SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, ~~2010~~2011

Commission File Number 119698

~~Commission File~~COSMO ~~Number~~COMMUNICATIONS ~~119698~~ CORPORATON

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 ¨ o 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 ¨ o 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 o

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

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

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

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

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ¨ o 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 2928, ~~2010~~2011.

COSMO COMMUNICATIONS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, ~~2010~~2011

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	34
Item 1A	Risk Factors	1213
Item 1B	Unresolved Staff Comments	1617
Item 2.	Properties	1617
Item 3.	Legal Proceedings	1718
Item 4.	Submission of Matters to a Vote of Security Holders	1718
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	1718
Item 6.	Selected Financial Data	1819
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations	1920
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4846
Item 9A(T).	Controls and Procedures	48
Item 9A.	Controls and Procedures	46
Item 9b.	Other Information	49
Item 9B.	Other Information	47
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	4947
Item 11.	Executive Compensation	5149
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5351
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5351
Item 14.	Principal Accountant Fees and Services	5452
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	53	55
Signatures		55	57

~~Table of Contents~~2

Forward-Looking Statements and Risk Factors

We make forward-looking statements in this report including, without limitation, statements concerning the future of our industry, product development, business strategy, continued acceptance and growth of our products, dependence on significant customers and suppliers, and the adequacy of our available cash resources. Statements may contain projections of results of operations or of financial condition. These statements may be identified by the use of forward-looking terminology such as “may,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “continue” or other similar words.

Forward-looking statements are subject to many risks and uncertainties. We caution you not to place undue reliance on these forward-looking statements, which speak only as at the date on which they are made. Actual results may differ materially from those described in these forward-looking statements. We disclaim any obligation or undertaking to update these forward-looking 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 this Annual Report, particularly in the discussion in Item 1A, and other risk factors that Cosmo has not anticipated or discussed, could cause our actual results to differ significantly from those anticipated in our forward-looking statements.

~~Table of Contents~~3

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~~a major customer.

During our early years of operations, the products we sold were principally that of quartz and digital clocks, and radio cassette players. In the 90’s, we began marketing Compact Disc (“CD”) equipment, cordless telephones and small screen televisions.

In April 2000, we entered into a Stock Purchase Agreement pursuant to which we offered shares of common stock representing 84.89% of the outstanding common stock to Master Light Enterprise Limited. (“Master Light”), a subsidiary of Starlight International Limited (“Starlight”), a publicly held company traded on the Hong Kong Stock Exchange, for $1 million. Pursuant to an amendment to the Stock Purchase Agreement, in January 2001, the transactions contemplated by the Stock Purchase Agreement, as amended, were consummated and, after rescinding the purchase of 1,347,420 shares, Master Light acquired 26,585,008 of our common stock shares, representing 93.8% of our currently issued and outstanding common stock. In September, 2001, additional financing from Starlight allowed us to discharge all our obligations to our financial institution lenders. Starlight owns and operates a number of subsidiaries globally. Its principal activity is in the manufacture, sale and distribution of consumer electronic products.

Our principal executive office is located in Ontario, Canada with warehouse facilities located in Ontario, Canada and California, USA.

Since 2001, our common stock shares have not traded on the OTC Bulletin Board. As used herein, the “Company”, "Cosmo," "we," us" and similar terms include Cosmo Communications Corporation, and its subsidiaries, Cosmo Communications Corporation Canada Inc., Cosmo Communications Corporation (HK) Limited and Cosmo Communication USA Corp. unless the context indicates otherwise.

3All figures are presented in United States dollars, unless otherwise indicated.

~~Table of Contents~~4

Product Lines

We market and distribute an assortment of video products including DVD/TV combination units in both CRT’s and LCD’s with retails ranging from $99 – $299. In addition to the TV line up we also market a variety of DVD players both portable with TFT screens and stand alone players, retail pricing ranging from $25-$99.

We market and distribute a variety of MP3 and MP4 players with a memory size of 1GB – 4GB capacity. Retail prices have ranged from $30 - $89.

Cosmo’s Brands

Cosmo marketing and product development efforts are designed to enhance its brand images and generate increased loyalty among its consumers in each market segment and among the retailers who sell Cosmo products. Cosmo markets its products under the following primary brands:

·l 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 78% of our total sales.

·l 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 64% of total sales.

·l Digital Lab: Digital Lab is an upgraded line up from the audio category including clock ~~radio’s~~radios, MP3 players and audio products with ~~Ipod~~IPod connectivity. Digital Lab accounted for 812% of total sales.

·l Diamond Brand. Cosmo introduced Diamond Vision and Diamond Sound as a new brand at the end of the 2005 fiscal year for DVD players. We have since added to this line Televisions, portable DVD players and MP3 Players. These items represent 52% of the total sales of the group.

·l 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 1014% of the total sales of the group.

·l Digitec. We offered Digitec brand for our LCD TV and DVD players. This brand represents 118% of the group sales.

·l Llyods. We offered Llyods brand for our LCD TV and DVD players, portable DVD players and some audio clock radio products. This brand represents 1011% of the group sales.

Wel ~~also build~~Polaroid. ~~products~~This ~~under~~is ~~the~~a ~~private~~licensed ~~label~~brand name of ~~our~~PLR ~~customers~~IP Holdings, LLC. The ~~category~~ licensed electronics products include television, DVD players, CD players and digital cameras. This brand represents 2615% of the ~~Company’s~~group sales.

4l Singing Machine Company (SMC). This brand name belongs to an associate company in the United States. We are the distributor of their karaoke products in Canada. This brand represents 17% of the group sales.

~~Table~~We also build products under the private label of ~~Contents~~our customers. The category represents 7% of the Company’s sales.

Strategy for Cosmo’s Brands

Cosmo’s goal is to develop, distribute, market and sell consumer electronic audio and video equipment, accessories and clocks of well recognized and respected brands to customers around the world. Cosmo’s strategy is intended to enhance and reinforce Cosmo’s global brand images among consumers and retailers. Key elements of Cosmo’s strategy are to:

•

Continue to introduce new and technologically innovative products that embody distinctive Cosmo qualities; style and new features;

• Expand the current product lines by adding new features to LCD and Plasma TV’s, MP4 player and IPOD docking ~~unit~~units and a new line of digital cameras;

•

Expand Cosmo’s distribution with new and existing customers;

• ~~Continue~~Expand focus in the ~~penetration~~brand ~~into~~name products. As part of the USStarlight ~~market~~Group, ~~and~~we ~~expand~~have ~~focus~~access into the Polaroid brand through our parent company and we will be focusing on building this brand name ~~products~~for our camera, LCD TV and DVD players in the future.

Cosmo Products

Percent of Sales by Product Class

Cosmo sales since ~~2006~~2007 were divided among Cosmo’s principal product classes as shown in the following table:

	Year Ended March 31,
	2010			2009			2008			2007			2006
	2011			2010			2009			2008			2007
Product Class:	%			%			%			%			%
MP3 Players		-			5-			75			127			712
Other Audio (1)		3040			2830			3628			2736			2927
Video (2)		6149			5961			4859			5848			6258
Clocks		811			78			87			28			2
Tools		1-			1			1			1			-1
Total		100.0	%		100.0	%		100	%		100	%		100	%

(1) Includes boom boxes, CD players, IPOD docking system

(2) Includes digital photo frames, DVD players, LCD TV, portable DVD and TV/DVD combo

~~Financial information~~See ~~about~~below ~~geographic~~for ~~segments~~financial ~~may~~information beon ~~found~~geographic ~~in Note 12 of the Notes to Consolidated Financial Statements of this Form 10-K~~segments.

Table of Contents

New Products

Cosmo introduces new products and enhances its existing products on a regular basis. ~~During~~In ~~fiscal~~the ~~2010~~first wequarter ~~have~~of ~~not~~fiscal 2011 we brought in ~~new~~a ~~products but~~limited ~~will~~quantity ~~introduce~~of large size LCD TV’s ~~during~~to ~~fiscal~~gauge ~~2011~~consumer interest, however the large size LCD TV project did not materialize due to severe price competition.

In fiscal 2012, we will be introducing a line of digital camera products to our major customers in Canada.

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~~Shoppers ~~Buy~~Drug Mart, Loblaws, Canadian Tire, 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 other parts of the world, primarily through mass merchandisers, department stores, electronic stores, chains, and specialty stores. Our products are currently sold in such stores as Wal-Mart (Canada), Super-Stores, Home Hardware, Bargain Shop and Toys “R” Us (Canada). In fiscal ~~2010~~2011, approximately 9094% of our sales were to the customers within Canada and 106% of sales were to the customers in USA. 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~~2011, ~~2010,~~ we ~~worked~~did ~~with~~not ~~two~~appoint independent sales representatives in Canada or US.

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, ~~2010~~2011, and ~~2009~~2010 were approximately 8781% and 9187%, 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.

Table of Contents

Geographic Distribution of Sales

Cosmo’s sales to external customers by geographic region were as follows:

	Years Ended March 31,
Region	~~2006~~2007		~~2007~~2008		~~2008~~2009		~~2009~~2010		~~2010~~2011		~~2010~~2011
											%
	(In thousands)
USA		-13,350		1316,~~350~~568		1613,~~568~~721		131,~~721~~580		~~1,580~~915		~~9.7~~6	%
Canada	$	4942,~~743~~384		4217,~~384~~891		1714,~~891~~293		14,~~293~~785		14,~~785~~840		~~90.3~~94	%
Europe		~~920~~113		~~113~~-		-		-		-		-
Others	~~348~~440		~~440~~362			~~362~~1,449		~~1,449~~-		-		-
Total sales	$	51,011	$	56,287		34,821		29,463		16,365		100	%
	$	56,287		34,821		29,463		16,365		15,755		100	%

Returns

Returns of electronic products by our customers are generally not permitted except in approved situations involving quality defects, damaged goods, or goods shipped in error. Our policy is to give credit to our customers for their returns, in these approved situations only. Our total returns represented 94% and 39% of our net sales in fiscal ~~2010~~2011 and ~~2009~~2010, respectively. Due to the length of time given to return defective products, a provision is made to acknowledge the obligations to provide credits to our customers on defective returns which have not been recorded in the current fiscal period. This provision is estimated based on the historical defective rate of the product category and their respective sales volume, adjusted by defective credits and allowances that have been issued.

