.S. Mail or courier) and shall be effective
      five days after being placed in the mail, if mailed, certified or registered,
      return receipt requested, or upon receipt, if delivered personally or by courier
      or by facsimile, in each case properly addressed to the party to receive the
      same. The addresses for such communications shall be:

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      	
              If
                to any Company:

            	
              Small
                World Kids, Inc.

              5711
                Buckingham Parkway

              Culver
                City, California 90230

              Attention:
                Debra Fine

              Fax
                Number: 310-258-1194

            
	 	 
	
              With
                a copy to:

            	
              Troy
                & Gould

              1801
                Century Park East, 16th Floor

              Los
                Angeles, California 90067

              Attention:
                David L. Ficksman, Esq.

              Fax
                Number: 310-789-1490

            
	 	 
	
              If
                to Purchasers:

            	
              at
                their respective addresses indicated on the signature page or on
                Exhibit A

            
	 	 
	
              With
                a copy to:

            	
              Allen
                Matkins Leck Gamble Mallory & Natsis, LLP

              1900
                Main Street, 5th Floor

              Irvine,
                California 92614

              Attention:
                James E. McCormick III, Esq.

              Fax
                Number: 949-553-8354

            
	 	 

    

    Each
      party shall provide written notice to the other party of any change in
      address.

     

     15. 
        Headings;
      Gender, Etc.
      The
      headings of this Agreement are for convenience of reference and shall not form
      a
      part of, or affect the interpretation of this Agreement. As used herein, the
      masculine shall refer to the feminine and neuter, the feminine to the masculine
      and neuter, and the neuter to the masculine and feminine, as the context may
      require. As used herein, unless the context clearly requires otherwise, the
      words “herein,” “hereunder” and “hereby,” shall refer to this entire Agreement
      and not only to the Section or paragraph in which such word appears. If any
      date
      specified herein falls upon a Saturday, Sunday or public or legal holidays,
      the
      date shall be construed to mean the next business day following such Saturday,
      Sunday or public or legal holiday. For purposes of this Agreement, a “business
      day” is any day other than a Saturday, Sunday or public or legal
      holiday.

     

     16. 
        Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

     17. 
        Survival.
      The
      representations and warranties of the Companies and Purchasers contained in
      Sections 3 and 4 and the agreements and covenants set forth in herein and in
      the
      Ancillary Agreements- shall survive the Closing of the purchase and sale of
      the
      Notes and the Warrants.

     

     18. 
        Remedies.
      No
      provision of this Agreement providing for any specific remedy to a party shall
      be construed to limit such party to the specific remedy described, and any
      other
      remedy that would otherwise be available to such party at law or in equity
      shall
      be so available. Nothing in this Agreement shall limit any rights a party may
      have with any applicable federal or state securities laws with respect to the
      transactions contemplated hereby.

     

     19. 
        Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns. Neither the Companies nor Purchasers
      shall assign this Agreement or any rights or obligations hereunder without
      the
      prior written consent of the other (which consent shall not be unreasonably
      withheld), and in any event any assignee of Purchasers shall be an “accredited
      investor” (as defined in Regulation D), in the written opinion of counsel who is
      reasonably satisfactory to the Parent, and such assignment shall be in form,
      substance and scope reasonably satisfactory to the Parent. Notwithstanding
      anything herein to the contrary, Purchasers may pledge their Notes as collateral
      for a bona fide loan with a third party lender, and such pledge shall not be
      considered an assignment in violation of this Agreement so long as it is made
      in
      compliance with all applicable law.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     20. 
        No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

     21. 
        Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and signature pages from such
      counterparts have been delivered.

     

     22. 
        Entire
      Agreement; Amendments.
      This
      Agreement, the Ancillary Agreements, and any exhibits hereto or thereto and
      any
      certificates required to be delivered by this Agreement or the Ancillary
      Agreements, contain the entire understanding of the parties with respect to
      the
      matters covered herein and therein and, except as specifically set forth herein
      or therein, neither the Companies nor Purchasers makes any representation,
      warranty, covenant or undertaking with respect to such matters. No provision
      of
      this Agreement or the Ancillary Agreements may be waived or amended other than
      by an instrument in writing signed by the Companies and the Majority Purchasers,
      which amendment or waiver shall be binding on all Purchasers.

     

     IN
      WITNESS WHEREOF, the Companies and the Administrative Agent have caused this
      Agreement to be duly executed as of the date first written above.

