SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, ~~2009~~2010

Commission File Number 119698

COSMO COMMUNICATIONS ~~CORPORATON~~

CORPORATON

(Exact name of Registrant as Specified in Its Charter)

FLORIDA

(State or Other Jurisdiction of

Incorporation or Organization)

59-2268025

(IRS Employer

Identification No.)

Unit 2 – 55 Travail Road

Markham, Ontario, Canada

(905) 209-0488

(Address and Telephone Number of Principal Executive Offices)

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

Common Stock, $.05 Par Value Per Share

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

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

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

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

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

The aggregate market value of the Registrant's voting stock held by non-affiliates was undetermined as there have been no quotes on the bid and ask price of the registrant’s common stock. There were 40,467,636 shares of Common Stock issued and outstanding as of June 29, ~~2009~~2010.

COSMO COMMUNICATIONS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, ~~2009~~2010

TABLE OF CONTENTS

		Page
PART I	~~PART I~~
Item 1.	Business	3
Item 1A	Risk Factors	12
Item 1B	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II	~~PART II~~
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations	19
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	4648
Item 9A.	Controls and Procedures	46
Item 9A(T).	Controls and Procedures	48
Item 9B.	Other Information	47
Item 9b.	Other Information	49
PART III	~~PART III~~
Item 10.	Directors, ~~and~~ Executive Officers ofand ~~the~~Corporate ~~Registrant~~Governance	4749
Item 11.	Executive Compensation	4951
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5153
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5253
Item 14.	Principal Accountant Fees and Services	5354
PART IV	~~PART IV~~
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	54	55
Signatures		56	57

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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.

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PART I

Item 1. Business

Overview

Cosmo Communications Corporation (the “Company”, "Cosmo" "we," "us" or "our") was incorporated in the state of Florida in 1983.

The Company is engaged in the development, production, distribution, marketing and sale of consumer electronic audio and video equipment, accessories and clocks. We contract for the manufacture of all electronic equipment products with factories located in China. We market certain lines of our products under labels that we have distribution agreements with. We also sell products under private labels for our major customer.

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

In April 2000, we entered into a Stock Purchase Agreement pursuant to which we offered shares of common stock representing 84.89% of the outstanding common stock to Master Light Enterprise Limited. (“Master Light”), a subsidiary of Starlight International Limited (“Starlight”), a publicly held company traded on the Hong Kong Stock Exchange, for $1 million. Pursuant to an amendment to the Stock Purchase Agreement, in January 2001, the transactions contemplated by the Stock Purchase Agreement, as amended, were consummated and, after rescinding the purchase of 1,347,420 shares, Master Light acquired 26,585,008 of our common stock shares, representing 9193.38% of our currently issued and outstanding common stock. In September, 2001, additional financing from Starlight allowed us to discharge all our obligations to our financial institution lenders. Starlight owns and operates a number of subsidiaries globally. Its principal activity is in the manufacture, sale and distribution of consumer electronic products.

Our principal executive office is located in Ontario, Canada with warehouse ~~facility~~ 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.

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Product Lines

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

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

Cosmo’s Brands

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

· Cosmo. Initially, we established Cosmo brand name for clocks and digital alarm clocks. We will keep this brand name for this product category to capitalize on brand recognition. This category represents 57% of our total sales.

· Audiologic. The Audiologic brand offers a range of radios, CD players, telephones, clock radios, portable boom boxes and multiple CD music systems. These items represent 96% of total sales ~~during the year~~.

· Digital Lab: Digital Lab is an upgraded line up from the audio category including clock radio’s, MP3 players and audio products with Ipod connectivity. Digital Lab accounted for 58% of total sales ~~during the year~~.

· Diamond Brand. Cosmo introduced Diamond Vision and Diamond Sound as a new brand at the end of the 2005 fiscal year ~~with~~for DVD players. We have since added to this line Televisions, portable DVD players and MP3 Players. These items represent 95% of the total sales of the group.

· Disney. This is a licensed brand name of Disney Enterprises, Inc. The licensed electronics products include television, DVD players, CD players, and radio alarm clocks. These items represent 2810% of the total sales of the group.

Digitec. We offered Digitec brand for our LCD TV and DVD players. This brand represents 11% of the group sales.

Llyods. We offered Llyods brand for our LCD TV and DVD players, portable DVD players and some audio clock radio products. This brand represents 10% of the group sales.

We also build products under the private label of our customers. The category represents 26% of the Company’s sales.

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Strategy for Cosmo’s Brands

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

•

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

•

Expand the current product lines by adding new features LCD and Plasma TV’s, MP4 player and IPOD docking unit;

•

Expand Cosmo’s distribution with new and existing customers;

• Continue the penetration into the US market and expand focus in the ~~Disney~~ brand name products

Cosmo Products

Percent of Sales by Product Class

Cosmo sales since ~~2005~~2006 were divided among Cosmo’s principal product classes as shown in the following table:

	Year Ended March 31,
	2009			2008			2007			2006			2005
	2010			2009			2008			2007			2006
Product Class:	%			%			%			%			%
MP3 Players		5-			75			127			712			-7
Other Audio (1)		2830			3628			2736			2927			5529
Video (2)		5961			4859			5948			6258			4062
Clocks		78			87			28			2			52
Tools		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 about geographic segments may be found atin Note 12 of the Notes to Consolidated Financial Statements of this Form 10-K.

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New Products

Cosmo introduces new products and enhances its existing products on a regular basis. During fiscal ~~2009,~~2010 we ~~launched~~have anot ~~new~~brought ~~youth line of electronics with design and features to appeal to the youth market. We conducted an on-line survey~~ in ~~conjunction~~new ~~with one of our major retail customers. Based on this result, we developed a total of 14 audio and video~~ products ~~for an age group of 9-14 years old, mostly for~~ ~~girls. The~~but ~~line~~will ~~included~~introduce ~~portable~~large CDsize ~~boom~~LCD ~~box,~~TV’s ~~MP3~~during ~~players, portable DVD players and assorted sizes of television. Due to the economic conditions in~~ fiscal ~~2009, although the sales were strong in the first three months of sales, our major customer has not decided not to continue the youth line in fiscal 2010~~2011.

We added minor design changes and features to the Disney line and maintained our other product lines to that of the the prior fiscal year.

Sales, Marketing and Distribution

Cosmo endeavors to have its brands project images that appeal to consumers who appreciate quality and value. Cosmo products are promoted with advertisements in the various flyers of the companies that sell its products including Wal-Mart, Home Hardware, Best Buy, Loblaws, Hart Department Stores, Bargain Shop, etc.

We also market our products at various trade shows each year. We regularly attend the following trade shows and conventions: the Consumer Electronics Show each January in Las Vegas; the Hardware Shop in Los Angeles and the Hong Kong Electronics Show each October in Hong Kong.

Our products are sold in United States, Canada and to selective customers in ~~United~~other ~~Kingdom,~~parts ~~Mexico,~~of ~~Argentina~~the ~~and Brazil~~world, primarily through mass merchandisers, department stores, electronic stores, chains, and specialty stores. Our products are currently sold in such stores as Wal-Mart (~~USA and~~ Canada), Super-Stores, Home Hardware, Bargain Shop and Toys “R” Us (Canada). In fiscal ~~2009~~ 2010, approximately 4790% of our sales were to the customers within Canada and 4810% of sales were to the customers in USA. Sales ~~made to Brazil and Mexico made up approximately 5% of our sales revenue. Sales~~ are handled by our in-house sales team and our independent sales representatives. Our independent sales representatives are paid a commission based upon sales in their respective territories. The sales representative agreements are generally one year agreements, which automatically renew on an annual basis, unless terminated by either party on 30 days' notice. During the fiscal year March 31, ~~2009~~ 2010, we worked with two independent sales representatives in ~~Canada and one~~ in ~~USA~~ Canada.

Sales

As a percentage of total revenues, our net sales in the aggregate to our five largest customers during the fiscal years ended March 31, ~~2009~~2010, and ~~2008~~2009 were approximately 9187% and 8291%, 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.

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Geographic Distribution of Sales

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

Years Ended March 31,

~~Years Ended March 31,~~

Region

~~2005~~2006

~~2006~~2007

~~2007~~2008

~~2008~~2009

~~2009~~2010

(In thousands)

USA

-13,350

1316,~~350~~568

1613,~~568~~721

131,~~721~~580

479.7

Canada

3449,~~179~~743

4942,~~743~~384

4217,~~384~~891

1714,~~891~~293

14,~~293~~785

4890.3

Europe

~~1,273~~920

~~920~~113

~~113~~-

Others

-348

~~348~~440

~~440~~

362

~~362~~1,449

~~1,449~~-

Total sales

3551,~~452~~011

5156,~~011~~287

5634,~~287~~821

3429,~~821~~463

2916,~~463~~365

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 39% and 3% of our net sales in fiscal ~~2009~~2010 and ~~2008~~2009, respectively.

