SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549





Form 10-K/A


(Amendment No.2)


ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)


OF THE SECURITIES AND EXCHANGE ACT OF
1934


FOR
THE FISCAL YEAR ENDED MARCH 31, 2008


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 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, or a non-accelerated filer (as defined in Exchange Act
Rule 12b-2).





Large
accelerated filler  ̈          Accelerated
filer  ̈          Non-accelerated
filer 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 30, 2008.







COSMO
COMMUNICATIONS CORPORATION


ANNUAL REPORT ONFORM 10-K


FOR
THE FISCAL YEAR ENDED MARCH 31, 2008


TABLE OF
CONTENTS





PagePART IItem 1.
                
                Business
                
                
                3Item 1A
                
                Risk
      Factors
                
                
                12Item 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
                
                
                27Item 8.
                
                Financial
      Statements and Supplementary Data
                
                
                29Item 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
                
                
                52Item 13.
                
                Certain
      Relationships and Related Transactions
                
                
                53Item 14.
                
                Principal
      Accountant Fees and Services
                
                
                54PART IVItem 15.
                
                Exhibits,
      Financial Statement Schedules and Reports on Form 8-K
                
                
                55Signatures
                
                
                57







Table
of Contents




Explanatory
Note





Cosmo
Communications Corporation is filing this amendment #2 on Form 10-K/A to amend
the results of Item9A, controls and procedures, to disclose that our
disclosure controls and procedures were not effective. This Form 10-K/A also
includes amended certifications on Exhibits 31.1 and 31.2 in accordance with
Item 601(b)(31) of Regulation S-K.  Pursuant to Rule 12b-15 under the
Securities Exchange Act of 1934, as a result of this amended report, the
certifications pursuant to Section 302 and Section 906 of the Sarbanes- Oxley
Act of 2002, filed and furnished, respectively, as exhibits to the
Form 10-K have been re-executed and re- filed as of the date of this
amended report and are included as exhibits hereto.





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-lookingstatements 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
statements to 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
factorsthatCosmohas 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
clients.





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.





Since
2001, we closed our operation in United States and focused our business in
Canada.  We re-entered the USA market when Starlight became a licensee
of Disney electronics products in September 2006. In fiscal 2007, we hired two
sales executives and began selling in the United States in the second quarter of
fiscal 2007.    We are able to distribute Disney licensed
electronics through Starlight.  Our principal executive office is
located in Ontario, Canada with two sales offices located in California and
Kansas, 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 players. This year we introduced to our product
line a series of MP4 players which include both photo and video playback. Over
the course of the year we have seen the elimination of both the 256MB &
512MB memory MP3 players and have sold all 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 7% 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 8.3% of total sales during the
year.


·
              Digital Lab:This Cosmo
      introduced 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 13.7% 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
      15.3% 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 36% 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 introducing 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 31,2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005Product
      Class:
                          
                          %
                          
                          
                          %
                          
                          
                          %
                          
                          
                          %MP3
      Players
                          
                          
                          7
                          
                          
                          
                          12
                          
                          
                          
                          7
                          
                          
                          
                          -Other
      Audio (1)
                          
                          
                          36
                          
                          
                          
                          27
                          
                          
                          
                          29
                          
                          
                          
                          55Video
      (2)
                          
                          
                          48
                          
                          
                          
                          59
                          
                          
                          
                          62
                          
                          
                          
                          40Clocks
                          
                          
                          8
                          
                          
                          
                          2
                          
                          
                          
                          2
                          
                          
                          
                          5Tools
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %
                          
                          
                          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 2007, we began distributing Disney licensed
electronics products.  In fiscal 2008, we marketed and distributed
over six Disney characters.  Our Canada sales force also introduced
the Hyundai brand of home improvement products including small garden tools such
as cordless weed cutters and edge trimmers in fiscal 2008.  In fiscal
2009, we expect to distribute a limited edition of karaoke products using the
popular Disney characters Hannah Montana and Princess.  Our product
development team will launch a new youth line of electronics that incorporates a
series of products with environmental theme in fiscal 2009.





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, Toys “R” Us (Canada) and Army and Air Force
Exchange Service (“AAFES”).





In fiscal
2008, approximately 52% of our sales were to the customers within Canada, 47% of
sales were to the customers in USA.  Sales made to Mexico made up
approximately 1% 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,
2008, 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, 2008, and 2007 were
approximately 82% and 98% 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
                          
                          2004
                          
                          
                          2005
                          
                          
                          2006
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2008%(In thousands)USA
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          13,350
                          
                          
                          
                          16,568
                          
                          
                          
                          48
                          %Canada
                          
                          $
                          30,934
                          
                          
                          $
                          34,179
                          
                          
                          $
                          49,743
                          
                          
                          
                          42,384
                          
                          
                          
                          17,891
                          
                          
                          
                          51
                          %Europe
                          
                          
                          1,225
                          
                          
                          
                          1,273
                          
                          
                          
                          920
                          
                          
                          
                          113
                          
                          
                          
                          -
                          
                          
                          
                          -
                          %Others
                          
                          -
                          
                          
                          -
                          
                          
                          348
                          
                          
                          440
                          
                          
                          
                          362
                          
                          
                          
                          1
                          %Total
      sales
                          
                          $
                          32,159
                          
                          
                          $
                          35,452
                          
                          
                          $
                          51,011
                          
                          
                          $
                          56,287
                          
                          
                          
                          34,821
                          
                          
                          
                          100.0
                          %





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.  Our total returns represented 3% and 5% of our net sales in
fiscal 2008 and 2007, respectively.





We have
an ongoing arrangement with Starlight 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.  We have a
workshop within our warehouse facility to refurbish minor defective
products.  Refurbished products are packaged to be resold in the
secondary markets by secondary market dealers.  We expect to recover
at least 35% of the costs from the refurbishment.