     

    
      	 	 	 
	 	
              THE
                COMPANIES:

               

              SMALL WORLD KIDS, INC.

            
	 
 	 
 	 
 
	 	By:  	 
	 	
              
                

              

              Name: Debra
                Fine

              Title:   Chief
                Executive Officer

            
	 	 

    

    
      	 	 	 
	 
 	
               

              SMALL WORLD KIDS, INC.

               

               

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

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

     

    
      	 	
              PURCHASER:                                
                                                    
                

                                          
                                                                                 
                

               

               

              By: 
                

              Name:                                                               
                 

              Title:                                                                
                 

               

              Address:      
                     
                                                                                 
                

               

              
                                                                                                              
                  
                                              
                                                                                     
                    

                

              

               

              Attention:            
                                                                            
                 

              Fax
                Number:
                (____)                 
                                                      
                 

               

               

              Face
                Amount of Note:
                $                  
                                              
                 

               

               

              Investment
                Amount of Note:
                $           
                    
                                      

            

    

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

    ANNEX A

     

    DEFINITIONS

     

    “Accounts”
      means all “accounts”, as such term is defined in the UCC, now owned or hereafter
      acquired by any Person.

     

    “Affiliate”
      means, with respect to any Person, (a) any other Person (other than one of
      the
      Subsidiaries) which, directly or indirectly, is in control of, is controlled
      by,
      or is under common control with such Person or (b) any Person who is a director
      or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii)
      of
      any Person described in clause (a) above. For the purposes of this definition,
      control of a Person shall mean the power (direct or indirect) to direct or
      cause
      the direction of the management and policies of such Person whether by contract
      or otherwise.

     

    “Agreement”
      has the meaning given such term in the Preamble.

     

    “Ancillary
      Agreements” means, the Notes, the Warrants, the First Amended and Restated
      Registration Rights Agreement, the Subordination Agreements required to be
      executed and delivered pursuant to the Agreement, the Notes, the Note Purchase
      Agreement, dated as of October 6, 2006, as amended, or the Notes issued pursuant
      thereto, and all other agreements, instruments, documents, mortgages, pledges,
      powers of attorney, consents, assignments, contracts, notices, security
      agreements, trust agreements and guarantees whether heretofore, concurrently,
      or
      hereafter executed by or on behalf of any Company, any of its Subsidiaries
      or
      any other Person or delivered to either Purchaser, relating to this Agreement
      or
      to the transaction contemplated by this Agreement or otherwise relating to
      the
      relationship between or among any Company and the Purchasers, as the same may
      be
      amended, supplemented, rested or otherwise modified from time to
      time.

     

    “Assets”
      has the meaning given such term in Section 4.13.

     

    “Balance
      Sheet Date” has the meaning given such term in Section 4.5(b).

     

    “Books
      and Records” means all books, records, board minutes, contracts, licenses,
      insurance policies, environmental audits, business plans, files, computer files,
      computer discs and other data and software storage and media devices, accounting
      books and records, financial statements (actual and pro forma), filings with
      Governmental Authorities and any and all records and instruments relating to
      the
      Collateral or otherwise necessary or helpful in the collection thereof or the
      realization thereupon.

     

    “CCP”
has
      the meaning given such term in Section 12.2(a).

     

    “Change
      of Control” means a change in ownership or control of either of the Companies
      effected through any of the following transactions: (i) a stockholder-approved
      merger, consolidation or other reorganization in which securities representing
      more than 50% of the total combined voting power of the Parent’s outstanding
      securities become beneficially owned, directly or indirectly, by a person or
      related group of persons (other than a person or related group of persons that,
      immediately prior to such transaction, directly or indirectly controlled, was
      controlled by, or was under common control with, the Parent; (ii) a
      stockholder-approved sale, transfer or other disposition of all or substantially
      all of either or both of the Companies’ assets to any person or related group of
      persons (other than a person or related group of persons that, immediately
      prior
      to such transaction, directly or indirectly controlled, was controlled by,
      or
      was under common control with, the Parent); or (iii) the acquisition, directly
      or indirectly, by any person or related group of persons (other than either
      Company or a person that directly or indirectly controls, is controlled by,
      or
      is under common control with, the Parent), of beneficial ownership (within
      the
      meaning of Rule 13-d3 of the Exchange Act) of securities possessing more than
      50% of the total combined voting power of the Parent’s outstanding securities
      from a person or persons other than the Parent.

