SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549


Form 10-K


ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)


OF THE SECURITIES AND EXCHANGE ACT OF
1934


FOR
THE FISCAL YEAR ENDED MARCH 31, 2009


Commission
File Number 119698





COSMO
COMMUNICATIONS CORPORATON


(Exact name of Registrant as
Specified in Its Charter)





FLORIDA
                  (State
      or Other Jurisdiction of
                  Incorporation
      or Organization)
                
                59-2268025
                  (IRS
      Employer
                  Identification
      No.)


Unit
2 – 55 Travail Road


Markham,
Ontario, Canada


(905)209-0488


(Address and Telephone Number of
Principal Executive Offices)





Securities Registered Pursuant to
Section 12(b) of the Act:


Common
Stock,  $.05 Par Value Per Share





Securities Registered Pursuant to
Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     Yes  ̈          No þ





Indicate
by check mark if the registrant is not required to file reports pursuant of
Section 13 or 15(d) of the Act.     Yes  ̈          No þ





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days.     Yes þ          No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).        Yes  ̈     No
 ̈





Indicate
by check mark if the disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.      ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company,” in Rule 12b-2 of the Exchange Act):





Large
accelerated filler  ̈   Accelerated
filer  ̈    Non-accelerated
filer   ̈   Smaller
reporting company þ





Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2)     Yes  ̈          No þ


The
aggregate market value of the Registrant's voting stock held by non-affiliates
was undetermined as there have been no quotes on the bid and ask price of the
registrant’s common stock. There were 40,467,636 shares of Common Stock
issued and outstanding as of June 29, 2009.


COSMO
COMMUNICATIONS CORPORATION
 ANNUAL REPORT ONFORM 10-K
 FOR
THE FISCAL YEAR ENDED MARCH 31, 2009
 TABLE OF
CONTENTS
 
 PagePART IItem 1.
                            
                            Business
                            
                            3Item 1A
                            
                            Risk
      Factors
                            
                            12Item
      1B
                            
                            Unresolved
      Staff Comments
                            
                            16Item 2.
                            
                            Properties
                            
                            16Item 3.
                            
                            Legal
      Proceedings
                            
                            17Item 4.
                            
                            Submission
      of Matters to a Vote of Security Holders
                            
                            17PART IIItem 5.
                            
                            Market
      for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
      Purchases of Equity Securities
                            
                            17Item 6.
                            
                            Selected
      Financial Data
                            
                            18Item 7.
                            
                            Management’s
      Discussion and Analysis of Financial Condition and Results of Continuing
      Operations
                            
                            19Item 7A
                            
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            
                            28Item 8.
                            
                            Financial
      Statements and Supplementary Data
                            
                            30Item 9.
                            
                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                            
                            46Item 9A.
                            
                            Controls
      and Procedures
                            
                            46Item 9B.
                            
                            OtherInformation
                            
                            47PART IIIItem 10.
                            
                            Directors
      and Executive Officers of the Registrant
                            
                            47Item 11.
                            
                            Executive
      Compensation
                            
                            49Item 12.
                            
                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                            
                            51Item 13.
                            
                            Certain
      Relationships and Related Transactions
                            
                            52Item 14.
                            
                            Principal
      Accountant Fees and Services
                            
                            53PART IVItem 15.
                            
                            Exhibits,
      Financial Statement Schedules and Reports on Form 8-K
                            
                            54Signatures
                            
                            56
 
  Table of
Contents
  Forward-Looking
Statements and Risk Factors
 We make forward-looking statements
in this report including, without limitation, statements concerning the future
of our industry, product development, business strategy, continued acceptance
and growth of our products, dependence on significant
customers and suppliers, and the adequacy of our available cash resources.
Statements may contain projections of results of operations or of financial
condition. These statements may be identified by the use of
forward-looking terminology such as
“may,”“will,”“believe,”“expect,”“anticipate,”“estimate,”“continue”or other similar
words.
 Forward-looking statements are
subject to many risks and uncertainties. We caution you not to place undue
reliance on these forward-looking statements, which speak only
as at the date on which they are made. Actual results may differ materially from
those described in these forward-looking statements. We disclaim any obligation
or undertaking to update these forward-looking statementsto reflect changes in our
expectations or changes in events, conditions, or circumstances on which our
expectations are based.
 When considering
our forward-looking statements, you should keep in mind the risk factors and
other cautionary statements identified in this
report. The risk factors noted throughout thisAnnual
Report,
particularly in the discussion in Item 1A, and other risk factors thatCosmohas not
anticipated or discussed, could cause our actual results to differ significantly
from those anticipated in our
forward-lookingstatements.
  
  Table of
Contents
  PART I
 
 Item 1. Business
 
 Overview
 
 Cosmo
Communications Corporation (the “Company”, "Cosmo" "we," "us" or "our") was
incorporated in the state of Florida in 1983.
 
 The
Company is engaged in the development, production, distribution, marketing and
sale of consumer electronic audio and video equipment, accessories and
clocks.  We contract for the manufacture of all electronic equipment
products with factories located in China.  We market certain lines of
our products under labels that we have distribution agreements
with.  We also sell products under private labels for our major
customer.
 
 During
our early years of operations, the products we sold were principally that of
quartz and digital clocks, and radio cassette players.  In the 90’s,
we began marketing Compact Disc (“CD”) equipment, cordless telephones and small
screen televisions.
 
 In April
2000, we entered into a Stock Purchase Agreement pursuant to which we offered
shares of common stock representing 84.89% of the outstanding common stock to
Master Light Enterprise Limited. (“Master Light”), a subsidiary of Starlight
International Limited (“Starlight”), a publicly held company traded on the Hong
Kong Stock Exchange, for $1 million.  Pursuant to an amendment to the
Stock Purchase Agreement, in January 2001, the transactions contemplated by the
Stock Purchase Agreement, as amended, were consummated and, after rescinding the
purchase of 1,347,420 shares, Master Light acquired 26,585,008 of our common
stock shares, representing 91.3% of our currently issued and outstanding common
stock.  In September, 2001, additional financing from Starlight
allowed us to discharge all our obligations to our financial institution
lenders.  Starlight owns and operates a number of subsidiaries
globally.  Its principal activity is in the manufacture, sale and
distribution of consumer electronic products.
 
 Our
principal executive office is located in Ontario, Canada with warehouse facility
located in, California, USA.
 
 Since
2001, our common stock shares have not traded on the OTC Bulletin
Board.  As used herein, the “Company”, "Cosmo," "we," us" and similar
terms include Cosmo Communications Corporation, and its subsidiaries, Cosmo
Communications Corporation Canada Inc., Cosmo Communications Corporation (HK)
Limited and Cosmo Communication USA Corp. unless the context indicates
otherwise.
 3
  Table of
Contents
  Product
Lines
 We market
and distribute an assortment of video products including DVD/TV combination
units in both CRT’s and LCD’s with retails ranging from $99 – $299. In addition
to the TV line up we also market a variety of DVD players both portable with TFT
screens and stand alone players, retail pricing ranging from
$25-$99.
 
 We market
and distribute a variety of MP3 and MP4 players with a memory size of 1GB – 4GB
capacity. Retail prices have ranged from $30 - $89.
 
 Cosmo’s
Brands
 
 Cosmo
marketing and product development efforts are designed to enhance its brand
images and generate increased loyalty among its consumers in each market segment
and among the retailers who sell Cosmo products. Cosmo markets its products
under the following primary brands:
 ·
                  Cosmo. Initially, we
      established Cosmo brand name for clocks and digital alarm
      clocks.  We will keep this brand name for this product category
      to capitalize on brand recognition. This category represents 5% of our
      total sales.
 ·
                  Audiologic. The
      Audiologic brand offers a range of radios, CD players, telephones, clock
      radios, portable boom boxes and multiple CD music systems. These items
      represent 9% of total sales during the
year.
 ·
                  Digital Lab:Digital
      Lab an upgraded line up from the audio category including clock radio’s,
      MP3 players and audio products with Ipod connectivity. Digital Lab
      accounted for 5% of total sales during the
year.
 ·
                  Diamond Brand. Cosmo
      introduced Diamond Vision and Diamond Sound as a new brand at the end of
      the 2005 fiscal year with DVD players. We have since added to this line
      Televisions, portable DVD players and MP3 Players. These items represent
      9% of the total sales of the
group.
 ·
                  Disney.This is a licensed
      brand name of Disney Enterprises, Inc.  The licensed electronics
      products include television, DVD players, CD players, and radio alarm
      clocks.  These items represent 28% of the total sales of the
      group.
  4
  Table of
Contents
 Strategy for Cosmo’s
Brands
 Cosmo’s
goal is to develop, distribute, market and sell consumer electronic audio and
video equipment, accessories and clocks of well recognized and respected brands
to customers around the world.  Cosmo’s strategy is intended to
enhance and reinforce Cosmo’s global brand images among consumers and retailers.
Key elements of Cosmo’s strategy are to:
 
 •
                Continue
      to introduce new and technologically innovative products that embody
      distinctive Cosmo qualities; style and new
  features;
  •
                Expand
      the current product lines by adding new features LCD and Plasma TV’s, MP4
      player and IPOD docking unit;
 
 •
                Expand
      Cosmo’s distribution with new and existing
  customers;
 
 •
                Continue
      the penetration into the US market and expand focus in the Disney brand
      products
 
 Cosmo
Products
 
 Percent
of Sales by Product Class
 Cosmo
sales since 2005 were divided among Cosmo’s principal product classes as shown
in the following table:
  Year Ended March 31,2009
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006
                                                  
                                                  
                                                  2005Product Class:
                                                  
                                                  %
                                                  
                                                  
                                                  %
                                                  
                                                  
                                                  %
                                                  
                                                  
                                                  %
                                                  
                                                  
                                                  %MP3
      Players
                                                  
                                                  
                                                  5
                                                  
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  
                                                  12
                                                  
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  
                                                  -Other
      Audio (1)
                                                  
                                                  
                                                  28
                                                  
                                                  
                                                  
                                                  36
                                                  
                                                  
                                                  
                                                  27
                                                  
                                                  
                                                  
                                                  29
                                                  
                                                  
                                                  
                                                  55Video
      (2)
                                                  
                                                  
                                                  59
                                                  
                                                  
                                                  
                                                  48
                                                  
                                                  
                                                  
                                                  59
                                                  
                                                  
                                                  
                                                  62
                                                  
                                                  
                                                  
                                                  40Clocks
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  
                                                  8
                                                  
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  5Tools
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Total
                                                  
                                                  
                                                  100.0%
                                                  
                                                  
                                                  
                                                  100.0%
                                                  
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  
                                                  100%
 
 (1)
Includes boom boxes, CD players, IPOD docking system
 (2)
Includes digital photo frames, DVD players, LCD TV, portable DVD and TV/DVD
combo
 
 Financial
information about geographic segments may be found at Note 12 of the Notes
to Consolidated Financial Statements of this Form 10-K.
 5
  Table of
Contents
  New
Products
 
 Cosmo
introduces new products and enhances its existing products on a regular
basis.  During fiscal 2009, we launched a new youth line of
electronics with design and features to appeal to the youth
market.  We conducted an on-line survey in conjunction with one of our
major retail customers.  Based on this result, we developed a total of
14 audio and video products for an age group of 9-14 years old, mostly for
girls.  The line included portable CD boom box, MP3 players, portable
DVD players and assorted sizes of television.  Due to the economic
conditions in fiscal 2009, although the sales were strong in the first three
months of sales, our major customer has not decided not to continue the youth
line in fiscal 2010.
 
 We added
minor design changes and features to the Disney line and maintained our other
product lines to that of the the prior fiscal year.
 
 Sales,
Marketing and Distribution
 
 Cosmo
endeavors to have its brands project images that appeal to consumers who
appreciate quality and value. Cosmo products are promoted with advertisements in
the various flyers of the companies that sell its products including Wal-Mart,
Home Hardware, Best Buy, Loblaws, Hart Department Stores, Bargain Shop,
etc.
 
 We also
market our products at various trade shows each year.  We regularly
attend the following trade shows and conventions: the Consumer Electronics Show
each January in Las Vegas; the Hardware Shop in Los Angeles and the Hong Kong
Electronics Show each October in Hong Kong.
 
 Our
products are sold in United States, Canada and to selective customers in United
Kingdom, Mexico, Argentina and Brazil, primarily through mass merchandisers,
department stores, electronic stores, chains, and specialty stores. Our products
are currently sold in such stores as Wal-Mart (USA and Canada), Super-Stores,
Home Hardware, Bargain Shop and Toys “R” Us (Canada).   In fiscal
2009, approximately 47% of our sales were to the customers within Canada and 48%
of sales were to the customers in USA.  Sales made to Brazil and
Mexico made up approximately 5% of our sales revenue.  Sales are
handled by our in-house sales team and our independent sales representatives.
Our independent sales representatives are paid a commission based upon sales in
their respective territories.  The sales representative agreements are
generally one year agreements, which automatically renew on an annual basis,
unless terminated by either party on 30 days' notice.  During the
fiscal year March 31, 2009, we worked with two independent sales representatives
in Canada and one in USA.
 
 Sales
 
 As a
percentage of total revenues, our net sales in the aggregate to our five largest
customers during the fiscal years ended March 31, 2009, and 2008 were
approximately 91% and 82%, respectively.
 
 Although
we have long-established relationships with all of our customers, we do not have
contractual arrangements with any of them. A decrease in business from any of
our major customers could have a material adverse effect on our results of
operations and financial condition.
  6
  Table of
Contents
  Geographic
Distribution of Sales
 
 Cosmo’s
sales to external customers by geographic region were as
follows:
 
 Years Ended March 31,Region
                              
                              2005
                              
                              
                              2006
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2009%(In
      thousands)USA
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              13,350
                              
                              
                              
                              16,568
                              
                              
                              
                              13,721
                              
                              
                              
                              47
                              %Canada
                              
                              $
                              34,179
                              
                              
                              $
                              49,743
                              
                              
                              
                              42,384
                              
                              
                              
                              17,891
                              
                              
                              
                              14,293
                              
                              
                              
                              48
                              %Europe
                              
                              
                              1,273
                              
                              
                              
                              920
                              
                              
                              
                              113
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Others
                              
                              -
                              
                              
                              348
                              
                              
                              440
                              
                              
                              
                              362
                              
                              
                              
                              1,449
                              
                              
                              
                              5
                              %Total
      sales
                              
                              $
                              35,452
                              
                              
                              $
                              51,011
                              
                              
                              $
                              56,287
                              
                              
                              
                              34,821
                              
                              
                              
                              29,463
                              
                              
                              
                              100
                              %
 
 Returns
 
 Returns
of electronic products by our customers are generally not permitted except in
approved situations involving quality defects, damaged goods, or goods shipped
in error.  Our policy is to give credit to our customers for their
returns, in these approved situations only.  Our total returns
represented 3% and 3% of our net sales in fiscal 2009 and 2008,
respectively.
 
