Cosmo Communications 10K 2012 Annual report

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, 2012

Commission File Number 119698

COSMO COMMUNICATIONS CORPORATON

(Exact name of Registrant as Specified in Its Charter)

FLORIDA
(State or Other Jurisdiction of
Incorporation or Organization)

59-2268025
(IRS Employer
Identification No.)

Unit 2 – 55 Travail Road

Markham, Ontario, Canada

(905) 209-0488

(Address and Telephone Number of Principal Executive Offices)

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

Common Stock, $.05 Par Value Per Share

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

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

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

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

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

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

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

Large accelerated filler ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting companyþ

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, 2012.

COSMO COMMUNICATIONS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2012

TABLE OF CONTENTS

		Page

PART I
Item 1.	Business		3
Item 1A	Risk Factors		13
Item 1B	Unresolved Staff Comments		17
Item 2.	Properties		17
Item 3.	Legal Proceedings		18
Item 4.	Mine Safety Disclosures		18

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
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		47
Item 9A.	Controls and Procedures		47
Item 9B.	Other Information		48

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		48
Item 11.	Executive Compensation		50
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		52
Item 13.	Certain Relationships and Related Transactions, and Director Independence		52
Item 14.	Principal Accountant Fees and Services		54

PART IV
Item 15.	Exhibits and Financial Statement Schedules		55
Signatures			57

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.

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 a major customer.

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

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

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

Since 2001, our common stock shares have not traded on the OTC Bulletin Board.

As used herein, the “Company”, "Cosmo," "we," us" and similar terms include Cosmo Communications Corporation, and its subsidiaries, Cosmo Communications Corporation Canada Inc., Cosmo Communications Corporation (HK) Limited and Cosmo Communication USA Corp. unless the context indicates otherwise.

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

Product Lines

We market and distribute an assortment of video products including DVD/LCDTV combination units 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 karaoke equipment. Retail prices have ranged from $60 - $200. In addition, we are the distributor for our parent company (Starlight group) of Disney and Polaroid brands consumer electronic products that include audio and digital cameras.

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 approximately 6% 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 approximately 3% of total sales.

Digital Lab:Digital Lab is an upgraded line up from the audio category including clock radios, MP3 players and audio products with IPod connectivity. Digital Lab accounted for approximately 5% of total sales.

Diamond Brand. Cosmo introduced Diamond Vision and Diamond Sound as a new brand at the end of the 2005 fiscal year for DVD players. We have since added to this line Televisions, portable DVD players and MP3 Players. These items represent approximately 1% 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 approximately 9% of the total sales of the group.

Digitec.We offered Digitec brand for our LCD TV and DVD players. This brand represents approximately 1% 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 approximately 2% of the group sales.

Polaroid.This is a licensed brand name of PLR IP Holdings, LLC. The licensed electronics product is for television and digital cameras. This brand represents approximately 53% of the group sales. Our parent company terminated the DVD players and camera licenses with Polaroid in December 2011. In the future years, we will only market Polaroid TV in our product line.

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

We also build products under the private label of our customers. The category represents approximately 3% of the Company’s sales.

Strategy for Cosmo’s Brands

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

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

	•	Expand the current product lines by adding new features to LCD

	•	Expand Cosmo’s distribution with new and existing customers;
	•	Expand focus in the brand name products. As part of the Starlight group, we have access to the Polaroid brand through our parent company on our TV products and we will be focusing on building this brand name for our LCD TV in the future.

Cosmo Products

Percent of Sales by Product Class

Cosmo sales since 2008 were divided among Cosmo’s principal product classes as shown in the following table:

	Year Ended March 31,

	2012			2011			2010			2009			2008

Product Class:		%			%			%			%			%
MP3 Players		-			-			-			5			7
Other Audio (1)		36			40			30			28			36
Video (2)		53			49			61			59			48
CClocks		7			11			8			7			8
Tools		-			-			1			1			1
Digital Cameras		4			-			-			-			-
Total		100.0	%		100.0	%		100	%		100	%		100	%

(1) Includes boom boxes, CD players, karaoke players

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

See below for financial information on geographic segments.

New Products

Cosmo introduced a new line of digital cameras in fiscal 2012 to enhance its existing products. In the third quarter of fiscal 2012 we also brought in a new line of 32 LCD TVs.

In fiscal 2013, we plan to continue with our current product lines with the exceptions of the digital cameras. The digital camera license between Polaroid and our parent company was terminated in December 2011 and we have no plans to license other brands or to continue the digital camera line in the future.

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, Shoppers Drug Mart, Loblaws, Canadian Tire, 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 the United Kingdom, primarily through mass merchandisers, department stores, electronic stores, chains, and specialty stores. Our products are currently sold in such stores as Wal-Mart (Canada), Super-Stores, Home Hardware, Bargain Shop, Toys “R” Us (Canada) and Costco (Canada). In fiscal 2012, approximately 89% of our sales were to the customers within Canada and 11% of sales were to the customers in USA and Europe. 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 fiscal year 2012, we did not appoint independent sales representatives in Canada or US.

Sales

As a percentage of total revenues, our net sales in the aggregate to our five largest customers during the fiscal years ended March 31, 2012, and 2011 were approximately 71% and 81%, 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.