     

    
      
        ANNEX
          A

      

      
        -
          1 -

        
          

        

      

      
        
        

      

    

     

    “Charter”
      has the meaning given such term in Section 4.2(e).

     

    “Claim”
      has the meaning given such term in Section 12.2(a).

     

    “Claim
      Date” has the meaning given such terms defined in Section 12.2(a).

     

    “Closing”
      has the meaning given such terms defined in Section 1.3.

     

    “Closing
      Date” has the meaning given such terms defined in Section 1.3.

     

    “Collateral”
      means all of each Company’s property and assets, whether real or personal,
      tangible or intangible, and whether now owned or hereafter acquired, or in
      which
      it now has or at any time in the future may acquire any right, title or
      interests including all of the following property in which it now has or at
      any
      time in the future may acquire any right, title or interest: (a) all Inventory;
      (b) all Equipment; (c) all Fixtures; (d) all Goods; (e) all General Intangibles;
      (f) all Accounts; (g) all Deposit Accounts, other bank accounts and all funds
      on
      deposit therein; (h) all Investment Property; (i) all Stock; (j) all Chattel
      Paper; (k) all Letter-of-Credit Rights; (l) all Instruments; (m) all commercial
      tort claims; (n) all Books and Records; (o) all Intellectual Property
      (including, without limitation, all Patents and Trademarks); (p) all Supporting
      Obligations, including letters of credit and guarantees issued in support of
      Accounts, Chattel Paper, General Intangibles and Investment Property; (q) (i)
      all money, cash and cash equivalents and (ii) all cash held as cash collateral
      to the extent not otherwise constituting Collateral, all other cash or property
      at any time on deposit with or held by Purchasers for the account of any Company
      (whether for safekeeping, custody, pledge, transmission or otherwise); and
® all
      products and Proceeds of all or any of the foregoing, tort claims and all claims
      and other rights to payment (i) including insurance claims against third parties
      for loss of, damage to, or destruction or, the foregoing Collateral and (ii)
      payments due or to become due under leases, rentals and hires of any or all
      of
      the foregoing and Proceeds payable thereunder, or unearned premiums with respect
      to policies of insurance in whatever form. 

     

    “Common
      Stock” means the shares of stock representing the Parent’s common equity
      interests.

     

    “Company”
      and “Companies” have the meanings given such terms in the Preamble.

     

    “Equipment”
      means all “equipment” as such term is defined in the UCC, now owned or hereafter
      acquired by any Person, wherever located, including any and all machinery,
      apparatus, equipment, fittings, furniture, Fixtures, motor vehicles and other
      tangible personal property (other than Inventory) of every kind and description
      that may be now or hereafter used in such Person’s operations or that are owned
      by such Person or in which such Person may have an inters, and all parts,
      accessories and accessions thereto and substitutions and replacements
      therefor.

     

    “Event
      of
      Default” means the occurrence of any of the events set forth in Section
      8.

     

    “Exchange
      Act” has the meaning given such term in Section 4.10.

     

    “Exchange
      Act Filings” means the Parent’s filings under the Exchange Act made prior to the
      date of this Agreement.

     

    “Face
      Amount” has the meaning given such term in Recital A.

     

    “Fixtures”
      means all fixtures” as such term is defined in the UCC, now owned or hereafter
      acquired by any Person.

     

    “GAAP”
      means generally accepted accounting principles, practices and procedures in
      effect from time to time in the United States of America.

     

    
      
        DEFINITIONS

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

     

    “General
      Intangibles” means all “general intangibles” as such term is defined in the UCC,
      now owned or hereafter acquired by any Person, including all right, title and
      interest that such Person may now or hereafter have in or under any contract,
      all Payment Intangibles, customer lists, Licenses, Intellectual Property,
      interests in partnerships, joint ventures and other business associations,
      permits, proprietary or confidential information, inventions (whether or not
      patented or patentable), technical information, procedures, designs, knowledge,
      know-how, Software, data bases, data, skill, expertise, experience, processes,
      models, drawings, materials, Books and Records, Goodwill (including the Goodwill
      associated with any Intellectual Property), all rights and claims in or under
      insurance polices (including insurance for fire, damage, loss, and casualty,
      whether covering personal property, real property, tangible rights or intangible
      rights, all liability, life, key-person, and business interruption insurance,
      and all unearned premiums), uncertificated securities, choses in action, deposit
      accounts, rights to receive tax refunds and other payments, rights to receive
      dividends, distributions, cash, instruments and other property in respect of
      or
      in exchange for pledged Stock and Investment Property, and rights of
      indemnification.

