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B59/100FDD 2025

Flip Flop Shops — Litigation & Risk

Retail · FDD Items 3, 4 & 5

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Moderate — Review

3 cases disclosed in FDD Items 3 and 4.

Source: FDD Items 3–5

FDD Items 3 & 4

Litigation Metrics

Cases disclosed
3
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
59 / 100
FranchiseVerdict composite
Rating
MODERATE
STRONG / MODERATE / CAUTION / AVOID

7(a) FOIA data · FY2020–present

SBA Loan Performance

Aggregated from public SBA 7(a) loan disclosures. Default rate is the share of loans that were charged off or settled for less than the full balance.

Total 7(a) loans
24
Government-backed loans issued
Default rate
52.6%
vs <3% typical · system-wide
5-yr default rate
66.7%
Defaults
10 loans
Loans charged off or defaulted
Total loan volume
$3.6M
Avg loan size
$150K
Participating lenders
17

FDD Items 5, 6 & 17 — what you give up

Contract Risk Indicators

Mandatory arbitration
Not required
You retain the right to sue in court
Jury trial waiver
Waived
You give up the right to a jury trial
Non-compete
2 yrs
Post-termination restriction on similar businesses
Franchisor can compete
Yes
Franchisor can open competing locations in or near your territory
Right of first refusal
Yes
Franchisor can match any purchase offer when you try to sell
Governing law
California
State whose law governs disputes — relevant if you're not based there

What drove the 59/100 rating

Risk Score Breakdown

  1. 01MINORUnit count declining 4.1% year-over-year (47 units) suggests system contraction and potential viability concerns
  2. 02HIGHMultiple litigation matters including fraud allegations against predecessor, California DFPI consent order for registration violations, and patent infringement suit against CEO create legal/reputational risk
  3. 03MEDNet income not disclosed despite $473K average revenue — inability or unwillingness to report profitability is a major transparency red flag
  4. 04HIGHGoing Concern status is False, indicating auditors have substantial doubt about the franchisor's ability to continue operations
  5. 05MINORHigh investment range ($182,900-$349,400) paired with declining unit count suggests poor unit economics and deteriorating ROI
  6. 06MED5% royalty on gross sales (not net profit) increases franchisee burden during low-margin periods; no disclosed Item 19 earnings claims to validate profitability

Severity inferred from FDD text — not a regulatory or legal classification

Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice — consult a franchise attorney before signing any franchise agreement.