 We have
an ongoing arrangement with Starlight, the Company’s parent, to refurbish our
defective products, which are manufactured by Starlight’s factory.  We
do not have return privileges with the other five factories we work
with.  Starlight does not charge us refurbishment
cost.  Outside factories will generally charge 25% to 30% of the
original cost to refurbish our products.  We assessed each return
product manufactured by the outside factories before we made decisions to repair
or to sell as is.  Our policy is to mark down the book value of
defective returns produced by the outside factories as they are received back in
our warehouse.  Management periodically reviews the value of returned
and refurbished goods on hand and adjusts the cost of such inventory after
analyzing factors such as economic circumstances, product technology
obsolescence and declines in retail sales prices.  Provisions are
recognized against returned and refurbished goods to reflect these adjusted
values..
 
 Distribution
 
 We
distribute our products to retailers and wholesale distributors through two
methods: shipment of products from inventory held at our warehouse facility in
Canada and USA (domestic sales), and shipments directly through our Hong Kong
subsidiary (direct sales).  Domestic sales are made to customers
located throughout USA and Canada from inventories maintained at our warehouse
facilities.  In the fiscal year ended March 31, 2009, approximately
84% of our sales were sales from our domestic warehouses ("Domestic Sales") and
16% were sales shipped directly from China ("Direct Sales").
  7
  Table of
Contents
  Domestic Sales. Our strategy
of selling products from a domestic warehouse enables us to provide timely
delivery and serve as a domestic supplier of imported goods.  We
purchase products overseas from certain factories in China for our own account,
and warehouse the products in leased facilities in USA and in
Canada.  We are responsible for the costs of shipping, insurance,
customs clearance, duties, storage and distribution related to such products
and, therefore, domestic sales command higher sales prices than direct
sales.  We generally sell from our own inventory in less than
container-sized lots.
 
 Direct Sales. We ship some of
our products directly to customers from China through our subsidiary in Hong
Kong.  Sales made through our subsidiary are completed by either
delivering products to the customers' common carriers at the shipping point or
by shipping the products to the customers' distribution centers, warehouses, or
stores.  Direct sales are made in larger quantities (generally
container sized lots), who pay our subsidiary pursuant to irrevocable,
transferable letters of credit or on open account.
 
 Manufacturing
and Production
 
 Our
products are manufactured and assembled by third parties pursuant to design
specifications provided by us.  Currently, substantially all of our
video and CD products are manufactured by Starlight’s factory located in
Guangdong Province in the People’s Republic of China (PRC).  We also
have ongoing relationships with five factories, located in the southern
provinces of the PRC.  For fiscal 2009, we anticipate that majority of
our products will be produced by Starlight’s factory. We believe that the
manufacturing capacity of our factories is adequate to meet the demands for our
products in fiscal year 2009. However, if Starlight’s primary factory in China
was prevented from manufacturing and delivering our products, our operation
would be severely disrupted (see Item 1A – Risk Factors).  Our
products are manufactured using molds and certain other tooling owned by
Starlight and our other factories.  Our products contain electronic
components manufactured by other companies such as Sanyo, Toshiba, Hitachi and
National Semiconductor.  Our manufacturers purchase and install these
electronic components in our products under our specifications.
 
 While our
equipment manufacturers purchase our supplies from a small number of large
suppliers, all of the electronic components and raw materials used by us are
available from several sources of supply, and we do not anticipate that the loss
of any single supplier would have a material long-term adverse effect on our
business, operations, or financial condition.  To ensure that high
standards of product quality and on-time shipping schedules, we utilize
independent contractors as our representatives.  These contractors
include product inspectors who are knowledgeable about product specifications
and work closely with the factories to verify that such specifications are
met.  Additionally, our key personnel frequently visit our factories
for quality assurance and to maintain good working relationships.
 
 All of
the electronic equipment sold by us is warranted to the end user against
manufacturing defects for a period of ninety (90) days for labor and
parts.  During the fiscal years ended March 31, 2009 and 2008,
warranty claims have not been material to our results of
operations.
  8
  Table of
Contents
  Cosmo
believes that its sources and supplies of finished goods, components and other
materials are adequate for its needs.  Cosmo has not experienced a
significant inability to obtain necessary finished goods, components or other
materials.
 
 Reverse
Logistic Operations
 
 We have
an arrangement with certain manufacturers that distribute television sets and
DVD players in Canada to handle customer returns for them.  Our
warehouse facility in Canada has the capacity to handle a high volume of
defective products.  We charge the manufacturers a fee on a per piece
basis or a percentage based on the retail sales value of the merchandise and
reported this as commission and other income.  Our agreement with
these manufacturers to handle their returns is on an on-going and mutually
agreed basis with no expiration date.
 
 Commission
 
 Revenue
received from the reverse logistic operations are treated as commission income.
Besides handling the defective returns, we also sell the returns on behalf of
our logistic customers.
 
 License
Agreements
 
 The
license agreement with Disney Enterprises, Inc. is between Starlight
International and Disney.  We are not obligated to pay license fees to
Disney.
 
 Competition
 
 Our
business is highly competitive. Our major competitors of our CD category are
Citizens, Philips and GE.  Competitors of our TV and DVD category are
Apex, Cyberhome and Philips.  We believe that competition for our
products is based primarily on price, product features, reputation, delivery
times, and customer support. We believe that our brand names are recognized in
the industry and help us to compete in these categories.  Our
financial position depends, among other things, on our ability to keep pace with
changes and developments in the household entertainment industry and to respond
to the requirements of our customers.  Many of our competitors have
significantly greater financial, marketing, and operating resources and broader
product lines than we do.
  9
  Table of
Contents
  Intellectual
Property
 
 We have
registered “Audiologic” as our trademark in the United States and Canada and
“Diamond Vision” and “Diamond Sound” as our trade marks in Canada.
 
 We
believe our intellectual property is adequately protected, but there are no
assurances that these rights can be successfully asserted in the future or will
not be invalidated or challenged.
 
 Government
Regulation
 
 Our
products must meet the safety standards imposed in various national, state,
local and provincial jurisdictions. Our products sold in Canada are designed,
manufactured and tested to meet the safety standards of Underwriters
Laboratories, Inc. ("ULE") or Electronic Testing Laboratories
("ETL").  In Europe and other foreign countries, our products are
manufactured to meet the CE marking requirements. CE marking is a mandatory
European product marking and certification system for certain designated
products.  When affixed to a product and product packaging, CE marking
indicates that a particular product complies with all applicable European
product safety, health and environmental requirements within the CE marking
system.  Products complying with CE marking are now accepted to be
safe in 28 European countries.
 
 The
manufacturing operations of our foreign suppliers in China are subject to
foreign regulation.  China has permanent "normal trade relations"
("NTR") status under Canadian tariff laws, which provides a favorable category
of Canadian import duties.  China's NTR status became permanent on
January 1, 2002. This substantially reduces the possibility of China losing its
NTR status, which would result in increasing costs for us.
 
 Seasonality
and Seasonal Financing
 
 Our
business is highly seasonal, with consumers making a large percentage of
purchases of our products around the traditional holiday season in our second
and third quarter.  These seasonal purchasing patterns and requisite
production lead times cause risk to our business associated with the
underproduction or overproduction of products that do not match consumer
demand.  Retailers also attempt to manage their inventories more
tightly, requiring that we ship products closer to the time that retailers
expect to sell the products to consumers.  These factors increase the
risk that we may not be able to meet demand for certain products at peak demand
times, or that our own inventory levels may be adversely impacted by the need to
pre-build products before orders are placed.  As of March 31, 2009, we
had inventory of $10 million (net of reserves totaling $560,846) compared to
inventory of $11 million as of March 31, 2008 (net of reserves totaling
$554,224).
  10
  Table of
Contents
  Our
financing of seasonal working capital during fiscal 2009 was from selling of the
inventory carried over from prior year.  We rely on credit terms from
our manufacturers to finance the purchase of new inventory.  We also
have an understanding from Starlight to provide short term working funds to
purchase inventory should we require them.
 
 For
fiscal 2010, we plan on minimum financing our inventory purchases by liquidating
our inventory and if necessary with short term working funds provided by
Starlight.
 
 Information
Systems
 
 Cosmo’s
information systems are designed to respond quickly to inquiries from managers,
employees, suppliers and customers.  Cosmo has implemented
internet-based systems to provide accurate and timely information and allow
Cosmo’s representatives, dealers and distributors to check the status of their
orders at a secure Internet site.  Cosmo has also implemented internet
systems to provide accurate and timely information to its suppliers in support
of just-in-time delivery of components to Cosmo’s manufacturing
facilities.  These systems help Cosmo reduce costs by reducing
inventory requirements and for a more timely and accurate exchange of
information with our suppliers.
 
 Backlog
 
 We ship
our products in accordance with delivery schedules specified by our customers,
which usually request delivery within three months of the date of the
order.  In the consumer electronics industry, orders are subject to
cancellation or change at any time prior to shipment.  In recent
years, a trend toward just-in-time inventory practices in the consumer
electronics industry has resulted in fewer advance orders and therefore less
backlog of orders for us.  We believe that backlog orders at any given
time may not accurately indicate future sales.  As of March 31, 2009
we had no backlog of orders and none in the same period in fiscal
2008.  Backlog orders do not take into account of any sales ordered by
customers directly from our domestic inventory with order turnaround time of one
to two weeks.  We normally have to keep the minimum inventory in our
domestic warehouses for these type of sales.
 
 Employees
 As of
March 31, 2009, we employed 19 people, all of whom are full-time employees,
including two executive officers.  Two of our employees are located at
our subsidiary in Hong Kong and 17 in Canada.   Of the employees,
seven are engaged in warehousing and technical support, and ten in accounting,
marketing, sales and administrative functions.  We have never had a
work stoppage and none of our employees are unionized. We believe we have good
employee relations.
  11
 
 Table of
Contents
 
 Item 1A.  Risk Factors
 RISK FACTORS THAT MAY AFFECT COSMO’S
OPERATING RESULTS, BUSINESS PROSPECTS AND STOCK PRICE
 Before you buy or sell Cosmo stock,
you should be aware that there are risks, including those described below and
others Cosmo has not anticipated or discussed.  You should consider
carefully these and other risk factors, together with all of the other
information included in Cosmo’s periodic filings and current reports filed with
the SEC, before you decide to buy or sell shares of Cosmo’s common
stock.
 As you consider these risk factors,
Cosmo also calls your attention to Cosmo’s statements about Forward Looking
Statements and Risk Factors in Part I of this Annual
Report.
 
 We
have significant working capital needs and if we are unable to obtain additional
financing when needed, we may not have sufficient cash flow to continue
operations.
  As of
March 31, 2009, our cash on hand is limited.  We will finance our
working capital needs from the collection of accounts receivable, and sales of
existing inventory. See "Liquidity and Capital Resources" beginning on page 22.
As of March 31, 2009, our inventory was valued at approximately $10 million. If
these sources do not provide us with adequate financing, we will be seeking
financing from our factories.  If we are not able to obtain adequate
financing from our factories when needed, it will have a material adverse effect
on our cash flow and our ability to continue operations.
 
 A small
number of our customers account for a substantial portion of our revenues, and
the loss of one or more of these key customers could significantly reduce our
revenues and cash flow.
 
 As a
percentage of total revenues, our net sales to our five largest customers during
the fiscal period ended March 31, 2009 and 2008 were approximately 91% and 86%
respectively.  We do not have long-term contractual arrangements with
any of our customers and they can cancel their orders at any time prior to
delivery. A substantial reduction in or termination of orders from our largest
customers would decrease our revenues and cash flow significantly.
 
 We
rely on Starlight to manufacture and produce the majority of our CD players, DVD
players and television sets and if Starlight does not support our delivery
schedule, it would affect our revenues and profitability.
  We
believe that because Starlight has a substantial investment in our operation
they will support us unconditionally.  In the event of disruption in
its factory, Starlight will source outside factories to manufacture our products
but we risk losing sales and goodwill to our customers.
  12
  Table of
Contents
  We
are subject to pressure from our customers relating to price reduction and
financial incentive and if we are pressured to make these concessions to our
customers, it will reduce our revenues and profitability.
  Because
there is intense competition in the consumer electronic market, we are subject
to pricing pressure from our customers.  Many of our customers have
demanded that we lower our prices or they will purchase from our competitor's
products.  If we do not meet our customer's demands for lower prices,
we will not sell as many products.  We are also subject to pressure
from our customers regarding certain financial incentives, such as return
credits or advertising allowances, which effectively reduce our profit. We gave
advertising allowances in the amount of $501,000 during fiscal 2009 and $403,000
during fiscal 2008.  We have historically offered advertising
allowances to our customers because it is standard practice in the retail
industry.
  We
experience difficulty forecasting the demand for our products and if we do not
accurately forecast demand, our revenues, net income and cash flow may be
affected.
 
  Because
of our reliance on manufacturers in China for our products, our production lead
times range from one to four months.  Therefore, we must commit to
production in advance of customers orders. It is difficult to forecast customer
demand because we do not have any scientific or quantitative method to predict
this demand.  Our forecasting is based on management's general
expectations about customer demand, the general strength of the retail market
and management's historical experiences.  In the past, our experienced
management team has been able to plan our production and inventory requirements
without building excessively high inventory.
  Our
gross profit margins have not improved over the past years and we expect a
continued competitive market in the future.
 
  Over the
past years our gross profit margins have not improved to our expectation due to
price competition.  We expect that our gross profit margin might
decrease under downward pressure in fiscal 2010 but we are also putting pressure
on our manufacturers to lower their production costs.  Based on past
experience, we expect that we can pass on the price pressure to our
manufacturers.
  Our
business is seasonal and therefore our annual operating results will depend, in
large part, on our sales during the relatively brief holiday
season.
 
  Sales of
consumer electronics in the retail channel are highly seasonal, with a majority
of retail sales occurring during the period from September through December in
anticipation of the holiday season, which includes Christmas.  A
substantial majority of our sales occur during the second quarter ended
September 30 and the third quarter ended December 31.  Sales in our
second and third quarter, combined, accounted for approximately 77% and 65% of
total sales in fiscal 2009 and 2008 respectively.
  13
  Table of
Contents
  If
Cosmo does not continue to develop, introduce and achieve market acceptance of
new and enhanced products, sales may decrease.
 