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, 2008, approximately
76% of our sales were sales from our domestic warehouses ("Domestic Sales") and
24% 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 our high
standards of product quality and factories meet our 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, 2008 and 2007,
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 Operation





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





With our
close relationship with Starlight, we have developed a good knowledge of their
manufacturing capability and facility.  Starlight pays us a commission
based on sales made between Starlight and our customers at a percentage of
sales.  We report income on our consolidated income statement from
this category under “Commission income”.





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”, “Diamond Vision” and “Diamond Sound” as our trade marks
in United States and 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, 2008, we
had inventory of $11 million (net of reserves totaling $554,224) compared to
inventory of $9.6 million as of March 31, 2007 (net of reserves totaling
$381,000).  We carried higher inventory levels in the current fiscal
year because we had increased domestic sales activities (76%) compared with 34%
in the prior year.


10




Table
of Contents




Our
financing of seasonal working capital during fiscal 2008 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 2009, we plan on financing our inventory purchases 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, 2008
we had no backlog of orders and none in the same period in fiscal
2007.  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 this type of sales.





Employees





As of
March 31, 2008, we employed 36 people, all of whom are full-time employees,
including four executive officers.  Three of our employees are located
at our subsidiary in Hong Kong and three in the United States.  The
remaining employees are based in Canada, 18 engaged in warehousing and technical
support, and 12 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




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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, 2008, 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, 2008, our inventory was valued at approximately $11 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, 2008 and 2007 were approximately 86% and 98%
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




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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 $403,000 during fiscal 2008 and $727,000
during fiscal 2007.  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 year and we expect a
continued competitive market in the future.




Over the
past year, our gross profit margins have not improved due to price
competition.  We expect that our gross profit margin might decrease
under downward pressure in fiscal 2009 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 65% and 46% of
total sales in fiscal 2008 and 2007 respectively.


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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 facility 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




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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 2008.  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 76%, 93% and 91% of Cosmo’s sales in 2008, 2007
and 2006 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 2.
Properties




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





We have
two sales offices in USA, one located in San Jose, California and one located in
Kansas.





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.  Our subsidiary company in Canada has settled a
lawsuit concerning a certain agreement violation for a sum of $210,893 in March
2008.





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 2008 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
2008.  We have 396 recorded holders of our common stock on June 30,
2008.





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. Selected Financial
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, 2008, 2007, 2006, and 2005 and the
balance sheet data at March 31, 2008, 2007, and 2006 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,
2005 and 2004 and the balance sheet data at March 31, 2005 and 2004 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 2008 presentation.





Years Ended March 31,2008
                                      
                                      
                                      2007
                                      
                                      
                                      2006
                                      
                                      
                                      2005
                                        Restated
                                      
                                      
                                      2004(In thousands, except per share data)Consolidated
      Statements of Operations:Net
      sales
                                      
                                      
                                      34,821
                                      
                                      
                                      $
                                      56,287
                                      
                                      
                                      $
                                      51,011
                                      
                                      
                                      $
                                      35,452
                                      
                                      
                                      $
                                      32,159Cost
      of products sold
                                      
                                      
                                      32,915
                                      
                                      
                                      
                                      53,034
                                      
                                      
                                      
                                      48,157
                                      
                                      
                                      
                                      32,846
                                      
                                      
                                      
                                      29,476Gross
      profit
                                      
                                      
                                      1,906
                                      
                                      
                                      
                                      3,253
                                      
                                      
                                      
                                      2,854
                                      
                                      
                                      
                                      2,606
                                      
                                      
                                      
                                      2,683Other
      income
                                      
                                      
                                      852
                                      
                                      
                                      
                                      1,566
                                      
                                      
                                      
                                      1,509
                                      
                                      
                                      
                                      1,854
                                      
                                      
                                      
                                      1,283Operating
      expenses:Selling
      and delivery
                                      
                                      
                                      1,089
                                      
                                      
                                      
                                      1,677
                                      
                                      
                                      
                                      1,033
                                      
                                      
                                      
                                      1,382
                                      
                                      
                                      
                                      1,616General
      and administrative
                                      
                                      
                                      3,040
                                      
                                      
                                      
                                      2,901
                                      
                                      
                                      
                                      2,684
                                      
                                      
                                      
                                      1,921
                                      
                                      
                                      
                                      1,382Depreciation
      and amortization
                                      
                                      
                                      14
                                      
                                      
                                      
                                      19
                                      
                                      
                                      
                                      23
                                      
                                      
                                      
                                      32
                                      
                                      
                                      
                                      21Total
      operating expenses
                                      
                                      
                                      4,143
                                      
                                      
                                      
                                      4,597
                                      
                                      
                                      
                                      3,740
                                      
                                      
                                      
                                      3,335
                                      
                                      
                                      
                                      3,019Operating
      income (loss)
                                      
                                      
                                      (1,385
                                      )
                                      
                                      
                                      223
                                      
                                      
                                      
                                      623
                                      
                                      
                                      
                                      1,125
                                      
                                      
                                      
                                      947Interest
      and other expense
                                      
                                      
                                      126
                                      
                                      
                                      
                                      238
                                      
                                      
                                      
                                      304
                                      
                                      
                                      
                                      232
                                      
                                      
                                      
                                      257Taxes
      – current and deferred
                                      
                                      
                                      329
                                      
                                      
                                      
                                      (164
                                      )
                                      
                                      
                                      172
                                      
                                      
                                      
                                      697
                                      
                                      
                                      
                                      (29Net
      income (loss)
                                      
                                      
                                      (1,840
                                      )
                                      
                                      
                                      148
                                      
                                      
                                      
                                      147
                                      
                                      
                                      
                                      196
                                      
                                      
                                      
                                      719Income
      per common share:Income
      from operationsBasic
      and diluted
                                      
                                      
                                      (0.05
                                      )
                                      
                                      
                                      0.01
                                      
                                      
                                      
                                      0.01
                                      
                                      
                                      
                                      0.01
                                      
                                      
                                      
                                      0.02Weighted
      average shares:Basic
      and diluted
                                      
                                      
                                      40,467
                                      
                                      
                                      
                                      29,602
                                      
                                      
                                      