Geographic Distribution of Sales

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

	Years Ended March 31,

Region	2008		2009		2010		2011		2012		2012
											%
	(In thousands)
USA		16,568		13,721		1,580		915		810		5	%
Canada		17,891		14,293		14,785		14,840		16,012		89	%
Europe		-		-		-		-		1,162		6	%
Others		362		1,449		-		-		-		-

	$	34,821		29,463		16,365		15,755		17,984		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 4% and 4% of our net sales in fiscal 2012 and 2011, respectively. Due to the length of time given to return defective products, a provision is made to acknowledge the obligations to provide credits to our customers on defective returns which have not been recorded in the current fiscal period. This provision is estimated based on the historical defective rate of the product category and their respective sales volume, adjusted by defective credits and allowances that have been issued.

We have an ongoing arrangement with Starlight, the Company’s parent, to refurbish defective products manufactured by Starlight. Defective returns originated from direct import sales are returned to Starlight for full refund and no refurbishment costs are charged. Defective returns which originated from domestic sales are written down to 30% of the original cost and then returned to Starlight with no refurbishment charge. Similarly defective returns originated from Singing Machine Company, our associate company are returned to Singing Machine Company for repair or a credit. The repair charge is determined mutually between the two companies within the range acceptable in the industry.

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

Distribution

We distribute our products to retailers and wholesale distributors through two methods: shipment of products from inventory held at our warehouse facility in Canada and USA (domestic sales), and shipments directly through our Hong Kong subsidiary (direct sales). Domestic sales are made to customers located throughout USA and Canada from inventories maintained at our warehouse facilities. In the fiscal year ended March 31, 2012, approximately 91% of our sales were sales from our domestic warehouses ("Domestic Sales") and 9% were sales shipped directly from China ("Direct Sales").

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 ten factories, located in the southern provinces of the PRC. For fiscal 2013, 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 our purchase demands for our products in fiscal year 2013. 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, 2012 and 2011, warranty claims have not been material to our results of operations.

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

Reverse Logistic Operations

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

Commission

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

License Agreements

The license agreement with Disney Enterprises, Inc. is between Starlight and Disney. The license agreement with PLR IP Holdings LLC is between Starlight and Polaroid. We are not obligated to pay license fees to Disney or Polaroid. Royalties accrued to Starlight during fiscal 2012 were $340,197 as a share of the royalty expense to distribute the licensed products exclusively in Canada.

Competition

Our business is highly competitive since we compete mainly in the basic entry level category of our audio and video products. We believe that competition for our products is based primarily on price, product features, reputation, delivery times, and customer support. We believe that our brand names are recognized in the industry and help us to compete in these categories. Our financial position depends, among other things, on our ability to keep pace with changes and developments in the household entertainment industry and to respond to the requirements of our customers. Many of our competitors have significantly greater financial, marketing, and operating resources and broader product lines than we do.

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, 2012, we had inventory of $3.6 million (net of reserves totaling $942,011) compared to inventory of $4.7 million as of March 31, 2011 (net of reserves totaling $752,822).

Our financing of seasonal working capital during fiscal 2012 was mainly from sales of inventory carried over from the prior year. We rely on credit terms from our manufacturers to finance the purchase of new inventory. We also have an understanding from Starlight to provide short term working funds to purchase inventory should we require them.

For fiscal 2013, 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, 2012 we had no backlog of orders and none in the same period in fiscal 2011. 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 types of sales.

Employees

As of March 31, 2012, we employed 14 people; all are full-time employees, including two executive officers. Two of our employees are located at our subsidiary in Hong Kong and 12 in Canada. Of the employees, four are engaged in warehousing and technical support, and eight in accounting, marketing, sales and administrative functions. We have never had a work stoppage and none of our employees are unionized. We believe we have good employee relations.

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, 2012, 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 24. As of March 31, 2012, our inventory was valued at approximately $3.6 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, 2012 and 2011 were approximately 71% and 83%, 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.

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 $1,266,209 during fiscal 2012 and $1,002,822 during fiscal 2011. 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 2012, we maintained our profit margin. We expect that our gross profit margin might decrease under downward pressure in fiscal 2013 due to the rise in material and labor costs in China. Based on past experience, we expect that we can pass on some of the price pressure to our customers.

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 66% and 66% of total sales in fiscal 2012 and 2011 respectively.

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 and Vancouver, 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.

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 ten factories in the People's Republic of China to manufacture the majority of our products. These factories will be producing all of our products in fiscal 2013. 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.

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 29%, 54% and 70% of Cosmo’s sales in 2012, 2011 and 2010 respectively. We will continue to reduce the concentration and dependence on one single customer in the future to reduce the significant risk of loss in our revenues and cash flows.

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

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

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

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

Item 1B.

Unresolved Staff Comments

None.

Item 2.Properties

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

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

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

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.Mine Safety Disclosures

Not applicable.

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 2012. We have approximately 300 recorded holders of our common stock on June 29, 2012.

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.

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, 2012, 2011, 2010 and the balance sheet data at March 31, 2012, and 2011, 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, 2009 and 2008 and the balance sheet data at March 31, 2010, 2009 and 2008 are derived from our audited financial statements which are not included in this Form 10-K. The historical results are not necessarily indicative of results to be expected for future periods.