  The
consumer electronic industry is characterized by rapid technological change,
frequent new product introductions and enhancements and ongoing customer demands
for greater performance.  In addition, the average selling price of an
electronic product has historically decreased over its life cycle, and we expect
that trend to continue.  As a result, our products may not be
competitive if we fail to introduce new products or product enhancements that
meet evolving customer demands. The development of new products is complex, and
we may not be able to complete development in a timely manner.  To
introduce products on a timely basis, we must:
 
 ·
                accurately
      define and design new products to meet market
  needs;
 ·
                design
      features that continue to differentiate our products from those of our
      competitors;
 ·
                update
      our manufacturing process
technologies;
 ·
                identify
      emerging technological trends in our target
  markets;
 ·
                anticipate
      changes in end-user preferences with respect to our customers'
      products;
 ·
                introduce
      products to market on a timely basis at competitive prices;
      and
 ·
                respond
      effectively to technological changes or product announcements by our
      competitors.
 
 We
believe that we will need to continue to enhance our products and develop new
merchandise to keep pace with competition, technological developments, and to
achieve market acceptance for our products. At the same time, we are identifying
other products which may be different from audio and video
equipment.
  Our
products are shipped from China and any disruption of shipping could prevent or
delay our customers’ receipt of inventory.
 
  We rely
principally on independent ocean carriers to ship virtually all of the products
that we import to our warehouse facilities in Los Angeles, USA and in Toronto,
Canada.  Retailers that take delivery of our products in China rely on
a variety of carriers to import those products.  Any disruptions in
shipping, whether in Los Angeles, Toronto or China, caused by labor strikes,
other labor disputes, terrorism, and international incidents may prevent or
delay our customers' receipt of inventory.  If our customers do not
receive their inventory on a timely basis, they may cancel their orders or
return products to us.  Consequently, our revenues and net income
would be affected.
  14
  Table of
Contents
  Our
manufacturing operations are located in the People’s Republic of China,
subjecting us to risks common in international operations. If there is any
problem with the manufacturing process, our revenues and net profitability may
be affected.
  We are
using five factories in the People's Republic of China to manufacture the
majority of our products. These factories will be producing all of our products
in fiscal 2010.  Our arrangements with these factories are subject to
the risks of running business abroad, such as import duties, trade restrictions,
work stoppages, and foreign currency fluctuations, limitations on the
repatriation of earnings and political instability, which could have an adverse
impact on our business.  Furthermore, we have limited control over the
manufacturing processes themselves.  As a result, any difficulties
encountered by our third-party manufacturers that result in product defects,
production delays, cost overruns or the inability to fulfill orders on a timely
basis could adversely affect our revenues, profitability and cash
flow.  Also, since we do not have written agreements with any of these
factories, we are subject to additional uncertainty if the factories do not
deliver products to us on a timely basis.
  We
depend on third party suppliers for parts for our products, and if we cannot
obtain supplies as needed, our operations will be severely
damaged.
 
  Our
growth and ability to meet customer demand depends in part on our ability to
obtain timely deliveries of our electronic products.  We rely on third
party suppliers to produce the parts and materials we use to manufacture and
produce these products.  If our suppliers are unable to provide our
factories with the parts and supplies, we will be unable to produce our
products.  We cannot guarantee that we will be able to purchase the
parts we need at reasonable prices or in a timely fashion.  In the
last several years, there have been shortages of certain components that we use
in our DVD players.  If we are unable to anticipate any shortages of
parts and materials in the future, we may experience severe production problems,
which would impact our sales.
  We
are exposed to the credit risk of our customers who are experiencing financial
difficulties, and if these customers are unable to pay us, our revenues and
profitability will be reduced.
 
  We sell
products to retailers, including department stores, hardware stores and
specialty stores.  In the past, we have been diligent to screen credit
worthiness of our customers and experience of bad debts has been
insignificant.  Deterioration in the financial condition of our
customers could have a material adverse effect on our revenues and future
profitability.
  Our
common stock currently is not actively traded.
  Our
common stock is inactive and has no bid and ask price.  We believe
that if we can establish a pattern of profitability in the near future, our
common stock may be more actively traded.
  15




Table of
Contents





The
loss of its largest customer or significant reductions in the purchases of
Cosmo’s products would reduce sales.


Cosmo’s
largest customer accounts for 70%, 76% and 93% of Cosmo’s sales in 2009, 2008
and 2007 respectively. Cosmo anticipates that this customer will continue to
account for a significant portion of its sales for the foreseeable future but is
not obligated to any long-term purchases.  It has considerable
discretion to reduce, change or terminate purchases of Cosmo’s
products.  Cosmo cannot be certain that it will retain this customer
or maintain a favorable relationship.





If
Cosmo fails to manage its inventory effectively, Cosmo could incur additional
costs or lose sales.


Cosmo
customers have many brands to choose from when they decide to order
products.  If Cosmo cannot deliver products quickly and reliably,
customers will order from a competitor.  Cosmo must stock enough
inventories to fill orders promptly, which increases Cosmo’s financing
requirements and the risk of inventory obsolescence.  Because
competition has forced Cosmo to shorten its product life cycles and more rapidly
introduce new and enhanced products, while simultaneously sourcing more products
overseas and carrying larger inventories, there is a significant risk that
Cosmo’s inventory could become obsolete.





Currency
fluctuations may reduce the profitability of Cosmo’s foreign sales.


Cosmo
currently makes sales to Canadian and certain European dealers and distributors
in their respective currencies.  However, as part of the transition to
local distributors, an increasing portion of Cosmo’s sales are denominated in
U.S. dollars.  If Cosmo is unsuccessful in its transition to
distributors, Cosmo’s exposure to gains and losses on foreign currency
transactions will continue. Cosmo does not trade in derivatives or other
financial instruments to reduce currency risks.  In some instances
this will subject Cosmo’s earnings to fluctuations because Cosmo is not
protected against substantial currency fluctuations.





Item
1B. Unresolved Staff
Comments





None.





Item 2.  
Properties




Our
corporate headquarters are located in Markham, Ontario, Canada in a 35,000 sq.
ft. office and warehouse facility.





Our
subsidiary in Hong Kong shares office space with Starlight in Hong Kong from
which we oversee China based manufacturing operations.  There is no
lease agreement with Starlight and we do not pay rent to Starlight for the
facility.





We
believe that our facility is well maintained, in substantial compliance with
environmental laws and regulations, and adequately covered by
insurance.  We also believe that our leased facility is not unique and
could be replaced, if necessary, at the end of the term of the existing
lease.


16




Table
of Contents





Item 3. Legal
Proceedings




We are
from time to time involved in routine litigation incidental to our business,
most of which is adequately covered by insurance and none of which is expected
to have a material adverse affect on our business, financial condition or
results of operation.





Item 4. Submission of Matters to a Vote of
Security Holders


No
matters were submitted to a vote of security holders during the fourth quarter
of our 2009 fiscal year.


PART II




Item 5.
                  Market
      for Registrant’s Common Equity and Related Stockholder Matters and Issuer
      Purchases of Equity
Securities




Since
2001, our common stock shares have not been traded on the OTC Bulletin
Board.  There were no quotes of high and low during fiscal
2009.  We have 396 recorded holders of our common stock on June 30,
2009.





Dividends





Our
policy is to retain earnings and we have not declared any dividends in the
past.  Any payment of cash dividends in the future will be dependent
upon the financial condition, capital requirements, earnings, contractual
restrictions and other factors considered relevant by our Board of
Directors.





Equity
Compensation Plan Information





The
Company does not have any stock option plan or 401K plan as long-term
compensation.





Recent
Sales of Unregistered Securities





None.


17




Table
of Contents





Item 6. SelectedFinancial Data


The
following selected consolidated financial data should be read in conjunction
with Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Continuing Operations” and Item 8, “Financial Statements and
Supplementary Data” Included elsewhere in this Annual Report. The statements of
operations data for the years ended March 31, 2009, 2008, 2007, 2006, and 2005
and the balance sheet data at March 31, 2009, 2008, 2007, 2006 and 2005 are
derived from our audited financial statements which are included elsewhere in
this Annual Report.  The statement of operations data for the year
ended March 31, 2006 and 2005 and the balance sheet data at March 31, 2006 and
2005 are derived from our audited financial statements which are not included in
this Form 10-K.  The historical results are not necessarily indicative
of results to be expected for future periods. Prior period amounts have been
reclassified to conform to the 2009 presentation.





Years
      Ended March 31,2009
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                          Restated(In
      thousands, except per share data)Consolidated
      Statements of Operations:Net
      sales
                        
                        $
                        29,463
                        
                        
                        $
                        34,821
                        
                        
                        $
                        56,287
                        
                        
                        $
                        51,011
                        
                        
                        $
                        35,452Cost
      of products sold
                        
                        
                        27,458
                        
                        
                        
                        32,915
                        
                        
                        
                        53,034
                        
                        
                        
                        48,157
                        
                        
                        
                        32,846Gross
      profit
                        
                        
                        2,005
                        
                        
                        
                        1,906
                        
                        
                        
                        3,253
                        
                        
                        
                        2,854
                        
                        
                        2,606Other
      income
                        
                        
                        431
                        
                        
                        
                        852
                        
                        
                        
                        1,566
                        
                        
                        
                        1,509
                        
                        
                        
                        1,854Operating
      expenses:Selling
      and delivery
                        
                        
                        2,012
                        
                        
                        
                        1,089
                        
                        
                        
                        1,677
                        
                        
                        
                        1,033
                        
                        
                        
                        1,382General
      and administrative
                        
                        
                        2,375
                        
                        
                        
                        3,040
                        
                        
                        
                        2,901
                        
                        
                        
                        2,684
                        
                        
                        1,921Depreciation
      and amortization
                        
                        
                        15
                        
                        
                        
                        14
                        
                        
                        
                        19
                        
                        
                        
                        23
                        
                        
                        
                        32Total
      operating expenses
                        
                        
                        4,402
                        
                        
                        
                        4,143
                        
                        
                        
                        4,597
                        
                        
                        
                        3,740
                        
                        
                        3,335Operating
      income (loss)
                        
                        
                        (1,966
                        )
                        
                        
                        (1,385
                        )
                        
                        
                        223
                        
                        
                        
                        623
                        
                        
                        
                        1,125Interest
      and other expense
                        
                        
                        930
                        
                        
                        
                        126
                        
                        
                        
                        238
                        
                        
                        
                        304
                        
                        
                        
                        232Taxes
      – current and deferred
                        
                        
                        (
      183
                        )
                        
                        
                        329
                        
                        
                        
                        (164
                        )
                        
                        
                        172
                        
                        
                        
                        697Net
      income (loss)
                        
                        $
                        (2,714
                        )
                        
                        $
                        (1,840
                        )
                        
                        $
                        148
                        
                        
                        $
                        147
                        
                        
                        $
                        196Income
      (loss) per share:Basic
      and diluted
                        
                        $
                        (0.07
                        )
                        
                        $
                        (0.05
                        )
                        
                        $
                        0.01
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.01Weighted
      average shares:Basic
      and diluted
                        
                        
                        40,467
                        
                        
                        
                        40,467
                        
                        
                        
                        29,602
                        
                        
                        
                        29,104
                        
                        
                        29,104


18




Table of
Contents




As
      of March 31
                    (in thousands)2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005RestatedBalance Sheet
      Data:Cash
                  
                  
                  444
                  
                  
                  $
                  512
                  
                  
                  $
                  1,112
                  
                  
                  $
                  549
                  
                  
                  $
                  629Total
      assets
                  
                  
                  13,237
                  
                  
                  
                  15,486
                  
                  
                  
                  20,133
                  
                  
                  
                  8,249
                  
                  
                  
                  7,616Total
      current liabilities
                  
                  
                  13,448
                  
                  
                  
                  12,287
                  
                  
                  
                  15,826
                  
                  
                  
                  5,989
                  
                  
                  
                  5,772Total
      long-term liabilities
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Stockholders’
      equity (deficit)
                  
                  
                  -211
                  
                  
                  
                  3,199
                  
                  
                  
                  4,307
                  
                  
                  
                  2,260
                  
                  
                  
                  1,844


Item 7.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
  The
following discussion should be read in conjunction with the Financial Statements
and Notes filed herewith. Our fiscal year ends March 31. This document contains
certain forward-looking statements including, among others, regarding
anticipated trends in our financial condition and results of operations and our
business strategy. (See Part I, Item 1A, "Risk Factors"). These forward-looking
statements are based largely on our current expectations and are subject to a
number of risks and uncertainties. Actual results could differ materially from
these forward-looking statements. Important factors to consider in evaluating
such forward-looking statements include (i) changes in external factors or in
our internal budgeting process which might impact trends in our results of
operations; (ii) unanticipated working capital or other cash requirements; (iii)
changes in our business strategy or an inability to execute our strategy due to
unanticipated changes in the industries in which we operate; and (iv) various
competitive market factors that may prevent us from competing successfully in
the marketplace.


Results of
Operations





Overview





Our
operations were adversely affected by the global financial turmoil in the second
half of fiscal 2009.  Our sales dropped by 15%, mainly in the Disney
line.  We introduced a new youth line of electronics for the youth
during the fiscal year, which helped increase our sales but did not compensate
for the loss of sales in Disney products. The youth line did help to improve the
gross profit margin.  Gross profit margin increased from 5.5% in
fiscal 2008 to 6.8% in the current fiscal year.





The weak
economy during the second half of the fiscal year also contributed to strong
competitive pricing in the retail market.  Consequently, we have to
take steps to mark down some of our inventory on hand subsequent to the balance
sheet date.





There was
a large fluctuation between the Canadian dollar versus the US dollar during the
fiscal year.  The fluctuation was 28% from the high to the low
resulting in an exchange loss to the group of approximately
$739,000.  The Canadian operation purchased its inventory in US
currency.  A sharp decline in the Canadian dollar required more
Canadian dollars to repay its debts to overseas vendors.





We have
taken steps to control our operating costs while sales were decreasing in the
fiscal year; however the weak economy forced us to offer more advertising and
mark down allowances to our retail customers to move the inventory in our
customers’ stores.  The net increase in operating expenses was
approximately $260,000.  Selling expenses increased by approximately
$923,000 offset by cuts in salaries and wages of approximately $511,000, and
savings in administrative expenses of approximately $152,000.


19





Table of
Contents





Fiscal
Year Ended March 31, 2009 Compared with Fiscal Year Ended March 31,
2008





Sales





Net sales
decreased by $5.4 million compared to prior year.  The biggest
decrease was in the Disney line which decreased by $4.3M compared with the prior
fiscal year.  The decrease in Disney demands coincided with a sharp
decline in the overall toys segment in North America during the Christmas
holiday season.  The remaining decrease in sales was in the MP3
players and clocks category.  The clocks segment was affected by a
sharp increase in the costs of the products.  The retail price of
clocks increased and the cost was passed on to our customers.  The
decrease in clock sales was a reflection of the initial resistance by consumers
to pay the higher prices.  Decrease in the clocks category was $1.1M
in fiscal 2009 compared to fiscal 2008.