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

Distribution

We distribute our products to retailers and wholesale distributors through two methods: shipment of products from inventory held at our warehouse facility in Canada and USA (domestic sales), and shipments directly through our Hong Kong subsidiary (direct sales). Domestic sales are made to customers located throughout USA and Canada from inventories maintained at our warehouse facilities. In the fiscal year ended March 31, ~~2009~~2010, approximately 8492% of our sales were sales from our domestic warehouses ("Domestic Sales") and 168% were sales shipped directly from China ("Direct Sales").

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Domestic Sales. Our strategy of selling products from a domestic warehouse enables us to provide timely delivery and serve as a domestic supplier of imported goods. We purchase products overseas from certain factories in China for our own account, and warehouse the products in leased facilities in USA and in Canada. We are responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products and, therefore, domestic sales command higher sales prices than direct sales. We generally sell from our own inventory in less than container-sized lots.

Direct Sales. We ship some of our products directly to customers from China through our subsidiary in Hong Kong. Sales made through our subsidiary are completed by either delivering products to the customers' common carriers at the shipping point or by shipping the products to the customers' distribution centers, warehouses, or stores. Direct sales are made in larger quantities (generally container sized lots), who pay our subsidiary pursuant to irrevocable, transferable letters of credit or on open account.

Manufacturing and Production

Our products are manufactured and assembled by third parties pursuant to design specifications provided by us. Currently, substantially all of our video and CD products are manufactured by Starlight’s factory located in Guangdong Province in the People’s Republic of China (PRC). We also have ongoing relationships with five factories, located in the southern provinces of the PRC. For fiscal ~~2009~~2011, we anticipate that majority of our products will be produced by Starlight’s factory. We believe that the manufacturing capacity of our factories is adequate to meet the demands for our products in fiscal year ~~2009~~2011. However, if Starlight’s primary factory in China was prevented from manufacturing and delivering our products, our operation would be severely disrupted (see Item 1A – Risk Factors). Our products are manufactured using molds and certain other tooling owned by Starlight and our other factories. Our products contain electronic components manufactured by other companies such as Sanyo, Toshiba, Hitachi and National Semiconductor. Our manufacturers purchase and install these electronic components in our products under our specifications.

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

All of the electronic equipment sold by us is warranted to the end user against manufacturing defects for a period of ninety (90) days for labor and parts. During the fiscal years ended March 31, ~~2009~~2010 and ~~2008~~2009, warranty claims have not been material to our results of operations.

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

Reverse Logistic Operations

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

Commission

~~Revenue~~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.

License Agreements

The license agreement with Disney Enterprises, Inc. is between Starlight International and Disney. We are not obligated to pay license fees to Disney.

Competition

Our business is highly competitive. ~~Our~~since ~~major~~we ~~competitors~~compete ofmainly ~~our~~in CDthe ~~category~~basic ~~are~~entry level ~~Citizens,~~category ~~Philips and GE. Competitors~~ of our TVaudio and ~~DVD~~video ~~category are Apex, Cyberhome and Philips~~products. We believe that competition for our products is based primarily on price, product features, reputation, ~~delivery~~ 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.

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Intellectual Property

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

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

Government Regulation

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

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

Seasonality and Seasonal Financing

Our business is highly seasonal, with consumers making a large percentage of purchases of our products around the traditional holiday season in our second and third quarter. These seasonal purchasing patterns and requisite production lead times cause risk to our business associated with the underproduction or overproduction of products that do not match consumer demand. Retailers also attempt to manage their inventories more tightly, requiring that we ship products closer to the time that retailers expect to sell the products to consumers. These factors increase the risk that we may not be able to meet demand for certain products at peak demand times, or that our own inventory levels may be adversely impacted by the need to pre-build products before orders are placed. As of March 31, ~~2009~~2010, we had inventory of $106.7 million (net of reserves totaling $~~560~~1,~~846~~103,360) compared to inventory of $1110 million as of March 31, ~~2008~~2009 (net of reserves totaling $~~554~~560,~~224~~846).

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Our financing of seasonal working capital during fiscal ~~2009~~2010 was from selling of the inventory carried over from the prior year. We rely on credit terms ~~from~~ from our manufacturers to finance the purchase of new inventory. We ~~also~~ also have an understanding from Starlight to provide short term working funds to purchase inventory should we require them.

For fiscal ~~2010~~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, ~~2009~~2010 we had no backlog of orders and none in the same period in fiscal ~~2008~~2009. Backlog orders do not take into account of any sales ordered by customers directly from our domestic inventory with order turnaround time of one to two weeks. We normally have to keep the minimum inventory in our domestic warehouses for these type of sales.

Employees

As of March 31, ~~2009~~2010, we employed 19 people, ~~all~~18 of whom are full-time employees, including two executive officers. Two of our employees are located at our subsidiary in Hong Kong and 17 in Canada. Of the employees, ~~seven~~eight are engaged in warehousing and technical support, and ~~ten~~nine 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.

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Item 1A. Risk Factors

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

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

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

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

As of March 31, ~~2009~~2010, our cash on hand is limited. We will finance our working capital needs from the collection of accounts receivable, and sales of existing inventory. See "Liquidity and Capital Resources" beginning on page 22. As of March 31, ~~2009~~2010, our inventory was valued at approximately $106.7 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, ~~2009~~2010 and ~~2008~~2009 were approximately 9187% and 8691% 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.

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

Because there is intense competition in the consumer electronic market, we are subject to pricing pressure from our customers. Many of our customers have demanded that we lower our prices or they will purchase from our competitor's products. If we do not meet our customer's demands for lower prices, we will not sell as many products. We are also subject to pressure from our customers regarding certain financial incentives, such as return credits or advertising allowances, which effectively reduce our profit. We gave advertising allowances in the amount of $~~501~~452,000 during fiscal ~~2009~~2010 and $~~403~~501,000 during fiscal ~~2008~~2009. 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, we achieved an improvement in 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 ~~2010~~2011 ~~but~~due weto ~~are~~the ~~also~~rise ~~putting~~in ~~pressure on~~material ~~our~~and ~~manufacturers~~labor ~~to lower their production~~ 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 7762% and 6577% of total sales in fiscal ~~2009~~2010 and ~~2008~~2009 respectively.

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

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

accurately define and design new products to meet market needs;

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

update our manufacturing process technologies;

identify emerging technological trends in our target markets;

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

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

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

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

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

We rely principally on independent ocean carriers to ship virtually all of the products that we import to our warehouse 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.

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

We are using five factories in the People's Republic of China to manufacture the majority of our products. These factories will be producing all of our products in fiscal ~~2010~~2011. 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.

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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 7054%, 7670% and 9376% of Cosmo’s sales in ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008 respectively. Cosmo anticipates that this customer will continue to account for a significant portion of its sales for the foreseeable future but is not obligated to any long-term purchases. It has considerable discretion to reduce, change or terminate purchases of Cosmo’s products. Cosmo cannot be certain that it will retain this customer or maintain a favorable relationship.

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

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

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

Cosmo currently makes sales to Canadian and certain European dealers and distributors in their respective currencies. ~~However,~~As assuch ~~part of the transition to local distributors, an increasing portion of~~ Cosmo’s ~~sales are denominated in U.S. dollars. If Cosmo~~ is ~~unsuccessful~~exposed ~~in its transition~~ to ~~distributors,~~ ~~Cosmo’s exposure to~~ gains and losses on foreign currency ~~transactions~~, ~~will~~in ~~continue.~~particular ~~Cosmo~~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.

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.

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Item 3. Legal Proceedings

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

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

No matters were submitted to a vote of security holders during the fourth quarter of our ~~2009~~2010 fiscal year.

PART II

Item 5.

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

Since 2001, our common stock shares have not been traded on the OTC Bulletin Board. There were no quotes of high and low during fiscal ~~2009~~2010. We have 396 recorded holders of our common stock on June 3029, ~~2009~~2010.

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.