                                      29,104
                                      
                                      
                                      
                                      29,104
                                      
                                      
                                      
                                      29,104


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As
      of March 31
                          (in thousands)2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                          Restated
                        
                        
                        2004Balance Sheet
      Data:Cash
                        
                        
                        512
                        
                        
                        $
                        1,112
                        
                        
                        $
                        549
                        
                        
                        $
                        629
                        
                        
                        $
                        770Total
      assets
                        
                        
                        15,486
                        
                        
                        
                        20,133
                        
                        
                        
                        8,249
                        
                        
                        
                        7,616
                        
                        
                        
                        7,642Total
      current liabilities
                        
                        
                        12,287
                        
                        
                        
                        15,826
                        
                        
                        
                        5,989
                        
                        
                        
                        5,772
                        
                        
                        
                        6,485Total
      long-term liabilities
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0Stockholders’
      equity
                        
                        
                        3,199
                        
                        
                        
                        4,307
                        
                        
                        
                        2,260
                        
                        
                        
                        1,844
                        
                        
                        
                        1,157




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
primary objectives for fiscal 2008 were to expand our sales and build solid
relationships with our major customers.  We consider these factors
necessary to position us for further growth and to compete in the
industry.  Our major focus in sales in fiscal 2008 was in expanding
the USA market by distributing more Disney electronics products.  Our
sales in this segment were $17 million.  Our overall net sales
decreased by 38% in fiscal 2008 due to extremely competitive price bidding in
the MP3 players, television and DVD player market.  Our gross margin
remained steady at approximately 5.5% (2007 - 5.8%).  Our gross margin
did not deteriorate with sales decline because we made improvement in selling
Disney brand products in USA and in Canada, which provide a better margin than
the general consumer electronic products.





Our
operating expenses (compensation, selling, general and administrative expenses)
in fiscal 2008 decreased to approximately $4.1 million from $4.6 million in the
prior year.  The decrease in operating expenses was mainly in selling
and distribution.  Freight expenses decreased compared with the
previous year because we changed the selling terms from freight prepaid to
freight collect with some of our customers.




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





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.




20


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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.





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.





Fiscal
Year Ended March 31, 2007 Compared with Fiscal Year Ended March 31,
2006





Sales




Net sales
for the fiscal year ended March 31, 2007 increased to $56 million compared to
revenues of $51 million in the fiscal year ended March 31, 2006.  The
increase in sales is primarily attributed to:





·
            Penetration
      in the toys section of electronics by distributing Disney characters
      electronics in television sets, DVD players, and CD players in the United
      States market (new sales in 2007
$13M).


·
            focusing
      on the products which are popular among the younger consumers such as MP3
      Players;


·
            competing
      aggressively by providing advertising allowances to our retail customers
      to promote our products





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Despite
our success in re-opening the US market, sales of television and DVD products
declined in Canada by $8 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.  Our audio and clock radio lines showed steady sales in the
two years in comparison.





In fiscal
2007, 66% of our sales were direct sales, which represented sales made by our
subsidiary in Hong Kong, and 34% were domestic sales, which represent sales made
from our warehouses in USA and in Canada.  In fiscal 2006, 90% of our
sales were direct sales, and 10% were domestic sales.  All our Disney
characters sales were from our warehouse facility in USA.





In fiscal
2007, sales in Canada represent 75% of our total sales; sales in USA represent
24% and the remaining 1% was sales to Europe and other countries.  In
fiscal 2006, 98% of our sales were made to Canada, 2% to Europe and other
countries.





Gross
Profit




Gross
profit for fiscal 2007 was $3.3 million or 5.8% of total revenues compared to
$2.9 million or 5.6% of sales for fiscal 2006.   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 charges out 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 $1.6 million in fiscal 2007 compared
with $1.5 million in fiscal 2006.  Our plan is to increase income
earned on brokering sales.  We are less certain with income earned on
handling returns since our customers choose how many of their returns they will
give to us to process, therefore we have no control over how many returns are
received.





Operating
Expenses




Operating
expenses for the fiscal year ended March 31, 2007 increased to $4.6 million from
$3.7 million in fiscal 2006.  The increase in operating expenses
consists of an increase in variable expenses and fixed expenses. The variable
expenses (advertising, commission, freight and royalty expenses) increased
proportionally as revenues increased.  The fixed expense increase of
$0.5 million was primarily due to the following factors:





l
            consultancy
      fees to provide marketing research and opening new accounts in the
      USA


l
            insurance
      costs in our business package; and


l
            storage
      costs due to a higher percentage of domestic sales than direct
      sales





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, 2007, we recovered income tax expense in the amount
of $310,442 and a prior year reassessment of taxes of $189,610.  Prior
year reassessment was the result of a tax audit on the Canadian subsidiary
conducted on years 2004 and 2005.  Tax recovery was also a result of
some prior year adjustments related to foreign exchange gains in our Canadian
subsidiary.  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.




22




Table
of Contents




Liquidity and Capital
Resources




On March
31, 2008, we had cash on hand of $512,172 compared to cash on hand of $1,112,228
on March 31, 2007.  The decrease of cash on hand was primarily due to
cash used in operating activities, rather than provided by operating
activities.





Cash
flows used in operating activities were $1,416,734 for the year ended March 31,
2008.  We carried a lower receivable balance in 2008 due to
exceptionally higher sales activity in the first quarter of calendar 2007 when
the USA imposed a deadline to import TV built for the NTSC system. The majority
of our receivables are due from large chain discount stores and we expect our
receivable turnover will be steady throughout the year.





We
increased our inventory level at fiscal 2008 year end by approximately $1.5
million because of sales during the holiday season had been less than
expected.  Receivables and inventory were financed by trade payables
due to our parent company.





Cash used
in investing activities for the year ended March 31, 2008 was
$2,298.  Cash used in investing activities was for the purchase of
office equipment in Canada.





There
have been no cash flows from financing activities for the fiscal year ended
March 31, 2008.