The mix
between direct import sales and domestic warehouse sales in fiscal 2009 was 16%
to 84% compared with 24% to 76% in fiscal 2008.  During weak economic
times, our retail customers were cautious not to purchase container loads of
goods with a long lead time.  As a result of this, it increased our
need to hold inventory on hand at our warehouses in order to create
sales.  This however also created a longer cycle of collecting cash
from our sales of inventory on hand, rather than inventory on
order.





Gross
Profit





Gross
profit for fiscal 2009 was $2 million or 6.8% of revenues compared with 5.5% in
fiscal 2008.  The increase in gross profit margin was mainly
attributable to the introduction of the new youth line and an increase in the
domestic warehouse sales mix where selling prices are higher than our direct
import sales.  In domestic warehouse sales we have to factor in the
carrying costs of storing and handling to inventory as well as the freight
component of delivering the goods.


20


Table of
Contents





Commission
Income




Our commission and other income consist
of commissions earned on brokering sales and handling return products for
Starlight and another manufacturer. Commission income
decreased from approximately $852,000 in fiscal 2008 to $431,000 in this fiscal
year. The weak economy caused a general reduction in demands for goods and
services, and thus we handled less returns for our customers in our reverse
logistics operations.





Operating
Expenses





Operating
expenses for the current fiscal year increased from approximately $4.1 million
to $4.4 million in fiscal 2009.  Selling and warehousing contributed
the largest increase of approximately $923,000.  In the current fiscal
year, we switched the status of two sales executive from salaried staff to
commission based staff.  We also incurred higher warehousing expenses
this fiscal year as Starlight, our parent company, bore the Disney products
storage and handling in fiscal 2008 and no longer picked up these expenses in
this fiscal year as the subsidy was for the first year only.  We also
provided higher advertising allowances to our customers during the weak holiday
season to induce sales.  In administrative expense, we made cuts in
all discretionary expenses such as travel which resulted in 12% of savings,
partially offset by an increase of approximately $175,000 in bad debts
expenses.  Salaries and wages decreased by approximately $500,000 as
offset to the increase in commission expense.





Financial
expenses and exchange loss





We
incurred a large exchange loss in the third quarter of the current fiscal
year.   A sharp decline in exchange rates between the Canadian
and US dollars from 0.96 of one US dollar to 0.82 during the third quarter
attributed to an annual exchange loss of approximately $739,000.





Interest
expense increased by approximately $87,000 due to a re-assessment of income tax
liabilities in our Canadian subsidiary.





Income
Tax Expenses




Significant
management judgment is required in developing our provisions for income taxes,
including the determination of foreign tax liabilities, deferred tax assets and
liabilities and any valuation allowances that might be required against deferred
tax assets.  Management evaluates its ability to realize its deferred
tax assets on a quarterly basis and adjusts its valuation allowance when it
believes that it is not likely to be realized.





For the
fiscal year ended March 31, 2009, we recovered income tax expense in the amount
of $183,067.  In the prior years a tax audit on the Canadian
subsidiary was conducted on years 2004 and 2005 and additional taxes were
reassessed.  Taxes related to these audits amounted to $714,638 in
fiscal 2008.  The current year tax recovery was a result of carryback
of losses in the current year to prior years.  The Company does not
anticipate future changes in rates and as such does not anticipate such
variances in its current or deferred taxes in subsequent years.





We
operate within multiple taxing jurisdictions and we are subject to audit in each
jurisdiction.  Because of the complex issues involved, any claims can
require an extended period of time to resolve. In management's opinion, adequate
provisions for income taxes have been made.


21





Fiscal
Year Ended March 31, 2008 Compared with Fiscal Year Ended March 31,
2007





Sales





Table of
Contents





Sales




Net sales
for the fiscal year ended March 31, 2008 decreased by approximately $21 million
compared to revenues of $56 million in the fiscal year ended March 31,
2007.  The decrease in sales is primarily due to weakening of consumer
spending during the holiday season and strong competition in the low end TV and
DVD player market.





We
continuously made improvement in selling in the USA market using the Disney
brand but sales of consumer electronics of television and DVD products declined
in Canada by $16 million.  As the United States imposed a deadline of
March 2007 to import NTSC TV system into the country, Canada was flooded with
NTSC system TV sets which resulted in deterioration in prices.  We
opted to sell less rather than suffering an erosion of our gross profit
margin.  In Canada, sales of the MP3 player line declined by $4
million due to severe price competition.  Our audio and clock radio
lines showed steady sales in the two years in comparison.





In fiscal
2008, 24% of our sales were direct sales, which represented sales made by our
subsidiary in Hong Kong, and 76% were domestic sales, which represent sales made
from our warehouses in USA and in Canada.  In fiscal 2007, 66% of our
sales were direct sales, and 34% were domestic sales.





In fiscal
2008, sales in Canada represent 51% of our total sales; sales in USA represent
48% and the remaining 1% was sales to other countries.  In fiscal
2007, 75% of our sales were made to Canada, 24% in USA and 1% to Europe and
other countries.





Gross
Profit




Gross
profit for fiscal 2008 was approximately $1.9 million or 5.5% of total revenues
compared to $3.2 million or 5.8% of sales for fiscal 2007.   Our
future expansion is to continue to target a product mix that will improve our
gross profit margin.  It is uncertain if existing products will suffer
further deterioration in gross profit margin as we cannot predict how our
competitors will cut prices.





Our gross
profit may not be comparable to those of other entities, since some entities
include the costs of warehousing, inspection, freight out charges and other
distribution costs in their cost of sales. We account for the above expenses as
operating expenses and classify them under selling, general and administrative
expenses.





Commission
Income




Our
commission and other income which consist of commissions earned on brokering
sales and handling return products for Starlight and another
manufacturer.  Total income was $0.9 million in fiscal 2008 compared
with $1.6 million in fiscal 2007.  Our plan is to increase income
earned on brokering sales.  We are less certain with income earned on
handling returns since we cannot forecast how many pieces of returns we will
process for our customers, therefore we have no control over the revenue we earn
from the reverse logistic operation.




22




Operating
Expenses





Operating
expenses for the fiscal year ended March 31, 2008 decreased to $4.1 million from
$4.6 million in fiscal 2007.  The decrease in operating expenses
consists of a decrease in variable expenses and fixed expenses. The variable
expenses (advertising, commission, freight and royalty expenses) decreased
proportionally as revenues decreased.  The fixed expense increase of
$0.2 million was primarily due to higher cost of operation in
general.


Income
Tax Expenses




Significant
management judgment is required in developing our provisions for income taxes,
including the determination of foreign tax liabilities, deferred tax assets and
liabilities and any valuation allowances that might be required against deferred
tax assets.  Management evaluates its ability to realize its deferred
tax assets on a quarterly basis and adjusts its valuation allowance when it
believes that it is not likely to be realized.





For the
fiscal year ended March 31, 2008, we recovered income tax expense in the amount
of $254,247.  In the current and prior year a tax audit on the
Canadian subsidiary was conducted on years 2004 and 2005 and additional taxes
were reassessed.  Taxes related to these audits amounted to $714,638
in 2008.  Tax recovery was a result of an adjustment for the 2006
fiscal year related to foreign exchange gains in our Canadian subsidiary and to
carryback of losses in the current year to the 2005 year.  The Company
does not anticipate future changes in rates and as such does not anticipate such
variances in its current or deferred taxes in subsequent years.





We
operate within multiple taxing jurisdictions and we are subject to audit in each
jurisdiction.  Because of the complex issues involved, any claims can
require an extended period of time to resolve. In management's opinion, adequate
provisions for income taxes have been made.


23


Table of
Contents




Liquidity and Capital
Resources




On March
31, 2009, we had cash on hand of $444,410 compared to cash on hand of $512,172
on March 31, 2008.  The decrease of cash on hand was primarily due to
the effect of foreign currency translation.  The Canadian dollar was
extremely volatile during the current fiscal year resulting in a big loss in
translation of Canadian dollar to US dollar.





Cash
flows provided by operating activities were $627,964 for the year ended March
31, 2009.  We have reduced our receivables and inventories at year end
but we continuously rely on trade credits from our parent company.





Cash used
in investing activities for the year ended March 31, 2009 was minimal. Cash used
in investing activities was for small purchase of office equipment in
Canada.





There
have been no cash flows from financing activities for the fiscal year ended
March 31, 2009.





As of
March 31, 2009 our working capital was in deficit by approximately $249,000. Our
current liabilities of $13.4 million include:





·
            amount
      due to Starlight resulting from normal course of the business for $12
      million;


·
            current
      liabilities resulting from normal course of the business with other
      factories and suppliers for $0.8
million;


·
            advance
      from Starlight for $0.6 million




We expect
our factories will continue to provide credits to us and that Starlight will not
demand immediate repayment of current liabilities and will provide financing to
us if we require additional short term working
capital.


Off Balance Sheet
Arrangements


Cosmo
does not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities referred to
as structured finance or variable interest entities (VIE’s), which would be
established for the purpose of facilitating off-balance sheet arrangements. As
of March 31, 2009, Cosmo did not have any unconsolidated
VIE’s.


24




Table of
Contents




Contractual
Obligations as of March 31, 2009


Cosmo had
contractual obligations at March 31, 2009 as follows:


Payments Due by PeriodLess
      Than
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                More
      ThanContractual Obligations
                                                                
                                                                Total
                                                                
                                                                1 Year
                                                                
                                                                1-3 Years
                                                                
                                                                3-5 Years
                                                                
                                                                5 YearsInterest
      payable to related party
                                                                
                                                                $
                                                                604,627
                                                                
                                                                $
                                                                604,627
                                                                
                                                                $
                                                                —
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                —Operating
      leases
                                                                
                                                                $
                                                                1,254,112
                                                                
                                                                $
                                                                276,718
                                                                
                                                                $
                                                                836,814
                                                                
                                                                $
                                                                140,580—
                                                                
                                                                
                                                                —




Working
Capital Requirements for the Short and Long Term




During
the next twelve month period, we plan on financing our working capital needs
from:





·
            The
      collection of accounts receivable;


·
            Sales
      of existing inventory; and


·
            The
      Continued support of factories in China that finance our purchases of
      goods for fiscal 2010.





Our
sources of cash for working capital in the long term are the same as our sources
for the short term.  If we need additional financing for the long term
use, one of the options that we may explore in the near future is by private
offerings.  However, we cannot guarantee that our financing plan will
succeed.  If we need to obtain additional financing and fail to do so,
it may have a material adverse effect on our ability to meet our financial
obligations and continue our operations.





During
fiscal 2010, we will continue to control our operating costs.  We
expect domestic sales will continue to expand which will improve our working
capital to finance inventory and accounts receivable.





Except
for the foregoing, we do not have any present commitment that is likely to cause
our liquidity to increase or decrease in any material way.  In
addition, except for the Company's need for additional capital to finance
inventory purchases, the Company is not aware of any trend, additional demand,
event or uncertainty that will result in, or that is reasonably likely to result
in, the Company's liquidity increasing or decreasing in any material
way.


25




Table of
Contents




Exchange
Rates




For
direct sales, we sell our products in U.S. dollars and pay for all of our
manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of
the Hong Kong office are paid in Hong Kong dollars.  The exchange rate
of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong
government since 1983 at approximately HK $7.80 to U.S. $1.00 and, accordingly,
has not represented a currency exchange risk to the U.S.
dollar.  Operating expenses of our Canada office is paid in Canadian
dollar, and domestic sales are received in Canadian dollars.  The
exchange rate between the Canadian dollar and US dollar can represent an
exchange risk to us.  Therefore any adverse fluctuation in this
exchange rate may have a material effect on our business, financial condition or
results of operation.  The overall percentage of domestic sales in
Canadian dollars is at approximately 47% of total sales. Due to the increase in
domestic sales in Canada in the current fiscal year, our parent company entered
into five forward exchange contracts with a total amount of $2 million Canadian
dollars during the third and fourth quarters of the fiscal year. These forward
contracts enable us to pay some of our trade debts to our parent company in
Canadian dollars and converted these to US dollars at the rates locked in the
forward contracts.





Seasonal
and Quarterly Results




Historically,
our operations have been seasonal, with the highest net sales occurring in the
second and third quarters (reflecting increased orders for electronic audio and
video equipment during the Christmas selling months) and to a lesser extent the
first and fourth quarters of the fiscal year. Sales in our fiscal second and
third quarter, combined, accounted for approximately 77% and 65% of net sales in
fiscal 2009, and 2008, respectively.





Our
results of operations may also fluctuate from quarter to quarter as a result of
the amount and timing of orders placed and shipped to customers, as well as
other factors. The fulfillment of orders can therefore significantly affect
results of operations on a quarter-to-quarter basis.





Inflation




Inflation
has not had a significant impact on the Company's operations.  The
Company has historically passed on any price increases to customers since prices
charged by the Company are generally not fixed by long-term
contracts.





Critical Accounting Policies and
Estimates


The
methods, estimates and judgments Cosmo uses in applying its accounting policies
have a significant impact on the results reported in its consolidated financial
statements. Cosmo evaluates its estimates and judgments on an on-going
basis.  Cosmo bases its estimates on historical experience and
assumptions that Cosmo believes to be reasonable under the circumstances.
Cosmo’s experience and assumptions form the basis for its judgments about the
carrying value of assets and liabilities that are not readily apparent from
other sources.  Actual results may vary from what Cosmo anticipates
and different assumptions or estimates about the future could change its
reported results.


Cosmo
believes the following accounting policies are the most critical to Cosmo, in
that they are important to the portrayal of Cosmo’s consolidated financial
statements and they require Cosmo’s most difficult, subjective or complex
judgments in the preparation of its consolidated financial statements:


26




Table of
Contents




Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.  These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known. For fiscal 2009, the Company had significant estimates
for allowances for doubtful accounts in the amount of $196,426, allowance for
obsolete inventory reserve of $560,846 and sales return and allowance reserve of
$104,641.





Revenue
Recognition


Sales,
net of estimated sales returns, are recognized upon passage of title to the
customer.  This occurs upon shipment or upon receipt by the customer
depending on the country of the sale and the agreement with the
customer.  Revenue is recognized if persuasive evidence of an
agreement exists, the sales price is fixed or determinable, and collectability
is reasonably assured.





Commission
income is derived from reverse logistic services that consist of handling other
distributor companies returned goods.  In providing these services,
the Company acts as an agent or broker without assuming the risks and rewards of
ownership of the goods and therefore reports the commissions on a net
basis.  Revenue is recognized based on the completion of the
contracted services.





Inventories


Inventories
are valued at the lower of cost or net realizable value.  Cost is
determined on a first-in, first-out basis.  Inventory is comprised of
finished products that the Company intends to sell to its
customers.  The Company periodically makes judgments and estimates
regarding the future utility and carrying value of its inventory.  The
carrying value of inventory is periodically reviewed and impairments, if any,
are recognized when the expected future benefit from the inventory is less than
its carrying value.  The Company has inventory reserves for estimated
obsolescence or unmarketable inventory which is equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions.