	Years Ended March 31,
	2012			2011			2010			2009			2008

	(In thousands, except per share data)
Consolidated Statements of Operations:
Net sales	$	17,984		$	15,755		$	16,365		$	29,463		$	34,821
Cost of products sold		15,763			13,868			14,806			27,458			32,915

Gross profit		2,221			1,887			1,559			2,005			1,906
Other income		16			34			96			431			852
Operating expenses:
Selling and delivery		2,063			1,632			1,468			2,012			1,089
General and administrative		2,088			1,700			1,795			2,375			3,040
Depreciation and amortization		-			15			15			15			14

Total operating expenses		4,151			3,347			3,278			4,402			4,143

Operating income (loss)		(1,914	)		(1,426	)		(1,623	)		(1,966	)		(1,385	)
Interest and other expense		(14	)		(41	)		(343	)		930			126
Taxes – current and deferred		21			(1	)		(9	)		(183	)		329
Net income (loss)	$	(1,907	)	$	(1,468	)	$	(1,271	)	$	(2,714	)	$	(1,840	)

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

	As of March 31 (in thousands)
	2012			2011			2010			2009			2008
Balance Sheet Data:
Cash		350		$	375		$	636		$	444		$	512
Total assets		5,918			7,077			9,613			13,237			15,486
Total current liabilities		10,124			9,302			10,417			13,448			12,287
Total long-term liabilities		0			0			0			0			0
Stockholders’ equity (deficit)		(4,206	)		(2,224	)		(804	)		(211	)		3,199

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 end is 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

Net sales increased by $2.2 million or 14% compared with the last fiscal year.

Our operating expenses increased by $342,000 mainly due to a royalty expense accrued to our parent company ($340,000). Selling expenses increased by approximately $431,000. Salaries and wages decreased by $178,000 offset by $89,000 increase in general and administration.

Net loss before income taxes increased to $1.9 million in the current fiscal year.

We reported a currency loss of $364,956 due to the fluctuations of the Canadian dollar against the US dollar throughout the fiscal year.

Fiscal Year Ended March 31, 2012 Compared with Fiscal Year Ended March 31, 2011

Sales

Net sales increased by $2.2 million or 14% compared to prior year.

The increase was attributable to the growth in sales on new accounts opened last year in Canada. Two major accounts we opened in fiscal 2011 placed substantial video orders with us in fiscal 2012. Video products gained $2 million on a larger size TV (32”). The gains in digital camera and audio products were offset by decreases in Disney and clocks products.

Sales mix between direct import and domestic warehouse sales were 6% to 94% respectively and were similar to prior year.

Gross Profit

Gross profits were $2.2 million compared with $1.89 million in the prior year. The increase in gross profit was due to an improvement in sales and maintaining a steady gross profit margin. The average gross margin in fiscal 2012 was 12.4% compared with 12% in the prior year.

Commission Income

Our commission and other income consist of commissions earned on brokering sales and handling return products for third party manufacturers.

Commission income decreased by $18,595 or 54% due to a weak economy throughout the territories we operate.

Operating Expenses

Operating expenses increased from $3.46 million to $3.79 million. Selling and delivery contributed to the largest increase of $431,000. We increased our promotional allowances to new customers and were also charged $340,000 royalty expense from Starlight, our parent company related to the use of Polaroid brand digital cameras.

Salaries and wages decreased by $178,000 due to reduction in employees. General administrative expenses increased by $89,000 due to a rent increase under the lease agreement and bad debts expense written off.

Financial expenses and exchange gain

Financial expenses decreased by $27,729 as the prior year financial expense included an accrued interest to the Canadian tax authority and no accrual was necessary in fiscal 2012.

We reported an exchange loss of $364,956 compared with a gain of $111,833 in the prior year. The Canadian dollar was appreciating strongly during last fiscal year against the US dollar but declined steadily throughout the current fiscal year. In Cosmo Canada, we have substantial liabilities to our parent company in US dollars; a 4%-5% decline in the Canadian dollar resulted in a loss of the reported amount.

Income Tax Expenses

For the fiscal year ended March 31, 2012, we did not record any provision for income tax as the Company and its subsidiaries incurred taxable losses for the year. The Company does not anticipate future changes in rates and as such does not anticipate such variances in its current or deferred taxes in subsequent years.

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

Fiscal Year Ended March 31, 2011 Compared with Fiscal Year Ended March 31, 2010

Sales

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

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

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

Gross Profit

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

Commission Income

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

Operating Expenses

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

Financial expenses and exchange gain

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

Interest expense was comparable between fiscal 2010 and 2011.

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

Income Tax Expenses

For the fiscal year ended March 31, 2011, we did not record any provision for income tax as the Company and its subsidiaries incurred taxable losses for the year. The Company does not anticipate future changes in rates and as such does not anticipate such variances in its current or deferred taxes in subsequent years.

Liquidity and Capital Resources

On March 31, 2012, we had cash on hand of $349,613 compared to cash on hand of $375,365 on March 31, 2011. The decrease of cash on hand was primarily due to the effect of foreign currency translation. We reduced approximately $1 million of inventory to fund our operating activities in the current fiscal year.

There have been no cash flows from investing and financing activities for the fiscal years ended March 31, 2012 and 2011.