As of
March 31, 2008, our working capital was $3.7 million.  Our current
liabilities of $12 million include:





·
            amount
      due to Starlight resulting from normal course of the business for $10.7
      million;


·
            current
      liabilities resulting from normal course of the business with other
      factories for $0.6 million;


·
            advance
      from Starlight for $0.6 million




As of
June 2008, our cash on hand is sufficient to cover approximately two months of
operation.  We expect our factories will continue to provide credits
to us and that Starlight 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, 2008, Cosmo did not have any unconsolidated
VIE’s.


23




Table
of Contents




Contractual
Obligations as of March 31, 2008


Cosmo had
contractual obligations at March 31, 2008 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
                
                $
                172,268
                
                
                $
                172,268
                
                
                $
                
                
                
                $
                —
                
                
                
                —




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 2009.





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 2009, we will continue to control our operating costs.  We
expect domestic sales  will continue to expand which will put pressure
on 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.


24




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 dollar is relatively small at approximately 29% of total sales. We have
not taken any steps to hedge the exchange risk.  In the event that
domestic sales will increase to a higher level, we are considering entering into
hedging transactions to insure currency risk is minimized.





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 65% and 46% of net sales in
fiscal 2008, and 2007, 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 any price increases on to its 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:


25




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.





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.


26


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,
2008, we have not used derivative instruments or engaged in hedging activities
to minimize market risk.





Interest
Rate Risk




As of
March 31, 2008, 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.


27


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.


28




Item 8. Financial
Statements and Supplementary Data




INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


Page
      #Consolidated
      Financial Statements of Cosmo Communications Corporation and
      SubsidiariesReport
      of Independent Registered Public Accounting Firm
                    
                    
                    30Consolidated
      Balance Sheets as at March 31, 2008 and 2007
                    
                    
                    31Consolidated
      Statements of Income and Comprehensive Income for the years ended
      March 31, 2008, 2007, and 2006
                    
                    
                    32Consolidated
      Statements of Stockholders’ Equity for the years ended March 31,
      2008, 2007, and 2006
                    
                    
                    33Consolidated
      Statements of Cash Flows for the years ended March 31, 2008, 2007,
      and 2006
                    
                    
                    34Notes
      to the Consolidated Financial Statements
                    
                    
                    35




29




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 2008 and 2007 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended 31
March 2008, 2007 and 2006.  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 included 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 2008 and 2007 and the results of its
operations and cash flows for the years ended 31 March 2008, 2007 and 2006, in
conformity with accounting principles generally accepted in the United States of
America.





/s/
DNTW Chartered Accountants, LLP





Licensed
Public Accountants


Markham,
Ontario, Canada





6 June
2008


30


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS




AS
AT 31 MARCH




(Expressed
in United States Dollars)





Note
                                                                          
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007ASSETSCurrent
      AssetsCash
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          512,172
                                                                          
                                                                          
                                                                          $
                                                                          1,112,228Accounts
      receivable, less allowance of $25,927 and $6,520 at 31 March 2008 and
      2007, respectively
                                                                          
                                                                          
                                                                          3
                                                                          
                                                                          
                                                                          
                                                                          3,842,366
                                                                          
                                                                          
                                                                          
                                                                          8,917,837Inventories
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          11,029,996
                                                                          
                                                                          
                                                                          
                                                                          9,515,488Prepaid
      expenses and other
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          48,227
                                                                          
                                                                          
                                                                          
                                                                          16,
      496Taxes
      recoverable
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          514,327Total
      Current Assets
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          15,432,761
                                                                          
                                                                          
                                                                          
                                                                          20,076,376Equipment
      and Other AssetsEquipment,
      net
                                                                          
                                                                          
                                                                          4
                                                                          
                                                                          
                                                                          
                                                                          44,847
                                                                          
                                                                          
                                                                          
                                                                          56,752Deferred
      taxes
                                                                          
                                                                          
                                                                          5
                                                                          
                                                                          
                                                                          
                                                                          8,317
                                                                          
                                                                          
                                                                          
                                                                          -Total
      Equipment and Other Assets
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          53,164
                                                                          
                                                                          
                                                                          
                                                                          56,752Total
      Assets
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          15,485,925
                                                                          
                                                                          
                                                                          $
                                                                          20,133,128LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          630,563
                                                                          
                                                                          
                                                                          $
                                                                          1,725,237Accounts
      payable to parent company
                                                                          
                                                                          
                                                                          6
                                                                          
                                                                          
                                                                          
                                                                          10,739,893
                                                                          
                                                                          
                                                                          
                                                                          13,372,367Taxes
      payable
                                                                          
                                                                          
                                                                          5
                                                                          
                                                                          
                                                                          
                                                                          311,767
                                                                          
                                                                          
                                                                          
                                                                          -Interest
      payable to parent company
                                                                          
                                                                          
                                                                          6
                                                                          
                                                                          
                                                                          
                                                                          604,627
                                                                          
                                                                          
                                                                          
                                                                          604,627Deferred
      taxes
                                                                          
                                                                          
                                                                          5
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          123,590Total
      Liabilities
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          12,286,850
                                                                          
                                                                          
                                                                          
                                                                          15,825,821Commitments
                                                                          
                                                                          
                                                                          7Stockholders'
      EquityCapital
      stock
                                                                          
                                                                          
                                                                          8
                                                                          
                                                                          
                                                                          
                                                                          2,023,382
                                                                          
                                                                          
                                                                          
                                                                          2,023,382Additional
      paid-in capital
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          27,704,592
                                                                          
                                                                          
                                                                          
                                                                          27,704,592Accumulated
      other comprehensive income (loss)
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          323,676
                                                                          
                                                                          
                                                                          
                                                                          (408,005
                                                                          )Accumulated
      deficit
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (26,852,575
                                                                          )
                                                                          
                                                                          
                                                                          (25,012,662
                                                                          )Total
      Stockholders' Equity
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,199,075
                                                                          
                                                                          
                                                                          
