FranchiseVerdict
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A45/100FDD 2025

Kung Fu Tea — Litigation & Risk

Food & Beverage - Coffee & Tea · FDD Items 3, 4 & 5

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Moderate — Review

1 case disclosed in FDD Items 3 and 4.

Source: FDD Items 3–5

FDD Items 3 & 4

Litigation Metrics

Cases disclosed
1
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
45 / 100
FranchiseVerdict composite
Rating
STRONG
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
21
Government-backed loans issued
Default rate
0.0%
vs <3% typical · system-wide
5-yr default rate
0.0%
Defaults
0 loans
Loans charged off or defaulted
Total loan volume
$5.4M
Avg loan size
$259K
Participating lenders
14

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
New York
State whose law governs disputes — relevant if you're not based there

What drove the 45/100 rating

Risk Score Breakdown

  1. 01MEDNo average revenue or net income disclosed in FDD Item 19 — impossible to validate ROI claims or compare to $169k-$378k investment
  2. 02MINORMinimal unit growth (2.4% YoY) on 388-unit system suggests market saturation or franchisee struggles in the boba tea category
  3. 03HIGHRecent trademark litigation (Dec 2023–Mar 2024) indicates brand protection concerns and potential IP vulnerabilities competitors may exploit
  4. 04MEDHigh royalty burden (4% of gross sales) with no disclosed average revenue means franchisees could pay $5k-$15k+ annually with unknown profit margins
  5. 05MED10-year term locks franchisees into a struggling growth trajectory with limited exit flexibility

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.