As of March 31, 2012 we had a working capital deficit of approximately $4.2 million. Our current liabilities of $10 million include:

amount due to Starlight resulting from normal course of the business for $8.8 million;

current liabilities resulting from normal course of the business with other factories and suppliers for $0.7 million;

advance from Starlight for $0.6 million

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

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

Off Balance Sheet Arrangements

Cosmo does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (VIE’s), which would be established for the purpose of facilitating off-balance sheet arrangements. As of March 31, 2012, Cosmo did not have any unconsolidated VIE’s.

Contractual Obligations as of March 31, 2012

Cosmo had contractual obligations at March 31, 2012 as follows:

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

Interest payable to related party	$	604,627	$	604,627	$	—		—		—
Operating leases	$	525,499	$	349,406	$	176,093		—		—

Working Capital Requirements for the Short and Long Term

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

The collection of accounts receivable;

Sales of existing inventory; and

The continued support of factories in China that finance our purchases of goods for fiscal 2013.

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 2013, 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.

Exchange Rates

For direct sales, we sell our products in U.S. dollars and pay for all of our manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of the Hong Kong office are paid in Hong Kong dollars. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at approximately HK $7.80 to U.S. $1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. Operating expenses of our Canada office is paid in Canadian dollars, and domestic sales are received in Canadian dollars. The exchange rate between the Canadian dollar and US dollar can represent an exchange risk to us. Therefore any adverse fluctuation in this exchange rate may have a material effect on our business, financial condition or results of operation. The overall percentage of domestic sales in Canadian dollars is at approximately 90% of total sales. Due to the upward trend of the Canadian dollar throughout the fiscal year, we did not take any action to hedge against the Canadian dollar.

Seasonal and Quarterly Results

Historically, our operations have been seasonal, with the highest net sales occurring in the second and third quarters (reflecting increased orders for electronic audio and video equipment during the Christmas selling months) and to a lesser extent the first and fourth quarters of the fiscal year. Sales in our fiscal second and third quarter, combined, accounted for approximately 76% and 66% of net sales in fiscal 2012, and 2011, 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:

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 2012, the Company had significant estimates for allowances for doubtful accounts in the amount of $266,355, allowance for obsolete inventory reserve of $942,011 and sales return and allowance reserve of $113,193.

Revenue Recognition

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

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

Inventories

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

Foreign Translation Adjustment

The accounts of the foreign subsidiaries were translated into U.S. dollars in accordance with the Accounting Standards Codification (“ASC”) 830, subtopic 30 - Foreign Currency Translation. Management has determined that the Hong Kong dollar is the functional currency of the Hong Kong subsidiaries and the Canadian dollar is the functional currency of the Canadian subsidiary. Certain current assets and liabilities of these foreign entities are denominated in U.S. dollars. In accordance with ASC 830, transaction gains and losses on these assets and liabilities are included in the determination of income for the relevant periods. Adjustments resulting from the translation of the financial statements from their functional currencies to United States dollars are accumulated as a separate component of accumulated other comprehensive income and have not been included in the determination of income for the relevant periods.

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, 2012, we have not used derivative instruments or engaged in hedging activities to minimize market risk.

Interest Rate Risk

As of March 31, 2012, 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.

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. The Canadian dollar has been steadily declining during fiscal 2012. We have not taken steps to hedge against this currency in fiscal 2012.

Item 8.Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page #

Report of Independent Registered Public Accounting Firm		31
Consolidated Balance Sheets as of March 31, 2012 and 2011		32
Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2012, 2011, and 2010		33
Consolidated Statements of Stockholders’ Deficit for the years ended March 31, 2012and 2011		34
Consolidated Statements of Cash Flows for the years ended March 31, 2012, 2011, and 2010		35
Notes to the Consolidated Financial Statements		36

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 ofCosmo Communications Corporation and Subsidiaries as of 31 March 2012 and 2011 and the related consolidated statements of operations and comprehensive loss, stockholders' deficit and cash flows for each of years in the three-year period then ended 31 March 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cosmo Communications Corporation and Subsidiaries as of 31 March 2012 and 2011 and the consolidated results of its operations and cash flows for each of the years in the three-year period then ended 31 March 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ DNTW Chartered Accountants, LLP

Licensed Public Accountants

Markham, Ontario, Canada

21 June 2012

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF 31 MARCH

(Expressed in United States Dollars)

	2012			2011

ASSETS
Current Assets
Cash	$	349,613		$	375,365
Accounts receivable, less allowance of $266,355 and $175,206 as of 31 March 2012 and 2011, respectively		1,937,193			1,971,806
Inventories less allowance of $942,011 and $752,822 as of 31 March 2012 and 2011, respectively		3,612,785			4,712,192
Prepaid expenses and other		10,088			9,702

Total Current Assets		5,909,679			7,069,065

Equipment and Other Assets
Deferred taxes		8,317			8,317

Total Equipment and Other Assets		8,317			8,317

Total Assets	$	5,917,996		$	7,077,382

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	$	754,650		$	887,642
Accounts payable to parent company		8,764,668			7,809,241
Interest payable to parent company		604,627			604,627

Total Liabilities		10,123,945			9,301,510

Commitments

Stockholders' Deficit
Preferred stock, $0.01 par value, cumulative and convertible, 30,000 shares authorized		-			-
Preferred stock, $0.01 par value, 9,970,000 shares authorized		-			-
Capital stock, $0.05 par value, 50,000,000 shares authorized, 40,467,636 shares issued and outstanding		2,023,382			2,023,382
Additional paid-in capital		27,704,592			27,704,592
Accumulated other comprehensive income		281,213			355,598
Accumulated deficit		(34,215,136	)		(32,307,700	)

