This excerpt taken from the DEVC 8-K filed Jan 26, 2006.
NOTE 2 CUSTOMER CONTRACTS PURCHASED AND ACCUMULATED AMORTIZATION
Customer contracts purchased - The Company has entered into agreements with other security companies (dealers), under which it agrees to purchase their customer contracts. The contract agreements also provide for a holdback, usually 10% of the purchase price, in the event customers cancel their contracts. The seller usually has two options, either to replace the customer contract with a new customer, or the residual value of the contract will be offset against the holdback amount. The holdback is paid out over a pre-determined term prescribed in each respective contract. As of December 31, 2004 and 2003, holdbacks amounted to $586,430 and $289,440, respectively.
Accumulated amortization Customer contracts are amortized using the straight-line method over their estimated lives of seven years. The seven-year amortization period is managements best estimate of the average life of a typical customer based on historical experience within the industry. The Company evaluates acquired customer contracts periodically to assess whether an impairment may exist.
As management has estimated this amortization, it is at least reasonably possible that actual lives of these contracts could be greater than or less than this estimate. If so, the amortization period would be changed thus increasing or decreasing amortization expense in the future. At December 31, 2004 and 2003 customer contracts purchased consisted of the following:
Amortization expense was $3,787,239 and $4,186,701 for the years ended December 31, 2004 and 2003, respectively. The estimated amortization expense for the five succeeding years ending December 31, 2005 to December 31, 2009 and thereafter are as follows: 2005 - $3,876,000; 2006 - $3,627,000; 2007 - $3,533,000; 2008 - $3,485,000 and 2009 - $3,143,000 and thereafter - $2,530,000.
COASTAL SECURITY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 Continued