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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, ~~2009~~2010, ~~2008,~~2009 ~~2007,~~and ~~2006,~~2008 and ~~2005 and~~ the balance sheet data at March 31, ~~2009~~2010, ~~2008,~~2009 ~~2007, 2006~~ and ~~2005~~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 ~~2006~~ and ~~2005~~2006 and the balance sheet data at March 31, ~~2006~~2007 and ~~2005~~ 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 of results to be expected for future periods. ~~Prior period amounts have been reclassified to conform to the 2009 presentation.~~

	Years Ended March 31,
	2009			2008			2007			2006			2005 Restated
	2010			2009			2008			2007			2006
	(In thousands, except per share data)
Consolidated Statements of Operations:
Net sales	$	2916,~~463~~365		$	3429,~~821~~463		$	5634,~~287~~821		$	5156,~~011~~287		$	3551,~~452~~011
Cost of products sold		2714,~~458~~806			3227,~~915~~458			5332,~~034~~915			4853,~~157~~034			3248,~~846~~157
Gross profit		21,~~005~~559			12,~~906~~005			31,~~253~~906			23,~~854~~253		~~2,606~~	2,854
Other income		~~431~~96			~~852~~431			~~1,566~~852			1,~~509~~566			1,~~854~~509
Operating expenses:
Selling and delivery		21,~~012~~468			12,~~089~~012			1,~~677~~089			1,~~033~~677			1,~~382~~033
General and administrative		21,~~375~~795			32,~~040~~375			23,~~901~~040			2,~~684~~901		~~1,921~~	2,684
Depreciation and amortization		15			1415			1914			2319			3223
Total operating expenses		43,~~402~~278			4,~~143~~402			4,~~597~~143			34,~~740~~597		~~3,335~~	3,740
Operating income (loss)		(1,~~966~~623	)		(1,~~385~~966	)		~~223~~(1,385	)		~~623~~223			~~1,125~~623
Interest and other expense		~~930~~(343	)		~~126~~930			~~238~~126			~~304~~238			~~232~~304
Taxes – current and deferred		( ~~183~~9	)		~~329~~( 183	)		~~(164~~329	)		~~172~~(164	)		~~697~~172
Net income (loss)	$	(21,~~714~~271	)	$	(12,~~840~~714	)	$	~~148~~(1,840	)	$	~~147~~148		$	~~196~~147
Income (loss) per share:
Basic and diluted	$	(0.0703	)	$	(0.0507	)	$	(0.0105	)	$	0.01		$	0.01
Weighted average shares:
Basic and diluted		40,467			40,467			2940,~~602~~467			29,104		~~29,104~~	29,104

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~~As of March 31 (in thousands)~~

As of March 31 (in thousands)

2009

2008

2007

2006

2005Restated

2010

2009

2008

2007

2006

Balance Sheet Data:

Cash

~~444~~636

~~512~~444

~~1,112~~512

~~549~~1,112

~~629~~549

Total assets

139,~~237~~613

1513,~~486~~237

2015,~~133~~486

820,~~249~~133

78,~~616~~249

Total current liabilities

1310,~~448~~417

1213,~~287~~448

1512,~~826~~287

515,~~989~~826

5,~~772~~989

Total long-term liabilities

Stockholders’ equity (deficit)

-~~211~~804

~~3,199~~-211

43,~~307~~199

24,~~260~~307

12,~~844~~260

Item 7.

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

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

Results of Operations

Overview

Our operations were adversely affected by the ~~global~~uncertainty ~~financial turmoil~~ in the ~~second~~global economy ~~half~~during of fiscal ~~2009~~2010. ~~Our~~Many ~~sales~~retailers ~~dropped~~curtailed bytheir ~~15%,~~buying ~~mainly~~programs due into the ~~Disney line. We~~excess ~~introduced~~inventory acarried ~~new~~from ~~youth line of electronics for~~ the ~~youth during~~previous ~~the fiscal~~ year,. Our ~~which helped increase our~~ sales ~~but did not compensate~~ ~~for~~dropped ~~the~~by ~~loss~~45%, ofmainly ~~sales~~ in the Disney ~~products.~~and ~~The~~ youth ~~line did help to improve the gross profit margin~~lines. Gross profit margin increased from 56.58% in fiscal ~~2008~~2009 to 69.85% in the current fiscal year.

~~The~~We ~~weak~~have ~~economy~~taken ~~during~~steps ~~the~~to ~~second~~control ~~half~~our ofoperating ~~the~~costs ~~fiscal~~while ~~year~~sales ~~also~~were ~~contributed~~decreasing toin ~~strong~~the ~~competitive~~fiscal ~~pricing~~year. The innet ~~the~~decrease ~~retail~~in ~~market. Consequently,~~operating weexpenses ~~have~~was toapproximately ~~take~~$1.12M. Selling ~~steps~~expenses todecreased ~~mark~~by ~~down~~approximately $544,000. Salaries ~~some~~and ofwages ~~our~~decreased ~~inventory~~by on$250,000 ~~hand~~and ~~subsequent~~$330,000 decrease toin ~~the~~general ~~balance sheet~~and ~~date~~administration.

~~There was~~We reported a ~~large~~currency ~~fluctuation~~gain ~~between the Canadian dollar versus the US dollar during the fiscal year. The fluctuation was 28% from the high to the low resulting in an exchange loss to the group~~ of ~~approximately~~ $~~739~~354,000~~. The~~ ~~Canadian~~due ~~operation~~to ~~purchased its inventory in US currency. A sharp decline in~~ the strong Canadian dollar ~~required more~~against ~~Canadian~~the ~~dollars~~US ~~to repay its debts to overseas vendors~~dollar.

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

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Fiscal Year Ended March 31, ~~2009~~2010 Compared with Fiscal Year Ended March 31, ~~2008~~2009

Sales

Net sales decreased by $~~5.4~~13 million or 45% compared to prior year. The ~~biggest~~large decrease was indue to the ~~Disney~~loss ~~line~~of ~~which~~a ~~decreased~~major byaccount ~~$4.3M~~in ~~compared~~our ~~with the prior~~US ~~fiscal year~~subsidiary. ~~The~~We ~~decrease~~were insuccessful ~~Disney~~selling ~~demands~~to ~~coincided~~this account with ~~a sharp~~our ~~decline~~Disney inand ~~the~~youth ~~overall~~products ~~toys segment~~ in ~~North~~prior ~~America during the Christmas holiday season~~years. The ~~remaining~~ decrease in ~~sales was in the MP3~~Disney ~~players~~product ~~and~~demands ~~clocks~~coincided ~~category. The~~with ~~clocks segment was affected by~~ a sharp ~~increase~~decline in the ~~costs~~overall oftoys ~~the~~segment ~~products. The retail price of~~in ~~clocks~~the ~~increased~~US, ~~and~~resulting ~~the~~in ~~cost~~this ~~was~~major ~~passed~~account onwithdrawing to our ~~customers. The decrease~~products in ~~clock~~fiscal 2010. Although ~~sales~~we ~~was~~have atried ~~reflection~~to ofrenew ~~the~~their ~~initial~~interest ~~resistance~~recently, byit ~~consumers~~is tounlikely ~~pay~~this ~~the~~will ~~higher~~happen ~~prices. Decrease~~ in ~~the clocks category was $1.1M in~~ fiscal ~~2009 compared to fiscal 2008~~2011.

~~The mix~~We ~~between~~experienced ~~direct~~decreases ~~import~~in sales ~~and~~of ~~domestic~~MP3 ~~warehouse~~players ~~sales~~and inclocks ~~fiscal~~but ~~2009~~increase ~~was~~in ~~16%~~sales toof ~~84%~~LCD ~~compared~~TV’s ~~with~~and ~~24%~~DVD toplayers. The ~~76%~~clocks insegment ~~fiscal~~was ~~2008. During~~affected ~~weak~~by ~~economic~~a ~~times,~~sharp ~~our~~increase ~~retail~~in ~~customers~~the ~~were~~costs ~~cautious~~of ~~not~~the toproducts. The ~~purchase~~retail ~~container~~price ~~loads~~ of ~~goods~~clocks ~~with~~increased aand ~~long~~the ~~lead~~cost ~~time~~was passed on to our customers. AsThe decrease in clock sales was a ~~result~~reflection of ~~this,~~the itresistance ~~increased~~by ~~our need~~consumers to ~~hold~~pay the ~~inventory~~higher onprices. We ~~hand~~are atexpecting ~~our~~an ~~warehouses~~increase in ~~order~~sales toof ~~create~~LCD ~~sales~~TV’s in fiscal 2011. ~~This~~We ~~however~~launched ~~also~~our ~~created~~22” aLCD ~~longer~~TV ~~cycle~~in ofApril ~~collecting~~2010 ~~cash~~and ~~from~~will ~~our~~continue ~~sales~~to oflaunch ~~inventory~~larger onsize ~~hand,~~TV’s ~~rather~~up ~~than~~to ~~inventory on order~~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 ~~2009~~2010 was $21.6 million or 69.85% of revenues compared with 56.58% in in fiscal ~~2008~~2009. The increase in gross profit margin was mainly attributable to ~~the~~a ~~introduction~~strong ofCanadian ~~the~~dollar ~~new~~against ~~youth~~the ~~line~~US ~~and~~dollar anthroughout ~~increase in~~ the ~~domestic~~fiscal ~~warehouse~~year. For sales ~~mix~~in ~~where~~Canada, ~~selling~~we ~~prices~~purchased ~~are~~our ~~higher~~products ~~than~~from our ~~direct~~ ~~import~~suppliers ~~sales. In~~in ~~domestic~~US ~~warehouse~~dollars ~~sales~~but webooked ~~have~~the tosales ~~factor~~revenue in ~~the~~Canadian ~~carrying~~dollars. When ~~costs~~the ofCanadian ~~storing~~dollar ~~and~~appreciated ~~handling~~against tothe ~~inventory~~US asdollar, our ~~well~~purchase ascost ~~the~~decreased ~~freight component~~relatively ofresulting ~~delivering~~in ~~the~~a ~~goods~~higher profit margin.