Total Stockholders' Deficit		(4,205,949	)		(2,224,128	)

Total Liabilities and Stockholders' Deficit	$	5,917,996		$	7,077,382

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

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2012			2011			2010

SALES	$	17,984,419		$	15,755,443		$	16,364,733

COST OF PRODUCTS SOLD		15,762,990			13,868,625			14,806,460

GROSS PROFIT		2,221,429			1,886,818			1,558,273

COMMISSION INCOME		15,652			34,248			96,497

OPERATING EXPENSES
Salaries and wages		907,001			1,085,416			1,060,735
General and administrative		816,056			726,717			734,398
Selling and delivery		2,063,227			1,632,478			1,467,694
Depreciation		-			15,367			14,874

TOTAL OPERATING EXPENSES		3,786,284			3,459,978			3,277,701

LOSS FROM OPERATIONS		(1,549,203	)		(1,538,912	)		(1,622,931	)
Financial		13,678			41,407			11,800
Loss (gain) on foreign exchange		364,956			(111,833	)		(354,340	)

LOSS BEFORE INCOME TAXES		(1,927,837	)		(1,468,486	)		(1,280,391	)

INCOME TAX (RECOVERY) EXPENSE		(20,401	)		812			(9,047	)

NET LOSS	$	(1,907,436	)	$	(1,469,298	)	$	(1,271,344	)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT		(74,385	)		49,393			677,987

COMPREHENSIVE LOSS	$	(1,981,821	)	$	(1,419,905	)	$	(593,357	)

LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED	$	(0.05	)	$	(0.04	)	$	(0.03	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED		40,467,636			40,467,636			40,467,636

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

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED 31 MARCH 2012 AND 2011

(Expressed in United States Dollars)

	Shares		Capital Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Deficit

Balance, 1 April 2010		40,467,636	$	2,023,382	$	27,704,592	$	306,205		$	(30,838,402	)	$	(804,223	)

Foreign currency translation		-		-		-		49,393			-			49,393

Net loss for the year		-		-		-		-			(1,469,298	)		(1,469,298	)

Balance, 31 March 2011		40,467,636		2,023,382		27,704,592		355,598			(32,307,700	)		(2,224,128	)

Foreign currency translation		-		-		-		(74,385	)		-			(74,385	)

Net loss for the year		-		-		-		-			(1,907,436	)		(1,907,436	)

Balance, 31 March 2012		40,467,636	$	2,023,382	$	27,704,592	$	281,186		$	(34,215,138	)	$	(4,205,949	)

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

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED 31 MARCH

(Expressed in United States Dollars)

	2012			2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss	$	(1,907,436	)	$	(1,469,298	)	$	(1,271,344	)

Adjustment to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation		-			15,367			14,874
		(1,907,436	)		(1,453,931	)		(1,256,470	)

Changes in operating assets and liabilities:
Accounts receivable		34,613			288,163			291,465
Inventories		1,099,407			1,970,487			3,505,255
Prepaid expenses and other		(386	)		1,557			3,886
Accounts payable and accrued liabilities		(132,992	)		290,085			(96,026	)
Taxes payable		-			(82,905	)		31,245
Accounts payable to parent company		955,427			(1,323,000	)		(2,966,236	)

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES		48,633			(309,544	)		(486,881	)

CASH FLOWS FROM INVESTING ACTIVITIES		-			-			-

CASH FLOWS FROM FINANCING ACTIVITIES		-			-			-

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(74,385	)		49,393			677,987

NET (DECREASE) INCREASE IN CASH		(25,752	)		(260,151	)		191,106

CASH, BEGINNING OF YEAR		375,365			635,516			444,410

CASH, END OF YEAR	$	349,613		$	375,365		$	635,516

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

COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED 31 MARCH 2012 AND 2011

(Expressed in United States Dollars)

NATURE OF OPERATIONS

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

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

As of 31 March 2012, the Company had significant estimates for allowances for doubtful accounts in the amount of $266,355, allowance for obsolete inventory reserve of $942,011 and sales return and allowance reserve of $113,193.

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

The Company follows the guidance in Accounting Standards Codification (“ASC”) 605-50,Revenue Recognition- Customer Payments and Incentives. In accordance with ASC 605-50, the Company is required to classify certain payments to its customers as a reduction of sales. The Company grants advertising allowances to its major customers as contributions to promote the Company's products. Management has determined that the Company meets the requirements of ASC 605-50 in order to characterize these contributions as a cost as opposed to a reduction in revenue and accordingly these costs are included in selling and delivery expenses.

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 inventory reserves. 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 $425,378 (2011 - $629,656).

The Company classifies the following expense categories separately on its statements of operations: salaries and wages; selling and delivery; and general and administrative. The Company’s labor costs of the warehouse and office staff are included in the salaries and wages expense category. The Company’s selling expenses primarily include shipping and handling costs, sales commissions, royalty, 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 by the weighted average cost method. Inventory is comprised of finished products that the Company intends to sell to its customers. The Company periodically makes judgments and estimates regarding the future utility and carrying value of its inventory. The carrying value of inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from the inventory is less than its carrying value. The Company has inventory reserves for estimated obsolescence or unmarketable inventory which is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. As of 31 March 2012, the Company’s inventory reserve was $942,011 ($725,822 in 2011).

