STRATEGIC PARTNERS
August 21, 2002
STOCKTON, Calif. -- In recent weeks, the Modesto Bee and Stockton Recordhave both reported on lawsuits filed against PayStar Corp. for fraud and breach of contract (See story: PayStar accused of fraud in lawsuit).
On March 24, 159 plaintiffs, primarily elderly people, sued the company in San Joaquin County, Calif., Superior Court, alleging that PayStar had ceased paying monthly rental fees on payphones in which they had invested. The company has filed papers denying the allegations.
Another investor, Michael McDonald of Sonora, Calif., said he has filed a pair of suits against PayStar, alleging that the company ceased paying rent on 85 ATMs he purchased from U.S. Cash Exchange of Calif., for $340,000 in 1999.
PayStar purchased U.S. Cash in 2001, according to McDonald, and quit making rent payments amounting to $3,600 per month four months later. McDonald, 69, said PayStar refused to tell him where the ATMs were for seven months, nearly forcing him into bankruptcy. He said he got his machines back only after signing an agreement with PayStar not to sue the company.
Once the agreement was signed, McDonald alleges that PayStar returned machines that were substandard and barely operational. He said only 35 of them are now in use, prompting him to file suit anyway. One of his suits asks for $25,000 in back rent, while the other seeks $500,000 for the return of his initial investment plus damages.
"I don't have anything good to say about Yotty," McDonald said of PayStar's CEO, William Yotty.
PayStar did not mention McDonald's suits in papers filed with the Securities & Exchange Commission (SEC) on July 15. The company, however, disclosed that lawsuits alleging similar charges were filed in the state of Washington during February and March, seeking nearly $5 million in damages. PayStar filed a motion for dismissal. The company claimed in the SEC report that it owed payphone and ATM operators $950,650 in unpaid rent.
The company recorded a net loss of $1.5 million for the first quarter of fiscal year 2002, ending March 31, and stated that its current liabilities exceed current assets by $8.8 million.
"Management is currently in the process of seeking additional funding, changing its business model, reducing expenses, and decreasing human resources," the company stated in its first-quarter report, filed on Aug. 9. "However, there can be no assurances that management's efforts to restore the company to profitable operations will be successful."