Foreign
Translation Adjustment


The
accounts of the foreign subsidiaries were translated into U.S. dollars in
accordance with the provisions of SFAS No. 52, Foreign Currency
Translation.  Management has determined that the Hong Kong dollar is
the functional currency of the Hong Kong subsidiaries and the Canadian dollar is
the functional currency of the Canadian subsidiary.  Certain current
assets and liabilities of these foreign entities are denominated in U.S.
dollars.  In accordance with the provisions of SFAS 52, transaction
gains and losses on these assets and liabilities are included in the
determination of income for the relevant periods.  Adjustments
resulting from the translation of the financial statements from their functional
currencies to United States dollars are accumulated as a separate component of
accumulated other comprehensive income and have not been included in the
determination of income for the relevant periods.


27


Table of
Contents




Income
Taxes


The
Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes.  Deferred tax assets and liabilities are recorded for
differences between the financial statement and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.  Income tax expense is recorded for the amount of
income tax payable or refundable for the period increased or decreased by the
change in deferred tax assets and liabilities during the
period.





Fair
Value of Financial Instruments


The
Company's financial instruments include cash and cash equivalents, receivables,
payables, and advances from the parent company.





The
estimated fair value of financial instruments has been determined by the Company
using available market information and valuation
methodologies.  Considerable judgment is required in estimating fair
value.  Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange.





Item 7A. Quantitative
and Qualitative Disclosures About Market Risk




Market
risk represents the risk of loss that may impact our financial position, results
of operations or cash flows due to adverse changes in financial and commodity
market prices and interest rates.  We are exposed to market risk in
the areas of changes in Canada and International borrowing rates and changes in
foreign currency exchange rates.  In addition, we are exposed to
market risk in certain geographic areas that have experienced or remain
vulnerable to an economic downturn, such as China.  We purchase
substantially all our inventory from companies in China and, therefore, we are
subject to the risk that such manufacturers will be unable to provide inventory
at competitive prices.




While we
believe that if such an event were to occur we would be able to find alternative
sources of inventory at competitive prices, we cannot assure you that we would
be able to do so.  These exposures are directly related to our normal
operating and funding activities.  Historically and as of March 31,
2009, we have not used derivative instruments or engaged in hedging activities
to minimize market risk.





Interest
Rate Risk




As of
March 31, 2009, we have borrowed from Starlight and discounted our trade bills
to obtain cash advance on our direct sales.  An increase in prime rate
will increase our costs of borrowing accordingly.


28


Table of
Contents





Foreign
Currency Risk





We have a
wholly-owned subsidiary in USA, a wholly-owned subsidiary in Canada and a
wholly-owned subsidiary in Hong Kong.  Sales by the Canadian
operations made in Canada are denominated in Canadian dollar; purchases of
inventory are denominated in US or Hong Kong dollar, and operating expenses in
Canadian dollar.  The Hong Kong operating expenses are denominated in
Hong Kong dollar, sales are denominated in U.S. dollar, and purchases of
inventory are denominated in U.S. or Hong Kong dollar.  These
transactions create exposures to changes in exchange rates.  Changes
in the Hong Kong dollar exchange rate and Canadian dollar exchange rate with the
U.S. dollar may positively or negatively affect our gross margins, operating
income and retained earnings. We do not believe that near-term changes in the
exchange rates, if any, will result in a material effect on our future earnings,
fair values or cash flows, and therefore, we have chosen not to enter into
foreign currency hedging transactions. We cannot assure you that this approach
will be successful, especially in the event of a significant and sudden change
in the value of the Canadian and Hong Kong dollar.  We incurred a
large exchange loss in the third quarter of the current fiscal
year.   A sharp decline in exchange rates between the Canadian
and US dollars from 0.96 of one US dollar to 0.82 during the third quarter
attributed to an annual exchange loss of approximately
$739,000.


29





Item 8. Financial Statements and
Supplementary
Data


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





Page
      #Report
      of Independent Registered Public Accounting Firm
                
                
                31Consolidated
      Balance Sheets as at March 31, 2009 and 2008
                
                
                32Consolidated
      Statements of Loss and Comprehensive Loss for the years ended
      March 31, 2009, 2008, and 2007
                
                
                33Consolidated
      Statements of Stockholders’ Equity (Deficit) for the years ended
      March 31, 2009, 2008, and 2007
                
                
                34Consolidated
      Statements of Cash Flows for the years ended March 31, 2009, 2008,
      and 2007
                
                
                35Notes
      to the Consolidated Financial Statements
                
                
                36


30


Table of
Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


Cosmo
Communications Corporation and Subsidiaries




We have
audited the accompanying consolidated balance sheets of Cosmo Communications Corporation and
Subsidiaries as of 31 March 2009 and 2008 and the related consolidated
statements of loss and comprehensive loss, stockholders' equity (deficit) and
cash flows for the years ended 31 March 2009, 2008 and 2007.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance whether the
consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
Our audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.  An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for our opinion.




In our
opinion, based on our audits, such consolidated financial statements present
fairly, in all material respects, the financial position of Cosmo Communications
Corporation and Subsidiaries as of 31 March 2009 and 2008 and the results of its
operations and cash flows for the years ended 31 March 2009, 2008 and 2007, in
conformity with accounting principles generally accepted in the United States of
America.





/s/
DNTW Chartered Accountants, LLP





Licensed
Public Accountants


Markham,
Ontario, Canada





15 June
2009


31


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS




AS
AT 31 MARCH




(Expressed
in United States Dollars)





Note
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2008ASSETSCurrent
      AssetsCash
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        444,410
                                                        
                                                        
                                                        $
                                                        512,172Accounts
      receivable, less allowance of $196,426 and $25,927 at 31 March 2009 and
      2008, respectively
                                                        
                                                        
                                                        3
                                                        
                                                        
                                                        
                                                        2,551,434
                                                        
                                                        
                                                        
                                                        3,842,366Inventories
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        10,187,934
                                                        
                                                        
                                                        
                                                        11,029,996Prepaid
      expenses and other
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        15,145
                                                        
                                                        
                                                        
                                                        48,227Total
      Current Assets
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        13,198,923
                                                        
                                                        
                                                        
                                                        15,432,761Equipment
      and Other AssetsEquipment,
      net
                                                        
                                                        
                                                        4
                                                        
                                                        
                                                        
                                                        30,241
                                                        
                                                        
                                                        
                                                        44,847Deferred
      taxes
                                                        
                                                        
                                                        5
                                                        
                                                        
                                                        
                                                        8,317
                                                        
                                                        
                                                        
                                                        8,317Total
      Equipment and Other Assets
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        38,558
                                                        
                                                        
                                                        
                                                        53,164Total
      Assets
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        13,237,481
                                                        
                                                        
                                                        $
                                                        15,485,925LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable and accrued liabilities
                                                        
                                                        
                                                        7
                                                        
                                                        
                                                        
                                                        693,583
                                                        
                                                        
                                                        $
                                                        630,563Accounts
      payable to parent company
                                                        
                                                        
                                                        6
                                                        
                                                        
                                                        
                                                        12,098,477
                                                        
                                                        
                                                        
                                                        10,739,893Taxes
      payable
                                                        
                                                        
                                                        5
                                                        
                                                        
                                                        
                                                        51,660
                                                        
                                                        
                                                        
                                                        311,767Interest
      payable to parent company
                                                        
                                                        
                                                        6
                                                        
                                                        
                                                        
                                                        604,627
                                                        
                                                        
                                                        
                                                        604,627Total
      Liabilities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        13,448,347
                                                        
                                                        
                                                        
                                                        12,286,850Commitments
                                                        
                                                        
                                                        8Stockholders'
      Equity (Deficit)Capital
      stock
                                                        
                                                        
                                                        9
                                                        
                                                        
                                                        
                                                        2,023,382
                                                        
                                                        
                                                        
                                                        2,023,382Additional
      paid-in capital
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        27,704,592
                                                        
                                                        
                                                        
                                                        27,704,592Accumulated
      other comprehensive income (loss)
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (371,782
                                                        )
                                                        
                                                        
                                                        323,676Accumulated
      deficit
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (29,567,058
                                                        )
                                                        
                                                        
                                                        (26,852,575
                                                        )Total
      Stockholders' Equity (Deficit)
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (210,866
                                                        )
                                                        
                                                        
                                                        3,199,075Total
      Liabilities and Stockholders' Equity (Deficit)
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        13,237,481
                                                        
                                                        
                                                        $
                                                        15,485,925




The
accompanying notes are an integral part of these consolidated financial
statements.


32




COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS




FOR
THE YEARS ENDED 31 MARCH




(Expressed
in United States Dollars)




2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2007SALES
                                                              
                                                              $
                                                              29,463,154
                                                              
                                                              
                                                              $
                                                              34,820,750
                                                              
                                                              
                                                              $
                                                              56,287,515COST
      OF PRODUCTS SOLD
                                                              
                                                              
                                                              27,458,287
                                                              
                                                              
                                                              
                                                              32,915,382
                                                              
                                                              
                                                              
                                                              53,034,341GROSS
      PROFIT
                                                              
                                                              
                                                              2,004,867
                                                              
                                                              
                                                              
                                                              1,905,368
                                                              
                                                              
                                                              
                                                              3,253,174COMMISSION
      INCOME
                                                              
                                                              
                                                              430,982
                                                              
                                                              
                                                              
                                                              852,238
                                                              
                                                              
                                                              
                                                              1,566,157OPERATING
      EXPENSESSalaries
      and wages
                                                              
                                                              
                                                              1,310,628
                                                              
                                                              
                                                              
                                                              1,822,066
                                                              
                                                              
                                                              
                                                              1,748,757General
      and administrative
                                                              
                                                              
                                                              1,064,791
                                                              
                                                              
                                                              
                                                              1,217,493
                                                              
                                                              
                                                              
                                                              1,151,962Selling
      and delivery
                                                              
                                                              
                                                              2,012,088
                                                              
                                                              
                                                              
                                                              1,088,947
                                                              
                                                              
                                                              
                                                              1,677,460Depreciation
                                                              
                                                              
                                                              14,874
                                                              
                                                              
                                                              
                                                              14,202
                                                              
                                                              
                                                              
                                                              18,622TOTAL
      OPERATING EXPENSES
                                                              
                                                              
                                                              4,402,381
                                                              
                                                              
                                                              
                                                              4,142,708
                                                              
                                                              
                                                              
                                                              4,596,801(LOSS)
      INCOME FROM OPERATIONS
                                                              
                                                              
                                                              (1,966,532
                                                              )
                                                              
                                                              
                                                              (1,385,102
                                                              )
                                                              
                                                              
                                                              222,530Financial
                                                              
                                                              
                                                              191,578
                                                              
                                                              
                                                              
                                                              104,916
                                                              
                                                              
                                                              
                                                              345,838Loss
      (gain) on foreign exchange
                                                              
                                                              
                                                              739,437
                                                              
                                                              
                                                              
                                                              21,413
                                                              
                                                              
                                                              
                                                              (107,817
                                                              )LOSS
      BEFORE TAXES
                                                              
                                                              
                                                              (2,897,547
                                                              )
                                                              
                                                              
                                                              (1,511,431
                                                              )
                                                              
                                                              
                                                              (15,491
                                                              )INCOME
      TAXES (RECOVERY)
                                                              
                                                              
                                                              (183,067
                                                              )
                                                              
                                                              
                                                              (254,247
                                                              )
                                                              
                                                              
                                                              (310,442
                                                              )DEFERRED
      INCOME TAXES
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (131,906
                                                              )
                                                              
                                                              
                                                              (42,746
                                                              )REASSESSMENT
      OF PRIOR YEARS INCOME TAXES
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              714,638
                                                              
                                                              
                                                              
                                                              189,610NET
      (LOSS) INCOME
                                                              
                                                              $
                                                              (2,714,480
                                                              )
                                                              
                                                              $
                                                              (1,839,916
                                                              )
                                                              
                                                              $
                                                              148,087FOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                                              
                                                              
                                                              (695,458
                                                              )
                                                              
                                                              
                                                              731,681
                                                              
                                                              
                                                              
                                                              (101,130
                                                              )COMPREHENSIVE
      (LOSS) INCOME
                                                              
                                                              $
                                                              (3,409,938
                                                              )
                                                              
                                                              $
                                                              (1,108,235
                                                              )
                                                              
                                                              $
                                                              46,957(LOSS)
      INCOME PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND
      DILUTED
                                                              
                                                              $
                                                              (0.07
                                                              )
                                                              
                                                              $
                                                              (0.05
                                                              )
                                                              
                                                              $
                                                              0.01WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
                                                              
                                                              
                                                              40,467,636
                                                              
                                                              
                                                              
                                                              40,467,636
                                                              
                                                              
                                                              
                                                              29,602,132




The
accompanying notes are an integral part of these consolidated financial
statements.


33


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)




FOR
THE YEARS ENDED 31 MARCH 2009,  2008 AND 2007




(Expressed
in United States Dollars)





Shares
                              
                              
                              Capital Stock
                              
                              
                              Additional Paid-In
                                Capital
                              
                              
                              Accumulated Other
                                Comprehensive
                                Income (Loss)
                              
                              
                              Accumulated
                                Deficit
                              
                              
                              Total
                                Stockholders'
                                Equity (Deficit)Balance,
      31 March 2006
                              
                              
                              29,104,000
                              
                              
                              $
                              1,455,200
                              
                              
                              $
                              26,272,774
                              
                              
                              $
                              (306,875
                              )
                              
                              $
                              (25,160,749
                              )
                              
                              $
                              2,260,350Common
      stock issued for debt
                              
                              
                              11,363,636
                              
                              
                              
                              568,182
                              
                              
                              
                              1,431,818
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,000,000Foreign
      currency translation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (101,130
                              )
                              
                              
                              
                              
                              
                              
                              (101,130
                              )Net
      gain for the year
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              148,087
                              
                              
                              
                              148,087Balance,
      31 March 2007
                              
                              
                              40,467,636
                              
                              
                              
                              2,023,382
                              
                              
                              
                              27,704,592
                              
                              
                              
                              (408,005
                              )
                              
                              
                              (25,012,662
                              )
                              
                              
                              4,307,307Foreign
      currency translation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              731,681
                              
                              
                              
                              -
                              
                              
                              
                              731,681Net
      loss for the year
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,839,916
                              )
                              
                              
                              (1,839,916
                              )Balance,
      31 March 2008
                              
                              
                              40,467,636
                              
                              
                              
                              2,023,382
                              
                              
                              
                              27,704,592
                              
                              
                              
                              323,676
                              
                              
                              
                              (26,852,578
                              )
                              
                              
                              3,199,072Foreign
      currency translation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (695,458
                              )
                              
                              
                              -
                              
                              
                              
                              (695,458
                              )Net
      loss for the year
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (2,714,480
                              )
                              
                              
                              (2,714,480
                              )Balance,
      31 March 2009
                              
                              
                              40,467,636
                              
                              
                              $
                              2,023,382
                              
                              
                              $
                              27,704,592
                              
                              
                              $
                              (371,782
                              )
                              
                              $
                              (29,567,058
                              )
                              
                              $
                              (210,866
                              )




The
accompanying notes are an integral part of these consolidated financial
statements.