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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~~Commission income decreased from approximately $~~852~~431,000 in fiscal ~~2008~~2009 to $~~431~~96,000 in this ~~fiscal~~ fiscal year. The weak economy caused a general reduction in demands for goods ~~and~~ and services, and thus we handled less returns for our customers in our reverse logistics operations.

Operating Expenses

Operating expenses for the current fiscal year ~~increased~~decreased from approximately $4.14 million in fiscal 2009 to $43.43 million in this fiscal ~~2009~~year. Selling and warehousing ~~contributed~~ contributed the largest ~~increase~~decrease of approximately $~~923~~544,000. In ~~the~~Our ~~current fiscal~~warehousing ~~year,~~expense wein ~~switched~~US ~~the~~was ~~status~~significantly ofdecreased ~~two~~due ~~sales~~to ~~executive~~the ~~from~~decrease ~~salaried~~of ~~staff~~sales toand ~~commission~~activities ~~based~~in ~~staff~~this region. We ~~also~~Similarly, ~~incurred~~in ~~higher~~administrative ~~warehousing~~ expenses ~~this~~ ~~fiscal~~we ~~year as Starlight~~reduced travel, ~~our~~phone ~~parent company~~allowances, ~~bore the Disney products storage~~ and ~~handling~~office inrent ~~fiscal 2008~~ and nooffice ~~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~~US ~~season~~subsidiary ~~to induce sales. In administrative expense, we made cuts in all discretionary expenses such as travel~~ which ~~resulted~~accounted infor ~~12%~~the ofmajority ~~savings, partially offset by an increase~~ of ~~approximately~~the $~~175~~330,000 ~~in bad debts expenses~~decreases. ~~Salaries~~ Salaries and wages decreased by approximately $~~500~~250,000 asand the majority of this decrease ~~offset~~came tofrom ~~the~~payroll ~~increase~~cuts in ~~commission~~the ~~expense~~Canadian operation.

~~Financial expenses and exchange loss~~20

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

~~Interest~~Financial ~~expense~~expenses ~~increased~~and byexchange ~~approximately $87,000 due to a re-assessment of income tax liabilities in our Canadian subsidiary.~~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, ~~2009~~2010, we recovered income tax expense in the amount of $~~183~~9,~~067~~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~~ Taxes related to these audits amounted to $714,638 in fiscal 2008. The current year tax recovery was a result of carryback of losses in the current year to prior years. The Company does not anticipate future changes in rates and as such does not anticipate such variances in its current or deferred taxes in subsequent years.

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

21Fiscal Year Ended March 31, 2009 Compared with Fiscal Year Ended March 31, 2008

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

Sales

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Sales

Net sales ~~for~~decreased ~~the~~by ~~fiscal~~$5.4 million compared to prior year. The ~~ended~~biggest decrease ~~March~~was ~~31,~~in ~~2008~~the Disney line which decreased by ~~approximately~~ $214.3M ~~million~~ compared towith ~~revenues~~the ofprior fiscal ~~$56~~year. The ~~million~~decrease in Disney demands coincided with a sharp decline in the ~~fiscal~~overall ~~year~~toys ~~ended~~segment ~~March~~in ~~31,~~North America during the Christmas ~~2007~~holiday season. The remaining decrease in sales iswas ~~primarily~~in ~~due~~the toMP3 players ~~weakening~~and ofclocks ~~consumer~~category. The clocks segment was affected by a ~~spending~~sharp ~~during~~increase in the ~~holiday~~costs ~~season~~of the products. The retail price of clocks increased and ~~strong~~the ~~competition~~cost was passed on to our customers. The decrease in clock sales was a reflection of the ~~low~~initial ~~end~~resistance TVby ~~and~~consumers ~~DVD~~to ~~player~~pay ~~market~~the higher prices. Decrease in the clocks category was $1.1M in fiscal 2009 compared to fiscal 2008.

We continuously made improvement in selling in the USA market using the Disney brand but sales of consumer electronics of television and DVD products declined in Canada by $16 million. As the United States imposed a deadline of March 2007 to import NTSC TV system into the country, Canada was flooded with NTSC system TV sets which resulted in deterioration in prices. We opted to sell less rather than suffering an erosion of our gross profit margin. In Canada, sales of the MP3 player line declined by $4 million due to severe price competition. Our audio and clock radio lines showed steady sales in the two years in comparison.21

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

InThe ~~fiscal~~mix ~~2008,~~between direct import sales and domestic warehouse sales in ~~Canada~~fiscal ~~represent~~2009 51was 16% to of84% ~~our~~compared ~~total~~with ~~sales;~~24% ~~sales~~to 76% in ~~USA~~fiscal ~~represent~~2008. During weak economic ~~48%~~times, ~~and~~our ~~the~~retail ~~remaining~~customers 1%were ~~was~~cautious ~~sales~~not to ~~other~~purchase ~~countries~~container loads of goods with a long lead time. InAs ~~fiscal 2007,~~a ~~75%~~result of ~~our~~this, ~~sales~~it ~~were~~increased ~~made~~our need to ~~Canada,~~hold ~~24%~~inventory inon ~~USA~~hand ~~and~~at 1%our warehouses in order to ~~Europe~~create sales. This ~~and~~however also created a longer cycle of collecting cash ~~other~~from ~~countries~~our sales.

Gross Profit

Gross profit for fiscal ~~2008~~2009 was ~~approximately~~ $~~1.9~~2 million or 56.58% of ~~total~~ revenues compared towith $35.25% ~~million~~in fiscal ~~or 5~~2008.8% The ofincrease ~~sales~~in ~~for~~gross ~~fiscal~~profit ~~2007. Our future~~margin ~~expansion~~was ismainly attributable to ~~continue~~the tointroduction ~~target~~of athe ~~product~~new youth line and an increase in the domestic warehouse sales mix ~~that~~where ~~will~~selling ~~improve~~prices are higher than our direct ~~gross~~import ~~profit margin~~sales. ItIn isdomestic ~~uncertain~~warehouse ifsales ~~existing~~we ~~products~~have ~~will~~to ~~suffer~~factor in the ~~further~~carrying ~~deterioration~~costs inof ~~gross~~housing ~~profit~~and ~~margin~~handling asto weinventory ~~cannot~~as ~~predict~~well ~~how~~as ~~our~~the freight ~~competitors~~component ~~will~~of ~~cut~~delivering ~~prices~~the goods.

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

Commission Income

Our commission and other income ~~which~~ consist of commissions earned on brokering sales and handling return products for Starlight and another manufacturer. ~~Total~~ Commission income ~~was~~decreased from approximately $~~0.9~~852,000 ~~million~~ in fiscal 2008 ~~compared with~~to $~~1.6~~431,000 ~~million~~ in this fiscal ~~2007~~year. ~~Our~~ ~~plan~~The isweak toeconomy ~~increase income~~caused ~~earned~~a ongeneral ~~brokering~~reduction ~~sales. We~~in ~~are~~demands ~~less~~for ~~certain~~goods ~~with~~and ~~income~~services, ~~earned~~and ~~on handling~~thus ~~returns since~~ we ~~cannot~~handled ~~forecast how many pieces of~~ less returns ~~we will process~~ for our customers, ~~therefore~~in weour ~~have no control over the revenue we earn from the~~ reverse ~~logistic~~logistics ~~operation~~operations.

Operating Expenses

Operating expenses for the ~~fiscal year ended~~ March 31, ~~2008~~2009 ~~decreased~~year toincreased from approximately $4.1 million ~~from~~ to $4.64 million in fiscal ~~2007~~2009. ~~The~~Selling ~~decrease~~and inwarehousing ~~operating~~contributed the ~~expenses~~largest increase of approximately $923,000. In the current fiscal ~~consists~~year, we switched the status of atwo ~~decrease~~sales inexecutive ~~variable~~from ~~expenses~~salaried ~~and~~staff ~~fixed~~to commission ~~expenses~~based staff. We ~~The~~also ~~variable~~ incurred higher warehousing expenses this ~~(advertising~~fiscal year as Starlight, ~~commission~~our parent company, ~~freight~~bore the Disney products storage and ~~royalty~~handling in fiscal 2008 and no longer picked up these expenses) ~~decreased~~in ~~proportionally~~this fiscal year as ~~revenues~~the ~~decreased~~subsidy was for the first year only. ~~The~~We ~~fixed~~also provided higher advertising allowances to our customers during the weak holiday season to induce sales. In administrative expense, ~~increase~~we made cuts in all discretionary expenses such as travel which resulted in 12% of savings, partially offset by an increase of approximately $0175,000 in bad debts expenses.2 Salaries ~~million~~and ~~was~~wages ~~primarily~~decreased ~~due~~by toapproximately ~~higher~~$500,000 ~~cost~~as offset ofto ~~operation~~the increase in ~~general~~ 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

For the fiscal year ended March 31, 2008, we recovered income tax expense in the amount of $254,247. In the current and prior year a tax audit on the Canadian subsidiary was conducted on years 2004 and 2005 and additional taxes were reassessed. Taxes related to these audits amounted to $714,638 in 2008. Tax recovery was a result of an adjustment for the 2006 fiscal year related to foreign exchange gains in our Canadian subsidiary and to carryback of losses in the current year to the 2005 year. The Company does not anticipate future changes in rates and as such does not anticipate such variances in its current or deferred taxes in subsequent years.22

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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.

