Technology and patent right, net

9 Months Ended

Sep. 30, 2011

8. Technology and patent right, net

On September 17, 2009, to acquire technology for use in the manufacture of the Company’s starch-based material, the Company entered into an agreement to purchase two technologies from four individuals including two related parties, Mr. Zhonghao Su, Chief Executive Officer of the Company, and Mr. Yingjie Qiao, technical director of the Company. Pursuant to the sales agreement, Mr. Zhonghao Su agreed to contribute his interest in the technologies without any consideration. The total amount payable for these two technologies was RMB15 million which was the fair value of the technology and patent right ($2,360,383), of which the Company paid RMB5 million ($786,794). The remaining RMB10 million ($1,573,589), which was recorded as other payables, will be paid by the Company upon receipt of the patent rights certificates for these two technologies and transfer of the ownership of these patent rights to the Company.

On December 17, 2009, the Company entered into a supplemental agreement with three owners of these technologies, Mr. Yingjie Qiao, Mr, Zhonghao Su, and Mrs. Dongyan Tang, to amend the agreement for the purchase price of the technologies. Pursuant to the supplemental agreement, the Company would only acquire one technology for the total purchase price of RMB15 million ($2,360,383) payable to Mr. Yingjie Qiao and Mrs. Dongyen Tang, of which the Company has already paid RMB5 million ($786,794). The remaining RMB10 million ($1,573,589), which was recorded as other payables, will be paid by the Company when it receives the patent right certificate for the technology and the ownership of patent right has been completely transferred to the Company. The Company began using this technology for manufacturing in late 2009, and amortizes it over its estimated useful life of 10 years.

Pursuant to the supplemental agreement, the Company also obtained the right to use the other technology which was the subject of the original agreement and which the Company currently applies in its dry-powder blending process to produce its starch-based material. The supplemental agreement provides the Company with a royalty-free right to use this other technology as long as it is owned by the current owners, a right of first refusal on any proposed transfers of the technology by the current owners and an option to purchase the technology for RMB15 million ($2,360,383). This technology is the subject of a patent application filed with, and presently under review by, the PRC State Intellectual Property Office.

The technology and patent right at cost less amortization consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
	(Unaudited)
Technology and patent right	$	2,360,383	$	2,264,937
Less: Accumulated amortization		452,406		264,242
Total	$	1,907,977	$	2,000,695

For the three months ended September 30, 2011 and 2010, amortization expense was $58,420 and $27,692, respectively, and for the nine months ended September 30, 2011 and 2010, amortization expense for technology and patent right was $173,109 and $82,636, respectively.

The amortization expense from September 30, 2011 for the next five years is expected to be as follows:

For the Year Ending December 31,	Amount
2011 (from October 1 to December 31)	$	59,010
2012	$	236,038
2013	$	236,038
2014	$	236,038
2015	$	236,038
Thereafter	$	904,815
Total		1,907,977

CHINA GREEN MATERIAL TECHNOLOGIES, INC. 10-Q