34


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




FOR
THE YEARS ENDED 31 MARCH




(Expressed
in United States Dollars)




2009
                            
                            
                            2008
                            
                            
                            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)  income
                            
                            $
                            (2,714,480
                            )
                            
                            $
                            (1,839,916
                            )
                            
                            $
                            148,087Adjustment
      to reconcile net earnings to net cash provided by (used in) operating
      activitiesDepreciation
                            
                            
                            14,874
                            
                            
                            
                            14,202
                            
                            
                            
                            18,622Deferred
      income taxes
                            
                            
                            -
                            
                            
                            
                            (131,906
                            )
                            
                            
                            (42,746
                            )(2,699,606
                            )
                            
                            
                            (1,957,620
                            )
                            
                            
                            123,963Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            1,290,932
                            
                            
                            
                            5,075,471
                            
                            
                            
                            (5,795,642
                            )Inventories
                            
                            
                            842,062
                            
                            
                            
                            (1,514,507
                            )
                            
                            
                            (5,379,148
                            )Prepaid
      expenses and other
                            
                            
                            33,082
                            
                            
                            
                            (31,731
                            )
                            
                            
                            355,525Accounts
      payable and accrued liabilities
                            
                            
                            63,017
                            
                            
                            
                            (1,094,672
                            )
                            
                            
                            713,737Taxes
      payable
                            
                            
                            (260,107
                            )
                            
                            
                            826,095
                            
                            
                            
                            (791,072
                            )Accounts
      payable to parent company
                            
                            
                            1,358,584
                            
                            
                            
                            (2,632,474
                            )
                            
                            
                            12,554,223CASH
      FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
                            
                            
                            627,964
                            
                            
                            
                            (1,329,438
                            )
                            
                            
                            1,781,586CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of equipment
                            
                            
                            (268
                            )
                            
                            
                            (2,299
                            )
                            
                            
                            (5,254
                            )CASH
      FLOWS USED IN INVESTING ACTIVITIES
                            
                            
                            (268
                            )
                            
                            
                            (2,299
                            )
                            
                            
                            (5,254
                            )CASH
      FLOWS FROM FINANCING ACTIVITIESAdvances
      to (from) related parties
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,111,480
                            )CASH
      FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,111,480
                            )EFFECT
      OF FOREIGN CURRENCY TRANSLATION
                            
                            
                            (695,458
                            )
                            
                            
                            731,681
                            
                            
                            
                            (101,130
                            )NET
      INCREASE (DECREASE) IN CASH
                            
                            
                            (67,762
                            )
                            
                            
                            (600,056
                            )
                            
                            
                            563,722CASH,
      BEGINNING OF YEAR
                            
                            
                            512,172
                            
                            
                            
                            1,112,228
                            
                            
                            
                            548,506CASH,
      END OF YEAR
                            
                            $
                            444,410
                            
                            
                            $
                            512,172
                            
                            
                            $
                            1,112,228


The
accompanying notes are an integral part of these consolidated financial
statements.


35




COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS




FOR
THE YEARS ENDED 31 MARCH 2009 AND 2008




(Expressed
in United States Dollars)




1.
              NATURE
      OF OPERATIONS




Cosmo
Communications Corporation and subsidiaries (the "Company" or "Cosmo") market
and distribute consumer electronic products.  The Company has
operations in the United States, Hong Kong and Canada.




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




The
accounting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America.  Presented below
are those policies considered particularly significant:




Principles
of Consolidation




The
Company includes, in consolidation, its wholly owned subsidiaries, Cosmo
Communications Canada Inc., Cosmo Communications (H.K.) Limited and Cosmo
Communication USA Corp.  All significant intercompany transactions and
balances have been eliminated upon consolidation.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.  These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known.   For fiscal 2009, the Company had
significant estimates for allowances for doubtful accounts in the amount of
$196,426, allowance for obsolete inventory reserve of $560,846 and sales return
and allowance reserve of $104,641.




Revenue
Recognition




Sales,
net of estimated sales returns, are recognized upon passage of title to the
customer.  This occurs upon shipment or upon receipt by the customer
depending on the country of the sale and the agreement with the
customer.  Revenue is recognized if persuasive evidence of an
agreement exists, the sales price is fixed or determinable, and collectability
is reasonably assured.




Commission
income is derived from reverse logistic services that consist of handling other
distributor companies returned goods.  In providing these services,
the Company acts as an agent or broker without assuming the risks and rewards of
ownership of the goods and therefore reports the commissions on a net
basis.  Revenue is recognized based on the completion of the
contracted services.




Cost
of Products Sold




Included
in cost of sales are cost of purchases (FOB cost) and cost associated with the
import of the products.  Import cost components are customs entry fees
levied by the country of import and the freight and handling cost to unload
containers.




Advertising
Allowances




Effective
1 January 2002, the Company adopted Emerging Issues Task Force Issue No. 01-9,
Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor’s Products
(“EITF 01-9”).  Upon adoption of EITF 01-9, the Company is required to
classify certain payments to its customers as a reduction of
sales.  The Company grants advertising allowances to its major
customers as contributions to promote the Company's
products.  Management has determined that the Company meets the
requirements of EITF 01-9 in order to characterize these contributions as a cost
as opposed to a reduction in revenue and accordingly these costs are included in
selling and delivery expenses.


36




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Consolidated
Statements of Income Classifications




The
Company calculates its gross profit as the difference between its revenue and
the associated cost of products sold.  Cost of products sold includes
direct product costs, inbound freight, excise taxes, casualty insurance, import
duties and broker fees, vendor allowances, and increases or decreases to the
Company’s FIFO reserve.  The Company’s gross profit may not be
comparable to other entities whose shipping and handling expenses are a
component of cost of sales.  Instead the Company includes these costs
in selling and delivery expenses which amounted to $1,120,935 (2008 -
$606,396).




The
Company classifies the following expense categories separately on its statement
of operations: salaries and wages; selling and delivery; and general and
administrative.  The Company’s labor costs of the warehouse and office
staff are included in the salaries and wages expense category.  The
Company’s selling expenses primarily include shipping and handling costs, sales
commissions, travel, entertainment, and product promotional costs. General and
administrative expenses of the Company primarily include legal costs, insurance,
rent, repairs, and general office expenses.




Cash
and Cash Equivalents




Cash and
cash equivalents consist of commercial accounts and interest-bearing bank
deposits and are carried at cost, which approximates current
value.  Items are considered to be cash equivalents if the original
maturity is three months or less.




Inventories




Inventories
are valued at the lower of cost and net realizable value.  Cost is
determined on a first-in, first-out basis.  Inventory is comprised of
finished products that the Company intends to sell to its
customers.  The Company periodically makes judgments and estimates
regarding the future utility and carrying value of its inventory.  The
carrying value of inventory is periodically reviewed and impairments, if any,
are recognized when the expected future benefit from the inventory is less than
its carrying value.  The Company has inventory reserves for estimated
obsolescence or unmarketable inventory which is equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. For the year ended 31 March 2009, the
Company’s inventory reserve was $560,846 ($554,224 in 2008).





Trade
receivables




The
Company's accounts receivable and related allowance for doubtful accounts are
analyzed in detail on a quarterly basis and all significant customers with
delinquent balances are reviewed to determine future collectability. Reserves
are established in the quarter in which the Company makes the determination that
the account is deemed uncollectible. The Company maintains additional reserves
based on its historical bad debt experience. The provision for accounts
receivables was assessed during the years ended 31 March 2009 and 2008 as
$196,426 and $25,927, respectively.




Equipment




Equipment
is stated at historical cost less accumulated
depreciation.  Depreciation, based on the estimated useful lives of
the assets, is provided using the under noted annual rates and
methods:





Furniture
      and fixtures
            20%
      declining balanceEquipment
            20%
      declining balanceComputer
            25%
      declining balanceWarehouse
      equipment
            20%
      declining balance


37




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Foreign
Translation Adjustment




The
accounts of the foreign subsidiaries were translated into U.S. dollars in
accordance with the provisions of SFAS No. 52, Foreign Currency
Translation.  Management has determined that the Hong Kong
dollar is the functional currency of the Hong Kong subsidiary, the US dollar is
the functional currency of the US subsidiary and the Canadian dollar is the
functional currency of the Canadian subsidiary.  Certain current
assets and liabilities of these foreign entities are denominated in U.S.
dollars.  In accordance with the provisions of SFAS 52, transaction
gains and losses on these assets and liabilities are included in the
determination of income for the relevant periods.  Adjustments
resulting from the translation of the financial statements from their functional
currencies to United States dollars are accumulated as a separate component of
accumulated other comprehensive income and have not been included in the
determination of income for the relevant periods.




Income
Taxes




The
Company accounts for income taxes pursuant to Statements of Financial Standards
(“SFAS”) No. 109, Accounting
for Income Taxes.  Deferred tax assets and liabilities are
recorded for differences between the financial statement and tax basis of the
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.  Income tax expense is recorded for the amount of
income tax payable or refundable for the period increased or decreased by the
change in deferred tax assets and liabilities during the period.




Fair
Value of Financial Instruments




The
Company's financial instruments include cash and cash equivalents, receivables,
payables, and advances from the parent company.




The
estimated fair value of financial instruments has been determined by the Company
using available market information and valuation
methodologies.  Considerable judgment is required in estimating fair
value.  Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange.  At 31
March 2009 and 2008, the carrying amounts of cash, accounts receivable, accounts
payable and accrued liabilities, and loans payable approximate their fair values
due to the short-term maturities of these instruments.


38




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Comprehensive
Income




The
Company adopted SFAS No. 130, Reporting Comprehensive
Income that establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements.  Comprehensive income is presented in the statements of
changes in stockholders' equity, and consists of net income (loss) and
unrealized gains (losses) on available for sale marketable securities, foreign
currency translation adjustments and changes in market value of future contracts
that qualify as a hedge; and negative equity adjustments recognized in
accordance with SFAS 87, Employers' Accounting for
Pensions.  SFAS No. 130 requires only additional disclosures in
the financial statements and does not affect the Company's financial position or
results of operations.




Earnings
or Loss Per Share




The
Company accounts for earnings per share pursuant to SFAS No. 128, Earnings per Share, which
requires disclosure on the financial statements of "basic" and "diluted"
earnings (loss) per share.  Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the year.  Diluted earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding plus common stock equivalents (if dilutive) related to stock
options and warrants for each year.




There
were no dilutive financial instruments for the years ended 31 March 2009 and
2008.




Valuation
of Long-Lived Assets




In
accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets,
long-lived assets to be held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable.  The Company evaluates at each balance sheet
date whether events and circumstances have occurred that indicate possible
impairment.  If there are indications of impairment, the Company uses
future undiscounted cash flows of the related asset or asset grouping over the
remaining life in measuring whether the assets are recoverable.  In
the event such cash flows are not expected to be sufficient to recover the
recorded asset values, the assets are written down to their estimated fair
value.  Long-lived assets to be disposed of are reported at the lower
of carrying amount or fair value of the asset less cost to sell.




Concentration
of Credit Risks




SFAS No.
105,Disclosure of Information
About Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentration of Credit Risk, requires disclosure of any
significant off-balance sheet risk and credit risk concentration.  The
Company is exposed to credit risk on accounts receivable from its
customers.   In order to reduce its credit risk, the Company has
adopted credit policies which include the analysis of the financial position of
its customers and the regular review of their credit terms. Our five largest
customers during fiscal year 2009 made up approximately 91% o f our total
revenues (2008 – 82%).


39




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Recent
Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (R) Business
Combinations. SFAS 141R establishes principles and requirements for how
the acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective as of the beginning of the
Company’s fiscal year beginning after 15 December 2008. Management believes the
adoption of this pronouncement will not have a material impact on the Company's
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of the Company’s fiscal year beginning
after 15 December 2008. Management believes the adoption of this pronouncement
will not have a material impact on the Company's consolidated financial
statements.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133, Accounting for
Derivative Instruments and Hedging Activities. FASB Statement
No. 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities,and its related interpretations and
(iii) how derivative instruments and related hedged items affect an
entity’s financial position, results of operations, and cash flows. FASB
Statement No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with
early application permitted. FASB Statement No. 161 permits, but does not
require, comparative disclosures for earlier periods at initial adoption. We
have not yet commenced evaluating the potential impact, if any, of the adoption
of FASB Statement No. 161 on our consolidated financial position, results
of operations, cash flows or disclosures related to derivative instruments and
hedging activities.





In April
2008, the FASB issued Staff Position (“FSP”) No. 142-3, "Determination of the Useful Life of
Intangible Assets."FSP No. 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142. The provisions of FSP No. 142-3 are effective for fiscal
years beginning after 15 December 2008 and interim periods within those fiscal
years. We are in the process of evaluating the impact, if any, that FSP No.
142-3 will have on our consolidated financial statements.





In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles. FASB Statement No. 162 defines the order in
which accounting principles that are generally accepted should be followed. FASB
Statement No. 162 is effective 60 days following the SEC’s approval of
the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU
Section 411, The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting
Principles. We have not yet commenced evaluating the potential impact, if
any, of the adoption of FASB Statement No. 162 on our consolidated
financial position, results of operations and cash flows.





In
May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS
No. 165 requires all public entities to evaluate subsequent events through
the date that the financial statements are available to be issued and disclose
in the notes the date through which the Company has evaluated subsequent events
and whether the financial statements were issued or were available to be issued
on the disclosed date. SFAS No. 165 defines two types of subsequent events,
as follows: the first type consists of events or transactions that provide
additional evidence about conditions that existed at the date of the balance
sheet and the second type consists of events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
that date. SFAS No. 165 is effective for interim and annual periods ending
after 15 June 2009 and must be applied prospectively.


40





Reclassifications





Certain
information provided for the prior years have been reclassified to conform to
the current year presentation.


41




3.
            VALUATION
      AND QUALIFYING ACCOUNTS AND
RESERVES




The
carrying amounts of trade accounts receivable are reduced by an allowance that
reflects management’s best estimate of the amounts that will not be
collected.  Management individually reviews all accounts receivable
balances and creates an allowance for doubtful accounts based on the credit
worthiness of specific accounts and an estimate of other uncollectible accounts
based on historical performance and current economic conditions.




Allowances
for estimated returns are recorded at the estimated gross profit based upon our
historical return patterns.  Sales return allowances are recorded in
accounts payable and accrued liabilities in the consolidated balance
sheets.