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Liquidity and Capital Resources

On March 31, ~~2009~~2010, we had cash on hand of $~~444~~635,~~410~~516 compared to cash on hand of $~~512~~444,~~172~~410 on March 31, ~~2008~~2009. The ~~decrease~~increase of cash on hand was primarily due to the effect of foreign currency translation. The ~~Canadian~~strong Canadian dollar ~~was extremely volatile~~ during the current fiscal ~~year~~improved ~~resulting~~our incash aflow ~~big loss~~ in ~~translation~~ purchases of ~~Canadian~~goods for ~~dollar to US dollar~~resale.

Cash flows ~~provided~~used byin operating activities were $~~627~~486,~~964~~881 for the year ended March 31, ~~2009~~ 2010. We have reduced our receivables and inventories at year end ~~but~~ and we ~~continuously~~reduced ~~rely~~our ondebts ~~trade~~to ~~credits from~~ our parent company.

~~Cash used~~There inhave been no cash flows from investing and financing activities for the fiscal year ended March 31, ~~2009 was minimal~~2010. ~~Cash used in investing activities was for small purchase of office equipment in Canada.~~

~~There~~As of ~~have~~March ~~been~~31, no2010 ~~cash~~our ~~flows~~working ~~from~~capital ~~financing~~was ~~activities~~in ~~for~~deficit ~~the~~by ~~fiscal~~approximately ~~year~~$223,000. ~~ended~~Our ~~March~~current ~~31,~~liabilities ~~2009~~of $10.4 million include:

As· ~~of March~~amount ~~31,~~due ~~2009~~to ~~our~~Starlight ~~working~~resulting ~~capital~~from ~~was~~normal incourse ~~deficit~~of bythe ~~approximately~~business ~~$249,000.~~for ~~Our current liabilities of~~ $~~13.4~~9 million ~~include:~~;

· ~~amount~~current ~~due~~liabilities ~~to Starlight~~ resulting from normal course of the business with other factories and suppliers for $120.6 million;

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

advance from Starlight for $0.6 million

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

Off Balance Sheet Arrangements

Cosmo does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (VIE’s), which would be established for the purpose of facilitating off-balance sheet arrangements. As of March 31, ~~2009~~2010, Cosmo did not have any unconsolidated VIE’s.

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Contractual Obligations as of March 31, ~~2009~~2010

Cosmo had contractual obligations at March 31, ~~2009~~2010 as follows:

	Payments Due by Period
			~~Less Than~~	Less Than							~~More Than~~		More Than
Contractual Obligations	Total		~~1 Year~~	1 Year		~~1-3 Years~~		1-3 Years	~~3-5 Years~~		3-5 Years		5 Years
Interest payable to related party	$	604,627	$	~~604,627~~$	604,627	$	—	$	—	—		—		—
Operating leases	$	1,~~254~~198,~~112~~103	$	~~276,718~~$	339,206	$	~~836,814~~	$	$858,897	~~140,580—~~		—		—

Working Capital Requirements for the Short and Long Term

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

The collection of accounts receivable;

Sales of existing inventory; and

· The ~~Continued~~continued support of factories in China that finance our purchases of goods for fiscal ~~2010~~2011.

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

During fiscal ~~2010~~2011, 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.

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Exchange Rates

For direct sales, we sell our products in U.S. dollars and pay for all of our manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of the Hong Kong office are paid in Hong Kong dollars. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at approximately HK $7.80 to U.S. $1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. Operating expenses of our Canada office is paid in Canadian ~~dollar~~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 4780% of total sales. Due to the increase in domestic sales in Canada in the current fiscal year, our parent company entered into ~~five~~28 forward exchange contracts with a total amount of $26.75 million Canadian dollars during the ~~third and fourth quarters of the~~ fiscal year. These forward contracts enable us to pay ~~some of~~ our trade debts to our parent company in Canadian dollars and converted these to US dollars at the rates locked in the forward contracts.

Seasonal and Quarterly Results

Historically, our operations have been seasonal, with the highest net sales occurring in the second and third quarters (reflecting increased orders for electronic audio and video equipment during the Christmas selling months) and to a lesser extent the first and fourth quarters of the fiscal year. Sales in our fiscal second and third quarter, combined, accounted for approximately 7762% and 6577% of net sales in fiscal ~~2009~~2010, and ~~2008~~2009, 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:

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. For fiscal ~~2009~~2010, the Company had significant estimates for allowances for doubtful accounts in the amount of $~~196~~187,~~426~~314, allowance for obsolete inventory reserve of $~~560~~1,~~846~~103,360 and sales return and allowance reserve of of $~~104~~257,~~641~~569.

Revenue Recognition

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

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

Inventories

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

Foreign Translation Adjustment

The accounts of the foreign subsidiaries were translated into U.S. dollars in accordance with the ~~provisions~~Accounting ofStandards ~~SFAS~~Codification ~~No.~~(“ASC”) 52830, 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 ~~the~~ASC ~~provisions of SFAS 52~~830, ~~transaction~~ 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.

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Income Taxes

The Company accounts for income taxes pursuant to ~~SFAS~~ASC ~~No. 109~~740, Accounting for ~~Income~~ 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, ~~2009~~2010, we have not used derivative instruments or engaged in hedging activities to minimize market risk.

Interest Rate Risk

As of March 31, ~~2009~~2010, 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.

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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. WeTo ~~incurred~~mitigate athe ~~large~~foreign ~~exchange~~currency ~~loss~~risk, inour ~~the~~parent ~~third~~company ~~quarter~~purchased ofCanadian ~~the~~dollar ~~current fiscal~~forward ~~year. A~~contracts ~~sharp~~on ~~decline~~our inbehalf. In ~~exchange~~fiscal ~~rates~~2010, ~~between~~our ~~the~~parent ~~Canadian~~company purchased ~~and~~28 USCanadian ~~dollars from 0.96 of one US~~ dollar tocontracts ~~0.82~~at ~~during~~a ~~the~~total ~~third~~amount ~~quarter attributed to an annual exchange loss~~ of ~~approximately~~ $~~739,000~~6.75M.

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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, 2009 and 2008			32
Consolidated Balance Sheets as at March 31, 2010 and 2009	32
Consolidated Statements of Loss and Comprehensive Loss for the years ended March 31, 2009, 2008, and 2007			33
Consolidated Statements of Loss and Comprehensive Loss for the years ended March 31, 2010, 2009, and 2008	33
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended March 31, 2009, 2008, and 2007			34
Consolidated Statements of Stockholders’ Deficit for the years ended March 31, 2010 and 2009	34
Consolidated Statements of Cash Flows for the years ended March 31, 2009, 2008, and 2007			35
Consolidated Statements of Cash Flows for the years ended March 31, 2010, 2009, and 2008	35
Notes to the Consolidated Financial Statements	36		36

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cosmo Communications Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Cosmo Communications Corporation and Subsidiaries as of 31 March ~~2009~~2010 and ~~2008~~2009 and the related consolidated statements of loss and comprehensive loss, stockholders' ~~equity (~~deficit) and cash flows for the years ended 31 March ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008. These ~~consolidated~~ consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our ~~audit~~audits includes consideration of internal control over financial reporting as 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~~ the financial statements, assessing the accounting principles used and ~~significant~~ significant estimates made by management, as well as evaluating the overall ~~financial~~ financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, such consolidated financial statements present fairly, in all material respects, the financial position of Cosmo Communications Corporation and Subsidiaries as of 31 March ~~2009~~2010 and ~~2008~~2009 and the results of its operations and cash flows for the years ended 31 March ~~2009~~2010, ~~2008~~2009 and ~~2007~~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

1529 June ~~2009~~2010

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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS AT 31 MARCH

(Expressed in United States Dollars)