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 as of 31 March 2012 and 2011 as $266,355 and $175,206, 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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Currency Translation Adjustment and Foreign Currency Transactions

The accounts of the foreign subsidiaries were translated into U.S. dollars in accordance with the provisions of ASC 830,Foreign Currency Matters. Management has determined that the Hong Kong dollar is the functional currency of the Hong Kong subsidiary, the US dollar is the functional currency of the US subsidiary and the Canadian dollar is the functional currency of the Canadian subsidiary. Certain current assets and liabilities of these foreign entities are denominated in U.S. dollars. In accordance with ASC 830, transaction gains and losses on these assets and liabilities are included in the determination of income for the relevant periods. Adjustments resulting from the translation of the financial statements from their functional currencies to United States dollars are accumulated as a separate component of accumulated other comprehensive income and have not been included in the determination of income for the relevant periods.

Income Taxes

The Company accounts for income taxes pursuant to ASC 740,Income Taxes. Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

Fair Value of Financial Instruments

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

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

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

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

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

The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. As of 31 March 2012 and 2011, 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income

The Company adopted ASC 220,Comprehensive Income that establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' equity and consists of foreign currency translation adjustments. ASC 220 requires only additional disclosures in the financial statements and does not affect the Company's financial position or results of operations.

Earnings or Loss Per Share

The Company accounts for earnings per share pursuant to ASC 260,Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.

There were no dilutive financial instruments for the years ended 31 March 2012 and 2011.

Valuation of Long-Lived Assets

In accordance with ASC 360 Property, Plant and Equipment, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of the asset less cost to sell.

Concentration of Credit Risks

The Company is exposed to credit risk on accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit terms. Our five largest customers made up approximately 71% of our total revenues for the year ended 31 March 2012 (81% in 2011).

Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within Canada, United States and Hong Kong. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash. The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States and Canada. Balances at financial institutions or state-owned banks within Hong Kong are not covered by insurance. Total cash in state-owned banks and cash on hand at 31 March 2012 and 2011, amounted to $11,324 and $18,598, respectively, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

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

Foreign Currency Risk

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

Management has determined that the Hong Kong dollar is the functional currency of the Hong Kong subsidiary, the US dollar is the functional currency of the US subsidiary and the Canadian dollar is the functional currency of the Canadian subsidiary. Certain current assets and liabilities of these foreign entities are denominated in U.S. dollars. The Company is therefore exposed to currency risks due to potential variation of the currencies in which it operates. The Company does not use derivative instruments to hedge its foreign exchange risk.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). This accounting update requires entities to present comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The option to present components of other comprehensive income (“OCI”) as part of the statement of changes in shareholders’ equity has been eliminated.In addition, the amended guidance requires entities to show the effects of items reclassified from OCI to net income on the face of the financial statements. This guidance is effective for the Company’s fiscal year beginning April 1, 2012. The Company does not expect the adoption of ASU 2011-05 to have any material impact on its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (ASU 2011-08”). This accounting update allows an entity the option to first assess whether the fair value of a reporting unit is more likely than not less than its carrying amount by utilizinga mix of qualitative assessments and quantitative tests among its reporting units. If the entity determines that this threshold is not met, then performing a two-step impairment test is unnecessary. This guidance will become effective for the Company in the first quarter of fiscal year 2013; however, early adoption is permitted. The Company does not expect the adoption of ASU 2011-08 to have any material impact on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, regarding disclosures about offsetting assets and liabilities. This update requires entities to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. Disclosures are required for derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This update is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.The Company does not expect the adoption of ASU 2011-11 to have any material impact on its consolidated financial statements.

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 as of 31 March 2012 and 2011:

	Balance at Beginning of Year		Additions (Reductions) Charged to Costs and Expenses		Deductions			Balance at End of Year
Year ended 31 March 2012
Deducted from asset account:
Allowance for doubtful accounts	$	175,206	$	91,149	$	-		$	266,355
Sales return and allowance reserve		252,977		548,433		(688,217	)		113,193
Total	$	428,183	$	639,582	$	(688,217	)	$	379,548
Year ended 31 March 2011
Deducted from asset account:
Allowance for doubtful accounts	$	187,321	$	-	$	(12,115	)	$	175,206
Sales return and allowance reserve		257,569		571,659		(576,251	)		252,977
Total	$	444,890	$	571,659	$	588,366		$	428,183

INCOME TAXES

The provision for income taxes reconciles to the amount obtained by applying the statutory income tax rates of 28% (2011 - 31%) in Canada, 16.5% (2011 - 16.5%) in Hong Kong and 15% (2011 – 15%) in US to income before provision for taxes as follows:

	2012			2011

Computed expected tax	$	(535,883	)	$	(379,234	)
Expenses not deductible for tax purposes		3,708			15,417
Equipment		(1,544	)		3,815
Tax losses available for carryforward		533,719			363,376
Utilization of prior year tax losses		0			(3,374	)
Other		(20,401	)		812
Provision for income taxes	$	(20,401	)	$	812

The Company has $7,901,428 of tax losses available to offset future taxable income which expire as follows:

