1157564--4/11/2007--SMALL_WORLD_KIDS

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{condition, economic, financial}

{debt, indebtedness, cash}

{customer, product, revenue}

{product, market, service}

{control, financial, internal}

{cost, regulation, environmental}

{operation, international, foreign}

{tax, income, asset}

{competitive, industry, competition}

{product, candidate, development}

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{product, liability, claim}

{acquisition, growth, future}

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We have limited cash available for operations. We may not have sufficient liquidity to continue to meet our debt obligations. We have a history of net losses. We have cross default provisions in our senior credit facility which may result in the acceleration the obligations due under the credit agreement Our business and operating results will depend on our ability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines. Uncertainty and adverse changes in the general economic conditions of markets in which we participate may negatively affect our business. The toy industry is highly competitive. The toy industry is subject to high rates of seasonality. Our growth strategy depends in part upon our ability to acquire companies, new product lines and licenses. A substantial reduction in or termination of orders from any of our largest customers could adversely affect our financial condition and results of operations. Liquidity problems or bankruptcy of our key customers could increase our exposure to losses from bad debts and could have a material adverse effect on our business, financial condition and results of operations. We depend on third-party manufacturers who develop, provide and use the tools and dies that we own to manufacture our products and we have limited control over the manufacturing processes. We do not have long-term contracts with our third-party manufacturers and our operations would be impaired if we lost our current suppliers. We have manufacturing operations outside of the United States, subjecting us to risks associated with international operations. Our products sold in the United States are subject to various laws, including the Federal Hazardous Substances Act, the Consumer Product Safety Act, the Federal Hazardous Substances Act, the Flammable Fabrics Act and the rules and regulations promulgated under these acts. We could be the subject of future product liability suits, which could harm our business. We have a material amount of goodwill which, if it becomes impaired, would result in a charge against our income Because of the limited trading and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so.

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1157564--4/11/2007--SMALL_WORLD_KIDS_INC