	Note		~~2009~~2010			~~2008~~2009
ASSETS
Current Assets
Cash			$	~~444~~635,~~410~~516		$	~~512~~444,~~172~~410
Accounts receivable, less allowance of $196,426 and $25,927 at 31 March 2009 and 2008, respectively		3		2,551,434			3,842,366
Accounts receivable, less allowance of $187,321 and $196,426 at 31 March 2010 and 2009, respectively	3			2,259,969			2,551,434
Inventories				106,~~187~~682,~~934~~679			1110,~~029~~187,~~996~~934
Prepaid expenses and other				1511,~~145~~259			4815,~~227~~145
Total Current Assets				139,~~198~~589,~~923~~423			1513,~~432~~198,~~761~~923
Equipment and Other Assets
Equipment, net	4	4		3015,~~241~~367			4430,~~847~~241
Deferred taxes	5	5		8,317			8,317
Total Equipment and Other Assets				3823,~~558~~684			5338,~~164~~558
Total Assets			$	139,~~237~~613,~~481~~107		$	1513,~~485~~237,~~925~~481
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	7	7		~~693~~597,~~583~~557		$	~~630~~693,~~563~~583
Accounts payable to parent company	6	6		129,~~098~~132,~~477~~241			1012,~~739~~098,~~893~~477
Taxes payable	5	5		5182,~~660~~905			~~311~~51,~~767~~660
Interest payable to parent company	6	6		604,627			604,627
Total Liabilities				1310,~~448~~417,~~347~~330			12,286,850
Commitments	8	8
Stockholders' Equity (Deficit)
Stockholders' Deficit
Capital stock		9		2,023,382			2,023,382
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
Additional paid-in capital				27,704,592			27,704,592
Accumulated other comprehensive income (loss)				~~(371~~306,~~782~~205	)		~~323~~(371,~~676~~782	)
Accumulated deficit				(2930,~~567~~838,~~058~~402	)		(2629,~~852~~567,~~575~~058	)
Total Stockholders' Equity (Deficit)				(210,866	)		3,199,075
Total Stockholders' Deficit				(804,223	)		(210,866	)
Total Liabilities and Stockholders' Equity (Deficit)			$	13,237,481		$	15,485,925
Total Liabilities and Stockholders' Deficit			$	9,613,107		$	13,237,481

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

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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2009			2008			2007
	2010			2009			2008
SALES	$	2916,~~463~~364,~~154~~733		$	3429,~~820~~463,~~750~~154		$	5634,~~287~~820,~~515~~750
COST OF PRODUCTS SOLD		2714,~~458~~806,~~287~~460			3227,~~915~~458,~~382~~287			5332,~~034~~915,~~341~~382
GROSS PROFIT		21,~~004~~558,~~867~~273			12,~~905~~004,~~368~~867			31,~~253~~905,~~174~~368
COMMISSION INCOME		~~430~~96,~~982~~497			~~852~~430,~~238~~982			1852,~~566,157~~238
OPERATING EXPENSES
Salaries and wages		1,~~310~~060,~~628~~735			1,~~822~~310,~~066~~628			1,~~748~~822,~~757~~066
General and administrative		1734,~~064,791~~398			1,~~217~~064,~~493~~791			1,~~151~~217,~~962~~493
Selling and delivery		21,~~012~~467,~~088~~694			12,~~088~~012,~~947~~088			1,~~677~~088,~~460~~947
Depreciation		14,874			14,~~202~~874			1814,~~622~~202
TOTAL OPERATING EXPENSES		43,~~402~~277,~~381~~701			4,~~142~~402,~~708~~381			4,~~596~~142,~~801~~708
(LOSS) INCOME FROM OPERATIONS		(1,966,532	)		(1,385,102	)		222,530
LOSS FROM OPERATIONS		(1,622,931	)		(1,966,532	)		(1,385,102	)
Financial		~~191~~11,~~578~~800			~~104~~191,~~916~~578			~~345~~104,~~838~~916
Loss (gain) on foreign exchange		739,437			21,413			(107,817	)
(Gain) loss on foreign exchange		(354,340	)		739,437			21,413
LOSS BEFORE TAXES		(2,897,547	)		(1,511,431	)		(15,491	)
LOSS BEFORE INCOME TAXES		(1,280,391	)		(2,897,547	)		(1,511,431	)
INCOME TAXES (RECOVERY)		(183,067	)		(254,247	)		(310,442	)
INCOME TAX RECOVERY		(9,047	)		(183,067	)		(254,247	)
DEFERRED INCOME TAXES		-			~~(131,906~~-	)		(42131,~~746~~906	)
REASSESSMENT OF PRIOR YEARS INCOME TAXES		-			~~714,638~~-			~~189~~714,~~610~~638
NET (LOSS) INCOME	$	(2,714,480	)	$	(1,839,916	)	$	148,087
NET LOSS	$	(1,271,344	)	$	(2,714,480	)	$	(1,839,916	)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT		~~(695~~677,~~458~~987	)		~~731~~(695,~~681~~458	)		~~(101~~731,~~130~~681	)
COMPREHENSIVE (LOSS) INCOME	$	(3,409,938	)	$	(1,108,235	)	$	46,957
COMPREHENSIVE LOSS	$	(593,357	)	$	(3,409,938	)	$	(1,108,235	)
(LOSS) INCOME PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED	$	(0.07	)	$	(0.05	)	$	0.01
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			2940,~~602~~467,~~132~~636

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

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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~EQUITY (~~DEFICIT)

FOR THE YEARS ENDED 31 MARCH ~~2009, 2008~~2010 AND ~~2007~~2009

(Expressed in United States Dollars)

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

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

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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2009			2008			2007
	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(2,714,480	)	$	(1,839,916	)	$	148,087
Net loss	$	(1,271,344	)	$	(2,714,480	)	$	(1,839,916	)
Adjustment to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation		14,874			14,~~202~~874			1814,~~622~~202
Deferred income taxes		-			~~(131,906~~-	)		(42131,~~746~~906	)
		(2,699,606	)		(1,957,620	)		123,963
		(1,256,470	)		(2,699,606	)		(1,957,620	)
Changes in operating assets and liabilities:
Accounts receivable		1291,~~290,932~~465			51,~~075~~290,~~471~~932			(5,~~795~~075,~~642~~471	)
Inventories		~~842~~3,~~062~~505,255			(1842,~~514,507~~062	)		(51,~~379~~514,~~148~~507	)
Prepaid expenses and other		333,~~082~~886			~~(31~~33,~~731~~082	)		~~355~~(31,~~525~~731	)
Accounts payable and accrued liabilities		63(96,~~017~~026	)		(163,~~094,672~~017	)		~~713~~(1,~~737~~094,672	)
Taxes payable		~~(260~~31,~~107~~245	)		~~826~~(260,~~095~~107	)		~~(791~~826,~~072~~095	)
Accounts payable to parent company		1(2,~~358~~966,~~584~~236	)		(21,~~632~~358,~~474~~584	)		12(2,~~554~~632,~~223~~474	)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES		627,964			(1,329,438	)		1,781,586
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES		(486,881	)		627,964			(1,329,438	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		~~(268~~-	)		(~~2,299~~268	)		(52,~~254~~299	)
CASH FLOWS USED IN INVESTING ACTIVITIES		~~(268~~-	)		(~~2,299~~268	)		(52,~~254~~299	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to (from) related parties		-			-			~~(1,111,480~~-	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		-			-			~~(1,111,480~~-	)
EFFECT OF FOREIGN CURRENCY TRANSLATION		~~(695~~677,~~458~~987	)		~~731~~(695,~~681~~458	)		~~(101~~731,~~130~~681	)
NET INCREASE (DECREASE) IN CASH		~~(67~~191,~~762~~106	)		(~~600~~67,~~056~~762	)		~~563~~(600,~~722~~056	)
CASH, BEGINNING OF YEAR		~~512~~444,~~172~~410			1512,~~112,228~~172			~~548~~1,~~506~~112,228
CASH, END OF YEAR	$	~~444~~635,~~410~~516		$	~~512~~444,~~172~~410		$	1512,~~112,228~~172

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

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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED 31 MARCH ~~2009~~2010 AND ~~2008~~2009

(Expressed in United States Dollars)

1.	NATURE OF OPERATIONS

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

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. For fiscal ~~2009~~2010, the Company had significant estimates for allowances for doubtful accounts in the amount of $~~196~~187,~~426~~321, allowance for obsolete inventory reserve of $~~560~~1,~~846~~103,360 and sales ~~return~~ return and allowance reserve of $~~104~~257,~~641~~569.

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.

Advertising Allowances

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

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Advertising Allowances

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

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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 $1960,~~120,935~~084 (~~2008~~2009 - $~~606~~1,~~396~~120,935).