	USA		Canada		Hong Kong		Total
Do not expire	$	-	$	-	$	1,889,788	$	1,889,788
2029		489,043		1,291,223		-		1,780,266
2030		380,147		665,715		-		1,045,862
2031		102,534		1,174,208				1,276,742
2032		213,846		1,694,924				1,908,770
	$	1,185,570	$	4,826,070	$	1,889,788	$	7,901,428

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

	2012			2011

Deferred income tax assets (liabilities):
Book over tax depreciation	$	8,317		$	8,317
Tax losses available for carryforward		515,466			440,743
Valuation allowance		(515,466	)		(440,743	)
Deferred income taxes	$	8,317		$	8,317

AMOUNTS PAYABLE TO PARENT COMPANY

As of 31 March 2012, the Company owed $9,369,295 (2011 - $8,413,869) to the Starlight group of companies, the principal corporate shareholder of the Company ("Starlight"). Of this amount $8,764,668 (2011 - $7,809,241) was owed in the form of trade payable and the remainder was in the form of advances and interest on advances. The advances from Starlight were paid for by the issuance of shares in the fiscal year ended 31 March 2007, leaving only the accrued interest as payable. These amounts are payable on demand and Starlight has agreed not to charge further interest on the accrued interest payable. Interest accrued as of 31 March 2012 was $604,627 (2011 - $604,627).

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The balance is comprised of:

	2012		2011
Trade payables		524,697		496,179
Accrued liabilities		101,712		118,066
Claims payable		15,048		20,420
Sales return and allowance reserve		113,193		252,977
	$	754,650	$	887,642

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 2012 were:

2013	$	349,406
2014		176,093
	$	525,499

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 2012, the Company purchased $9,700,166 (2011 - $7,299,267) of goods from Starlight. The Company purchased $1,994,144 of goods from an associate company, The Singing Machine Company (SMC) (2011 - $1,936,077) and sold goods of $171,353 to SMC. (2011 - $233,904).

The Company recorded as an accrued liability of $46,288 payable to Starlight as fees to handle and repair defective returns in 2012 ($100,000 in 2011) and a liability of $340,197 as share of minimum royalty on the use of Polaroid brand for digital cameras ($110,700 in 2011).

ECONOMIC DEPENDENCE

The Company is economically dependent on its parent company for the supply of inventory products to its customers. For the year ended 31 March 2012, the Company purchased approximately 75% of its inventory needs from Starlight (2011 - 65%).

For the year ended 31 March 2012, two of the Company’s customers accounted for approximately 48% of sales (55% in 2011). Loss of any one of the Company’s major customers may have significant adverse results to the financial position of the Company.

Account receivablefrom the Company’s two largest customers as of 31 March 2012 amounted to $832,892 compared with $948,601 in 31 March 2011. Claims payable to a major customer were $287,813 (Nil in 2011).

10.

OPERATING SEGMENT INFORMATION

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

	Canada			Hong Kong			United States			Total

2012
Assets		5,134,054			16,724			767,218			5,917,996
Sales, net		15,517,863			1,656,527			810,029			17,984,419

Gross margin		2,219,577			161,687			(159,835	)		2,221,429
Net loss		(1,658,243	)		(35,348	)		(213,845	)		(1,907,436	)

2011
Assets		6,044,244			136,493			896,645			7,077,382
Sales, net		13,763,003			1,077,458			914,983			15,775,444
Gross margin		1,752,635			115,225			18,958			1,886,818
Net loss		(1,186,699	)		(180,065	)		(102,534	)		(1,469,298	)

11.

SUPPLEMENTAL CASH FLOW INFORMATION

During the year ended 31 March 2012 the Company paid interest of $13,678 (2011 - $41,407) and paid income taxes of $805 (2011 - $53,777) and received a refund of income tax of $21,206.

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 2012 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, 2012.

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 theInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Management concluded that we maintained effective internal control over financial reporting as of March 31, 2012.

(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, 2012 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 2012.

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, 2012:

Name	Age	Position
Philip Lau	64	Chairman of the Board of Directors and President
Peter Horak	70	Chief Executive Officer and Director
Carol Atkinson	63	Chief Financial Officer
Yu Wing King	60	Vice President, Hong Kong operation
Jacky Lau	53	Director
Jeff Horak	54	Vice President –Sales and Marketing - Canada Operations

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, 2011, its officers, directors and 10% shareholders complied with all Section 16(a) filing requirements.

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, 2012.

Director Compensation (1)

Name
(a)

Fees Earned
or Paid in
Cash
($)
(b)

Stock
Awards
($)
(c)

Option
Awards
($)
(d)(1)

Non-Equity Incentive
Plan Compensation
($)
(e)

Change in Pension Value and
Nonqualified Deferred
Compensation Earnings
(f)

All Other
Compensation
($)
(g)

Total
($)
(h)

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

Board Directors generally receive meeting attendance fees of $300. However, each such director waived his/her rights to receive such fees during fiscal 2010. Annual retainers are not currently provided to directors; however, such retainers may be re-instituted in the future.

