Complete 2012 forensic audit documents - Kansas Bioscience ...

sufficiently diligent to prevent the improper approval of a grant or equity investment. However,
this does not imply that all grants or equity investments made by KBA have or will lead to a
successful outcome with regard to jobs created or revenue generated.
The investment documentation process appears to be adequately followed. For the first two
years that KBA made grants and investments, 2006 and 2007, the documentation was a bit less
formal compared to present day. Beginning in 2008, the grant agreements and documentation
became more robust and standardized. For example, a standardized grant agreement was put into
place; however, grant agreements are tailored to the unique facts and circumstances of each grant
or investment. As KBA began making grants in its Start-up Phase, the paperwork supporting the
grants in 2006 and 2007 appear to be what might be expected of a new organization still
establishing and refining its processes. It is evident that KBA improved its investment
documentation processes after 2007.
With regard to the payment of milestone awards, client companies are required to submit an
application for payment and substantiate that they have met the required milestone. The
information is then reviewed for adequacy and a determination is made with regard to approval
of the milestone payment. The approval process usually requires sign-off by the President/CEO,
CFO/COO and BOD Treasurer. A rejection of a payment application can occur at any of those
three review levels. Emails and documents in Biztrakker suggest that KBA staff make efforts to
ensure milestones are met, appropriately documented and approved.
The review of grants and investments for potential conflicts of interest identified many
associations among client companies, between client companies and KBA and between KBA
and its partnering organizations. However, given the investment process utilized, no obviously
inappropriate grants or investments to client companies were identified which were in violation
of KBA’s Conflict of Interest Policy or the conflict of interest requirements of KEGA.
Furthermore, all interviews conducted by BKD included specific questions regarding the
interviewee’s knowledge of any potential conflicts of interest by any current or former KBA
employee or BOD member. Other than those discussed later in this report, none were identified.
BKD specifically asked Mr. Thornton if he held any personal investment in any company that
received funding or services from KBA. Thornton indicated that he did not.
Discussion of Specific Grants and Investments
The following grants and investments warranted discussion, or allegations were made regarding
these grants and investments.
ANOxA Corporation
On October 28, 2008, the BOD approved a $300,000 Expansion & Attraction grant to assist
ANOxA Corporation in moving its operations from New York to Kansas. The company was a
biotechnology company dedicated to the development and commercialization of veterinary
research products. ANOxA was working to complete the development and launch of its initial
product EIPHISOL, reportedly the first and only proprietary, non-performance enhancing
treatment for exercise induced pulmonary hemorrhage, a disorder that afflicts many racehorses.
The expected Outcomes for this grant were to be seven managerial jobs and $6 million in equity
financing. To date, KBA has funded $120,000 of the grant, based on milestones.
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