We have an ongoing arrangement with Starlight, the Company’s parent, to refurbish ~~our~~ defective products, ~~which are~~ manufactured by Starlight~~’s factory~~. ~~We do~~Defective ~~not~~returns ~~have~~originated ~~return~~from ~~privileges~~direct ~~with~~import ~~the~~sales ~~other~~are ~~five~~returned ~~factories~~to ~~we work with.~~ Starlight ~~does~~for ~~not~~full ~~charge~~refund usand no refurbishment ~~cost. Outside~~ ~~factories~~costs ~~will~~are ~~generally charge 25% to 30% of the original cost to refurbish our products~~charged. WeDefective ~~assessed each return product manufactured by the outside factories before we made decisions to repair or to sell as is. Our policy is to mark down the book value of defective~~ returns ~~produced~~which byoriginated ~~the~~from ~~outside~~domestic ~~factories~~sales ~~as they~~ are ~~received~~written ~~back~~down ~~in our~~to ~~warehouse. Management~~30% ~~periodically reviews the value~~ of ~~returned and refurbished goods on hand and adjusts~~ the original cost ~~of such inventory after analyzing factors such as economic circumstances, product technology obsolescence~~ and ~~declines~~then ~~in retail sales prices. Provisions are recognized against~~ returned ~~and~~to ~~refurbished~~Starlight ~~goods~~with tono ~~reflect~~refurbishment ~~these adjusted values~~charge.

We do not have return privileges with the other ten factories we work with. Outside factories will generally charge 25% to 30% of the original cost to refurbish our products. We assess each defective return manufactured by the outside factories before we make the decision to repair or to sell as is. Our policy is to mark down the book value of defective returns produced by the outside factories as they are received back in our warehouse. Management periodically reviews the value of returned and refurbished goods on hand and adjusts the cost of such inventory after analyzing factors such as economic circumstances, product technology obsolescence and declines in retail sales prices. Provisions are recognized against returned and refurbished goods to reflect these adjusted values.

Distribution

We distribute our products to retailers and wholesale distributors through two methods: shipment of products from inventory held at our warehouse facility in Canada and USA (domestic sales), and shipments directly through our Hong Kong subsidiary (direct sales). Domestic sales are made to customers located throughout USA and Canada from inventories maintained at our warehouse facilities. In the fiscal year ended March 31, ~~2010~~2011, approximately 92 93% of our sales were sales from our domestic warehouses ("Domestic Sales") and 8 7% were sales shipped directly from China ("Direct Sales").

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~~ten factories, located in the southern provinces of the PRC. For fiscal ~~2011~~2012, 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~~our purchase demands for our products in fiscal year ~~2011~~2012. 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.

Our products are manufactured using molds and certain other tooling owned by Starlight and our other factories. Our products contain electronic components manufactured by other companies such as Sanyo, Toshiba, Hitachi and National Semiconductor. Our manufacturers purchase and install these electronic components in our products under our specifications.

While our equipment manufacturers purchase our supplies from a small number of large suppliers, all of the electronic components and raw materials used by us are available from several sources of supply, and we do not anticipate that the loss of any single supplier would have a material long-term adverse effect on our business, operations, or financial condition. To ensure that high standards of product quality and on-time shipping schedules, we utilize independent contractors as our representatives. These contractors include product inspectors who are knowledgeable about product specifications and work closely with the factories to verify that such specifications are met. Additionally, our key personnel frequently visit our factories for quality assurance and to maintain good working relationships.

All of the electronic equipment sold by us is warranted to the end user against manufacturing defects for a period of ninety (90) days for labor and parts. During the fiscal years ended March 31, ~~2010~~2011 and ~~2009~~2010, warranty claims have not been material to our results of operations.

Table of Contents

Cosmo believes that its sources and supplies of finished goods, components and other materials are adequate for its needs. Cosmo has not experienced a significant inability to obtain necessary finished goods, components or other materials.

Reverse Logistic Operations

We have an arrangement with certain manufacturers that distribute television sets and DVD players in Canada to handle customer returns for them. Our warehouse facility in Canada has the capacity to handle a high volume of defective products. We charge the manufacturers a fee on a per piece basis or a percentage based on the retail sales value of the merchandise and reported this as commission and other income. Our agreement with these manufacturers to handle their returns is on an on-going and mutually agreed basis with no expiration date.

Commission

Revenues received from the reverse logistic operations are treated as commission income. Besides handling the defective returns, we also sell the returns on behalf of our logistic customers and charge a commission for this service.

License Agreements

The license agreement with Disney Enterprises, Inc. is between Starlight ~~International~~ and Disney. The license agreement with PLR IP Holdings LLC is between Starlight and Polaroid. We are not obligated to pay license fees to Disney or Polaroid.

Competition

Our business is highly competitive since we compete mainly in the basic entry level category of our audio and video products. 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.

910

Table of Contents

Intellectual Property

We have registered “Audiologic” as our trademark in the United States and Canada and “Diamond Vision” and “Diamond Sound” as our trade marks in Canada.

We believe our intellectual property is adequately protected, but there are no assurances that these rights can be successfully asserted in the future or will not be invalidated or challenged.

Government Regulation

Our products must meet the safety standards imposed in various national, state, local and provincial jurisdictions. Our products sold in Canada are designed, manufactured and tested to meet the safety standards of Underwriters Laboratories, Inc. ("ULE") or Electronic Testing Laboratories ("ETL"). In Europe and other foreign countries, our products are manufactured to meet the CE marking requirements. CE marking is a mandatory European product marking and certification system for certain designated products. When affixed to a product and product packaging, CE marking indicates that a particular product complies with all applicable European product safety, health and environmental requirements within the CE marking system. Products complying with CE marking are now accepted to be safe in 28 European countries.

The manufacturing operations of our foreign suppliers in China are subject to foreign regulation. China has permanent "normal trade relations" ("NTR") status under Canadian tariff laws, which provides a favorable category of Canadian import duties. China's NTR status became permanent on January 1, 2002. This substantially reduces the possibility of China losing its NTR status, which would result in increasing costs for us.

Seasonality and Seasonal Financing

Our business is highly seasonal, with consumers making a large percentage of purchases of our products around the traditional holiday season in our second and third quarter. These seasonal purchasing patterns and requisite production lead times cause risk to our business associated with the underproduction or overproduction of products that do not match consumer demand. Retailers also attempt to manage their inventories more tightly, requiring that we ship products closer to the time that retailers expect to sell the products to consumers. These factors increase the risk that we may not be able to meet demand for certain products at peak demand times, or that our own inventory levels may be adversely impacted by the need to pre-build products before orders are placed. As of March 31, ~~2010~~2011, we had inventory of $64.7 million (net of reserves totaling $1752,~~103,360~~822) compared to inventory of $106.7 million as of March 31, ~~2009~~2010 (net of reserves totaling $~~560~~1,~~846~~103,360).

1011

~~Table~~Our financing of ~~Contents~~seasonal working capital during fiscal 2011 was mainly from sales of inventory carried over from the 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.

~~Our financing~~For ~~of seasonal working capital during~~ fiscal ~~2010~~2012, ~~was~~we ~~from~~plan ~~selling of the inventory carried over from the prior year. We rely~~ on ~~credit~~minimum ~~terms from~~financing our ~~manufacturers~~inventory topurchases ~~finance~~by ~~the~~liquidating ~~purchase~~our ~~of new~~ inventory~~. We also~~ ~~have~~and anif ~~understanding~~necessary ~~from~~with ~~Starlight to provide~~ short term working funds ~~to purchase~~provided ~~inventory~~by ~~should we require them~~Starlight.

For fiscal 2011, we plan on minimum financing our inventory purchases by liquidating our inventory and if necessary with short term working funds provided by Starlight.

Information Systems

Cosmo’s information systems are designed to respond quickly to inquiries from managers, employees, suppliers and customers. Cosmo has implemented internet-based systems to provide accurate and timely information and allow Cosmo’s representatives, dealers and distributors to check the status of their orders at a secure Internet site. Cosmo has also implemented internet systems to provide accurate and timely information to its suppliers in support of just-in-time delivery of components to Cosmo’s manufacturing facilities. These systems help Cosmo reduce costs by reducing inventory requirements and for a more timely and accurate exchange of information with our suppliers.

Backlog

We ship our products in accordance with delivery schedules specified by our customers, which usually request delivery within three months of the date of the order. In the consumer electronics industry, orders are subject to cancellation or change at any time prior to shipment. In recent years, a trend toward just-in-time inventory practices in the consumer electronics industry has resulted in fewer advance orders and therefore less backlog of orders for us. We believe that backlog orders at any given time may not accurately indicate future sales. As of March 31, ~~2010~~ 2011 we had no backlog of orders and none in the same period in fiscal ~~2009~~ 2010. Backlog orders do not take into account of any sales ordered by customers directly from our domestic inventory with order turnaround time of one to two weeks. We normally have to keep the minimum inventory in our domestic warehouses for these type of sales.

Employees

As of March 31, ~~2010~~2011, we employed 1918 people, 1817 of whom are full-time employees, including two executive officers. Two of our employees are located at our subsidiary in Hong Kong and 1716 in Canada. Of the employees, ~~eight~~ six are engaged in warehousing and technical support, and ~~nine~~eight 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.

1112

Table of Contents

Item 1A. Risk Factors

RISK FACTORS THAT MAY AFFECT COSMO’S OPERATING RESULTS, BUSINESS PROSPECTS AND STOCK PRICE

Before you buy or sell Cosmo stock, you should be aware that there are risks, including those described below and others Cosmo has not anticipated or discussed. You should consider carefully these and other risk factors, together with all of the other information included in Cosmo’s periodic filings and current reports filed with the SEC, before you decide to buy or sell shares of Cosmo’s common stock.

As you consider these risk factors, Cosmo also calls your attention to Cosmo’s statements about Forward Looking Statements and Risk Factors in Part I of this Annual Report.

We have significant working capital needs and if we are unable to obtain additional financing when needed, we may not have sufficient cash flow to continue operations.

As of March 31, ~~2010~~2011, 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, ~~2010~~2011, our inventory was valued at approximately $64.7 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, ~~2010~~2011 and ~~2009~~2010 were approximately 8783% and 9187% , 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.

1213

Table of Contents

We are subject to pressure from our customers relating to price reduction and financial incentive and if we are pressured to make these concessions to our customers, it will reduce our revenues and profitability.

