Creative Learning Corporation Announces Filing of Suit Against Former Chief Executive Officer Brian Pappas and Other Company Developments

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Creative Learning Corporation’s suit against former CEO Brian Pappas alleges fraud, fiduciary duty breaches, and other claims. Apart from the suit, the Company also noted other substantial steps it has taken, including upgrading internal policies, addressing regulatory issues, and international sales.

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CREATIVE LEARNING CORPORATION (CLCN) announces that it has filed suit in Florida state court against the Company’s former Chief Executive Officer and Chairman of the Board Brian Pappas and a company associated with him, FranVentures, LLC. CREATIVE LEARNING seeks recovery against Mr. Pappas and FranVentures on a series of grounds including: fraud, breach of fiduciary duty, conversion, unjust enrichment, and civil conspiracy. The lawsuit asserts, among other things, that while serving as CREATIVE LEARNING’s Chief Executive Officer and Chairman of the Board from 2010-2015, Mr. Pappas committed fraud by causing CLCN to make payments to FranVentures to which Mr. Pappas knew FranVentures was not entitled. The lawsuit also alleges that Mr. Pappas breached his fiduciary duty of loyalty by engaging in multiple instances of self-dealing, including causing CLCN to enter into transactions with and make payments to his family members, as well as by causing CLCN to spend hundreds of thousands of dollars to respond to an SEC investigation of Pappas and the Company initiated in early 2015 as a result of Pappas’ actions, as well as in connection with an investigation conducted by the State of Virginia, alleging that Pappas committed fraud in relation to illegal sales of franchises in Virginia.    

The lawsuit asserts that the Company has sustained substantial financial and reputational damage as a result of Mr. Pappas’ actions described above. The lawsuit also asserts that “Pappas’ conduct described above was a material cause of the substantial delay and difficulty of the Company’s independent auditors in performing the audit of the Company’s financial statements for the 2015 fiscal year…,” which delay has required the Company to suspend its domestic franchise operations, causing financial loss to the Company. Court of record: Circuit Court of St. Johns County, Florida. Case number: CA16-0236. Additional details on the suit can be found in the Company’s 8-K filing of June 23, 2016.

In addition to filing suit, CREATIVE LEARNING has taken substantial steps to address other issues, including implementing new internal controls and policies addressing issues like nepotism, insider trading, ethics, separation of duties as well as resolving the Virginia investigation and putting a heavy emphasis on compliance. The Company is cooperating with the SEC in its investigation. Finally, CREATIVE LEARNING has stressed international sales, and has recently sold franchises in key international markets.

In addition to the lawsuit against Mr. Pappas, CREATIVE LEARNING states that its auditor, Hartley Moore, has resigned. Hartley Moore has confirmed that there were no disagreements with CREATIVE LEARNING on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. CREATIVE LEARNING is working intensively to retain a new auditor, has interviewed other candidates and has meetings scheduled next week in this effort.

Inquiries regarding this release should be directed to investorrelations(at)creativelearningcorp(dot)com.

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