Executive Compensation

The following table sets forth certain compensation information for the fiscal years ended March 31, 2012, 2010 and 2009 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 2012, 2010 and 2009:

Summary Compensation Table

Name & Principal Position	Year		Salary ($)		Bonus ($) (5)		Stock Awards($) (5)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)		All Other Compensation ($) (1)		Total ($)

Peter Horak		2012		50,400		—		—		—		—		—		4,687		55,087
CEO and Director		2011		94,616		—		—		—		—		—		9,446		104,062
		2010		91,866		—		—		—		—		—		8,820		100,686

Jeff Horak		2012		100,800		—		—		—		—		—		4,687		105,487
Vice President - Canada		2011		120,653		—		—		—		—		—		10,627		131,280
		2010		104,727		—		—		—		—		—		9,924		114,651

Yu Wing King		2012		40,538		1,543		—		—		—		—				42,081
Vice President – Hong Kong		2011		41,961		1,543		—		—		—		—		-		43,504
		2010		40,131		1,538		—		—		—		—		-		40,689

E. J. Colin		2011		100,800		—		—		—		—		—		4,687		105,487
National Sales Manager - Canada		2011		102,941		—		—		—		—		—		5,904		108,845
		2010		96,459		—		—		—		—		—		5,508		101,967

(1) Includes automobile expense allowances and other employee benefits

Employment Agreements

The Company signed no new employment agreements during fiscal 2012 and 2011.

OPTION GRANTS IN FISCAL 2011 (1)

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

GRANTS OF PLAN-BASED AWARDS

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards

Estimated Future Payouts Under
Equity Incentive Plan Awards

All Other
Stock Awards:
Number of
Shares of
Stocks or

All Other
Option Awards:
Number of
Securities
Underlying

Exercise or
Base Price
of Option

Grant Date
Fair Value
of Stock
and

Name
(a)

Grant
Date
(b)

Threshold
($) (c)

Target
($)
(d)

Maximum
($)
(e)

Threshold
($)
(f)

Target
($)
(g)

Maximum
($)
(h)

Units
(#)
(i)

Options
(#)
(j)

Awards
($/Sh)
k

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, 2012.

Option Awards

Stock Awards

Name

Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)

Option
Exercise
Price
($)

Option
Expiration
Date

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)

Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)

Equity Incentive
Plan Awards:
Market or Payout
Value
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)

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

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

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


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

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

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class

Common Stock	Philip Lau Chairman and President		—		—
Common Stock	Peter Horak Chief Executive Officer and Director		257,500		*
Common Stock	Carol Atkinson Chief Financial Officer		—		—
Common Stock	Yu Wing King Vice President, Hong Kong operation		—		—
Common Stock	Jacky Lau Director		—		—
Common Stock	Jeff Horak Vice President –Sales and Marketing - Canada Operations		—		—
Common Stock	Starlight International, 5/F, 232 Aberdeen Road Hong Kong		37,948,644		93.8	%

Common Stock	All Officers and Directors, as a Group		257,500		*

* Less then one percent.

Equity Compensation Plan Information

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

Item 13.

Certain Relationships and Related Transactions

During the year ended March 31, 2012, we purchased $9,700,166 (2011 - $7,299,267) of goods from our parent company, Starlight.

We sold goods to our associate company, Singing Machine Company Inc in an amount of $171,353 during the fiscal year (2011 – $233,904l) and purchased $1,994,144 of goods from Singing Machine Company (2011- $1,936,077).

We accrued royalty expense of $340,197 and $46,288 of administrative fees to our parent company, Starlight during the fiscal year (2011 – none for royalty and $100,000 for administrative fees)

Item 14.

Principal Accountant Fees and Services

The following is a summary of the fees billed to the Company for professional services rendered for the fiscal years ended March 31, 2012 and 2011:

	2011		2011
1. Audit Fees (a)	$	45,900	$	42,000
3. Tax Fees (b)		4,080		4,284
4. Total Fees		49,980		46,284

(a)

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

(b)

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

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

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

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

Consolidated Financial Statements

See Index to Consolidated Financial Statements on page 31 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, 2012
Deducted from asset account:
Allowance for doubtful accounts	$	175,206	$	91,149	$	-		$	266,355
Sales return and allowance reserve		252,977		548,433		(688,217	)		113,193

Total	$	428,183	$	639,582	$	(688,217	)	$	379,548

Year ended March 31, 2011
Deducted from asset account:
Allowance for doubtful accounts	$	187,321	$	-	$	(12,115	)	$	175,206
Sales return and allowance reserve		257,569		571,659		(576,251	)		252,977

Total	$	444,890	$	571,659	$	(588,366	)	$	428,183

Year ended March 31, 2010
Deducted from asset account:
Allowance for doubtful accounts	$	196,426	$	34,973	$	(44,078	)	$	187,321
Sales return and allowance reserve		104,641		1,653,881		(1,500,953	)		257,569

Total	$	301,067	$	1,688,854	$	(1,545,031	)	$	444,890

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

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.

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, 2012.

	COSMO COMMUNICATIONS CORPORATION

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

	By:	/s/ Carol Atkinson
		Carol Atkinson
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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

Name	Title	Date

/s/PETER HORAK	Chief Executive Officer and	June 29, 2012
Peter Horak	Director (Principal Executive Officer)

/s/CAROL ATKINSON	Chief Financial Officer and	June 29, 2012
Carol Atkinson	Principal Financial Officer and Principal Accounting Officer

/s/ JACKY LAU	Director	June 29, 2012
Jacky Lau

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Cosmo Communications (CSMO) Inactive 10-K2012 FY Annual report

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