Because there is intense competition in the consumer electronic market, we are subject to pricing pressure from our customers. Many of our customers have demanded that we lower our prices or they will purchase from our competitor's products. If we do not meet our customer's demands for lower prices, we will not sell as many products. We are also subject to pressure from our customers regarding certain financial incentives, such as return credits or advertising allowances, which effectively reduce our profit. We gave advertising allowances in the amount of $~~452~~682,~~000~~017 during fiscal ~~2010~~2011 and $~~501~~278,~~000~~ 534 during fiscal ~~2009~~2010. We have historically offered advertising allowances to our customers because it is standard practice in the retail industry.

We experience difficulty forecasting the demand for our products and if we do not accurately forecast demand, our revenues, net income and cash flow may be affected.

Because of our reliance on manufacturers in China for our products, our production lead times range from one to four months. Therefore, we must commit to production in advance of customers orders. It is difficult to forecast customer demand because we do not have any scientific or quantitative method to predict this demand. Our forecasting is based on management's general expectations about customer demand, the general strength of the retail market and management's historical experiences. In the past, our experienced management team has been able to plan our production and inventory requirements without building excessively high inventory.

Our gross profit margins have not improved over the past years and we expect a continued competitive market in the future.

Over the past years our gross profit margins have not improved to our expectation due to price competition. For fiscal ~~2010~~2011, we ~~achieved~~continued anto ~~improvement~~improve in our profit margin due to the strong gain in the Canadian currency against the US dollar. We expect that our gross profit margin might decrease under downward pressure in fiscal ~~2011~~2012 due to the rise in material and labor costs in China. Based on past experience, we expect that we can pass on some of 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 6266% and 7762% of total sales in fiscal ~~2010~~2011 and ~~2009~~2010 respectively.

1314

Table of Contents

If Cosmo does not continue to develop, introduce and achieve market acceptance of new and enhanced products, sales may decrease.

The consumer electronic industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing customer demands for greater performance. In addition, the average selling price of an electronic product has historically decreased over its life cycle, and we expect that trend to continue. As a result, our products may not be competitive if we fail to introduce new products or product enhancements that meet evolving customer demands. The development of new products is complex, and we may not be able to complete development in a timely manner. To introduce products on a timely basis, we must:

accurately define and design new products to meet market needs;

design features that continue to differentiate our products from those of our competitors;

update our manufacturing process technologies;

identify emerging technological trends in our target markets;

anticipate changes in end-user preferences with respect to our customers' products;

introduce products to market on a timely basis at competitive prices; and

respond effectively to technological changes or product announcements by our competitors.

We believe that we will need to continue to enhance our products and develop new merchandise to keep pace with competition, technological developments, and to achieve market acceptance for our products. At the same time, we are identifying other products which may be different from audio and video equipment.

Our products are shipped from China and any disruption of shipping could prevent or delay our customers’ receipt of inventory.

We rely principally on independent ocean carriers to ship virtually all of the products that we import to our warehouse facilities in Los Angeles, USA and in Toronto, Canada. Retailers that take delivery of our products in China rely on a variety of carriers to import those products. Any disruptions in shipping, whether in Los Angeles, Toronto or China, caused by labor strikes, other labor disputes, terrorism, and international incidents may prevent or delay our customers' receipt of inventory. If our customers do not receive their inventory on a timely basis, they may cancel their orders or return products to us. Consequently, our revenues and net income would be affected.

1415

Table of Contents

Our manufacturing operations are located in the People’s Republic of China, subjecting us to risks common in international operations. If there is any problem with the manufacturing process, our revenues and net profitability may be affected.

We are using ~~five~~ten 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 ~~2011~~2012. 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 and portable DVD products. 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.

1516

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 5429%, 7054% and 7670% of Cosmo’s sales in ~~2010~~2011, ~~2009~~ 2010 and ~~2008~~2009 respectively. We ~~Cosmo anticipates that this customer~~ will continue to ~~account~~ ~~for~~reduce ~~a significant portion of its sales for~~ the ~~foreseeable~~concentration ~~future~~and ~~but~~dependence ~~is not~~on ~~obligated~~one tosingle ~~any~~customer ~~long-term~~in ~~purchases. It~~the ~~has~~future ~~considerable discretion~~ to reduce, ~~change~~the orsignificant ~~terminate~~risk ~~purchases~~ of ~~Cosmo’s products.~~ ~~Cosmo~~loss ~~cannot~~in beour ~~certain~~revenues ~~that~~and itcash ~~will retain this customer or maintain a favorable relationship~~flows.

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. As such Cosmo is exposed to gains and losses on foreign currency, in particular the Canadian dollar. Cosmo does not trade in derivatives or other financial instruments to reduce currency risks. In some instances this will subject Cosmo’s earnings to fluctuations because Cosmo is not protected against substantial currency fluctuations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located in Markham, Ontario, Canada in a 35,000 sq. ft. office and warehouse facility. We have a lease agreement in place until September of 2013.

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.

1617

Table of Contents

Item 3. Legal Proceedings

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

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

No matters were submitted to a vote of security holders during the fourth quarter of our ~~2010~~2011 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 ~~2010~~ 2011. We have 396 recorded holders of our common stock on June 2928, ~~2010~~ 2011.

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.

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, 2010, 2009 and 2008 and the balance sheet data at March 31, 2010, 2009 and 2008 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, 2007 and 2006 and the balance sheet data at March 31, 2007 and 2006 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.

	Years Ended March 31,
	2010			2009			2008			2007			2006
	(In thousands, except per share data)
Consolidated Statements of Operations:
Net sales	$	16,365		$	29,463		$	34,821		$	56,287		$	51,011
Cost of products sold		14,806			27,458			32,915			53,034			48,157
Gross profit		1,559			2,005			1,906			3,253			2,854
Other income		96			431			852			1,566			1,509
Operating expenses:
Selling and delivery		1,468			2,012			1,089			1,677			1,033
General and administrative		1,795			2,375			3,040			2,901			2,684
Depreciation and amortization		15			15			14			19			23
Total operating expenses		3,278			4,402			4,143			4,597			3,740
Operating income (loss)		(1,623	)		(1,966	)		(1,385	)		223			623
Interest and other expense		(343	)		930			126			238			304
Taxes – current and deferred		(9	)		( 183	)		329			(164	)		172
Net income (loss)	$	(1,271	)	$	(2,714	)		(1,840	)	$	148		$	147
Income (loss) per share:
Basic and diluted	$	(0.03	)	$	(0.07	)	$	(0.05	)	$	0.01		$	0.01
Weighted average shares:
Basic and diluted		40,467			40,467			40,467			29,104			29,104

~~Table~~Item 6. Selected ofFinancial ~~Contents~~Data

			As of March 31 (in thousands)
	2010		2009		2008		2007		2006
Balance Sheet Data:
Cash		636	$	444	$	512	$	1,112	$	549
Total assets		9,613		13,237		15,486		20,133		8,249
Total current liabilities		10,417		13,448		12,287		15,826		5,989
Total long-term liabilities		0		0		0		0		0
Stockholders’ equity (deficit)		-804		-211		3,199		4,307		2,260

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, 2011, 2010, 2009 and the balance sheet data at March 31, 2011, and 2010, 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, 2008 and 2007 and the balance sheet data at March 31, 2009, 2008 and 2007 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.

	Years Ended March 31,
	2011			2010			2009			2008			2007
	(In thousands, except per share data)
Consolidated Statements of Operations:
Net sales	$	15,755		$	16,365		$	29,463		$	34,821		$	56,287
Cost of products sold		13,868			14,806			27,458			32,915			53,034

Gross profit		1,887			1,559			2,005			1,906			3,253
Other income		34			96			431			852			1,566
Operating expenses:
Selling and delivery		1,632			1,468			2,012			1,089			1,677
General and administrative		1,700			1,795			2,375			3,040			2,901
Depreciation and amortization		15			15			15			14			19

Total operating expenses		3,347			3,278			4,402			4,143			4,597

Operating income (loss)		(1,426	)		(1,623	)		(1,966	)		(1,385	)		223
Interest and other expense		(41	)		(343	)		930			126			238
Taxes – current and deferred		(1	)		(9	)		(183	)		329			(164	)
Net income (loss)	$	(1,468	)	$	(1,271	)	$	(2,714	)	$	(1,840	)	$	148

Income (loss) per share:
Basic and diluted	$	(0.04	)	$	(0.03	)	$	(0.07	)	$	(0.05	)	$	0.01
Weighted average shares:
Basic and diluted		40,467			40,467			40,467			29,104			29,104

			As of March 31 (in thousands)
	2011		2010		2009		2008		2007
Balance Sheet Data:
Cash		375	$	636	$	444	$	512	$	1,112
Total assets		7,077		9,613		13,237		15,486		20,133
Total current liabilities		9,302		10,417		13,448		12,287		15,826
Total long-term liabilities		0		0		0		0		0
Stockholders’ equity (deficit)		-2,224		-804		-211		3,199		4,307

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Results of Operations

Overview

Our operations were adversely affected by the ~~uncertainty~~slow inrecovery of the ~~global~~US ~~economy during~~and ~~fiscal~~Canadian ~~2010~~economies. Many retailers ~~curtailed~~are ~~their~~cautious ~~buying~~in ~~programs due~~planning totheir ~~the~~buying ~~excess inventory carried from the previous year~~programs. Our sales dropped by 454%, ~~mainly~~but ingross ~~the Disney and youth lines. Gross~~ profit margin increased from 69.85% in fiscal ~~2009~~2010 to ~~9.5~~12% in the ~~current~~ fiscal ~~year~~ 2011.

WeOur ~~have taken~~operating ~~steps~~costs increased by 6% mainly due to ~~control~~higher ~~our~~exchange ~~operating~~rate ~~costs~~of ~~while~~the ~~sales~~Canadian ~~were~~dollar, ~~decreasing~~which inis the ~~fiscal~~ ~~year~~functional currency for our operation in Canada. The net ~~decrease~~increase in operating expenses was approximately $1182,000.~~12M.~~ Selling expenses ~~decreased~~increased by approximately $~~544~~165,000. Salaries and wages ~~decreased~~increased by $~~250~~25,000 ~~and~~with $~~330~~8,000 decrease in general and administration.

We reported a currency gain of $~~354~~112,000 due to the strong Canadian dollar against the US dollar.

1920

~~Table~~Fiscal ofYear ~~Contents~~Ended March 31, 2011 Compared with Fiscal Year Ended March 31, 2010

Sales

Net sales decreased by $609,000 or 4% compared to prior year. Geographically, sale revenues in the US decreased by 42% or $665000. Our US distribution is scaled down to on-line stores only. As competition in US is always severe, we are waiting for the opportunity to regain the loss of revenue in this region.

