Warrants

9 Months Ended

Jun. 30, 2011

12.

WARRANTS

On September 30, 2008, the Company’s predecessor, Navstar Media Holdings, Inc. (“Navstar”), entered into a Merger Agreement with Navstar’s wholly owned acquisition subsidiary, Rodobo International, Inc. (“Rodobo Merger Sub”), Cayman Mega and the sole shareholder of Cayman Mega. Pursuant to the Merger Agreement, Rodobo Merger Sub acquired all of the ownership interest in Cayman Mega and then merged with and into Navstar (the “Merger”). Prior to and in conjunction with the Merger, Cayman Mega entered into a Securities Purchase Agreement with an institutional investor for $3,000,000. As a result, upon the completion of the Merger, the institutional investor, together with other owners of Cayman Mega, received preferred stock convertible into common stock upon the increase of the authorized share capital of the Company. In addition, Cayman Mega also issued to the institutional investor warrants to purchase 818,182 shares of the common stock of Cayman Mega at an exercise price of $1.50 per share and warrants to purchase 545,455 shares of the common stock of Cayman Mega at an exercise price of $1.75 per share. No separate consideration was paid for such warrants. The warrants, which were assumed by the Company upon the Merger, expire on September 30, 2012.

The Company has determined that the warrants meet the conditions for equity classification pursuant to ASC 815, “Derivatives and Hedging”. Therefore, these warrants were classified as equity and included in Additional Paid-in Capital. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility 100%, risk free interest rate 3.99% (no dividend yield) and expected term of four years. The fair value of those warrants at the grant date was calculated at $971,788.

The warrants issued in connection with a private placement on June 17, 2010 to acquire 622,222 shares of common stock of the Company at an exercise price of $3.50 per share do not meet the conditions for equity classification pursuant to ASC 815, “Derivatives and Hedging”. Therefore, these warrants were classified as a long-term liability. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility at 61%, risk free interest rate (no dividend yield) of 1.76%, and expected term of 4.10 years on June 30, 2011. The fair value of those warrants was calculated at $412,387 on June 30, 2011. The change in fair value of warrants is recorded as other income/expense.

The following is a summary of the status of warrant activities as of June 30, 2011:

	Warrants		Weighted Average		Average Remaining
	Outstanding		Exercise Price		Life in years
Outstanding, September 30, 2010		1,985,859	$	2.20		2.89
Granted		-	$	-		-
Forfeited		-		-		-
Exercised		-		-		-
Outstanding, June 30, 2011		1,985,859	$	2.20		2.16

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References+ Details

Rodobo International Inc 10-Q