The
following is the activity within the Company’s consolidated valuation and
qualifying accounts and reserves for fiscal 2009 and 2008:




Balance
      at
                              Beginning
      of
                              Year
                            
                            
                            Additions
                              (Reductions)
                              Charged
      to
                              Costs
      and
                              Expenses
                            
                            
                            Deductions
                            
                            
                            Balance
      at End
                              of
      YearYear ended 31
      March 2009Deducted
      from asset account:Allowance
      for doubtful accounts
                            
                            $
                            25,927
                            
                            
                            $
                            175,206
                            
                            
                            $
                            4,707
                            
                            
                            $
                            196,426Sales
      return and allowance reserve
                            
                            
                            138,438
                            
                            
                            
                            2,837,532
                            
                            
                            
                            2,871,329
                            
                            
                            
                            104,641Total
                            
                            $
                            164,365
                            
                            
                            $
                            3,012,738
                            
                            
                            $
                            2,876,036
                            
                            
                            $
                            301,067Year ended 31
      March 2008Deducted
      from asset account:Allowance
      for doubtful accounts
                            
                            $
                            6,520
                            
                            
                            $
                            30,323
                            
                            
                            $
                            10,916
                            
                            
                            $
                            25,927Sales
      return and allowance reserve
                            
                            
                            381,270
                            
                            
                            
                            1,359,375
                            
                            
                            
                            1,602,207
                            
                            
                            
                            138,438Total
                            
                            $
                            387,790
                            
                            
                            $
                            1,389,698
                            
                            
                            $
                            1,613,123
                            
                            
                            $
                            164,365




4.
            EQUIPMENT




The
      components of equipment are as
follows:




Cost
                      
                      
                      Accumulated
                        Depreciation
                      
                      
                      Net
                        2009
                      
                      
                      Net
                        2008Furniture
      and fixtures
                      
                      $
                      42,462
                      
                      
                      $
                      (40,425
                      )
                      
                      $
                      2,037
                      
                      
                      $
                      3,147Equipment
                      
                      
                      31,858
                      
                      
                      
                      (29,991
                      )
                      
                      
                      1,867
                      
                      
                      
                      2,844Computer
                      
                      
                      53,295
                      
                      
                      
                      (42,857
                      )
                      
                      
                      10,438
                      
                      
                      
                      15,233Warehouse
      equipment
                      
                      
                      68,575
                      
                      
                      
                      (52,676
                      )
                      
                      
                      15,899
                      
                      
                      
                      23,623$
                      196,190
                      
                      
                      $
                      (165,949
                      )
                      
                      $
                      30,241
                      
                      
                      $
                      44,847





5.
              INCOME
      TAXES




The
provision for income taxes reconciles to the amount obtained by applying the
statutory income tax rates of 33% (2008 - 36.12%) in Canada, 16.5% (2008 -
17.5%) in Hong Kong and 16.5% (2008 - 15.5%) in US to income before provision
for taxes as follows:


42




2009
                  
                  
                  2008Computed
      expected tax
                  
                  $
                  (731,668
                  )
                  
                  $
                  (278,083
                  )Expenses
      not deductible for tax purposes
                  
                  
                  55,434
                  
                  
                  
                  15,653Equipment
                  
                  
                  (160
                  )
                  
                  
                  3,376Tax
      losses available for carryforward
                  
                  
                  860,843
                  
                  
                  
                  3,907Other
                  
                  
                  (367,517
                  )
                  
                  
                  900Provision
      for income taxes
                  
                  $
                  (183,068
                  )
                  
                  $
                  (254,247
                  )




The
Company has $3,991,187 of tax losses available to offset future taxable
income.  $1,056,459 of these losses are held in our Canadian
subsidiary and expire in 2019.  $2,436,679 of these losses are held in
our Hong Kong subsidiary and can be carried forward indefinitely.  The
remaining $498,049 tax losses are held in our US subsidiary and expire in
2023.




During
the 2008 fiscal year, Cosmo Communications Canada Inc. settled a corporate tax
audit with the Canada Revenue Agency related to allocation of income between
Canada and Hong Kong.  The adjustments were to taxable income for the
fiscal years 31 March 2004 and 2005 and totaled $714,638 in additional corporate
taxes payable.  The tax audits are now closed for these
years.




The
components of deferred income taxes have been determined at the combined
Canadian federal and provincial statutory rate of 33% (2008 -
36.12%)  as follows:





2009
                      
                      
                      2008Deferred
      income tax assets (liabilities):Book
      over tax depreciation
                      
                      $
                      8,317
                      
                      
                      $
                      8,317Tax
      losses carried forward
                      
                      
                      860,843
                      
                      
                      
                      3,907Valuation
      allowance
                      
                      
                      (860,843
                      )
                      
                      
                      (3,907
                      )Deferred
      income taxes
                      
                      $
                      8,317
                      
                      
                      $
                      8,317


43




6.
            AMOUNTS
      PAYABLE TO PARENT COMPANY




As of 31
March 2009, the Company owed $12,703,104 (2008 - $11,344,520) to The Starlight
Group of Companies, the principal corporate shareholder of the Company
("Starlight").  Of this amount $12,098,477 (2008 - $10,739,893)
was owed in the form of trade payable and the remainder was in the form of
advances and interest on advances.  The advances from Starlight were
paid for by the issuance of shares in the fiscal year ended 31 March 2007,
leaving only the accrued interest as payable.  These amounts are
payable on demand and Starlight has agreed not to charge further interest on the
accrued interest payable.  Interest accrued as of 31 March 2009 was
$604,627 (2008 - $604,627).




7.
            ACCOUNT
      PAYABLE AND ACCRUED LIBILITIES




The
      balance is comprised of:




2009
                          
                          
                          2008Trade
      payables
                          
                          
                          207,530
                          
                          
                          
                          350,739Accrued
      liabilities
                          
                          
                          152,211
                          
                          
                          
                          84,714Claims
      payable
                          
                          
                          229,198
                          
                          
                          
                          56,672Sales
      return and allowance reserve
                          
                          
                          104,641
                          
                          
                          
                          138,438$
                          693,580
                          
                          
                          $
                          630,563




8.
            COMMITMENTS




The
Company leases premises under an operating lease with a five year term in Canada
and shares the facilities for its Hong Kong operation.  Minimum lease
commitments under the leases at 31 March 2009 were:




2010
                      
                      $
                      276,7182011
                      
                      
                      276,7182012
                      
                      
                      278,9382013
                      
                      
                      281,1582014
                      
                      
                      140,580$
                      1,254,112


44




9.
            CAPITAL
      STOCK


Authorized30,000
            preferred
      stock, cumulative, convertible at $0.01 par value9,970,000
            preferred
      stock, at $0.01 par value50,000,000
            common
      stock at $0.05 par value, voting,
participating




2009
                        
                        
                        2008Issued40,467,636 Common
      stock (2006 - 29,104,000)
                        
                        $
                        2,139,132
                        
                        
                        $
                        2,139,1322,314,567 Treasury
      stock
                        
                        
                        (115,750
                        )
                        
                        
                        (115,750
                        )$
                        2,023,382
                        
                        
                        $
                        2,023,382




On 15
March 2007, the Board of Directors approved the issuance of 11,363,636 shares of
common stock in exchange for advances and trade payables to Starlight in the
amount of $2,000,000.  The parties agreed to issue one share for every
$0.176 of debt.




10.
              RELATED
      PARTY TRANSACTIONS




Apart
from those as disclosed in note 6, the Company's transactions with related
parties were, in the opinion of the directors, carried out on normal commercial
terms and in the ordinary course of the Company's business.




During
the year ended 31 March 2009, the Company purchased $25,191,456 (2008 -
$27,532,352) of goods from Starlight and received no commissions from Starlight
(2008 - $56,648).




11.
              ECONOMIC
      DEPENDENCE




The
Company is economically dependent on its parent company for the supply of
inventory products to its customers.  For fiscal 2009, the Company
purchased 92% of its inventory needs from Starlight (2008 -84%).




A
mass-market merchandiser and chain store located in Canada and US is the
Company's largest customer, which accounted for approximately 70% of sales in
2009 and 76% in 2008.  Economic dependence exists with this identified
customer.  Loss of the customer may have significant adverse results
to the financial position of the Company.




As of 31
March 2009, the accounts receivable from this customer amounted to approximately
$1,842,933 (2008 - $1,721,833) and claims payable for inventory returns amounted
to approximately $12,964 (2008 - $56,671).




12.
              OPERATING
      SEGMENT INFORMATION




The
Company operated in one business segment and all of its sales are consumer
electronic products.  The Company's customers are principally in
Canada and in the USA.  Borrowings are principally in the United
States.




Canada
                                
                                
                                Hong
      Kong
                                
                                
                                United
      States
                                
                                
                                Total2009Assets
                                
                                
                                5,503,949
                                
                                
                                
                                377,210
                                
                                
                                
                                7,356,322
                                
                                
                                
                                13,237,481Sales,
      net
                                
                                
                                10,778,530
                                
                                
                                
                                4,963,244
                                
                                
                                
                                13,721,380
                                
                                
                                
                                29,463,154Gross
      margin
                                
                                
                                709,142
                                
                                
                                
                                280,280
                                
                                
                                
                                1,015,445
                                
                                
                                
                                2,004,867Net
      loss
                                
                                
                                (1,182,248
                                )
                                
                                
                                (1,034,185
                                )
                                
                                
                                (498,048
                                )
                                
                                
                                (2,714,481
                                )2008Assets
                                
                                
                                6,966,433
                                
                                
                                
                                783,441
                                
                                
                                
                                7,978,424
                                
                                
                                
                                15,728,298Sales,
      net
                                
                                
                                9,882,697
                                
                                
                                
                                8,369,762
                                
                                
                                
                                16,568,291
                                
                                
                                
                                34,820,750Gross
      margin
                                
                                
                                736,784
                                
                                
                                
                                348,152
                                
                                
                                
                                820,432
                                
                                
                                
                                1,905,368Net
      loss
                                
                                
                                (1,660,839
                                )
                                
                                
                                (153,868
                                )
                                
                                
                                (25,209
                                )
                                
                                
                                (1,839,916
                                )




13.
              SUPPLEMENTAL
      CASH FLOW INFORMATION


During
the year ended 31 March 2009 the Company paid interest of $55,547 (2008 -
$74,593) and paid income taxes of $312,428 (2008 - $392,118).


45




Item 9. Changes In and Disagreements
with Accountants on
Accounting and Financial Disclosure





None.





Item 9A. Controls and
Procedures





Evaluation
of Disclosure Controls and Procedures




(a) Evaluation of Disclosure
Controls. Our Chief Executive Officer and our Chief Financial Officer
evaluated the effectiveness of our disclosure controls and procedures as of the
end of our 2009 fiscal year. Disclosure controls and procedures are controls and
other procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, as appropriate to allow
timely decisions regarding required disclosure. Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of March 31,
2009.




It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.




Management’s
Report on Internal Control over Financial Reporting.




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) and has assessed its effectiveness using the
components established in the Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our internal control over financial reporting has been
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America.




Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures are being
made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements. Management concluded that we
maintained effective internal control over financial reporting as of March 31,
2009.   Since the material weakness over financial reporting for
fiscal March 31, 2008 was detected, management has secured the service of
outside service which provides the reviewing our compliance concerning
disclosure on our financial reporting.




(b)  Changes
in internal control over financial reporting.  There have been no
changes in our internal control financial reporting that occurred during the
year ended March 31, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.  Our management team will continue to evaluate our internal
control over financial reporting in 2009.


46




This
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this Annual Report.





Item 9B. Other
Information


None.





PART III





Item 10. Directorsand Executive Officers of the
Registrant




The
following table sets forth information concerning the directors, executive
officers and significant employees of Cosmo as of June 29, 2009:




Name
                
                Age
                
                PositionPhilip
      Lau
                
                61
                
                Chairman
      of the Board of Directors and PresidentPeter
      Horak
                
                67
                
                Chief
      Executive Officer and DirectorCarol
      Atkinson
                
                60
                
                Chief
      Financial OfficerYu
      Wing King
                
                57
                
                Vice
      President, Hong Kong operationJacky
      Lau
                
                50
                
                DirectorJeff
      Horak
                
                51
                
                Vice
      President –Sales and Marketing - Canada
  Operations


47




Table of
Contents





Philip Lau - Chairman and
President





Mr.
Philip Lau, Chairman of the Board of Directors, was appointed in January 2001
after Starlight International Limited acquired 49% of the voting shares of the
Company. Since 1987, Mr. Lau has been the Chairman of Starlight
International, an electronics company the shares of which are listed on the Hong
Kong Stock Exchange, and has extensive experience in the consumer electronics
business.





Peter Horak – Chief Executive Officer,
Canada





Mr. Peter
Horak, President of Cosmo Canada, was appointed as the Chief Executive Officer
in January 2001. Mr. Horak was the co-founder of Cosmo's Canadian
subsidiary and has been its chief executive officer since 1988. Mr. Horak
is the Company's chief sales, marketing, and sourcing executive.





Carol
Atkinson – Chief Finance
Officer





Ms.
Atkinson has served as Chief Finance Officer of the Company since January 2001
after Starlight International Limited acquired its shares. Ms Atkinson is a
licensed public accountant.





Yu Wing Kin – Vice President, Administration, Hong
Kong





Mr. Yu
has served as Vice President of Administration of Cosmo Hong Kong since joining
the Company in August 1978.





Jacky Lau – Director





Mr. Jacky
Lau has served as a director of the Company since January 2001 after Starlight
International Limited acquired its shares. He joined Starlight
International in 1987 as the Director of Material Sourcing.





Anthony Lau –
Director





Mr.
Anthony Lau was appointed in September 2006 and has been a director of Starlight
International since 1987.





Directors
are elected annually by the shareholders and hold office until the next annual
meeting and until their respective successors are elected and qualified. There
are no other family relationships among any of the Company's directors and
executive officers.





Family
Relationships





Mr.
Philip Lau, Mr. Jacky Lau, Mr. Anthony Lau and Ms Carol Atkinson are siblings.
Peter Horak is the brother of Jeff Horak.





Code
of Ethics




Our Board
of Directors has not yet adopted a formal Code of Ethics and Business Conduct
that applies to our Chief Executive Officer and Chief Financial Officer, as well
as to our directors, officers and employees. Once adopted, a copy of our Code of
Ethics will be filed as an exhibit to an amendment to this registration
statement or filed as part our future filings with the SEC.





Compliance
with Section 16(A) of the Exchange Act.





To our
knowledge, based solely on a review of the copies of such reports furnished to
the Company and written representations that no other reports were required, the
Company believes that during the year ended March 31, 2009, its officers,
directors and 10% shareholders complied with all Section 16(a) filing
requirements.