Sales in Canada increased slightly by 2% or $292,000. At the beginning of the fiscal year, we were expecting an increase in sales of LCD TV’s. We launched our 22” LCD TV in April 2010 but the project was terminated quickly due to severe price competition. We made up the loss in sales by selling refurbished LCD TVs for a few brand name manufacturers.

The mix between direct import sales and domestic warehouse sales in fiscal 2011 was 7% to 93% compared with 8% to 92% in fiscal 2010. During weak economic times, our retail customers were cautious not to purchase container loads of goods with a long lead time. Despite the fact we have to sell more goods out of our domestic warehouse, we continued to reduce our inventory levels on hand due to careful planning and monitoring of inventory.

Gross Profit

Gross profit for fiscal 2011 was $1.87 million or 12% of revenues compared with $1.56 million or 9.5% in fiscal 2010. The increase in gross profit was mainly attributable to a strong Canadian dollar against the US dollar throughout the fiscal year. For sales in Canada, we purchased our products from our suppliers in US dollars but booked the sales revenue in Canadian dollars. The Canadian dollar appreciated about 6% against the US dollar during the fiscal year and our purchase cost decreased relatively resulting in a higher gross profit.

Commission Income

Our commission and other income consist of commissions earned on brokering sales and handling return products for Starlight and another manufacturer. Commission income decreased from approximately $96,000 in fiscal 2010 to $34,000 in this fiscal year. The weak economy caused a general reduction in demands for goods and services, and thus we handled less returns for our customers in our reverse logistics operations. Rather, we have negotiated to buy the defective returns from the manufacturers, refurbish the goods in house and sell the refurbished goods to our customers. The revenue from the sale of refurbished goods for the current fiscal year was $1.2 million and is included with sales revenues.

Operating Expenses

Operating expenses for the current fiscal year increased from approximately $3.28 million in fiscal 2010 to $3.46 million in this fiscal year. Selling and warehousing contributed the largest increase of approximately $165,000. We offered more advertising allowances to our customers as incentives to carry our products. In administrative expenses we reduced our expenses from $734,398 to $726,717. Although the decrease was very moderate, it represented management effort to reduce operating costs. Salaries and wages increased by approximately $25,000 due mainly to a stronger average Canadian conversion rate to US dollars for the fiscal year. In Canadian currency, the level of salaries and wages were comparable.

Financial expenses and exchange gain

The Canadian dollar appreciated steadily from 0.98 to one US dollar at the beginning of this fiscal year to 1.029 at the end of the fiscal year resulting in a gain of $112,000 for the fiscal year. In fiscal 2010, we recorded an exchange gain of $354,000. We did not purchase any forward currency contracts to hedge against the volatility of the Canadian dollar.

Interest expense was comparable between fiscal 2010 and 2011.

Interest expense increased by $30,000 in the current fiscal year compared to the prior. We repaid our income tax liability in Canada, which we owed from a tax audit reassessment for the fiscal years 2003 and 2004. Included with the final payment was approximately $29,000 in accrued interest.

Income Tax Expenses

For the fiscal year ended March 31, 2011, we did not record any provision for income tax as the Company and its subsidiaries incurred taxable losses for the 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, 2010 Compared with Fiscal Year Ended March 31, 2009

Sales

Net sales decreased by $13 million or 45% compared to prior year. The large decrease was due to the loss of a major account in our US subsidiary. We were successful selling to this account with our Disney and youth products in prior years. The decrease in Disney product demands coincided with a sharp decline in the overall toys segment in the US, resulting in this major account withdrawing our products in fiscal 2010. Although we have tried to renew their interest recently, it is unlikely this will happen in fiscal 2011.

We experienced decreases in sales of MP3 players and clocks but increase in sales of LCD TV’s and DVD players. The clocks segment was affected by a sharp increase in the costs of the products. The retail price of clocks increased and the cost was passed on to our customers. The decrease in clock sales was a reflection of the resistance by consumers to pay the higher prices. We are expecting an increase in sales of LCD TV’s in fiscal 2011. We launched our 22” LCD TV in April 2010 and will continue to launch larger size TV’s up to 32”.

The mix between direct import sales and domestic warehouse sales in fiscal 2010 was 8% to 92% compared with 16% to 84% in fiscal 2009. During weak economic times, our retail customers were cautious not to purchase container loads of goods with a long lead time. Despite the fact we have to sell more goods out of our domestic warehouse, we managed to reduce our inventory levels on hand due to careful planning and monitoring of inventory.

Gross Profit

Gross profit for fiscal 2010 was $1.6 million or 9.5% of revenues compared with 6.8% in fiscal 2009. The increase in gross profit margin was mainly attributable to a strong Canadian dollar against the US dollar throughout the fiscal year. For sales in Canada, we purchased our products from our suppliers in US dollars but booked the sales revenue in Canadian dollars. When the Canadian dollar appreciated against the US dollar, our purchase cost decreased relatively resulting in a higher profit margin.

Commission Income

Operating Expenses

Operating expenses for the current fiscal year decreased from approximately $4.4 million in fiscal 2009 to $3.3 million in this fiscal year. Selling and warehousing contributed the largest decrease of approximately $544,000. Our warehousing expense in US was significantly decreased due to the decrease of sales and activities in this region. Similarly, in administrative expenses we reduced travel, phone allowances, and office rent and office expenses in our US subsidiary which accounted for the majority of the $330,000 decreases. Salaries and wages decreased by approximately $250,000 and the majority of this decrease came from payroll cuts in the Canadian operation.

Table of Contents

Financial expenses and exchange gain

The Canadian dollar appreciated steadily from 0.8 to one US dollar at the beginning of this fiscal year to 0.98 at the end of the fiscal year resulting in a gain of $354,000 for the fiscal year. In fiscal 2009, we incurred exchange loss of $739,000. We did not purchase any forward currency contracts to hedge against the volatility of the Canadian dollar. However, our parent company Starlight, as our major supplier of goods, purchased forward contracts on our behalf to allow us to repay Starlight in Canadian dollars.

Interest expense decreased by approximately $180,000 compared with the prior fiscal year. The decrease was due to a one time interest charge levied by the Canadian tax authority in fiscal 2009 and a reduction in direct import sales activities compared with the prior fiscal year.

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, 2010, we recovered income tax expense in the amount of $9,047. In the prior years a tax audit on the Canadian subsidiary was conducted on years 2004 and 2005 and additional taxes were reassessed. Taxes related to these audits amounted to $714,638 in fiscal 2008. The current year tax recovery was a result of carryback of losses in the current year to prior years. The Company does not anticipate future changes in rates and as such does not anticipate such variances in its current or deferred taxes in subsequent years.

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

Sales

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

Table of Contents

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

Gross Profit

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

Commission Income

Operating Expenses

Operating expenses for the March 31, 2009 year increased from approximately $4.1 million to $4.4 million in fiscal 2009. Selling and warehousing contributed the largest increase of approximately $923,000. In the current fiscal year, we switched the status of two sales executive from salaried staff to commission based staff. We also incurred higher warehousing expenses this fiscal year as Starlight, our parent company, bore the Disney products storage and handling in fiscal 2008 and no longer picked up these expenses in this fiscal year as the subsidy was for the first year only. We also provided higher advertising allowances to our customers during the weak holiday season to induce sales. In administrative expense, we made cuts in all discretionary expenses such as travel which resulted in 12% of savings, partially offset by an increase of approximately $175,000 in bad debts expenses. Salaries and wages decreased by approximately $500,000 as offset to the increase in commission expense.

Financial expenses and exchange loss

We incurred a large exchange loss in the third quarter of the March 31, 2009 fiscal year. A sharp decline in exchange rates between the Canadian and US dollars from 0.96 of one US dollar to 0.82 during the third quarter attributed to an annual exchange loss of approximately $739,000. While we did not purchase currency forward contracts to hedge against the volatility of the Canadian dollar, our parent company, Starlight purchased forward contracts to allow us to convert from Canadian dollars to US dollar at the rates locked in the forward contracts to mitigate the exchange loss.

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

Income Tax Expenses

Table of Contents

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

Table of Contents

Liquidity and Capital Resources

On March 31, ~~2010~~2011, we had cash on hand of $~~635~~375,~~516~~365 compared to cash on hand of $~~444~~635,~~410~~ 516 on March 31, ~~2009~~2010. The ~~increase~~decrease of cash on hand was primarily ~~due~~used in operating activities to ~~the~~ ~~effect~~reduce ofour ~~foreign~~trade ~~currency~~payable ~~translation~~with outside parties and with our parent company. ~~The~~ ~~strong~~We ~~Canadian dollar~~have ~~during~~liquidated ~~the~~close ~~current~~to ~~fiscal~~$2 ~~improved~~million of inventory to fund our ~~cash~~operating ~~flow~~activities in ~~purchases~~the ofcurrent ~~goods for~~fiscal ~~resale~~year.

~~Cash flows~~There ~~used~~have inbeen ~~operating~~no ~~activities~~cash ~~were~~flows ~~$486,881~~from investing and financing activities for the ~~year~~fiscal years ended March 31, ~~2010. We~~ ~~have~~2011 ~~reduced our receivables~~ and ~~inventories at year end and we reduced our debts to our parent company~~2010.

~~There have~~As ~~been~~of noMarch ~~cash~~31, ~~flows~~2011 ~~from~~we ~~investing~~had ~~and~~a ~~financing~~working ~~activities~~capital ~~for~~deficit ~~the~~of ~~fiscal year~~approximately ~~ended~~$2.2 ~~March~~million. ~~31,~~Our ~~2010~~current liabilities of $9.3 million include:

As· ~~of March~~amount ~~31,~~due ~~2010~~to ~~our~~Starlight ~~working~~resulting ~~capital~~from ~~was~~normal incourse ~~deficit~~of bythe ~~approximately~~business ~~$223,000.~~for ~~Our current liabilities of~~ $107.48 million ~~include:~~;

· ~~amount~~current ~~due~~liabilities ~~to Starlight~~ resulting from normal course of the business with other factories and suppliers for $0.9 million;

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

advance from Starlight for $0.6 million

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

We do not plan to acquire any significant capital items within the next twelve months.

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, ~~2010~~2011, Cosmo did not have any unconsolidated VIE’s.