     

    “Goldwasser”
      means Eddy Goldwasser and Gail S. Goldwasser, Trustee of the Gail S. Goldwasser
      and Mark Chatinsky Family Trust.

     

    “Goodwill”
      means all goodwill, trade secrets, proprietary or confidential information,
      technical information, procedures, formulae, quality control standards, designs,
      operating and training manuals, customer lists, and distribution agreements
      now
      owned or hereafter acquired by any Person.

     

    “Horizon”
      has the meaning given such term in Section 4.5(b).

     

    “Instruments”
      means all “instruments”, a such term is defined in the UCC, now or hereafter
      acquired by any Person, wherever located, including all certificated securities
      and all promissory notes and other evidences of indebtedness, other than
      instruments that constitute, or are a part of a group of writings that
      constitute, Chattel Paper.

     

    “Intellectual
      Property” means any and all patents, trademarks, service marks, trade names,
      copyrights, trade secrets, Licenses, information and other proprietary rights
      and processes.

     

    “Inventory”
      means all “inventory” as such term is defined in the UCC, now owned or hereafter
      acquired by any Person, wherever located, including all inventory, merchandise,
      goods and other personal property that are held by or on behalf of such Person
      for sale or lease or are furnished or at to be finished under a contract of
      service or that constitute raw materials, work in process, finished goods,
      returned goods, or materials or supplies of any kind, nature or description
      used
      or consumed or to be used or consumed in such Person’s business or in the
      processing, production, packaging, promotion, delivery or shipping of the same,
      including all supplies and embedded software.

     

    “Investment
      Amount” has the meaning given such term in Recital C.

     

    “Laurus”
      has the meaning given such term in Section 4.5(b).

     

    “License”
      means any rights under any written agreement now or hereafter acquired by any
      Person to sue any trademark, trademark registration, copyright, copyright
      registration or invention for which a patent is in existence or other license
      of
      rights or interests now held or hereafter acquired by any Person.

     

    “Liens”
      means any mortgage, deed of trust, pledge, security interest, assignment, charge
      or encumbrance, lien, or other type of preferential arrangement.

     

    “Material
      Adverse Effect” means a material adverse effect on (a) the business, assets,
      liabilities, condition (financial or otherwise), properties, operations or
      prospects of any Company or any of its Subsidiaries (taken individually or
      as a
      whole), (b) any Company’s or any of its Subsidiary’s inability to pay or perform
      Obligations in accordance with there terms of the Agreement or any Ancillary
      Agreement, (c) the value of the Collateral, the Liens on the Collateral or
      the
      priority of any such Lien, or (d) the practical realization of the benefits
      of
      Purchasers’ rights and remedies under this Agreement and the Ancillary
      Agreements.

     

    
      
        DEFINITIONS

      

      
        -
          3 -

        
          

        

      

      
        
        

      

    

     

    “Notes”
      has the meaning given such term in Recital A.

     

    “Note
      Shares” has the meaning given such term in Section 3.1.

     

    “Obligations”
      means all loans, liabilities, obligations, covenants and duties owning by each
      Company and each of its Subsidiaries to the Purchasers (including the Purchasers
      pursuant to that certain Note Purchase Agreement, dated as of October 6, 2006,
      as amended) of every kind and description (whether or nor evidenced by the
      Notes
      or other instrument and whether or not for the payment of money or the
      performance or non-performance of any act), direct or indirect, absolute or
      contingent, due or to become due, contractual or tortuous, liquidated or
      unliquidated, whether existing by operation of law or otherwise now existing
      or
      hereafter arising including any debt, liability or obligation owing from any
      Company and/or each of its Subsidiaries to other which Purchasers have obtained
      by assignment or otherwise and further including all interest (including
      interest accruing at the then applicable rate provided in the Notes after the
      filing of any petition in bankruptcy, or the commencement of any insolvency,
      reorganization or like proceeding, whether or not a claim for post-filing or
      post-petition interest is allowed or allowable in such proceeding), charges
      or
      other payments each Company and each of its Subsidiaries is required to make
      by
      law or otherwise arising under or as a result of this Agreement, the Ancillary
      Agreements or otherwise, together with all reasonable expenses and reasonable
      attorneys’ fees chargeable to the Companies” or any of their Subsidiaries’
accounts or incurred by the Purchasers in connection therewith.

