Testimony of Receiver – Phillip Young

Testimony of Receiver – Phillip Young

Receiver Testimony Challenged on Investigation, Financial Assumptions, and Valuation Approach

(Court Hearing Transcript – February 9, 2026)

The court-appointed receiver, Phillip Young of Thompson Burton PLLC, testified under cross-examination regarding his investigation, financial analysis, and conclusions about the company’s performance and value.

Cross-examination elicited multiple admissions regarding incomplete investigation, reliance on assumptions, and the impact of the receivership itself on business performance.

1. Receiver Admitted Receivership Itself Harms Business Performance

   The receiver expressly agreed that the legal process itself negatively impacts operations, testifying: “Receiverships and litigation like this always have a negative impact on business.”

   This admission supports the position that any decline in performance following the receiver’s appointment cannot be evaluated without considering the disruptive effects of the receivership itself.

2. Receiver’s Assertion of Sales Decline Contradicted by Primary Data

   The receiver testified that the company experienced a decline in sales between 2024 and 2025.

   However, when presented with primary sales data from the company’s central transaction system, testimony established that revenue increased significantly year-over-year, reflecting strong growth rather than decline.

   The receiver acknowledged that if those figures were accurate, they would reflect meaningful growth, undermining the reliability of his characterization of declining performance and highlighting his lack of knowledge of the company’s actual sales performance.

3. Receiver Did Not Verify Key Financial Data Before Testifying

   The receiver acknowledged that he had not verified certain critical financial results prior to testifying, including most recent revenue performance.

   This included failing to confirm current-period results before forming conclusions about trends and projections presented to the Court.

4. Attribution of Forecasts to Founder Was Not Confirmed by Receiver

   The receiver acknowledged that projections he attributed to the company’s founder may have instead originated from another executive.

   This admission calls into question the accuracy of attribution used to support conclusions in his affidavit.

5. Testimony Established Forecasts Were Prepared by Management, Not Founder

   The company’s chief business officer testified under oath that she—not the founder—was solely responsible for preparing the forecasts, stating that the projections were developed by her and her team based on distributor data and internal analysis.

   She further testified that the founder’s role was limited to reviewing format prior to submission, directly refuting the receiver’s implication that the forecasts were driven or influenced by the founder.

6. Forecasts Were Conservative and Outperformed; Receiver Had Not Reviewed Actual Results

   The chief business officer testified that the forecasts were not inflated, as the receiver claimed in his most recent filings, but instead came in below actual results, with January performance exceeding projections by approximately $500,000.

   During cross-examination, the receiver acknowledged that he was not aware of the company’s January revenue at the time he made claims that forecasts were overstated, despite the hearing occurring on February 9. When presented with the actual outcome, he indicated he would be “surprised” to learn that forecasts were under rather than over, confirming that his earlier conclusions were made without reviewing the most recent available data.

7. Receiver Sought Expansion of Authority Before Completing Investigation

   The receiver admitted that before seeking clarification relief, he had not requested bank statements, taken depositions, or conducted a full investigation into the entities he sought to include.

   He further confirmed that he had not reached a conclusion at that time as to whether those entities should be part of the receivership, indicating that the request was made prior to completing a full factual review.

8. Receiver Relied on Models He Did Not Fully Understand or Validate

   The receiver testified that certain financial projections and models relied upon in his affidavit were prepared by third parties, and he could not fully explain the basis of those models.

   He acknowledged that he did not know the specific inputs or assumptions underlying certain key projections and deferred to others as the appropriate source for those details.

9. Cash Flow Analysis Included Debt and Non-Operating Obligations

   The receiver confirmed that his cash flow analysis included debt service, historical obligations, and other non-operating payments.

   He acknowledged that isolating operating cash flow would require adjustments that were not fully performed, and that different assumptions could materially change the conclusions.

10. Receiver Acknowledged Default Occurred During Receivership

    The receiver testified that certain defaults, including with a major vendor, occurred during the receivership period due to non-payment.

    He acknowledged that underlying agreements did not require immediate payment and that the default arose during the period of court-appointed control.