~~Table~~Contractual Obligations as of ~~Contents~~March 31, 2011

~~Contractual Obligations~~Cosmo ashad ofcontractual obligations at March 31, ~~2010~~2011 as follows:

Cosmo had contractual obligations at March 31, 2010 as follows:

	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years

Interest payable to related party	$	604,627	$	604,627	$	—		—		—
Operating leases	$	894,367	$	355,466	$	538, 901		—		—

	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Interest payable to related party	$	604,627	$	604,627	$	—		—		—
Operating leases	$	1,198,103	$	339,206	$	858,897		—		—

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 ~~2011~~2012.

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 ~~2011~~2012, we will continue to control our operating costs. We expect domestic sales will continue to expand which will improve our working capital to finance inventory and accounts receivable.

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

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 dollars, and domestic sales are received in Canadian dollars. The exchange rate between the Canadian dollar and US dollar can represent an exchange risk to us. Therefore any adverse fluctuation in this exchange rate may have a material effect on our business, financial condition or results of operation. The overall percentage of domestic sales in Canadian dollars is at approximately 8090% of total sales. Due to the ~~increase~~upward ~~in domestic~~trend ~~sales~~of ~~in Canada in~~ the ~~current fiscal year, our parent company entered into 28 forward exchange contracts with a total amount of $6.75 million~~ Canadian ~~dollars~~ ~~during~~dollar throughout the fiscal year., ~~These~~we ~~forward~~did ~~contracts~~not ~~enable~~take usany toaction ~~pay our trade debts~~ to ~~our~~hedge ~~parent~~against ~~company~~the in Canadian ~~dollars and converted these to US dollars at the rates locked in the forward contracts~~dollar.

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 6266% and 7762% of net sales in fiscal ~~2010~~2011, and ~~2009~~2010, respectively.

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

Inflation

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

Critical Accounting Policies and Estimates

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

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

Table of Contents

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. For fiscal 2010, the Company had significant estimates for allowances for doubtful accounts in the amount of $187,314, allowance for obsolete inventory reserve of $1,103,360 and sales return and allowance reserve of $257,569.

For fiscal 2011, the Company had significant estimates for allowances for doubtful accounts in the amount of $175,206, allowance for obsolete inventory reserve of $725,822 and sales return and allowance reserve of $252,977.

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 Accounting Standards Codification (“ASC”) 830, subtopic 30 - 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 ASC 830, 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.

Table of Contents

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, 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.

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, ~~2010~~ 2011, we have not used derivative instruments or engaged in hedging activities to minimize market risk.

Interest Rate Risk

As of March 31, ~~2010~~2011, 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.

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. ToThe ~~mitigate the foreign currency risk, our parent company purchased~~ Canadian dollar ~~forward contracts~~has onbeen ~~our~~rising ~~behalf. In~~during fiscal ~~2010,~~2011. We ~~our~~have ~~parent~~not ~~company~~taken ~~purchased 28~~steps ~~Canadian~~to ~~dollar~~hedge ~~contracts~~against atthis acurrency ~~total~~in ~~amount~~fiscal ~~of $6~~2011.~~75M.~~

Table of Contents

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	~~Page #~~	Page #
Report of Independent Registered Public Accounting Firm	31	31
Consolidated Balance Sheets as at March 31, 2010 and 2009	32
Consolidated Balance Sheets as of March 31, 2011 and 2010		32
Consolidated Statements of Loss and Comprehensive Loss for the years ended March 31, 2010, 2009, and 2008	33
Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2011, 2010, and 2009		33
Consolidated Statements of Stockholders’ Deficit for the years ended March 31, 2010 and 2009	34
Consolidated Statements of Stockholders’ Deficit for the years ended March 31, 2011 and 2010		34
Consolidated Statements of Cash Flows for the years ended March 31, 2010, 2009, and 2008	35
Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010, and 2009		35
Notes to the Consolidated Financial Statements	36	36

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 ~~2010~~2011 and ~~2009~~2010 and the related consolidated statements of ~~loss~~operations and comprehensive loss, stockholders' deficit and cash flows for each of the three years ~~ended~~in 31the ~~March~~period ~~2010,~~then ~~2009~~ended ~~and~~31 ~~2008~~March 2011. 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 audits includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, ~~based~~the ~~on our audits, such~~ consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cosmo Communications Corporation and Subsidiaries as of 31 March ~~2010~~2011 and ~~2009~~2010 and the consolidated results of its operations and cash flows for each of the three years in the period then ended 31 March ~~2010~~2011, ~~2009 and 2008,~~ in conformity with accounting principles generally accepted in the United States of America.

/s/ DNTW Chartered Accountants, LLP

Licensed Public Accountants

Markham, Ontario, Canada

2917 June ~~2010~~ 2011

Table of Contents

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS AT OF 31 MARCH

(Expressed in United States Dollars)

	Note	2011	~~2010~~			2010	~~2009~~
ASSETS
Current Assets
Cash		$	$375,365	~~635,516~~		$	$635,516	~~444,410~~
Accounts receivable, less allowance of $187,321 and $196,426 at 31 March 2010 and 2009, respectively	3			2,259,969				2,551,434
Accounts receivable, less allowance of $175,206 and $187,321 at 31 March 2011 and 2010, respectively	3		1,971,806				2,259,969
Inventories				6,682,679				10,187,934
Inventories less allowance of $752,822 and $1,103,360 at 31 March 2011 and 2010, respectively			4,712,192				6,682,679
Prepaid expenses and other			9,702	~~11,259~~			11,259	~~15,145~~
Total Current Assets			7,069,065	~~9,589,423~~			9,589,423	~~13,198,923~~
Equipment and Other Assets
Equipment, net	4		-	~~15,367~~			15,367	~~30,241~~
Deferred taxes	5		8,317	~~8,317~~			8,317	~~8,317~~
Total Equipment and Other Assets			8,317	~~23,684~~			23,684	~~38,558~~
Total Assets		$	$7,077,382	~~9,613,107~~		$	$9,613,107	~~13,237,481~~
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	7	$	887,642	~~597,557~~		$	597,557	~~693,583~~
Accounts payable to parent company	6		7,809,241	~~9,132,241~~			9,132,241	~~12,098,477~~
Taxes payable	5		-	~~82,905~~			82,905	~~51,660~~
Interest payable to parent company	6		604,627	~~604,627~~			604,627	~~604,627~~
Total Liabilities			9,301,510	~~10,417,330~~			10,417,330	~~12,286,850~~
Commitments	8
Stockholders' Deficit
Preferred stock, $0.01 par value, cumulative and convertible, 30,000 shares authorized			-	-			-	-
Preferred stock, $0.01 par value, 9,970,000 shares authorized			-	-			-	-
Capital stock, $0.05 par value, 50,000,000 shares authorized, 40,467,636 shares issued and outstanding			2,023,382	~~2,023,382~~			2,023,382	~~2,023,382~~
Additional paid-in capital			27,704,592	~~27,704,592~~			27,704,592	~~27,704,592~~
Accumulated other comprehensive income (loss)				306,205				(371,782	)
Accumulated other comprehensive income			355,598				306,205
Accumulated deficit			(32,307,700	~~(30,838,402~~)	)		(30,838,402	~~(29,567,058~~)	)
Total Stockholders' Deficit			(2,224,128	~~(804,223~~)	)		(804,223	~~(210,866~~)	)
Total Liabilities and Stockholders' Deficit		$	$7,077,382	~~9,613,107~~		$	$9,613,107	~~13,237,481~~

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

Table of Contents

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~LOSS~~OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2010			2009			2008
	2011			2010			2009
SALES	$	1615,~~364~~755,~~733~~443		$	2916,~~463~~364,~~154~~733		$	3429,~~820~~463,~~750~~154
COST OF PRODUCTS SOLD		1413,~~806~~868,~~460~~625			2714,~~458~~806,~~287~~460			3227,~~915~~458,~~382~~287
GROSS PROFIT		1,~~558~~886,~~273~~818			21,~~004~~558,~~867~~273			12,~~905~~004,~~368~~867
COMMISSION INCOME		9634,~~497~~248			~~430~~96,~~982~~497			~~852~~430,~~238~~982
OPERATING EXPENSES
Salaries and wages		1,~~060~~085,~~735~~416			1,~~310~~060,~~628~~735			1,~~822~~310,~~066~~628
General and administrative		~~734~~726,~~398~~717			1734,~~064,791~~398			1,~~217~~064,~~493~~791
Selling and delivery		1,~~467~~632,~~694~~478			21,~~012~~467,~~088~~694			12,~~088~~012,~~947~~088
Depreciation		1415,~~874~~367			14,874			14,~~202~~874
TOTAL OPERATING EXPENSES		3,~~277~~459,~~701~~978			43,~~402~~277,~~381~~701			4,~~142~~402,~~708~~381
LOSS FROM OPERATIONS		(1,~~622~~538,~~931~~912	)		(1,~~966~~622,~~532~~931	)		(1,~~385~~966,~~102~~532	)
Financial		1141,~~800~~407			~~191~~11,~~578~~800			~~104~~191,~~916~~578
(Gain) loss on foreign exchange		(~~354~~111,~~340~~833	)		~~739~~(354,~~437~~340	)		21739,~~413~~437
LOSS BEFORE INCOME TAXES		(1,~~280~~468,~~391~~486	)		(21,~~897~~280,~~547~~391	)		(12,~~511~~897,~~431~~547	)
INCOME TAX RECOVERY		(9,047	)		(183,067	)		(254,247	)
INCOME TAX EXPESE (RECOVERY)		812			(9,047	)		(183,067	)
DEFERRED INCOME TAXES		-			-			(131,906	)
NET LOSS	$	(1,469,298	)	$	(1,271,344	)	$	(2,714,480	)
REASSESSMENT OF PRIOR YEARS INCOME TAXES		-			-			714,638
FOREIGN CURRENCY TRANSLATION ADJUSTMENT		49,393			677,987			(695,458	)
NET LOSS	$	(1,271,344	)	$	(2,714,480	)	$	(1,839,916	)
COMPREHENSIVE LOSS	$	(1,419,905	)	$	(593,357	)	$	(3,409,938	)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT		677,987			(695,458	)		731,681
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED	$	(0.04	)	$	(0.03	)	$	(0.07	)
COMPREHENSIVE LOSS	$	(593,357	)	$	(3,409,938	)	$	(1,108,235	)
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED	$	(0.03	)	$	(0.07	)	$	(0.05	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED		40,467,636			40,467,636			40,467,636