     

    “Patents”
      means all registered and pending applications and those patents which are
      hereafter adopted or acquired by a Company or any of its Subsidiaries, and
      all
      right, title and interest therein and thereto, and all
      registrations.

     

    “Parent”
      has the meaning given such term in the Preamble.

     

    “Person”
      means any individual, sole proprietorship, partnership, limited liability
      partnership, joint venture, trust, unincorporated organization, association,
      corporation, limited liability company, institution, public benefic corporation,
      entity or government (whether federal, state, county, city, municipal or other
      wide, including any instrumentality, division, agency, body or department
      thereof) and shall include such Person’s successors and assigns.

     

    “Purchaser”
      and “Purchasers” have the meanings given such terms in the
      Preamble.

     

    “SEC”
has
      the meaning given such term in Section 4.9.

     

    “SEC
      Reports” has the meaning given such term in Section 4.10.

     

    “Securities”
      has the meaning given such term in Section 3.1.

     

    “Securities
      Act” has the meaning given such term in Section 3.1.

     

    “Software”
      means all “software” as such term is defined in the UCC, now owned or hereafter
      acquired by an Person, including all computer programs and all supporting
      information provided in connection with a transaction related to any
      program.

     

    “St.
      Cloud” has the meaning given such term in Section 5.1.

     

    “Subsidiary”
      has the meaning given such term in the Preamble and also includes, with respect
      to any Person, (i) any other Person whose shares of stock or other ownership
      interests having ordinary voting power (other than stock or other ownership
      interests having such power only by reason of the happening of a contingency)
      to
      elect a majority of the directors or other governing body of such other Person,
      are owned, directly or indirectly, by such Person or (ii) any other Person
      in
      which such Person owns, directly or indirectly, more than 50% of the equity
      interests at such time.

     

    
      
        DEFINITIONS

      

      
        -
          4 -

        
          

        

      

      
        
        

      

    

     

    “Subsidiaries”
      is the plural of Subsidiary.

     

    “Trademarks”
      mean the registered trademarks and pending applications of a Company or any
      of
      its Subsidiaries (whether on an intent to use basis or otherwise) and those
      trademarks which are hereafter adopted or acquired by a Company or any of its
      Subsidiaries, and all right, title and interest therein and thereto, and all
      registrations, applications, and recordings thereof, including, without
      limitation, applications, registrations and recordings in the United States
      Patent and Trademark Office or in any similar office or agency of the United
      States, any State thereof, or any foreign country, all whether now owned or
      hereafter acquired by a Company or its Subsidiaries.

     

    “UCC”
      means the Uniform Commercial Code as the same may, from time to time be in
      effect in the State of California; provided, that in the event that, buy reason
      of mandatory provisions of law, any or all of the attachment, perfection or
      priority of, or remedies with respect to, the Purchasers Lien on any Collateral
      is governed by the Uniform Commercial Code as in effect in a jurisdiction other
      than the State of California, the term “UCC” shall mean the Uniform Commercial
      Code as in effect in such other jurisdiction for purposes of the provisions
      of
      this Agreement relating to such attachment, perfection, priority or remedies
      and
      for purposes of definitions related o such provisions; provided, further, that
      to the extent that UCC is used to define any term herein or in any Ancillary
      Agreement and such term is defined differently in different Articles or
      Divisions of the UCC, the definition of such term contained in Article or
      Divisions 9 shall govern.

     

    “Warrant”
      and “Warrants” have the meanings given such terms in Section 1.2.

     

    “Warrant
      Shares” has the meaning given such term in Section 3.1.

     

    Any
      accounting terms used in this Agreement that are not specifically defined shall
      have the meanings customarily given to them in accordance with GAAP and all
      financial computations shall be computed, unless specifically provided herein,
      in accordance with GAAP consistently applied. All other terms used in this
      Agreement and defined in the UCC shall have the meaning given therein unless
      otherwise defined herein.

