Once near bankruptcy, TutoringZone appears to be surviving
Published: Saturday, September 22, 2012 at 6:44 p.m.
Last Modified: Saturday, September 22, 2012 at 6:44 p.m.
A split among TutoringZone's business partners that one described as a divorce with very personal attacks — leading to lawsuits, an eviction and lost friendships — has all but bankrupt the original business after the other partner left with some of the tutors to open a competing business.
Despite the turmoil behind the scenes that left TutoringZone on the verge of bankruptcy this summer, the business started the fall semester seemingly uninterrupted under new ownership after an investor purchased its assets and injected some cash to keep the company going.
Matt Hintze, who started TutoringZone with partners 10 years ago and is now an employee of the new owner, said business is good with growing operations at Florida State and Indiana universities. They are offering study guides and reviews for 10 classes total, including at the University of Florida.
Hintze said competition has made TutoringZone a better company with an increased emphasis on online learning for its college course review sessions.
He is trying to stay focused on teaching and innovating even while faced with more than a million dollars in debt to investors — including his parents — and the stress to him and his immediate family as they prepare to file for personal bankruptcy.
Hintze also said he intends to pay back the investors, although he is under no legal obligation to do so.
"I consider this to be a moral obligation," he said. "We're talking about a lot of money. A lot of people are upset right now. When we started this process, these people were friends and family."
Hintze and Ethan Fieldman started the business with a third partner in 2002. Both said the fallout started because they had different ideas about how to conduct business. Both said the split started amicably but went downhill.
Fieldman said that happened after they went to court.
In November 2010, Hintze sued to have TutoringZone dissolved with the idea of starting a new company.
When the partners couldn't reach an agreement in mediation, the judge ordered that TutoringZone be auctioned off to the highest bidder. They lined up investors, and Hintze bought out Fieldman for $835,000. Hintze got TutoringZone. Fieldman got Tutor Matching Service, a Facebook service for students to find tutors, and Group Interactive Networks, which builds online applications for TMS and other businesses.
The sale closed on June 17, 2011. Fieldman opened Study Edge the next day with the proceeds from the sale and nine tutors who jumped ship. The new company immediately started chipping away at TutoringZone's market share.
John Spence, a business consultant and speaker, was one of four local businessmen and friends of Hintze who gave him a combined $550,000 for the buyout in the form of personal loans.
He said the investment looked good on paper. With strong cash flows, the company would be able to secure additional financing.
However, Spence said the investors were misled to believe that the deal would include a noncompete clause and were not told about other loans Hintze had already taken out.
"Had it not been someone we knew and trusted, we probably would have asked a lot more questions," he said.
Hintze said that was a "misunderstanding or a misremembrance." As a teacher, he said he relied on the investors for business guidance and all were aware there was not a noncompete agreement. He said they had even talked about the possibility of him competing with TutoringZone.
Chris James, a prior investor, said most of the investors understood that there was no noncompete.
Fieldman said Hintze did not want to sign a noncompete so it would lower the value of the company and the amount they would have to pay in the buyout.
"We both dropped our bids," Fieldman said. "Mine dropped in half."
After TutoringZone lost tutors and market share to Study Edge, Spence said the other investors asked him to step in and he took over management from October until January of this year.
Fieldman said the investors approached him about purchasing their notes, but now there wasn't as much company to buy back.
Spence said the company went from positive cash flow back to losing money after he left. TutoringZone stopped making payments on its loans and to vendors.
Ryan Dix, who had made one of the earlier loans, sued Hintze in February. Dix was one of the original partners in TutoringZone who went on to start Smokin' Notes. The lawsuit claims that Hintze owes $48,000 on a $50,000 loan. The case is still pending.
Randy Scott, one of the four buyout investors, sued Hintze in March for nonpayment on a $25,000 loan. Scott dismissed the suit in June after someone purchased his note.
In August, TutoringZone was evicted from its office in the Gainesville Shopping Center on North Main Street. For fall classes, the company is holding study sessions in conference rooms near campus and handing out packets at the Swamp Restaurant.
With TutoringZone out of operating funds at the start of summer, Chris James stepped in.
James, who is a professor of finance at UF, started by buying all the company's intellectual property — video and written course materials, trademarks, websites and online applications — providing the cash to keep it operating through the summer.
He then transferred all materials and operations into a new corporate entity, Tutoring Zone II, owned by him and another investor he would not name.
James said the operation is now well-capitalized and has no debt to speak of. He said recouping his initial investment was only part of his motivation.
"Matt's a former grad student of mine and a good friend," he said. "I'm also trying to help out the other investors."
The plan is to direct cash flows to the other investors, he said.
New Horizons Computer Learning Centers, which also has online courses, is letting TutoringZone use its old classroom space.
Owner Tim Broom said the arrangement is mutually beneficial since they are able to share know-how about teaching and technology.
Broom said he has no investment in the company and doesn't charge rent.
"I"m doing it because I believe in what he does and I'm trying to help him get all his investors paid back," he said. "I believe he is doing the right thing (by) making it as profitable as possible so he can make it right for everybody."
Hintze said he was inexperienced in business and overconfident about its future after the split, but has always remained committed to building a company that provides outstanding teaching.