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

Table of Contents

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED 31 MARCH ~~2010~~2011 AND ~~2009~~2010

(Expressed in United States Dollars)

	Shares		Capital Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Deficit
Balance, 1 April 2008		40,467,636		2,023,382		27,704,592		323,676			(26,852,578	)		3,199,072
Balance, 1 April 2009		40,467,636	$	2,023,382	$	27,704,592	$	(371,782	)	$	(29,567,058	)	$	(210,866	)
Foreign currency translation		-		-		-		(695,458	)		-			(695,458	)
Net loss for the year		-		-		-		-			(2,714,480	)		(2,714,480	)
Balance, 31 March 2009		40,467,636		2,023,382		27,704,592		(371,782	)		(29,567,058	)		(210,866	)
Foreign currency translation		-		-		-		677,987			-			677,987
Net loss for the year		-		-		-		-			(1,271,344	)		(1,271,344	)
Balance, 31 March 2010		40,467,636	$	2,023,382	$	27,704,592	$	306,205		$	(30,838,402	)	$	(804,223	)
Foreign currency translation		-		-		-		49,393			-			49,393
Net loss for the year		-		-		-		-			(1,469,298	)		(1,469,298	)
Balance, 31 March 2011		40,467,636	$	2,023,382	$	27,704,592	$	355,598		$	(32,307,700	)	$	(2,224,128	)

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

Table of Contents

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2010			2009			2008
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,~~271~~469,~~344~~298	)	$	(21,~~714~~271,~~480~~344	)	$	(12,~~839~~714,~~916~~480	)
Adjustment to reconcile net earnings to net cash provided by (used in) operating activities
Adjustment to reconcile net earnings to net cash (used in) provided by operating activities
Depreciation		1415,~~874~~367			14,874			14,~~202~~874
Deferred income taxes		-			-			(131,906	)
		(1,453,931	)		(1,256,470	)		(2,699,606	)
		(1,256,470	)		(2,699,606	)		(1,957,620	)
Changes in operating assets and liabilities:
Accounts receivable		~~291~~288,~~465~~163			1291,~~290,932~~465			51,~~075~~290,~~471~~932
Inventories		31,~~505~~970,~~255~~487			~~842~~3,~~062~~505,255			(1842,~~514,507~~062	)
Prepaid expenses and other		31,~~886~~557			333,~~082~~886			~~(31~~33,~~731~~082	)
Accounts payable and accrued liabilities		~~(96~~290,~~026~~085	)		63(96,~~017~~026	)		(163,~~094,672~~017	)
Taxes payable		31(82,~~245~~905	)		~~(260~~31,~~107~~245	)		~~826~~(260,~~095~~107	)
Accounts payable to parent company		(21,~~966~~323,~~236~~000	)		1(2,~~358~~966,~~584~~236	)		(21,~~632~~358,~~474~~584	)
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES		(~~486~~309,~~881~~544	)		~~627~~(486,~~964~~881	)		(1627,~~329,438~~964	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		-			~~(268~~-	)		(~~2,299~~268	)
CASH FLOWS USED IN INVESTING ACTIVITIES		-			~~(268~~-	)		(~~2,299~~268	)
CASH FLOWS FROM FINANCING ACTIVITIES		-			-			-
Advances to (from) related parties		-			-			-
EFFECT OF EXCHANGE RATE CHANGES ON CASH		49,393			677,987			(695,458	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		-			-			-
NET (DECREASE) INCREASE IN CASH		(260,151	)		191,106			(67,762	)
EFFECT OF FOREIGN CURRENCY TRANSLATION		677,987			(695,458	)		731,681
CASH, BEGINNING OF YEAR		635,516			444,410			512,172
NET INCREASE (DECREASE) IN CASH		191,106			(67,762	)		(600,056	)
CASH, END OF YEAR	$	375,365		$	635,516		$	444,410
CASH, BEGINNING OF YEAR		444,410			512,172			1,112,228
CASH, END OF YEAR	$	635,516		$	444,410		$	512,172

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

Table of Contents

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED 31 MARCH ~~2010~~2011 AND ~~2009~~2010

(Expressed in United States Dollars)

1.	NATURE OF OPERATIONS

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

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. For fiscal 2010, the Company had significant estimates for allowances for doubtful accounts in the amount of $187,321, allowance for obsolete inventory reserve of $1,103,360 and sales return and allowance reserve of $257,569.

As of 31 March 2011, the Company had significant estimates for allowances for doubtful accounts in the amount of $175,206, allowance for obsolete inventory reserve of $725,822 and sales return and allowance reserve of $252,977.

Revenue Recognition

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.

Table of Contents

Advertising Allowances

The Company followed the guidance in Accounting Standards Codification (“ASC”) 605-50, Revenue Recognition- Customer Payments and Incentives. In ~~accoradance~~accordance with ASC 605-50, 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 ASC 605-50 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.

3736

Table of Contents

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 $~~960~~629,~~084~~656 (~~2009~~2010 - $1960,~~120,935~~084).

The Company classifies the following expense categories separately on its statements 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. As ~~For~~of ~~the year ended~~ 31 March ~~2010~~2011, the Company’s inventory reserve was $725,822 ($1,103,360 ~~($560,846~~ in 2009).

Trade receivables

The Company's accounts receivable and related allowance for doubtful accounts are analyzed in detail on a quarterly basis and all significant customers with delinquent balances are reviewed to determine future collectability. Reserves are established in the quarter in which the Company makes the determination that the account is deemed uncollectible. The Company maintains additional reserves based on its historical bad debt experience. The provision for accounts receivables was assessed ~~during~~as ~~the~~of ~~years ended~~ 31 March ~~2010~~2011 and ~~2009~~2010 as $~~187~~175,~~321~~206 and $~~196~~187,~~426~~321, respectively.

Equipment

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

Furniture and fixtures	20% declining balance
Equipment	20% declining balance
Computer	25% declining balance
Warehouse equipment	20% declining balance

3837

Table of Contents

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 ASC 830, Foreign Currency Matters. 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 ASC 830, 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 ASC 740, 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 measures its financial assets and liabilities in accordance with the requirements of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

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. AtAs of 31 March ~~2010~~2011and ~~and 2009~~2010, 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.

3938

Table of Contents

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income

The Company adopted ASC 220, 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~~. ASC 220 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 ASC 260, 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 ~~2010~~2011 and ~~2009~~ 2010.

Valuation of Long-Lived Assets

In accordance with ASC 360 Property, Plant and Equipment, 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

The Company is exposed to credit risk on accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit terms. Our five largest customers during fiscal year ~~2010~~2011 made up approximately 8781% o f our total revenues (~~2009~~2010 – 9187%).

Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within Canada, United States and Hong Kong. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash. The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States and Canada. Balances at financial institutions or state-owned banks within Hong Kong are not covered by insurance. Total cash in state-owned banks and cash on hand at March 31, ~~2010~~ 2011 and ~~2009~~2010, amounted to $~~105~~18,~~340~~598 and $85105,~~365~~340, respectively, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

The Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in China, and by the general state of the Chinese economy. The Company’s operations in China are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

4039

Table of Contents

Foreign Currency Risk

Foreign currency risk arises from fluctuations in foreign exchange rates and the degree of volatility of these rates relative to the Canadian dollar. Consequently, some assets, liabilities, revenues and purchases are exposed to foreign exchange fluctuations.

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. The Company is therefore exposed to currency risks due to potential variation of the currencies in which it operates. The Company does not use derivative instruments to hedge its foreign exchange risk.

4140

Table of Contents

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

~~On September 30,~~In October 2009, the ~~Company~~FASB ~~adopted~~issued ~~the~~amended ~~Financial~~revenue ~~Accounting~~recognition ~~Standards Board~~guidance ~~(“FASB”)~~for ~~Statement~~arrangements Nowith multiple deliverables. ~~168,~~ The ~~FASB~~new ~~Accounting~~guidance ~~Standards Codification~~eliminates ~~and~~the ~~The~~residual ~~Hierarchy~~method of ~~Generally~~revenue ~~Accepted~~recognition ~~Accounting Principles.~~and ~~The~~allows ~~Codification became~~ the ~~source~~use of ~~authoritative~~management’s ~~generally accepted~~best ~~accounting~~estimate ~~principles~~of ~~(“GAAP”)~~selling ~~recognized~~price byfor ~~the~~individual ~~FASB~~elements toof bean ~~applied~~arrangement ~~by nongovernmental~~when ~~entities.~~vendor ~~Rules~~specific ~~and~~objective ~~interpretive~~evidence ~~releases~~(VSOE), ofvendor ~~the~~objective ~~Securities Exchange~~evidence ~~Committee~~ (~~“SEC”~~VOE) ~~under~~or ~~authority~~third-party ofevidence ~~federal~~(TPE) ~~securities~~is ~~laws~~unavailable. ~~are~~For ~~also sources~~the ofcompany, ~~authoritative~~this ~~GAAP~~guidance ~~for~~is ~~SEC~~effective ~~registrants.~~for ~~The Codification supersedes~~ all ~~existing~~new ~~non-SEC~~or ~~accounting~~materially ~~and~~modified ~~reporting~~arrangements ~~standards.~~entered ~~All~~into ~~other nongrandfathered~~on ~~non-SEC~~or ~~accounting~~after ~~literature~~July ~~not~~1, ~~included~~2011 inwith ~~the~~earlier ~~Codification is~~application ~~nonauthoritative.~~permitted ~~GAAP~~as isof ~~not~~the ~~intended~~beginning toof ~~be changed as~~ a ~~result~~fiscal ofyear. ~~this statement,~~Full ~~but~~retrospective ~~will~~application ~~change~~of the ~~way~~new ~~the~~ guidance is ~~organized~~ ~~and presented~~optional. The Company ~~has~~is ~~implemented~~currently ~~the~~assessing ~~Codification~~its inimplementation ~~the~~of ~~consolidated~~this ~~financial statements~~new byguidance, ~~providing~~but ~~references~~does tonot ~~the~~expect ~~Accounting~~a ~~Standards~~material ~~Codification (“ASC”)~~impact ~~topics~~on the consolidated financial statements.