48


Table of
Contents




Item 11. Executive
Compensation





Compensation
of Directors




The
following table sets forth with respect to the named directors, compensation
information inclusive of equity awards and payments made in the fiscal year
ended March 31, 2009.




Director
Compensation (1)





Name
                    (a)
                  
                  Fees Earned
                    or Paid in
                    Cash
                    ($)
                    (b)
                  
                  Stock
                    Awards
                    ($)
                    (c)
                  
                  Option
                    Awards
                    ($)
                    (d)(1)
                  
                  Non-Equity Incentive
                    Plan Compensation
                    ($)
                    (e)
                  
                  Change in Pension Value and
                    Nonqualified Deferred
                    Compensation Earnings
                    (f)
                  
                  All Other
                    Compensation
                    ($)
                    (g)
                  
                  Total
                    ($)
                    (h)




(1) As
permitted under the rules promulgated by the Securities and Exchange Commission,
this table omits columns that are not applicable.




Board
Directors generally receive meeting attendance fees of $300. However, each such
director waived his/her rights to receive such fees during fiscal 2009. Annual
retainers are not currently provided to directors; however, such retainers may
be re-instituted in the future.





Executive
Compensation




The
following table sets forth certain compensation information for the fiscal years
ended March 31, 2009, 2008 and 2007 with regard to (i) Peter Horak, our Chief
Executive Officer, and to each of the four most highly compensated executive
officers of Cosmo for fiscal 2009, 2008 and 2007:





Summary
Compensation Table


Name & Principal
                                    Position
                                  
                                  Year
                                  
                                  Salary ($)
                                  
                                  
                                  Bonus ($)
                                    (5)
                                  
                                  
                                  Stock
                                    Awards($)
                                    (5)
                                  
                                  
                                  Option
                                    Awards ($)
                                  
                                  
                                  Non-Equity
                                    IncentivePlan
                                    Compensation($)
                                  
                                  
                                  Change in
                                    Pension Value
                                    and Non-
                                    Qualified
                                    Deferred
                                    Compensation
                                    Earnings ($)
                                  
                                  
                                  All Other
                                    Compensation
                                    ($) (1)
                                  
                                  
                                  Total ($)Peter
      Horak
                                  
                                  2009
                                  
                                  
                                  89,693
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  8,610
                                  
                                  
                                  
                                  98,303CEO
      and Director
                                  
                                  2008
                                  
                                  
                                  99,324
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  11,370
                                  
                                  
                                  
                                  110,6942007
                                  
                                  
                                  175,800
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  13,600
                                  
                                  
                                  
                                  189,400Jeff
      Horak
                                  
                                  2009
                                  
                                  
                                  94,178
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  9,687
                                  
                                  
                                  
                                  103,865Vice
      President - Canada
                                  
                                  2008
                                  
                                  
                                  131,063
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  12,671
                                  
                                  
                                  
                                  143,7342007
                                  
                                  
                                  175,800
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  9,493
                                  
                                  
                                  
                                  185,293Yu
      Wing King
                                  
                                  2009
                                  
                                  
                                  45,978
                                  
                                  
                                  
                                  1,267
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  47,245Vice
      President – Hong Kong
                                  
                                  2008
                                  
                                  
                                  43,524
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,418
                                  
                                  
                                  
                                  45,9422007
                                  
                                  
                                  42,832
                                  
                                  
                                  
                                  14,318
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  57,150E.
      J. Colin
                                  
                                  2009
                                  
                                  
                                  94,178
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  5,920
                                  
                                  
                                  
                                  100,098National
      Sales
                                  
                                  2008
                                  
                                  
                                  67,959
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  7,511
                                  
                                  
                                  
                                  75,470Manager
      - Canada
                                  
                                  2007
                                  
                                  
                                  92,300
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  5,800
                                  
                                  
                                  
                                  98,100





(1)      Includes automobile expense allowances and other
employee benefits


49




Table of
Contents




Employment
Agreements




The
Company signed no new employment agreements during fiscal 2009 and signed two
employment agreements with two executive officers during fiscal
2008.




OPTION
GRANTS IN FISCAL 2009 (1)




The
following table set forth information concerning each grant of an award made to
a named executive officer in the last completed fiscal year under any plan,
including awards that subsequently have been transferred.





GRANTS
OF PLAN-BASED AWARDS




Estimated
      Future Payouts Under Non-
                                          Equity
      Incentive Plan Awards
                                        
                                        
                                        Estimated
      Future Payouts Under
                                          Equity
      Incentive Plan Awards
                                        
                                        
                                        All Other
      Stock
                                          Awards:
      Number of
                                          Shares of Stocks or
                                        
                                        
                                        All
      Other Option
                                          Awards:
      Number of
                                          Securities Underlying
                                        
                                        
                                        Exercise
      or
                                          Base Price of
                                        
                                        
                                        Grant
      Date Fair
                                          Value of StockName
                                          (a)
                                        
                                        Grant
                                          Date
                                          (b)
                                        
                                        
                                        Threshold
                                          ($)
                                          (c)
                                        
                                        
                                        Target
                                          ($)
                                          (d)
                                        
                                        
                                        Maximum
                                          ($)
                                          (e)
                                        
                                        
                                        Threshold
                                          ($)
                                          (f)
                                        
                                        
                                        Target
                                          ($)
                                          (g)
                                        
                                        
                                        Maximum
                                          ($)
                                          (h)
                                        
                                        
                                        Units
                                          (#)
                                          (i)
                                        
                                        
                                        Options
                                          (#)
                                          (j)
                                        
                                        
                                        Option
      Awards
                                          ($/Sh)
                                          k
                                        
                                        
                                        and
      Option
                                          Awards
                                          l




(1) As
permitted under the rules promulgated by the Securities and Exchange Commission,
this table omits columns that are not applicable.





Outstanding
Equity Awards At Fiscal Year-End (1)




The
following table sets forth information for the named executive officers
regarding the number of shares subject to both exercisable and unexercisable
stock options, as well as the exercise prices and expiration dates thereof, as
of March 31, 2009.




Option Awards
                          
                          
                          Stock AwardsName
                          
                          Number
                            of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Exercisable
                          
                          
                          Number
                            of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Unexercisable
                          
                          
                          Equity
                            Incentive
                            Plan
                            Awards:
                            Number
                            of
                            Securities
                            Underlying
                            Unexercised
                            Unearned
                            Options
                            (#)
                          
                          
                          Option
                            Exercise
                            Price
                            ($)
                          
                          
                          Option
                            Expiration
                            Date
                          
                          
                          Number
                            of
                            Shares
                            or Units
                            of Stock
                            That
                            Have
                            Not
                            Vested
                            (#)
                          
                          
                          Market
                            Value
                            of
                            Shares
                            or
                            Units
                            of
                            Stock
                            That
                            Have
                            Not
                            Vested
                            ($)
                          
                          
                          Equity
                            Incentive
                            Plan
                            Awards:
                            Number
                            of
                            Unearned
                            Shares,
                            Units or
                            Other
                            Rights
                            That
                            Have
                            Not
                            Vested
                            (#)
                          
                          
                          Equity Incentive
                            Plan Awards:
                            Market or Payout
                            Value
                            of
                            Unearned
                            Shares,
                            Units or
                            Other
                            Rights
                            That Have
                            Not
                            Vested
                            ($)




(1) As
permitted under the rules promulgated by the Securities and Exchange Commission,
this table omits columns that are not applicable.





Long-term
Compensation–Stock Option
Grants and 401K Plan


The
Company does not have any stock option plan or 401K plan as long-term
compensation.


50





Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters





The
following table sets forth the name, address, number of shares beneficially
owned, and the percentage of the Registrant’s total outstanding common stock
shares owned by: (i) each of the Registrant’s Officers and Directors; (ii) the
Registrant’s Officers and Directors as a group; and (iii) other shareholders of
5% or more of the Registrant’s total outstanding common stock shares. The
percentages have been calculated by taking into account all Shares owned on the
record date as well as all such Shares with respect to which such person has the
right to acquire beneficial ownership at such date or within 60 days thereafter.
Unless otherwise indicated, all persons listed below have sole voting and sole
investment power over the Shares owned. Unless otherwise provided, each person's
address is c/o Cosmo Communications Corporation, Unit 2 – 55 Travail Road,
Markham, Ontario, Canada.





Title of Class
                      
                      Name and Address of
                        Beneficial Owner
                      
                      Amount and
                        Nature of
                        Beneficial
                        Ownership
                      
                      
                      Percent
                        of ClassCommon
      Stock
                      
                      Philip
      Lau
                        Chairman
      and President
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Peter
      Horak
                        Chief
      Executive Officer and Director
                      
                      
                      257,500
                      
                      
                      
                      *Common
      Stock
                      
                      Carol
      Atkinson
                        Chief
      Financial Officer
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Rick
      Bond
                        Vice
      President – sales and marketing – USA operation
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Yu
      Wing King
                        Vice
      President, Hong Kong operation
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Jacky
      Lau
                        Director
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Jeff
      Horak
                        Vice
      President –Sales and Marketing - Canada Operations
                      
                      
                      —
                      
                      
                      
                      —Common
      Stock
                      
                      Starlight
      International,
                        5/F,
      232 Aberdeen Road
                        Hong
      Kong
                      
                      
                      37,948,644
                      
                      
                      
                      93.8
                      %Common
      Stock
                      
                      All
      Officers and Directors, as a Group
                      
                      
                      257,500
                      
                      
                      
                      *





* Less
then one percent.





Equity
Compensation Plan Information





The
Company does not have any stock option plan or 401K plan as long-term
compensation.


51





Item 13. Certain Relationships and Related
Transactions


During
the year ended March 31, 2009, we purchased $25,191,456 (2008 - $27,532,352) of
goods from our parent company, Starlight and received no commissions (2008
- $56.648).


52


Table
of Contents
  Item 14.





The
following is a summary of the fees billed to the Company by DNTW Chartered
Accountants, LLP, Jeremy Karkheck CA Professional Corporation, Deloitte &
Touche LLP and Chan & Watt Company for professional services rendered to our
company for the fiscal years ended March 31, 2009 and 2008:





2009
                
                
                2008Audit
      Fees (a)
                
                $
                48,215
                
                
                $
                37,500Audit
      Related Fees
                
                
                
                
                
                
                -Tax
      Fees (b)
                
                
                26,629
                
                
                
                29,315Total
      Fees
                
                
                74,844
                
                
                
                66,815





(a)
            Consists
      of fees billed for professional services rendered for the audit of the
      Company's consolidated financial statements and review of the interim
      consolidated financial statements included in quarterly
      reports.





(b)
            Consists
      primarily of fees paid for tax compliance and tax planning services. This
      category includes services regarding tax return assistance, assistance
      with tax return filings in certain foreign jurisdictions, assistance with
      tax audits and appeals, and general U.S. and foreign tax
      advice.





Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm





The
Company currently does not have a designated Audit Committee, and accordingly,
the Company's Board of Directors' policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Company's Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.


53




Table
of Contents




PART IV





Item 15. Exhibits, Financial Statement
Schedules.


Consolidated
Financial Statements


See Index
to Consolidated Financial Statements on page 28 of this
report.





Financial
Statement Schedule


SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


COSMO
COMMUNICATIONS CORPORATION





Description
              
              Balance at
                Beginning
                of Year
              
              
              Additions
                (Reductions)
                Charged to
                Costs and
                Expenses
              
              
              Deductions
              
              
              Balance at
                End of PeriodYear
      ended March 31, 2009Deducted
      from asset account:Allowance
      for doubtful accounts
              
              $
              25,927
              
              
              $
              175,206
              
              
              $
              4,707
              
              
              $
              196,426Sales
      return and allowance reserve
              
              
              138,438
              
              
              
              2,837,532
              
              
              
              2,871,329
              
              
              
              104,641Total
              
              $
              164,365
              
              
              $
              3,012,738
              
              
              $
              2,876,036
              
              
              $
              301,067Year
      ended March 31, 2008Deducted
      from asset account:Allowance
      for doubtful accounts
              
              $
              6,520
              
              
              $
              30,323
              
              
              $
              10,916.
              
              
              $
              25,927Sales
      return and allowance reserve
              
              
              381,270
              
              
              
              1,359,375
              
              
              
              1,602,207
              
              
              
              138,438Total
              
              $
              387,790
              
              
              $
              1,389,698.
              
              
              $
              1,613,123
              
              
              $
              164,365Year
      ended March 31, 2007Deducted
      from asset account:Allowance
      for doubtful accounts
              
              $
              14,040
              
              
              $
              (18,387
              )
              
              $
              (10,867
              )
              
              $
              6,520Sales
      return and allowance reserve
              
              
              245,770
              
              
              
              2,992,413
              
              
              
              2,856,913
              
              
              
              381,270Total
              
              $
              259,810
              
              
              $
              2,974,026
              
              
              $
              2,846,046
              
              
              $
              387,790


Other
financial statement schedules have not been presented, as they are not
applicable.


54




Table
of Contents




Exhibits





ExhibitNumber
                
                Description of Document3.1
                
                
                Articles
      of Incorporationas amended
      +3.2
                
                
                Registrant's
      Bylaws ++21.1
                
                
                List
      of Subsidiaries of Cosmo Communications Corporation
++++31.1
                
                
                Certification
      pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Peter
      Horak *31.2
                
                
                Certification
      pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carol
      Atkinson *32.1
                
                
                Certification
      by the Chief Executive Officer pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 *32.2
                
                
                Certification
      by the Chief Financial Officer pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
*





+
            Incorporated
      by reference to our Annual Report on Form 10-K for the year ended
      March 31, 1992, as amended.





++
            Incorporated
      by reference to our Registration Statement (File No.
    2-83088).





++++
            Incorporated
      by reference to our Annual Report on Form 10-K for the year ended
      March 31, 2006 filed with the SEC on August 8,
  2006.





*
            Filed
      herewith.


55




Table
of Contents




SIGNATURES


Pursuant
to the requirements of the Section 13 or 15(d), as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Markham, Ontario, Canada on June 29,
2009.





COSMO
      COMMUNICATIONS CORPORATIONBy:
            /s/Peter
      HorakPeter
      HorakChief
      Executive Officer (Principal Executive
Officer)





By:
            /s/Carol
      AtkinsonCarol
      AtkinsonChief
      Executive Officer (Principal Financial Officer and
              Principal
      Accounting Officer)




Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed by the following persons in the capacities and on the
dates indicated:





Name
              
              Title
              
              Date/s/PETER
      HORAK
              
              Chief
      Executive Officer and
              
              July
      6, 2009Peter
      Horak
              
              Director
      (Principal Executive Officer)/s/CAROL
      ATKINSON
              
              Chief
      Financial Officer and
              
              July
      6, 2009Carol
      Atkinson
              
              Principal
      Financial Officer and Principal Accounting Officer/s/ JACKY LAU
              
              Director
              
              July
      6, 2009Jacky
      Lau


56