11. Vendor Litigation and Relationships Not Fully Investigated

    The receiver acknowledged that only one vendor lawsuit was pending at the time of appointment despite substantial vendor obligations.

    He further testified that he had not determined whether vendors had existing arrangements with management or whether they would have continued working with the company outside of the receivership.

12. Debt Figures Not Independently Verified or Fully Reconciled

    The receiver acknowledged that he had not independently audited all outstanding obligations or confirmed balances directly with creditors.

    He further confirmed that certain claims could be subject to adjustment based on underlying asset values or contractual structures.

13. Receiver Did Not Evaluate Primary Data Source Before Drawing Growth Conclusions

    The receiver acknowledged that he had not evaluated key third-party data sources that would be considered the most reliable indicator of sales performance.

    When presented with those figures, he agreed that if accurate, they would reflect meaningful growth.

14. Receiver Agreed Retail Performance Is Key Indicator of Brand Health

    The receiver agreed that distributor ordering alone does not determine brand health and that retail-level performance is a critical measure.

    This supports the use of retail sales and depletion data as a more accurate indicator of market performance.

15. Receiver Acknowledged Strong Pre-Receivership Performance and Post-Receivership Decline

    The receiver agreed that data showed the company outperforming the broader market prior to the receivership and underperforming afterward.

    This aligns the change in trajectory with the period of litigation and court-appointed control rather than prior management performance.

16. Receiver Agreed Valuation Depends on Growth Trajectory

    The receiver acknowledged that a stronger growth trajectory would support a higher valuation multiple, while a weaker trajectory would reduce valuation.

    He further agreed that restoring growth could improve valuation outcomes.

17. Receiver Acknowledged Solvency Depends on Valuation Assumptions

    The receiver agreed that under certain valuation scenarios, including those based on revenue multiples, the company could be solvent.

    This indicates that insolvency was not presented as a fixed or unavoidable outcome under all assumptions.

18. Receiver Did Not Develop Business Plan or Reorganization Strategy

    The receiver acknowledged that no formal business plan was developed to evaluate a reorganization path.

    He further testified that alternatives such as structured restructuring or operational recovery planning were not fully modeled before pursuing a sale-oriented approach.

19. Receiver Did Not Pursue Equity Bridge or Alternative Capital Solutions

    The receiver acknowledged that he did not pursue potential equity infusion or bridge financing to stabilize operations and preserve growth trajectory.

    This reflects that certain potential alternatives to a distressed outcome were not explored.

20. Receiver Confirmed Certain Assets Were Not Subject to Lender Lien

    The receiver acknowledged that certain assets were not directly subject to the lender’s lien.

    This supports the position that not all enterprise value was encumbered by the lender’s security interest.

21. Receiver’s Attribution of Market Impact to Management Conduct Not Fully Supported

    The receiver testified that external feedback suggested litigation and media coverage affected value, but acknowledged that certain filings attributed to management had not yet occurred during the relevant period.

    This narrows the basis for attributing value decline to management conduct.

22. Receiver Acknowledged Value Requires Orderly Process, Not Distressed Conditions

    The receiver agreed that true enterprise value depends on an orderly process and adequate diligence, not immediate offers under constrained conditions.

    He further acknowledged that potential buyers had not engaged directly with management at the time of his analysis.

23. Receiver Confirmed Significant Reduction in Sales and Marketing During Key Period

    The receiver acknowledged that sales and marketing expenses were significantly reduced during the company’s most important sales period.

    He further agreed that such reductions would be expected to impact performance, reinforcing that post-appointment results must be viewed in that context.

24. Receiver Acknowledged Reporting Inaccuracies in His Own Filings

    The receiver admitted that at least one characterization in his reporting was inaccurate, reflecting a mislabeling of a key agreement.

    This raises questions about the precision of certain statements made in his reports.

25. Receiver Confirmed Use of Funds Included Receivership-Specific Costs

    The receiver acknowledged that funds advanced during the receivership were used not only for operations but also for professional fees and other receivership-related costs.

    This reinforces that post-appointment financial performance reflects both operational and receivership-driven expenditures.

Read the full filing → Testimony of Receiver