InOther ~~April 2010,~~recent ~~the~~accounting ~~FASB~~pronouncements issued ~~Accounting~~by ~~Standards Update (“ASU”) No. 2010-13—Compensation—Stock Compensation (Topic 718),which addresses~~ the ~~classification~~FASB ofand ~~an employee share-based payment award with an exercise price denominated in~~ the ~~currency~~SEC ofdid a market in which the underlying equity security trades. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not ~~be considered to contain a condition that is not a market, performance,~~ or ~~service condition.~~are ~~Therefore, an entity would~~ not ~~classify~~believed ~~such~~by anmanagement ~~award~~to ashave a ~~liability if~~material itimpact ~~otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning~~ on ~~or after~~the ~~December 15, 2010. The~~ Company's ~~expects~~present ~~that~~or ~~the~~future ~~adoption~~consolidated ~~of the amendments in this update will not have any significant impact on its~~ financial ~~position and results of operations~~statements.

In April 2010, the FASB issued ASU No. 2010-17—Revenue Recognition—Milestone Method (Topic 605), which provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The Company expects that the adoption of the amendments in this update will not have any significant impact on its financial position and results of operations.41

In January 2010, the FASB issued ASU No. 2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This Update amends Subtopic 820-10 that requires new disclosures about transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. This Update also amends Subtopic 820-10 to clarify certain existing disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010.

January 2010, the FASB issued ASU 2010-02, Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification. ASU 2010-02 amends the Codification to clarify that the scope of the decrease in ownership provisions of ASC 810-10 and related guidance applies to: (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method or joint venture; (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity-method investee or joint venture); and (iv) a decrease in ownership in a subsidiary that is not a business or nonprofit activity when the substance of the transaction causing the decrease in ownership is not addressed in other authoritative guidance. If no other guidance exists, an entity should apply the guidance in ASC 810-10. The amendments in the update also clarify that the decrease in ownership guidance in ASC 810-10 does not apply to sales of in-substance real estate or conveyances of oil and gas mineral rights, even if these transfers involve businesses. We adopted ASU 2010-02 effective 31 December 2009 and it did not have a material effect on our current financial statements.

Table of Contents

In January 2010, the FASB issued ASU 2010-01, Equity: Accounting for Distributions to Shareholders with Components of Stock and Cash. ASU 2010-01 amends the Codification to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 codifies the consensus reached by the Emerging Issues Task Force in Issue No. 09-E, Accounting for Stock Dividends, including Distributions to Shareholders with Components of Stock and Cash. We adopted ASU 2010-01 effective 31 December 2009 and it did not have a material effect on our current financial statements, however, it may have an effect on future financial statements depending on our future activities.

In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after 15 June 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), (codified by ASU No. 2009-17 issued in December 2009). The standard amends FIN No. 46(R) to require a company to analyze whether its interest in a variable interest entity (“VIE”) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary are also required by the standard. SFAS No. 167 amends the criteria to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN No. 46(R). This Statement will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. Earlier application is prohibited. Comparative disclosures will be required for periods after the effective date. It is expected the adoption of this Statement will have no material effect on the Company’s Consolidated

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140, (codified by ASU No. 2009-16 issued in December 2009). SFAS No. 166 limits the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire financial asset by taking into consideration the transferor’s continuing involvement. The standard requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” along with the exception from applying FIN 46(R), Consolidation of Variable Interest Entities. The standard is effective for the first annual reporting period that begins after November 15, 2009. Earlier application is prohibited. It is expected the adoption of this Statement will have no material effect on the Company’s Consolidated Financial Statements.

Table of Contents

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~~as ~~fiscal~~of ~~2010~~31 March 2011 and ~~2009~~2010:

	Balance at Beginning of Year		Additions (Reductions) Charged to Costs and Expenses		Deductions			Balance at End of Year
Year ended 31 March 2011
Deducted from asset account:
Allowance for doubtful accounts	$	187,321	$	-	$	(12,115	)	$	175,206
Sales return and allowance reserve		257,569		571,659		(576,251	)		252,977
Total	$	444,890	$	571,659	$	(588,366	)	$	428,183
Year ended 31 March 2010
Deducted from asset account:
Allowance for doubtful accounts	$	196,426	$	34,973	$	(44,078	)	$	187,321
Sales return and allowance reserve		104,641		1,653,881		(1,500,953	)		257,569
Total	$	301,067	$	1,688,854	$	(1,545,031	)	$	444,890
Year ended 31 March 2009
Deducted from asset account:
Allowance for doubtful accounts	$	25,927	$	175,206	$	(4,707	)	$	196,426
Sales return and allowance reserve		138,438		2,837,532		(2,871,329	)		104,641
Total	$	164,365	$	3,012,738	$	(2,876,036	)	$	301,067

EQUIPMENT

The components of equipment are as follows:

	Cost		Accumulated Depreciation			Net ~~2010~~2011		Net ~~2009~~2010
Furniture and fixtures	$	42,462	$	(4142,~~535~~462	)	$	~~927~~-	$	~~2,037~~927
Equipment		31,858		(3031,~~967~~858	)		~~891~~-		~~1,867~~891
Computer		53,295		(4753,~~652~~295	)		~~5,643~~-		105,~~438~~643
Warehouse equipment		68,575		(6068,~~669~~575	)		~~7,906~~-		157,~~899~~906
	$	196,190	$	(~~180~~196,~~823~~190	)		~~15,367~~-	$	3015,~~241~~367

5.	INCOME TAXES

The provision for income taxes reconciles to the amount obtained by applying the statutory income tax rates of 3331% (~~2009~~2010 - 33%) in Canada, 16.5% (~~2009~~2010 - 16.5%) in Hong Kong and 15% (~~2009~~2010 – 15%) in US to income before provision for taxes as follows:

4442

Table of Contents

	2011			2010

Computed expected tax	$	(379,234	)	$	(168,545	)
Expenses not deductible for tax purposes		15,417			7,287
Equipment		3,815			2,976
Tax losses available for carryforward		363,376			267,837
Utilization of prior year tax losses		(3,374	)		(109,555	)
Other		812			(9,047	)

Provision for income taxes	$	812		$	(9,047	)

	2010			2009
Computed expected tax	$	(168,545	)	$	(731,668	)
Expenses not deductible for tax purposes		7,287			55,434
Equipment		2,976			(160	)
Tax losses available for carryforward		267,837			860,843
Utilization of prior year tax losses		(109,555	)
Other		(9,047	)		(367,517	)
Provision for income taxes	$	(9,047	)	$	(183,068	)

The Company has $5,910,259 of tax losses available to offset future taxable income which expire as follows:

The Company has $4,568,542 of tax losses available to offset future taxable income. $1,915,048 of these losses are held in our Canadian subsidiary; $1,263,583 expire in 2019 and $651,465 in 2020. $1,784,304 of these losses are held in our Hong Kong subsidiary and can be carried forward indefinitely. The remaining $869,190 tax losses are held in our US subsidiary; $489,043 expire in 2029 and $380,147 in 2030.

	USA		Canada		Hong Kong		Total
Do not expire	$	-	$	-	$	1,758,284	$	1,758,284
2029		489,043		1,324,155		-		1,813,198
2030		380,147		682,693		-		1,062,840
2031		102,534		1,173,403		-		1,275,937

	$	971,724	$	3,180,251	$	1,758,284	$	5,910,259

The components of deferred income taxes have been determined at the combined statutory rates as follows:

	2010			2009
	2011			2010
Deferred income tax assets (liabilities):
Book over tax depreciation	$	8,317		$	8,317
Tax losses available for carryforward		1,~~056~~421,~~754~~753			~~860~~1,~~843~~056,754
Valuation allowance		(1,~~054~~421,~~754~~753	)		(~~860~~1,~~843~~054,754	)
Deferred income taxes	$	8,317		$	8,317

4543

Table of Contents

6.	AMOUNTS PAYABLE TO PARENT COMPANY

As of 31 March ~~2010~~2011, the Company owed $98,~~736~~413,~~868~~869 (~~2009~~2010 - $129,~~703~~763,~~104~~868) to The Starlight Group of Companies, the principal corporate shareholder of the Company ("Starlight"). Of this amount $97,~~132~~809,~~241~~ 242 (~~2009~~2010 - $129,~~098~~132,~~477~~241) 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 ~~2010~~2011 was $604,627 (~~2009~~2010 - $604,627).

7.	ACCOUNTS PAYABLE AND ACCRUED LIBILITIES

The balance is comprised of:

	2010		2009
	2011		2010
Trade payables		~~113~~496,~~829~~179		~~207~~113,~~533~~829
Accrued liabilities		~~226~~118,~~159~~066		~~152~~226,~~211~~159
Claims payable		-20,420		~~229,198~~-
Sales return and allowance reserve		~~257~~252,~~569~~977		~~104~~257,~~641~~569
	$	~~597~~887,~~557~~642	$	~~693~~597,~~583~~557

8.	COMMITMENTS

The Company leases premises under an operating lease with a five year term in Canada and shares the facilities for its Hong Kong operation. Minimum lease commitments under the leases at 31 March ~~2010~~2011 were:

2011	$	339,206
2012	$	355,466
2012		341,926
2013		358,317
2013		344,647
2014		180,584
2014		172,324
	$	894,367
	$	1,198,103

9.	RELATED PARTY TRANSACTIONS

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

During the year ended 31 March ~~2010~~2011, the Company purchased $107,~~800~~299,~~354~~267 (~~2009~~2010 - $2510,~~191~~800,~~456~~354) of goods from Starlight. The ~~and~~Company ~~received~~purchased no$1,936,077 ~~commissions~~of goods from ~~Starlight in~~an associate company, The Singing Machine Company (SMC) (2010 - $1,701,203) and ~~2009~~sold goods of $233,904 to SMC.(2010 - $622,261).

46The Company recorded as an accrued liability $100,000 payable to Starlight as fees to handle and repair defective returns in 2011 (none in 2010).

~~Table of Contents~~44

10.	ECONOMIC DEPENDENCE

The Company is economically dependent on its parent company for the supply of inventory products to its customers. For ~~fiscal~~the ~~2010~~year ended 31 March 2011, the Company purchased 8065% of its inventory needs from Starlight (~~2009~~2010 -92 80%).

A The Company has been traditionally dependent on one single large mass-market merchandiser and chain store located in Canada and ~~US is~~ the ~~Company's~~ ~~largest~~US ~~customer,~~ which accounted for ~~approximately~~ 54% of sales in 2010. During ~~and~~the 70year ended 31 March 2011, the Company has built up sales with a second account located in Canada. The two customers accounted for 55% of sales in ~~2009~~fiscal 2011. Economic dependence exists with ~~this~~these ~~identified customer~~two customers. Loss of ~~the~~both ~~customer~~customers may have significant adverse results to the financial position of the Company.

