the home—where your life is,” Bay says.
MOD has signed distribution deals with Warner Bros and Paramount Digital Entertainment, as well as with Universal Music Group, Sony Music Entertainment, Warner Music Group, EMI Music, and a number of independent labels, to sell some 5.2 million music tracks and 4,000 movies to customers through its kiosks free of digital rights management restrictions.
The new strategic push being supported by the investors—who MOD didn’t name—comes after what had to be a stressful time at the company. Local philanthropist and MOD investor Robert Arnold filed a lawsuit against the company’s top three executives, Mark Phillips, chief operating officer Kenneth Gordon, and Bay, in 2009, accusing Phillips of using corporate funds for his personal benefit—including for the purchase of a vehicle, travel, entertainment, and rent for his place of residence. The suit also alleged that Phillips misrepresented MOD’s intellectual property to Arnold, who had reportedly invested $3 million in the company.
In April 2009, the company put both Phillips and Gordon on administrative leave, and Bay became acting CEO of MOD. In March Phillips, 35, was charged with wire fraud by federal prosecutors, who allege that he used company money to purchase a pair of $30,000 watches and attempted to take control of MOD’s bank accounts without permission, according to a report by The Seattle Times. The story also notes that prosecutors estimate Phillips spent as much as $524,000 of MOD’s money on personal or non-business expenses. In a statement on the company website Mod said that it pursued legal recourse against Phillips to recoup as much as $1.3 million in misappropriated funds, as well as other claims.
Bay, who co-founded the company with Phillips as its “original angel investor,” says “disappointing is probably not a strong enough word” for how Phillips’ actions have affected him and the company. In the meantime, he has been working to help the company recover from the taint. Phillips, he says, is no longer associated with the company.
“The company has no dealings with him of any kind,” Bay says. “He’s not a shareholder, or involved in any way. The company is completely divorced from him. It’s unfortunate that he is the way he is, but the good thing is that the justice system is working.”
This latest round of financing speaks to the credit of the company, Bay says.
“It was hard about 18 months ago,” Bay says. “But as it stands now, for the most part, it’s history, and it really doesn’t get in the way that much.”
However, according to a report by TechFlash, in a King County Superior Court filing dated July 8 MOD attorneys indicated that the company was running out of money, fast, and would be “literally out of money” in 30 to 60 days without immediate financial support.
Although Bay could not specifically name the investors behind the $6 million Series B, he did say the round was led by the company’s current investors, which include those from the initial round—Toshiba, NCR, and Deluxe, and Arnold.