The Company classifies the following expense categories separately on its ~~statement~~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. For the year ended 31 March ~~2009~~2010, the Company’s inventory reserve was $~~560~~1,~~846~~103,360 ($~~554~~560,~~224~~846 in ~~2008~~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 the years ended 31 March ~~2009~~2010 and ~~2008~~2009 as $~~196~~187,~~426~~321 and $25196,~~927~~426, 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

3738

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Translation Adjustment

The accounts of the foreign subsidiaries were translated into U.S. dollars in accordance with the provisions of ~~SFAS~~ASC ~~No. 52~~830, Foreign Currency ~~Translation~~Matters. Management has determined that the Hong Kong ~~dollar~~ dollar is the functional currency of the Hong Kong subsidiary, the US dollar is ~~the~~ the functional currency of the US subsidiary and the Canadian dollar is the functional currency of the Canadian subsidiary. Certain current assets and liabilities of these foreign entities are denominated in U.S. dollars. In accordance with ~~the~~ASC ~~provisions of SFAS 52~~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 ~~Statements~~ASC ~~of Financial Standards (“SFAS”) No. 109~~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~~ future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

Fair Value of Financial Instruments

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

The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. At 31 March ~~2009~~2010 and ~~2008~~2009, 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.

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income

The Company adopted ~~SFAS~~ASC ~~No. 130~~220, ~~Reporting~~ Comprehensive Income that establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' equity, and consists of net income (loss) and unrealized gains (losses) on available for sale marketable securities, foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge~~; and negative equity adjustments recognized in accordance with SFAS 87, Employers' Accounting for Pensions~~. ~~SFAS~~ASC ~~No. 130~~ 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 ~~SFAS~~ASC ~~No. 128~~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 ~~2009~~2010 and ~~2008~~2009.

Valuation of Long-Lived Assets

In accordance with ~~SFAS~~ASC ~~No. 144,~~360 ~~Accounting~~Property, ~~for~~Plant ~~the~~and ~~Impairment or Disposal of Long-Lived Assets~~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

SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk, requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company is exposed to credit risk on accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit terms. Our five ~~largest~~ largest customers during fiscal year ~~2009~~2010 made up approximately 9187% o f our ~~total~~ total revenues (~~2008~~2009 – 8291%).

39Cash 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 and 2009, amounted to $105,340 and $85,365, 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.

2The 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. ~~SUMMARY~~The OFCompany’s ~~SIGNIFICANT~~operations ~~ACCOUNTING~~in ~~POLICIES~~China ~~(Continued)~~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.

Recent Accounting Pronouncements

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

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

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

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

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

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

~~Reclassifications~~Table of Contents

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

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

On September 30, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Statement No. 168, The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles. The Codification became the source of authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities Exchange Committee (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification is nonauthoritative. GAAP is not intended to be changed as a result of this statement, but will change the way the guidance is organized and presented. The Company has implemented the Codification in the consolidated financial statements by providing references to the Accounting Standards Codification (“ASC”) topics.

In April 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-13—Compensation—Stock Compensation (Topic 718),which addresses the classification of an employee share-based payment award with an exercise price denominated in the currency of 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. Therefore, an entity would not classify such an award as a liability if it 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 December 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.

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.

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.

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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.

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3.	VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

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

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

The following is the activity within the Company’s consolidated valuation and qualifying accounts and reserves for fiscal ~~2009~~2010 and ~~2008~~2009:

	Balance at Beginning of Year		Additions (Reductions) Charged to Costs and Expenses		Deductions			Balance at End of Year
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
Year ended 31 March 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

EQUIPMENT

The components of equipment are as follows:

	Cost		Accumulated Depreciation			Net ~~2009~~2010		Net ~~2008~~2009
Furniture and fixtures	$	42,462	$	(4041,~~425~~535	)	$	~~2,037~~927	$	32,~~147~~037
Equipment		31,858		(2930,~~991~~967	)		~~1,867~~891		21,~~844~~867
Computer		53,295		(4247,~~857~~652	)		105,~~438~~643		1510,~~233~~438
Warehouse equipment		68,575		(5260,~~676~~669	)		157,~~899~~906		2315,~~623~~899
	$	196,190	$	(~~165~~180,~~949~~823	)	$	3015,~~241~~367	$	4430,~~847~~241

5.	INCOME TAXES

The provision for income taxes reconciles to the amount obtained by applying the statutory income tax rates of 33% (~~2008~~2009 - ~~36.12~~33%) in Canada, 16.5% (~~2008~~2009 - 17 16.5%) in Hong Kong and ~~16.5~~15% (~~2008~~2009 -– 15.5%) in US to income before provision for taxes as follows:

4244

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

Table of Contents

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

	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	)

~~During~~The ~~the~~Company ~~2008~~has ~~fiscal year~~$4,568,542 ~~Cosmo~~of ~~Communications~~tax ~~Canada~~losses ~~Inc.~~available ~~settled~~to aoffset ~~corporate~~future ~~tax~~taxable ~~audit~~income. $1,915,048 ~~with~~of ~~the~~these ~~Canada~~losses ~~Revenue~~are ~~Agency~~held ~~related~~in toour ~~allocation~~Canadian subsidiary; $1,263,583 ofexpire ~~income~~in ~~between Canada~~2019 and ~~Hong~~$651,465 ~~Kong~~in 2020. ~~The~~$1,784,304 ~~adjustments~~of ~~were~~these tolosses ~~taxable~~are ~~income~~held ~~for~~in ~~the fiscal~~our ~~years~~Hong 31Kong ~~March~~subsidiary and ~~2004~~can ~~and~~be ~~2005~~carried ~~and~~forward ~~totaled~~indefinitely. The remaining $~~714~~869,~~638~~190 intax losses ~~additional~~are ~~corporate taxes~~held ~~payable. The~~in ~~tax~~our ~~audits~~US ~~are~~subsidiary; ~~now~~$489,043 ~~closed~~expire ~~for~~in ~~these~~2029 and ~~years~~$380,147 in 2030.

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

	2009			2008
	2010			2009
Deferred income tax assets (liabilities):
Book over tax depreciation	$	8,317		$	8,317
Tax losses carried forward		860,843			3,907
Tax losses available for carryforward		1,056,754			860,843
Valuation allowance		(~~860~~1,~~843~~054,754	)		(3860,~~907~~843	)
Deferred income taxes	$	8,317		$	8,317

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6.	AMOUNTS PAYABLE TO PARENT COMPANY

As of 31 March ~~2009~~2010, the Company owed $129,~~703~~736,~~104~~868 (~~2008~~2009 - $1112,~~344~~703,~~520~~104) to The Starlight Group of Companies, the principal corporate shareholder of the Company ("Starlight"). Of this amount $129,~~098~~132,~~477~~241 (~~2008~~2009 - $1012,~~739~~098,~~893~~477) was owed in the form of trade payable and the remainder was in the form of advances and interest on advances. The advances from Starlight were paid for by the issuance of shares in the fiscal year ended 31 March 2007, leaving only the accrued interest as payable. These amounts are payable on demand and Starlight has agreed not to charge further interest on the accrued interest payable. Interest accrued as of 31 March ~~2009~~2010 was $604,627 (~~2008~~2009 - $604,627).

7. ~~ACCOUNT~~ACCOUNTS PAYABLE AND ACCRUED LIBILITIES

The balance is comprised of:

	2009		2008
	2010		2009
Trade payables		~~207~~113,~~530~~829		~~350~~207,~~739~~533
Accrued liabilities		~~152~~226,~~211~~159		84152,~~714~~211
Claims payable		~~229,198~~-		56229,~~672~~198
Sales return and allowance reserve		~~104~~257,~~641~~569		~~138~~104,~~438~~641
	$	~~693~~597,~~580~~557	$	~~630~~693,~~563~~583

8.	COMMITMENTS

The Company leases premises under an operating lease with a five year term in Canada and shares the facilities for its Hong Kong operation. Minimum lease commitments under the leases at 31 March ~~2009~~2010 were:

2010	$	276,718
2011	$	339,206
2011		276,718
2012		341,926
2012		278,938
2013		344,647
2013		281,158
2014		172,324
2014		140,580
	$	1,198,103
	$	1,254,112

449. RELATED PARTY TRANSACTIONS

9. CAPITAL STOCK

Authorized
30,000	preferred stock, cumulative, convertible at $0.01 par value
9,970,000	preferred stock, at $0.01 par value
50,000,000	common stock at $0.05 par value, voting, participating

	2009			2008
Issued
40,467,636 Common stock (2006 - 29,104,000)	$	2,139,132		$	2,139,132
2,314,567 Treasury stock		(115,750	)		(115,750	)
	$	2,023,382		$	2,023,382

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

10. RELATED PARTY TRANSACTIONS

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

During the year ended 31 March ~~2009~~2010, the Company purchased $2510,~~191~~800,~~456~~354 (~~2008~~2009 - $2725,~~532~~191,~~352~~456) of goods from Starlight and received no commissions from Starlight ~~(2008~~in -2010 ~~$56,648)~~and 2009.