     

    
      
        DEFINITIONS

      

      
        -
          5 -

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 4.2

     

    Capitalization
      Table and Beneficial Ownership

     

    
      	
              Small
                World Kids, Inc. Capitalization

              Current

            	 	
              Total

            	 	
              %

            	 	
              Common
                Stock

            	 	
              Warrants

            	 	
              Class
                A-1 Convertible Preferred Shares

            	 	
              Convertible
                Debentures

            	 	
              Options

            	 
	
              Gamma
                Opportunity Capital Partners LP Class A

            	 	 	
              765,485

            	 	 	
              3.5

            	
              %

            	 	 	 	 	
              415,485

            	 	 	
              350,000

            	 	 	 	 	 	 	 
	
              Gamma
                Opportunity Capital Partners LP Class C

            	 	 	
              765,485

            	 	 	
              3.5

            	
              %

            	 	 	 	 	
              415,485

            	 	 	
              350,000

            	 	 	 	 	 	 	 
	
              Bushido
                Capital Master Fund LP 

            	 	 	
              1,758,243

            	 	 	
              8.1

            	
              %

            	 	 	 	 	
              830,970

            	 	 	
              927,273

            	 	 	 	 	 	 	 
	
              SWT
                Investments, LLC 

            	 	 	
              1,297,673

            	 	 	
              6.0

            	
              %

            	 	
              1,297,673

            	 	 	
              -

            	 	 	 	 	 	 	 	 	 	 
	
              SBI
                Advisors

            	 	 	
              331,178

            	 	 	
              1.5

            	
              %

            	 	
              93,678

            	 	 	
              237,500

            	 	 	
              -

            	 	 	 	 	 	 	 
	
              Russell
                and Debra Fine as Co-Trustees of the Fine Family Trust

            	 	 	
              2,201,879

            	 	 	
              10.1

            	
              %

            	 	
              1,721,543

            	 	 	
              3,063

            	 	 	
              477,273

            	 	 	 	 	 	 	 
	
              SWT,
                LLC 

            	 	 	
              5,112,241

            	 	 	
              23.6

            	
              %

            	 	 	 	 	
              204,082

            	 	 	
              4,908,159

            	 	 	 	 	 	 	 
	
              Strome
                Offshore Ltd.

            	 	 	
              134,400

            	 	 	
              0.6

            	
              %

            	 	 	 	 	
              134,400

            	 	 	 	 	 	 	 	 	 	 
	
              Phoenix
                Capital Opportunity Fund, LP

            	 	 	
              70,000

            	 	 	
              0.3

            	
              %

            	 	
              70,000

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              St.
                Cloud Capital Partners, LP 

            	 	 	
              762,500

            	 	 	
              3.5

            	
              %

            	 	
              81,250

            	 	 	
              118,750

            	 	 	 	 	 	
              562,500

            	 	 	 	 
	
              David
                Marshall, Inc.

            	 	 	
              1,146,718

            	 	 	
              5.3

            	
              %

            	 	
              1,146,718

            	 	 	 	 	 	
              -

            	 	 	 	 	 	 	 
	
              Sid
                Marshall Enterprises

            	 	 	
              391,818

            	 	 	
              1.8

            	
              %

            	 	
              206,500

            	 	 	
              3,500

            	 	 	
              181,818

            	 	 	 	 	 	 	 
	
              David
                L. Ficksman and Maxine B. Ficksman, as trustees of the Ficksman Family
                Trust 

            	 	 	
              37,726

            	 	 	
              0.2

            	
              %

            	 	
              37,726

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Cambria
                Capital 

            	 	 	
              128,977

            	 	 	
              0.6

            	
              %

            	 	 	 	 	
              128,977

            	 	 	 	 	 	 	 	 	 	 
	
              Jon
                Larrick 

            	 	 	
              50,000

            	 	 	
              0.2

            	
              %

            	 	
              50,000

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Curried
                Clover LLC 

            	 	 	
              249,809

            	 	 	
              1.2

            	
              %

            	 	
              249,809

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Frontera
                Group, LLC 

            	 	 	
              564,952

            	 	 	
              2.6

            	
              %

            	 	
              64,077

            	 	 	
              875

            	 	 	
              500,000

            	 	 	 	 	 	 	 
	
              Edward
                Kummer 

            	 	 	
              15,613

            	 	 	
              0.1

            	
              %

            	 	
              15,613

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Jark
                Holdings, LLC 

            	 	 	
              39,591

            	 	 	
              0.2

            	
              %

            	 	
              16,426

            	 	 	
              438

            	 	 	
              22,727

            	 	 	 	 	 	 	 
	
              Lawrence
                S. Bond 

            	 	 	
              15,613

            	 	 	
              0.1

            	
              %

            	 	
              15,613

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Robert
                J. Bond 

            	 	 	
              15,613

            	 	 	
              0.1

            	
              %

            	 	
              15,613

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Mathew
                Marshall

            	 	 	
              31,226

            	 	 	
              0.1

            	
              %

            	 	
              31,226

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Charlene
                and Steve Ustin Revocable Trust 