                                                                          4,307,307Total
      Liabilities and Stockholders' Equity
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          15,485,925
                                                                          
                                                                          
                                                                          $
                                                                          20,133,128




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


31


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME




FOR
THE YEARS ENDED 31 MARCH




(Expressed
in United States Dollars)





2008
                                                                                  
                                                                                  
                                                                                  2007
                                                                                  
                                                                                  
                                                                                  2006SALES
                                                                                  
                                                                                  $
                                                                                  34,820,750
                                                                                  
                                                                                  
                                                                                  $
                                                                                  56,287,515
                                                                                  
                                                                                  
                                                                                  $
                                                                                  51,010,554COST
      OF PRODUCTS SOLD
                                                                                  
                                                                                  
                                                                                  32,915,382
                                                                                  
                                                                                  
                                                                                  
                                                                                  53,034,341
                                                                                  
                                                                                  
                                                                                  
                                                                                  48,156,516GROSS
      PROFIT
                                                                                  
                                                                                  
                                                                                  1,905,368
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,253,174
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,854,038COMMISSION
      INCOME
                                                                                  
                                                                                  
                                                                                  852,238
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,566,157
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,508,990OPERATING
      EXPENSESSalaries
      and wages
                                                                                  
                                                                                  
                                                                                  1,822,066
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,748,757
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,669,275General
      and administrative
                                                                                  
                                                                                  
                                                                                  1,217,493
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,151,962
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,014,849Selling
      and delivery
                                                                                  
                                                                                  
                                                                                  1,088,947
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,677,460
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,033,210Amortization
                                                                                  
                                                                                  
                                                                                  14,202
                                                                                  
                                                                                  
                                                                                  
                                                                                  18,622
                                                                                  
                                                                                  
                                                                                  
                                                                                  23,183TOTAL
      OPERATING EXPENSES
                                                                                  
                                                                                  
                                                                                  4,142,708
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,596,801
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,740,517(LOSS)
      INCOME FROM OPERATIONS
                                                                                  
                                                                                  
                                                                                  (1,385,102
                                                                                  )
                                                                                  
                                                                                  
                                                                                  222,530
                                                                                  
                                                                                  
                                                                                  
                                                                                  622,511Financial
                                                                                  
                                                                                  
                                                                                  104,916
                                                                                  
                                                                                  
                                                                                  
                                                                                  345,838
                                                                                  
                                                                                  
                                                                                  
                                                                                  266,644Loss
      (gain) on foreign exchange
                                                                                  
                                                                                  
                                                                                  21,413
                                                                                  
                                                                                  
                                                                                  
                                                                                  (107,817
                                                                                  )
                                                                                  
                                                                                  
                                                                                  36,696(LOSS)
      INCOME BEFORE TAXES
                                                                                  
                                                                                  
                                                                                  (1,511,431
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (15,491
                                                                                  )
                                                                                  
                                                                                  
                                                                                  319,171INCOME
      TAXES (RECOVERY)
                                                                                  
                                                                                  
                                                                                  (254,247
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (310,442
                                                                                  )
                                                                                  
                                                                                  
                                                                                  296,013DEFERRED
      INCOME TAXES
                                                                                  
                                                                                  
                                                                                  (131,906
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (42,746
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (151,738
                                                                                  )REASSESSMENT
      OF PRIOR YEARS INCOME TAXES
                                                                                  
                                                                                  
                                                                                  714,638
                                                                                  
                                                                                  
                                                                                  
                                                                                  189,610
                                                                                  
                                                                                  
                                                                                  
                                                                                  27,918NET
      (LOSS) INCOME
                                                                                  
                                                                                  $
                                                                                  (1,839,916
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  148,087
                                                                                  
                                                                                  
                                                                                  $
                                                                                  146,978FOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                                                                  
                                                                                  
                                                                                  731,681
                                                                                  
                                                                                  
                                                                                  
                                                                                  (101,130
                                                                                  )
                                                                                  
                                                                                  
                                                                                  269,150COMPREHENSIVE
      (LOSS) INCOME
                                                                                  
                                                                                  $
                                                                                  (1,108,235
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  46,957
                                                                                  
                                                                                  
                                                                                  $
                                                                                  416,128(LOSS)
      INCOME PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND
      DILUTED
                                                                                  
                                                                                  $
                                                                                  (0.05
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  0.01
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.01WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
                                                                                  
                                                                                  
                                                                                  40,467,636
                                                                                  
                                                                                  
                                                                                  
                                                                                  29,602,132
                                                                                  
                                                                                  
                                                                                  
                                                                                  29,104,000




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


32




COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY




FOR
THE YEARS ENDED 31 MARCH 2008,  2007 AND 2006




(Expressed
in United States Dollars)





Shares
                      
                      
                      Capital Stock
                      
                      
                      Additional Paid-In
                        Capital
                      
                      
                      Accumulated Other
                        Comprehensive
                        Income (Loss)
                      
                      
                      Accumulated
                        Deficit
                      
                      
                      Total
                        Stockholders'
                        EquityBalance,
      31 March 2005 Restated
                      
                      
                      29,104,000
                      
                      
                      
                      1,455,200
                      
                      
                      
                      26,272,774
                      
                      
                      
                      (576,025
                      )
                      
                      
                      (25,307,727
                      )
                      
                      
                      1,844,222Foreign
      currency translation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      269,150
                      
                      
                      
                      -
                      
                      
                      
                      269,150Net
      gain for the period restated
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      146,978
                      
                      
                      
                      146,978Balance,
      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 period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      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 period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,839,916
                      )
                      
                      
                      (1,839,916
                      )Balance,
      31 March 2008
                      
                      
                      40,467,636
                      
                      
                      $
                      2,023,382
                      
                      
                      $
                      27,704,592
                      
                      
                      $
                      323,676
                      
                      
                      $
                      (26,852,575
                      )
                      
                      $
                      3,199,075





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


33


COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




FOR
THE YEARS ENDED 31 MARCH




(Expressed
in United States Dollars)




