Breakaway Bicycle Company designs and builds custom bicycle frames to the exact specifications of the finest road and mountain bike racing professionals in the world. Breakaway has earned this right because its founder and master builder, Mike Giro, hand crafts road and mountain frames that satisfy the one common specification of all competitive cyclists — it helps them to win races. Since 1990, Breakaway has designed and built bike frames for racing professionals and those biking enthusiasts who take their riding seriously and want to own the best equipment. As more and more of the population gain an interest in competitive cycling, the demand for custom built bicycles has also increased. Many individuals, particularly those interested in mountain biking, have found that there is a tremendous interest in competitive mountain biking which include grueling cross-country races and gravity-defying events such as the “in your face” downhill racing. Based on marketing projections, this interest increased following the 1996 Summer Olympics in Atlanta where mountain bike racing made its debut as an Olympic medal event. To meet the expected demand for custom built bike frames that can handle this type of riding, as well as road racing, Breakaway is seeking the financing necessary to add new workstations and hire additional designer-builders. The cost to purchase and install the additional workstations is $60,000. The additional salary expense is projected to increase labor expenses by $6,250 per month. If this investment is made, though, marketing projections and written commitments from several mountain bike racing teams in the U. S. and Europe reflect a 25 percent increase in bike frame sales. This increase translates into sales revenue of $1,390,800 for 2000 and $1,619,600 for 2001.
Breakaway Bicycle Company was started by Mike Giro in 1990 and began building high quality hand-crafted bicycle frames. Because these bike frames were popular with serious bicycle enthusiasts, Breakaway moved from a workshop behind Mr. Giro's house to a larger shop located on LeTour Street in Boulder, Colorado in 1993. The company now employs 10 people, including Mr. Giro, who design, build, and test each new bicycle frame. The great majority of customers that Breakaway builds bikes for are serious cyclists who require their road bikes and mountain bikes to be light, stiff, responsive, and race worthy. Breakaway Bicycle Company is a closely held Colorado corporation created in 1990. For federal income tax purposes, Breakaway is classified as a subchapter S corporation. There are three shareholder directors, each of whom is an officer working for the company.
According to a study done by the Department of Transportation, approximately 25 million bicycles are purchased every year. The vast majority of these bicycles (96 percent) are built on an assembly line and sell for an average price of $200.00. The remaining 4 percent of the market are high-end custom built bicycles that cost an average of $1,500. Accordingly, the custom built bicycle market generates revenues of $1.5 billion on sales of one million frames. Because the Summer Olympic Games are scheduled for 2000, projected sales are expected to be significantly higher. An industry study assembled in 1997 reflected that the sale of all types of bicycles and accessories increased 30 percent following the 1996 Summer Olympics. A survey taken by The Bike Tour, a monthly bicycling periodical, shows that the type of individual that purchases a custom built bicycle typically is a serious bicycling enthusiast. This person rides over three thousand miles a year and is interested in using the equipment that is best suited to handle this much riding. Accordingly, this individual may spend several thousand dollars a year to purchase equipment that will improve the performance and enjoyment of a bike
ride. It is these bicycle enthusiasts that are...