As of 31 March ~~2010~~2011, the accounts receivable from ~~this~~these ~~customer~~two customers amounted to approximately $~~853~~948,~~080~~601 (~~2009~~2010 - $1,~~842~~252,~~933~~960) and claims payable for inventory returns amounted to approximately $1220,~~076~~420 (~~2009~~2010 - $12,~~964~~076).

11.	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.

	Canada			Hong Kong			United States			Total
2011
Assets		6,044,244			136,493			896,645			7,077,382
Sales, net		13,763,003			1,077,458			914,983			15,775,444
Gross margin		1,752,635			115,225			18,958			1,886,818
Net loss		(1,186,699	)		(180,065	)		(102,534	)		(1,469,298	)
2010
Assets		7,036,473			606,215			1,970,419			9,613,107
Sales, net		13,471,277			1,313,933			1,579,523			16,364,733
Gross margin		1,398,821			115,537			43,915			1,558,273
Net loss		(829,432	)		(61,767	)		(380,145	)		(1,271,344	)
2009
Assets		5,503,949			377,210			7,356,322			13,237,481
Sales, net		10,778,530			4,963,244			13,721,380			29,463,154
Gross margin		709,142			280,280			1,015,445			2,004,867
Net loss		(1,182,248	)		(1,034,185	)		(498,048	)		(2,714,481	)

12.	SUPPLEMENTAL CASH FLOW INFORMATION

During the year ended 31 March ~~2010~~2011 the Company paid interest of $1141,~~800~~407 (~~2009~~2010 - $5511,~~547~~800) and paid income taxes of $3353,~~000~~777 (~~2009~~2010 - $~~312~~33,~~428~~000).

4745

Table of Contents

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 ~~2010~~2011 fiscal year. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, ~~2010~~ 2011.

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

Management’s Report on Internal Control over Financial Reporting.

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

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Management concluded that we maintained effective internal control over financial reporting as of March 31, ~~2010~~ 2011.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control financial reporting that occurred during the year ended March 31, ~~2010~~2011 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 ~~2010~~2011.

4846

Table of Contents

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 2928, ~~2010~~2011:

Name	Age	Position
Philip Lau	6263	Chairman of the Board of Directors and President
Peter Horak	6869	Chief Executive Officer and Director
Carol Atkinson	6162	Chief Financial Officer
Yu Wing King	5859	Vice President, Hong Kong operation
Jacky Lau	5152	Director
Jeff Horak	5253	Vice President –Sales and Marketing - Canada Operations

4947

Table of Contents

Philip Lau - Chairman and President

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

Peter Horak – Chief Executive Officer, Canada

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

Carol Atkinson – Chief Finance Officer

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

Yu Wing Kin – Vice President, Administration, Hong Kong

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

Jacky Lau – Director

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

Anthony Lau – Director

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

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

Family Relationships

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

Code of Ethics

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

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

To our knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during the year ended March 31, ~~2010~~2011, its officers, directors and 10% shareholders complied with all Section 16(a) filing requirements.

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, 2010.

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 2010. 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, 2010, 2009 and 2008 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 2010, 2009 and 2008:

Summary Compensation Table

Name & Principal Position	Year	Salary ($)	~~Salary ($)~~		Bonus ($) (5)	~~Bonus ($) (5)~~		Stock Awards($) (5)	~~Stock Awards($) (5)~~		Option Awards ($)	~~Option Awards ($)~~		Non-Equity Incentive Plan Compensation ($)	~~Non-Equity Incentive Plan Compensation ($)~~		Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)	~~Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)~~		All Other Compensation ($) (1)	~~All Other Compensation ($) (1)~~		Total ($)	~~Total ($)~~
Peter Horak CEO and Director	2010 2009 2008			91,866 89,693 99,324			— — —			— — —			— — —			— — —			— — —			8,820 8,610 11,370			100,686 98,303 110,694
Peter Horak	2011		94,616			—			—			—			—			—			9,446			104,062
Jeff Horak Vice President - Canada	2010 2009 2008			104,727 94,178 131,063			— — —			— — —			— — —			— — —			— — —			9,924 9,687 12,671			114,651 103,865 143,734
CEO and Director	2010		91,866			—			—			—			—			—			8,820			100,686
Yu Wing King Vice President – Hong Kong	2010 2009 2008			40,131 45,978 43,524			1,538 1,267 -			— — —			— — —			— — —			— — —			- 2,418			41,669 47,245 45,952
	2009		89,693			—			—			—			—			—			8,610			98,303
E. J. Colin National Sales Manager - Canada	2010 2008 2008			96,459 94,178 67,959			— — —			— — —			— — —			— — —			— — —			5,508 5,920 7,511			101,967 100,098 75,470
Jeff Horak	2011		120,653			—			—			—			—			—			10,627			131,280
Vice President - Canada	2010		104,727			—			—			—			—			—			9,924			114,651
	2009		94,178			—			—			—			—			—			9,687			103,865
Yu Wing King	2011		41,961			1,543			—			—			—			—						43,504
Vice President – Hong Kong	2010		40,131			1,538			—			—			—			—			-			40,689
	2009		45,978			1,267			—			—			—			—			-			47,245
E. J. Colin	2011		102,941			—			—			—			—			—			5,904			108,845
National Sales	2010		96,459			—			—			—			—			—			5,508			101,967
Manager - Canada	2009		94,178			—			—			—			—			—			5,920			100,098

(1) Includes automobile expense allowances and other employee benefits

5149

Table of Contents

Employment Agreements

The Company signed no new employment agreements during fiscal ~~2010~~2011 and ~~2009~~ 2010.

OPTION GRANTS IN FISCAL ~~2010~~ 2011 (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 Stock Name (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

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 Stock

Name

(a)

Grant

Date

(b)

Threshold

($)

(c)

Target

($)

(d)

Maximum

($)

(e)

Threshold

($)

(f)

Target

($)

(g)

Maximum

($)

(h)

Units

(#)

(i)

Options

(#)

(j)

Option Awards

($/Sh)

and Option

Awards

(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, ~~2010~~2011.

Option Awards

Stock Awards

Name

Number

Securities

Underlying

Unexercised

Options

(#)

Exercisable

Number

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

Equity

Incentive

Plan

Awards:

Number

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise

Price

($)

Option

Expiration

Date

Number

or Units

of Stock

That

Have

Not

Vested

(#)

Market

Value

Units

Stock

That

Have

Not

Vested

($)

Equity

Incentive

Plan

Awards:

Number

Unearned

Shares,

Units or

Other

Rights

That

Have

Not

Vested

(#)

Equity Incentive

Plan Awards:

Market or Payout

Value

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

~~The Company does not have any stock option plan or 401K plan as long-term compensation.~~50

Table of Contents

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 Class

Common 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	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.

Item 13. Certain Relationships and Related Transactions

During the year ended March 31, ~~2010~~2011, we purchased $107,~~800~~299,~~354~~267 (~~2008~~2010 - $2510,~~191~~800,~~456~~354) of goods from our parent company, Starlight ~~and received no commissions (2009 - nil)~~.

53We sold goods to our associate company, Singing Machine Company Inc in an amount of $233,904 during the fiscal year (2010 – nil) and purchased $1,936,077 of goods from Singing Machine Company.

~~Table of Contents~~51

Item 14. Principal Accountant Fees and Services

The following is a summary of the fees billed to the Company ~~by DNTW Chartered Accountants, LLP, Jeremy Karkheck CA Professional Corporation, and Chan & Watt Company~~ for professional services rendered ~~to our company~~ for the fiscal years ended March 31, ~~2010~~2011 and ~~2009~~2010:

	2010		2009
	2011		2010
Audit Fees (a)	$	4542,~~815~~000	$	4845,~~215~~815
Tax Fees (b)		104,~~903~~284		2610,~~629~~903
Total Fees		5646,~~718~~284		7456,~~844~~718

(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 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.

5452

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 Period
Year ended March 31, 2011
Deducted from asset account:
Allowance for doubtful accounts	$	187,321	$	-	$	(12,115	)	$	175,206
Sales return and allowance reserve		257,569		571,659		(576,251	)		252,977
Total	$	444,890	$	571,659	$	(588,366	)	$	428,183
Year ended March 31, 2010
Deducted from asset account:
Allowance for doubtful accounts	$	196,426	$	34,973	$	(44,078	)	$	187,321
Sales return and allowance reserve		104,641		1,653,881		(1,500,953	)		257,569
Total	$	301,067	$	1,688,854	$	(1,545,031	)	$	444,890
Year ended March 31, 2009
Deducted from asset account:
Allowance for doubtful accounts	$	25,927	$	175,206	$	(4,707	)	$	196,426
Sales return and allowance reserve		138,438		2,837,532		(2,871,329	)		104,641
Total	$	164,365	$	3,012,738	$	(2,876,036	)	$	301,067
Year ended March 31, 2008
Deducted from asset account:
Allowance for doubtful accounts	$	6,520	$	30,323	$	(10,916	)	$	25,927
Sales return and allowance reserve		381,270		1,359,375		(1,602,207	)		138,438
Total	$	387,790	$	1,389,698	$	(1,613,123	)	$	164,365

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

5553

Table of Contents

Exhibits

Exhibit
Number	Description of Document	~~Description of Document~~
3.1		Articles of Incorporation as amended +
3 .1	Articles of Incorporation as amended +
3.2		Registrant's Bylaws ++
3 .2	Registrant's Bylaws ++
21.1		List of Subsidiaries of Cosmo Communications Corporation ++++
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 .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 *
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 .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 *
32 .2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

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

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

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

*	Filed herewith.

5654

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 2928, ~~2010~~ 2011.

	COSMO COMMUNICATIONS CORPORATION

	By:	/s/ Peter Horak
	Peter Horak
	Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Carol Atkinson
	Carol Atkinson
	Chief 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 2928, ~~2010~~2011
Peter Horak	Director (Principal Executive Officer)
/s/ CAROL ATKINSON	Chief Financial Officer and	June 2928, ~~2010~~2011
Carol Atkinson	Principal Financial Officer and Principal Accounting Officer
/s/ JACKY LAU	Director	June 2928, ~~2010~~2011
Jacky Lau

5755

Filing Compare · COSMO COMMUNICATIONS CORP