2008
                        
                        
                        2007
                        
                        
                        2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)  income
                        
                        $
                        (1,839,916
                        )
                        
                        $
                        148,087
                        
                        
                        $
                        146,978Adjustment
      to reconcile net earnings to net cash provided by (used in) operating
      activitiesDepreciation
                        
                        
                        14,202
                        
                        
                        
                        18,622
                        
                        
                        
                        23,183Deferred
      income taxes
                        
                        
                        (131,906
                        )
                        
                        
                        (42,746
                        )
                        
                        
                        (151,738
                        )(1,957,620
                        )
                        
                        
                        123,963
                        
                        
                        
                        18,423Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        5,075,471
                        
                        
                        
                        (5,795,642
                        )
                        
                        
                        (1,399,688
                        )Inventories
                        
                        
                        (1,514,507
                        )
                        
                        
                        (5,379,148
                        )
                        
                        
                        929,490Prepaid
      expenses and other
                        
                        
                        (31,731
                        )
                        
                        
                        355,525
                        
                        
                        
                        (369,457
                        )Accounts
      payable and accrued liabilities
                        
                        
                        (1,094,672
                        )
                        
                        
                        713,737
                        
                        
                        
                        104,829Taxes
      payable
                        
                        
                        826,095
                        
                        
                        
                        (791,072
                        )
                        
                        
                        123,821Accounts
      payable to parent company
                        
                        
                        (2,632,474
                        )
                        
                        
                        12,554,223
                        
                        
                        
                        152,176CASH
      FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
                        
                        
                        (1,329,438
                        )
                        
                        
                        1,781,586
                        
                        
                        
                        (440,406
                        )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of equipment
                        
                        
                        (2,299
                        )
                        
                        
                        (5,254
                        )
                        
                        
                        (7,604
                        )CASH
      FLOWS USED IN INVESTING ACTIVITIES
                        
                        
                        (2,299
                        )
                        
                        
                        (5,254
                        )
                        
                        
                        (7,604
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESAdvances
      to (from) related parties
                        
                        
                        -
                        
                        
                        
                        (1,111,480
                        )
                        
                        
                        98,805CASH
      FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
                        
                        
                        -
                        
                        
                        
                        (1,111,480
                        )
                        
                        
                        98,805EFFECT
      OF FOREIGN CURRENCY TRANSLATION
                        
                        
                        731,681
                        
                        
                        
                        (101,130
                        )
                        
                        
                        269,150NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        (600,056
                        )
                        
                        
                        563,722
                        
                        
                        
                        (80,055
                        )CASH,
      BEGINNING OF YEAR
                        
                        
                        1,112,228
                        
                        
                        
                        548,506
                        
                        
                        
                        628,561CASH,
      END OF YEAR
                        
                        $
                        512,172
                        
                        
                        $
                        1,112,228
                        
                        
                        $
                        548,506





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


34




COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES




NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS




FOR
THE YEARS ENDED 31 MARCH 2008 AND 2007




(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.




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.


35




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 $606,396 (2007 -
$912,829).




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 2008, the
Company increased its inventory reserve to $554,224.





Trade
receivables





Trade and
other receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision
for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that we will not be able to collect
all amounts due according to the original terms of receivables. The amount of
the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognized in the statement of
income.




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


36




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 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 2008 and 2007, 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.


37




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 2008 and
2007.




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 includes the analysis of the financial position of
its customers and the regular review of their credit terms.


38




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Recent
Accounting Pronouncements




In July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 ("FIN 48"), which
clarifies the accounting for uncertainty in tax positions. This interpretation
requires that the Company determine whether it is more likely than not that a
tax position will be sustained upon examination based on the technical merits of
the position, and measure the amount of benefit to be recognized in the
financial statements for a tax position that meets the more- likely-than-not
recognition threshold.  FIN 48 is effective for fiscal years beginning
after 15 December 2006. The adoption of FIN 48 did not have a material impact on
the Company’s consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 157, Defining Fair Value
Measurement, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after 15 November
2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on
its consolidated financial statements.




In
December 2006, the FASB issued FASB Staff Position Emerging Issues Task Force
("FSP EITF") 00-19-2, Accounting for Registration Payment
Arrangementswhich addresses accounting for registration payment
arrangements.  FSP 00-19-2 specifies that the contingent obligation to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting for
Contingencies.  FSP 00-19-2 further clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. For registration payment arrangements
and financial instruments subject to those arrangements that were entered into
prior to the issuance of EITF 00-19-2, this guidance is effective for financial
statements issued for fiscal years beginning after 15 December 2006 and interim
periods within those fiscal years.  The adoption of FIN 48 did not
have a material impact on the Company’s consolidated financial
statements.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS No. 159 applies to reporting periods beginning after 15 November 2007. The
adoption of SFAS No. 159 is not expected to have a material impact on the
Company’s financial condition or results of operations.





In
December 2007, the 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.


39




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Recent
Accounting Pronouncements (Continued)





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
January 2008, the FASB issued Statement No. 133 Implementation Issue
No. E23, Hedging—General: Issues Involving the
Application of the Shortcut Method under Paragraph 68(Issue
No. E23). Issue No. E23 provides guidance on certain practice issues
related to the application of the shortcut method by amending paragraph 68
of FASB Statement No. 133 with respect to the conditions that must be met
in order to apply the shortcut method for assessing hedge effectiveness of
interest rate swaps. The provisions of Issue No. E23 became effective for
us for our hedging arrangements designated on or after January 1, 2008.
Additionally, pre-existing hedging arrangements must be assessed on
January 1, 2008 to determine whether the provisions of Issue No. E23
were met as of the inception of the hedging arrangement. We have evaluated the
effects of the adoption of Issue No. E23 and have determined it to have no
material impact on our consolidated financial position, results of operations
and cash flows.





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 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.