            	 	 	
              62,452

            	 	 	
              0.3

            	
              %

            	 	
              62,452

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Juliette
                Trattne 

            	 	 	
              54,333

            	 	 	
              0.3

            	
              %

            	 	
              54,333

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              The
                Pindus Family Trust 

            	 	 	
              47,955

            	 	 	
              0.2

            	
              %

            	 	
              1,625

            	 	 	
              875

            	 	 	
              45,455

            	 	 	 	 	 	 	 
	
              Laurus
                Master Funds, LTD 

            	 	 	
              1,721,185

            	 	 	
              7.9

            	
              %

            	 	 	 	 	
              1,721,185

            	 	 	 	 	 	 	 	 	 	 
	
              George
                Karfunkel 

            	 	 	
              227,273

            	 	 	
              1.0

            	
              %

            	 	 	 	 	 	 	 	
              227,273

            	 	 	 	 	 	 	 
	
              Michael
                Karfunkel 

            	 	 	
              227,273

            	 	 	
              1.0

            	
              %

            	 	 	 	 	 	 	 	
              227,273

            	 	 	 	 	 	 	 
	
              C.E.
                Unterberg, Towbin Capital Partners 1, L.P.

            	 	 	
              554,545

            	 	 	
              2.6

            	
              %

            	 	 	 	 	
              100,000

            	 	 	
              454,545

            	 	 	 	 	 	 	 
	
              The
                Shebson Trust 

            	 	 	
              90,909

            	 	 	
              0.4

            	
              %

            	 	 	 	 	 	 	 	
              90,909

            	 	 	 	 	 	 	 
	
              Bart
                Gurewitz

            	 	 	
              31,818

            	 	 	
              0.1

            	
              %

            	 	 	 	 	 	 	 	
              31,818

            	 	 	 	 	 	 	 
	
              John
                Nelson 

            	 	 	
              31,818

            	 	 	
              0.1

            	
              %

            	 	 	 	 	 	 	 	
              31,818

            	 	 	 	 	 	 	 
	
              The
                UCLA Foundation (Gifted by John Matise)

            	 	 	
              31,818

            	 	 	
              0.1

            	
              %

            	 	 	 	 	 	 	 	
              31,818

            	 	 	 	 	 	 	 
	
              Trinad
                Capital Master Fund 

            	 	 	
              454,545

            	 	 	
              2.1

            	
              %

            	 	 	 	 	 	 	 	
              454,545

            	 	 	 	 	 	 	 
	
              HIT
                Credit Union 

            	 	 	
              290,909

            	 	 	
              1.3

            	
              %

            	 	 	 	 	 	 	 	
              290,909

            	 	 	 	 	 	 	 
	
              Hong
                Kong League Central Credit Union 

            	 	 	
              788,636

            	 	 	
              3.6

            	
              %

            	 	 	 	 	 	 	 	
              513,636

            	 	 	
              275,000

            	 	 	 	 
	
              PCCW
                Credit Union 

            	 	 	
              104,545

            	 	 	
              0.5

            	
              %

            	 	 	 	 	 	 	 	
              104,545

            	 	 	 	 	 	 	 
	
              Vintage
                Filings LLC

            	 	 	
              90,909

            	 	 	
              0.4

            	
              %

            	 	 	 	 	 	 	 	
              90,909

            	 	 	 	 	 	 	 
	
              Kershaw
                Makie & Company

            	 	 	
              37,500

            	 	 	
              0.2

            	
              %

            	 	 	 	 	
              12,500

            	 	 	 	 	 	
              25,000

            	 	 	 	 
	
              David
                Fuchs

            	 	 	
              67,614

            	 	 	
              0.3

            	
              %

            	 	 	 	 	
              67,614

            	 	 	 	 	 	 	 	 	 	 
	
              Public
                Float

            	 	 	
              178,700

            	 	 	
              0.8

            	
              %

            	 	
              178,700

            	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Options
                - Directors and Employees

            	 	 	
              722,000

            	 	 	
              3.3

            	
              %

            	 	 	 	 	 	 	 	 	 	 	 	 	 	
              722,000

            	 
	
               

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	-	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Total

            	 	 	
              21,703,477

            	 	 	
              100.0

            	
              %

            	 	
              5,410,575

            	 	 	
              4,395,699

            	 	 	
              10,312,703

            	 	 	
              862,500

            	 	 	
              722,000

            	 

    

     

    
      
        
          SCHEDULE
            4.2

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      4.5

     

    List
      of Agreements

     

    All
      material agreements have been disclosed and attached as exhibits to Parent’s
      Form 10-Ks, Form 10-Qs and Form 8-Ks.