~~11. ECONOMIC DEPENDENCE~~46

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

~~A mass-market merchandiser and chain store located in Canada and US is the Company's largest customer, which accounted for approximately 70% of sales in 2009 and 76% in 2008~~10. ~~Economic~~ ~~dependence~~ECONOMIC ~~exists with this identified customer. Loss of the customer may have significant adverse results to the financial position of the Company.~~DEPENDENCE

AsThe Company ofis ~~31 March~~economically ~~2009,~~dependent ~~the~~on ~~accounts~~its ~~receivable~~parent ~~from~~company ~~this~~for ~~customer~~the ~~amounted~~supply of inventory products to ~~approximately $1,842,933~~its ~~(2008~~customers. For -fiscal $12010,~~721,833)~~ ~~and~~the ~~claims~~Company purchased ~~payable~~80% ~~for~~of its inventory ~~returns~~needs ~~amounted to~~from ~~approximately~~Starlight ~~$12,964~~ (~~2008~~2009 - ~~$56,671~~92%).

12A mass-market merchandiser and chain store located in Canada and US is the Company's largest customer, which accounted for approximately 54% of sales in 2010 and 70% in 2009. Economic ~~OPERATING~~dependence ~~SEGMENT~~exists ~~INFORMATION~~with this identified customer. Loss of the customer may have significant adverse results to the financial position of the Company.

~~The Company~~As ~~operated~~of in31 March ~~one~~2010, ~~business~~the ~~segment~~accounts ~~and~~receivable ~~all~~from ofthis ~~its~~customer ~~sales~~amounted ~~are~~to ~~consumer~~approximately ~~electronic~~$853,080 ~~products. The~~(2009 ~~Company's~~- ~~customers~~$1,842,933) ~~are~~and ~~principally~~claims ~~in Canada~~payable ~~and~~for ininventory ~~the~~returns ~~USA. Borrowings~~amounted to ~~are~~approximately ~~principally~~$12,076 in(2009 ~~the~~- ~~United States~~$12,964).

	Canada			Hong Kong			United States			Total
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	)
2008
Assets		6,966,433			783,441			7,978,424			15,728,298
Sales, net		9,882,697			8,369,762			16,568,291			34,820,750
Gross margin		736,784			348,152			820,432			1,905,368
Net loss		(1,660,839	)		(153,868	)		(25,209	)		(1,839,916	)

11.	OPERATING SEGMENT INFORMATION

13The Company operated in one business segment and all of its sales are consumer electronic products. The ~~SUPPLEMENTAL~~Company's ~~CASH~~customers ~~FLOW~~are ~~INFORMATION~~principally in Canada and in the USA.

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

	Canada			Hong Kong			United States			Total

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	)

4512. SUPPLEMENTAL CASH FLOW INFORMATION

During the year ended 31 March 2010 the Company paid interest of $11,800 (2009 - $55,547) and paid income taxes of $33,000 (2009 - $312,428).

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 ~~2009~~2010 fiscal year. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, ~~2009~~2010.

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, ~~2009~~2010. Since the material weakness over financial reporting for fiscal March 31, 2008 was detected, management has secured the service of outside service which provides the reviewing our compliance concerning disclosure on our financial reporting.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control financial reporting that occurred during the year ended March 31, ~~2009~~2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in ~~2009~~2010.

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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 29, ~~2009~~2010:

Name	Age	Position
Philip Lau	6162	Chairman of the Board of Directors and President
Peter Horak	6768	Chief Executive Officer and Director
Carol Atkinson	6061	Chief Financial Officer
Yu Wing King	5758	Vice President, Hong Kong operation
Jacky Lau	5051	Director
Jeff Horak	5152	Vice President –Sales and Marketing - Canada Operations

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Philip Lau - Chairman and President

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

Peter Horak – Chief Executive Officer, Canada

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

Carol Atkinson – Chief Finance Officer

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

Yu Wing Kin – Vice President, Administration, Hong Kong

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

Jacky Lau – Director

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

Anthony Lau – Director

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

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

Family Relationships

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

Code of Ethics

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

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

To our knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during the year ended March 31, ~~2009~~2010, its officers, directors and 10% shareholders complied with all Section 16(a) filing requirements.

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Item 11.

Executive Compensation

Compensation of Directors

The following table sets forth with respect to the named directors, compensation information inclusive of equity awards and payments made in the fiscal year ended March 31, ~~2009~~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 ~~2009~~ 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, ~~2009~~2010, ~~2008~~2009 and ~~2007~~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 ~~2009~~2010, ~~2008~~2009 and ~~2007~~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	2009		89,693			—			—			—			—			—			8,610			98,303
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
CEO and Director	2008		99,324			—			—			—			—			—			11,370			110,694
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
	2007		175,800			—			—			—			—			—			13,600			189,400
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
Jeff Horak	2009		94,178			—			—			—			—			—			9,687			103,865
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
Vice President - Canada	2008		131,063			—			—			—			—			—			12,671			143,734
	2007		175,800			—			—			—			—			—			9,493			185,293
Yu Wing King	2009		45,978			1,267			—			—			—			—						47,245
Vice President – Hong Kong	2008		43,524						—			—			—			—			2,418			45,942
	2007		42,832			14,318			—			—			—			—			—			57,150
E. J. Colin	2009		94,178			—			—			—			—			—			5,920			100,098
National Sales	2008		67,959			—			—			—			—			—			7,511			75,470
Manager - Canada	2007		92,300			—			—			—			—			—			5,800			98,100

(1)

Includes automobile expense allowances and other employee benefits

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Employment Agreements

The Company signed no new employment agreements during fiscal ~~2009~~2010 and ~~signed two~~ ~~employment agreements with two executive officers during fiscal 2008~~2009.

OPTION GRANTS IN FISCAL ~~2009~~ 2010 (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) k and Option Awards l

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

Outstanding Equity Awards At Fiscal Year-End (1)

The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of March 31, ~~2009~~2010.

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

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

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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~~	Amount and Nature of Beneficial Ownership		~~Percent of Class~~	Percent of Class
Common Stock	Philip Lau Chairman and President		—	—		—	—
Common Stock	Peter Horak Chief Executive Officer and Director		~~257,500~~	257,500		*	*
Common Stock	Carol Atkinson Chief Financial Officer		—	—		—	—
Common Stock	~~Rick~~Yu ~~Bond~~Wing King Vice President, –Hong ~~sales~~Kong ~~and marketing – USA~~ operation		—	—		—	—
Common Stock	YuJacky ~~Wing~~Lau ~~King Vice President, Hong Kong operation~~Director		—	—		—	—
Common Stock	~~Jacky~~Jeff ~~Lau~~Horak ~~Director~~Vice President –Sales and Marketing - Canada Operations		—	—		—	—
Common Stock	~~Jeff~~Starlight ~~Horak~~International, ~~Vice~~5/F, ~~President~~232 ~~–Sales~~Aberdeen ~~and~~Road ~~Marketing~~Hong ~~- Canada Operations~~Kong		—	37,948,644		—	93.8	%
Common Stock	~~Starlight~~All ~~International,~~Officers ~~5/F~~and Directors, ~~232~~as ~~Aberdeen~~a ~~Road Hong Kong~~Group		~~37,948,644~~	257,500		~~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, ~~2009~~2010, we purchased $2510,~~191~~800,~~456~~354 (2008 - $2725,~~532~~191,~~352~~456) of goods from our parent company, Starlight and received no commissions (~~2008~~2009 - ~~$56.648~~nil).

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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, ~~Deloitte & Touche LLP~~ and Chan & Watt Company for professional services rendered to our company for the fiscal years ended March 31, ~~2009~~2010 and ~~2008~~2009:

	2009		2008
	2010		2009
Audit Fees (a)	$	4845,~~215~~815	$	3748,~~500~~215
Audit Related Fees				-
Tax Fees (b)		10,903		26,629
Tax Fees (b)		26,629		29,315
Total Fees		56,718		74,844
Total Fees		74,844		66,815

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

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

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

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

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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, 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
Year ended March 31, 2007
Deducted from asset account:
Allowance for doubtful accounts	$	14,040	$	(18,387	)	$	(10,867	)	$	6,520
Sales return and allowance reserve		245,770		2,992,413			2,856,913			381,270
Total	$	259,810	$	2,974,026		$	2,846,046		$	387,790

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

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Exhibits

Exhibit
Number			Description of Document

3.1			Articles of Incorporation as amended +

3.2			Registrant's Bylaws ++

21.1			List of Subsidiaries of Cosmo Communications Corporation ++++

31.1			Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Peter Horak *

31.2			Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carol Atkinson *

32.1			Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2			Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

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

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

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

*	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d), as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Markham, Ontario, Canada on June 29, ~~2009~~2010.

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)

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	~~July~~June 629, ~~2009~~2010
Peter Horak	Director (Principal Executive Officer)
/s/ CAROL ATKINSON	Chief Financial Officer and	~~July~~June 629, ~~2009~~2010
Carol Atkinson	Principal Financial Officer and Principal Accounting Officer
/s/ JACKY LAU	Director	~~July~~June 629, ~~2009~~2010
Jacky Lau

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