Troubles continue to mount for MOD Systems, the Seattle maker of digital media kiosk technology which has been embroiled in an ongoing legal battle with founder Mark Phillips for more than a year. The latest development comes in a King County Superior Court filing from July 8 in which attorneys for the company say that MOD is facing serious economic challenges.

"The company is literally out of money in the next 30-60 days, and is actively seeking financing in an attempt to remain a going concern," writes Fenwick & West attorney Brian Buckley, who represents MOD. "Approximately 40 employees' jobs hang in the balance. The outstanding litigation with Phillips has already been a material impediment to MOD securing funding, and the cloud created by the IP issues in this lawsuit will be a serious concern for new investors." That sounds pretty grim.

But, in an interview, MOD Systems CEO Anthony Bay said that the company has the support of existing investors and noted that it is not running out of money in the next 30 to 60 days as spelled out in the filing. Bay added that a financing deal is in the works, and he expects to announce details of that in the coming days.

Asked about the particulars of the new financing round from investors, Bay declined to go into details. "I can tell you that we'd be having a different conversation if we were all nervous that the company was going to go out of business in the next 30 to 60 days," he said. "We are not concerned about having sufficient capital."

MOD Systems is attempting to block an attempt by Phillips to halt civil proceedings while a separate criminal matter makes its way through the federal courts. Phillips, who founded MOD in 2005, was charged with two counts of wire fraud in March for allegedly misusing corporate funds.

Phillips has argued that the civil case should be stayed pending the outcome of the criminal charges, but attorneys for MOD disagree writing that halting the legal matter "could have a significant negative impact on MOD."

Bay said that the company wants the the civil suit to proceed because delaying it creates an ongoing cloud that could impact future financing. He added that an important goal of MOD at this point is to try to "clean up" from the Phillips' legacy.

"It is worse for the company to have a piece of litigation hanging out there than if we have a chance to resolve it," Bay said.

Phillips filed the civil action against MOD last November, with the case revolving around complex technology licensing agreements.

Prior to that suit, an internal investigation conducted by MOD found that the entrepreneur had misappropriated $1.3 million. In an arbitration hearing two months ago, Phillips was forced to hand over his shares in the company.

"As of the end of May, Mark Phillips is not a shareholder in MOD and owes MOD a substantial amount of money in attorney's fees," said Bay.

Historically, MOD has been well-funded, drawing on the resources of two large corporate partners. It pulled in $35 million in funding from NCR and Toshiba in September 2008.