     

    
      
        
          SCHEDULE
            4.5

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      4.6

     

    Pledged
      Assets

     

    
      	·  	
              Credit
                Facility between Small World Toys, as Borrower and Laurus Master
                Fund,
                Ltd. as Lender is secured by all of the assets of Small World Kids,
                Inc.
                and its Subsidiaries.

            

    

     

    
      	·  	
              Note
                Purchase Agreement, as amended, with St. Cloud Capital Partners,
                L.P. as
                Purchaser is secured by all of the assets of Small World
                Toys.

            

    

     

    
      	·  	
              1,667
                shares of Small World Toys have been pledged to Eddy Goldwasser to
                secure
                one promissory note dated May 20, 2004 to Mr.
                Goldwasser.

            

    

     

    
      	·  	
              Purchase
                Order Revolving Credit Line from Horizon Financial Services Group
                USA that
                is collateralized by a security interest, junior in position to that
                of
                senior lender, Laurus Master Fund, Ltd., to the assets related to
                the PO
                Credit Line transactions.

            

    

     

    
      	·  	
              $330,000
                Notes issued to Hong Kong League Central Credit Union and Kershaw
                Mackie
                & Company pursuant to the Note Purchase Agreement, dated as of October
                6, 2006, is secured by all of the assets of the
                Companies.

            

    

     

    
      
        
          SCHEDULE
            4.6

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      4.7

     

    Intellectual
      Property

     

    The
      Companies have received notice that the collapsible soccer net it had been
      selling may infringe the patent rights of a third-party. The Companies intend
      to
      discontinue the sale of this item.

     

    
      
        
          SCHEDULE
            4.7

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      4.10

     

    SEC
      Reports Exceptions

     

    None.

     

    
      
        
          SCHEDULE
            4.10

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      4.11

     

    Litigation

     

    
      	·  	
              Ryan
                Yanigihara, the Parent’s former controller, has filed a complaint with the
                US Department of Labor alleging violation of Section 806 of the
                Sarbanes-Oxley Act protecting
                whistle-blowers.

            

    

     

    
      	·  	
              See
                also disclosure on Schedule 4.7.

            

    

     

    
      
        
          SCHEDULE
            4.11

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      4.13

     

    Outstanding
      List Of Registration Rights

     

    
      	·  	
              The
                Company filed a Registration Statement on Form S-1 on June 15, 2006
                and
                Amendment Number 1 on October 4, 2006 with the SEC complying with
                all
                registration rights obligations through the date of
                filing.

            

    

     

    
      	·  	
              Subsequent
                to June 15, 2006, the Company sold $50,000 of Class A-1 Preferred
                Stock
                that has piggy-back registration
                rights.

            

    

     

    
      	·  	
              The
                Company is a party to a Registration Rights Agreement, dated as of
                October
                6, 2006, with Hong Kong Central League Credit Union, Kershaw Mackie
&
                Company and SBI Advisors, LLC, which agreement has been or will be
                amended
                and wholly restated as part of the First Amended and Restated Registration
                Rights Agreement with Hong Kong Central League Credit Union, Kershaw
                Mackie & Company and SBI Advisors, LLC and the
                Purchasers

            

    

     

    
      
        
          SCHEDULE
            4.13

        

      

      
        Page
          1

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      4.19

     

    List
      of Names and Locations

     

    Small
      World Kinds, Inc.,
      a
      Nevada corporation, EIN 86-0678911

     

    Corporate
      location: 5711
      Buckingham Parkway, Culver City, CA 90230

     

    

     

    Small
      World Toys,
      a
      California corporation

     

    Office
      headquarters: 5711
      Buckingham Parkway, Culver City, CA 90230

     

    Warehouse
      location: 24640
      S.
      Main Street, Carson, CA 90745

     

    Third
      party warehouse (Target) location: 13204
      Philadelphia Avenue, Fontana, CA 92337

     

    

    Fine
      Ventures, LLC,
      a
      Delaware LLC—no locations nor operating assets

    

    

    Fashion
      Angels Enterprises, Inc.,
      a
      Wisconsin corporation—no locations nor operating assets

     

    
      
        
          SCHEDULE
            4.19

        

      

      
        Page
          1

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