40




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 2008 and 2007:




Balance at
                            Beginning of
                            Year
                          
                          
                          Additions
                            (Reductions)
                            Charged to
                            Costs and
                            Expenses
                          
                          
                          Deductions
                          
                          
                          Balance at End
                            of YearYear 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
                          
                          
                          $
                          164,365Year ended 31
      March 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




4.
            EQUIPMENT




The
components of equipment are as follows:




Cost
                      
                      
                      Accumulated
                        Depreciation
                      
                      
                      Net
                        2008
                      
                      
                      Net
                        2007Furniture
      and fixtures
                      
                      $
                      42,462
                      
                      
                      $
                      (39,315
                      )
                      
                      $
                      3,147
                      
                      
                      $
                      4,261Equipment
                      
                      
                      31,858
                      
                      
                      
                      (29,014
                      )
                      
                      
                      2,844
                      
                      
                      
                      3,020Computer
                      
                      
                      53,295
                      
                      
                      
                      (38,062
                      )
                      
                      
                      15,233
                      
                      
                      
                      18,529Warehouse
      equipment
                      
                      
                      68,308
                      
                      
                      
                      (44,685
                      )
                      
                      
                      23,623
                      
                      
                      
                      30,942$
                      193,625
                      
                      
                      $
                      (136,873
                      )
                      
                      $
                      44,847
                      
                      
                      $
                      56,752




5.
              INCOME
      TAXES




The
Company accounts for income taxes in accordance with SFAS No. 109. SFAS No. 109
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates. The effects of future changes in tax laws or rates
are not anticipated. Under SFAS No. 109 income taxes are recognized for the
following: a) amount of tax payable for the current year, and b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized differently in the financial statements than for tax
purposes.




41




The
provision for income taxes reconciles to the amount obtained by applying the
statutory income tax rates of 36.12% (2007 - 36.12%) in Canada, 17.5% (2007 -
17.5%) in Hong Kong and 15.5% (2007 - 15.5%) in US to income before provision
for taxes as follows:




2008
                        
                        
                        2007Computed
      expected tax
                        
                        
                        (278,083
                        )
                        
                        
                        (53,879
                        )Expenses
      not deductible for tax purposes
                        
                        
                        15,653
                        
                        
                        
                        13,119Equipment
                        
                        
                        3,376
                        
                        
                        
                        (7,224
                        )Unrealized
      foreign exchange gains
                        
                        
                        -
                        
                        
                        
                        (10,851
                        )Tax
      losses avalaible for carryforward
                        
                        
                        3,907
                        
                        
                        
                        -Prior
      year adjustments
                        
                        
                        -
                        
                        
                        
                        (255,450
                        )Other
                        
                        
                        900
                        
                        
                        
                        3,843Provision
      for income taxes
                        
                        $
                        (254,247
                        )
                        
                        $
                        (310,442
                        )




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




2008
                      
                      
                      2007Deferred
      income tax assets (liabilities):Book
      over tax depreciation
                      
                      
                      8,317
                      
                      
                      
                      5,946Unrealized
      foreign exchange transaction gains
                      
                      
                      -
                      
                      
                      
                      (129,536
                      )Deferred
      income taxes
                      
                      $
                      8,317
                      
                      
                      $
                      (123,590
                      )





During
the 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 corporate taxes
payable.  The tax audits are now closed for these
years.


42




6.
            AMOUNTS
      PAYABLE TO PARENT COMPANY




As of 31
March 2008, the Company owed $11,344,520 (2007 - $13,976,994) to The Starlight
Group of Companies, the principal corporate shareholder of the Company
("Starlight").  Of this amount $10,739,893 (2007 - $13,372,367)
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 2008 was
$604,627 (2007 - $604,627).




7.
            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 2008 were:




2009
                      
                      $
                      172,268Thereafter
                      
                      
                      -$
                      172,268


43




8.
            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




2008
                      
                      
                      2007Issued40,467,636
                      
                      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 5, 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 2008, the Company purchased $27,532,352 (2007 -
$46,377,415) of goods from Starlight and received $56,648 (2007 - $29,014) in
commissions.




11.
              ECONOMIC
      DEPENDENCE




The
Company is economically dependent on its parent company for the supply of
inventory products to its customers.  A mass-market merchandiser and
chain store located in Canada and US is the Company's largest customer, which
accounted for approximately 76% of sales in 2008 and 93% in
2007.  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 2008, the accounts receivable from this customer amounted to approximately
$1,721,833 (2007 - $7,914,451) and claims payable for inventory returns amounted
to approximately $56,771 (2007 - $485,486).




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
                            
                            
                            Total2008Assets
                            
                            
                            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
      income (loss)
                            
                            
                            (1,660,839
                            )
                            
                            
                            (153,868
                            )
                            
                            
                            (25,209
                            )
                            
                            
                            (1,839,916
                            )2007Assets
                            
                            
                            6,239,283
                            
                            
                            
                            652,480
                            
                            
                            
                            13,241,365
                            
                            
                            
                            20,133,128Sales,
      net
                            
                            
                            5,844,032
                            
                            
                            
                            37,093,544
                            
                            
                            
                            13,349,939
                            
                            
                            
                            56,287,515Gross
      margin
                            
                            
                            329,644
                            
                            
                            
                            1,868,034
                            
                            
                            
                            1,055,467
                            
                            
                            
                            3,253,174Net
      income (loss)
                            
                            
                            32,922
                            
                            
                            
                            236,209
                            
                            
                            
                            (121,044
                            )
                            
                            
                            148,087


44




13.
              SUPPLEMENTAL
      CASH FLOW INFORMATION




During
the year ended 31 March 2008 the Company paid interest of $74,593 (2007 -
$356,705) and income taxes of $392,118 were recovered (2006 - $703,117 were
paid).


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 2008 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 not effective as
of March 31, 2008.  Due to an oversight, Management did not timely
include its Report on Internal Control over Financial Reporting on the Company’s
Form 10-K filed on June 30, 2008. However, Management has since included its
Report on Internal Control over Financial Reporting and has remediated its
disclosure controls and procedures by engaging legal counsel to identify and
stay apprised of applicable rules and regulations.






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.




(b) Changes in internal control over
financial reporting. There have been no changes in our internal control
over financial reporting that occurred during the year ended March 31, 2008 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
2008.




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 did
maintain effective internal control over financial reporting as of March 31,
2008.




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.
Directors and Executive
Officers of the Registrant




The
following table sets forth information concerning the directors, executive
officers and significant employees of Cosmo as of June 30, 2007:




Name
                
                Age
                
                PositionPhilip
      Lau
                
                60
                
                Chairman
      of the Board of Directors and PresidentPeter
      Horak
                
                66
                
                Chief
      Executive Officer and DirectorCarol
      Atkinson
                
                59
                
                Chief
      Financial OfficerRick
      Bond
                
                58
                
                Vice
      President – sales and marketing – USA operationYu
      Wing King
                
                56
                
                Vice
      President, Hong Kong operationJacky
      Lau
                
                49
                
                DirectorJeff
      Horak
                
                50
                
                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.





Rick Bond–Vice President, sales and
marketing





Mr. Bond
joined the company in January 2007 and is responsible for sales and marketing in
the USA operation.   Mr. Bond held high level of sales executive
positions in the consumer electronics industry prior to joining the
Company.





Yu Wing Kin – Vice President, Administration, Hong
Kong





Mr. Kin
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, 2008, 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, 2008.





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
2008.  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, 2007, 2006 and 2005 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 2007, 2006 and 2005:




49





Summary
Compensation Table




Name & Principal Position
              
              Year
              
              Salary ($)
              
              
              Bonus ($)
                (5)
              
              
              Stock
                Awards($)
                (5)
              
              
              Option
                Awards ($)
              
              
              Non-Equity Incentive
                Plan Compensation
                ($)
              
              
              Change in
                Pension Value
                and Non-Qualified
                Deferred
                Compensation
                Earnings ($)
              
              
              All Other
                Compensation
                ($) (1)
              
              
              Total ($)Peter
      Horak
              
              2008
              
              
              99,324
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              11,370
              
              
              
              110,694CEO
      and Director (2)
              
              2007
              
              
              175.800
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13,600
              
              
              
              194,.4002006
              
              
              138,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              3.000
              
              
              
              141,000Jeff
      Horak
              
              2008
              
              
              131,063
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              12,671
              
              
              
              143,734Vice
      President - Canada
              
              2007
              
              
              175,800
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              9,493
              
              
              
              185,2932006
              
              
              138.000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              22,000
              
              
              
              160,000Rick
      Bond
              
              2008
              
              
              100.000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              159,250-
              
              
              
              259,250Vice
      President - USA
              
              2007
              
              
              25,000
              (2)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              25,000—2006
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Yu
      Wing King
              
              2008
              
              
              43,524
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,418
              
              
              
              45,942Vice
      President – Hong  Kong
              
              2007
              
              
              42,832
              
              
              
              14,318
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              63,1502006
              
              
              47,114
              
              
              
              4,017
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              51,131E.
      J. Colin
              
              2008
              
              
              67,959
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              7,511
              
              
              
              75,470National
      Sales Manager - Canada
              
              2007
              
              
              92,300
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,800
              
              
              
              98,1002006
              
              
              64,200
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              12,600
              
              
              
              76,800





(1)
            Includes
      automobile expense allowances and other employee
  benefits


(2)
            Salary
      commenced on January 1, 2007


50




Table of Contents




Employment
Agreements




The
Company signed no new employment agreements during fiscal 2008 and signed two
employment agreements with two executive officers during fiscal
2007.




OPTION
GRANTS IN FISCAL 2007  (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, 2007.




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.




51





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.




52





Item
13. Certain Relationships and
Related Transactions


During
the year ended March 31, 2008, we purchased $27,532,352 (2007 - $46,377,415) of
goods from our parent company, Starlight and received $56,648 (2007 - $29,014)
in commissions.


53








Item 14.
Principal Accountant Fees and
Services





The
following is a summary of the fees billed to the Company by DNTW Chartered
Accountants, LLP, Deloitte & Touche LLP and Chan & Watt Company for
professional services rendered to our company for the fiscal years ended March
31, 2008 and 2007:





2008
                
                
                20071.
      Audit Fees (a)
                
                $
                37,500
                
                
                $
                29,0002.
      Audit Related Fees
                
                
                -
                
                
                
                4,4983.
      Tax Fees (b)
                
                
                29,315
                
                
                
                59,0004.
      Total Fees
                
                
                66,815
                
                
                
                92,498





(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.


54


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, 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.Year
      ended March 31, 2007Deducted
      from asset account:Allowance
      for doubtful accounts
              
              $
              14,401
              
              
              $
              (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
              
              
              $
              387,790Year
      ended March 31, 2006Deducted
      from asset account:Allowance
      for doubtful accounts
              
              $
              4,401
              
              
              $
              10,855
              
              
              $
              1,216
              
              
              $
              14,040Sales
      return and allowance reserve
              
              
              81,017
              
              
              
              3,756,254
              
              
              
              3,591,501
              
              
              
              245,770Total
              
              $
              85,418
              
              
              $
              3,767,109
              
              
              $
              3,592,717
              
              
              $
              259,810





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


55
  Table of
Contents




Exhibits
  ExhibitNumber
                
                Description of Document3.1
                
                Articles
      of Incorporationas amended
      +3.2
                
                Registrant's
      Bylaws ++16.1
                
                Letter
      on Change in Accountant +++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 Current Report on Form 8-K filed with the SEC on
      September 28, 2005.





++++
            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.


56


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 30,
2008.





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
                      
                      June
      11, 2009Peter
      Horak
                      
                      Director
      (Principal Executive Officer)/s/CAROL
      ATKINSON
                      
                      Chief
      Financial Officer and
                      
                      June
      11, 2009Carol
      Atkinson
                      
                      Principal
      Financial Officer and Principal Accounting Officer/s/ JACKY LAU
                      
                      Director
                      
                      June
      11, 2009Jacky
      Lau


57