Complete 2012 forensic audit documents - Kansas Bioscience ...

However, the EarCheck product languished on retail shelves as it did not garner the anticipated
wide-spread appeal in the professional or consumer markets. As revenue generation stalled and
did not meet projections, many investors lost interest. The lead investor moved the company to
Nebraska and attempted to recapitalize the company. KBA declined to invest in the Nebraska
company and in October 2010, wrote the investment in Innovia down to $0.
David Vranicar, KBA’s Interim CEO/President, indicated that the equity investment carried with
it a risk of loss. Therefore, there was no available avenue to try to recoup the invested funds.
The Innovia Medical Confidential Private Placement Memorandum carries the warning in bold
type and all caps, “AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. INVESTORS MUST BE
PREPARED TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR AN
INDEFINITE PERIOD AND BE ABLE TO WITHSTAND A TOTAL LOSS OF THEIR
INVESTMENT.” Furthermore, neither the executed Subscription Agreement nor Letter
Agreement include any sort of claw back clause.
Abaxis, LLC
Abaxis announced on January 27, 2011 that it had formed a strategic alliance with KSU, K-State
Veterinary Diagnostic Lab and NISTAC and would locate Abaxis Veterinary Reference
Laboratory (“AVRL”) in Kansas. However, the KBA grant of $650,000 over three years was not
approved by KBA’s BOD until May 2011. Therefore, allegations have been made that as Abaxis
announced its decision to locate AVRL in Kansas prior to the approval of KBA’s grant, the grant
was unnecessary and was made in order to claim the Outcomes.
Based on emails reviewed by BKD, it is apparent that KBA began establishing a relationship
with Mark Patterson and Ilya Frumkin, the eventual President and Vice President of Commercial
Operations of AVRL, as early as June 9, 2009. At that time, Messrs. Patterson and Frumkin
were respectively the President and SVP of Sales, Marketing and Business Development of
OmniVet, LLC. OmniVet was a start-up company formed to enter the veterinary diagnostic and
pathology laboratory market that was invested in Abaxis and became AVRL in January 2011.
Based on a two-page summary of the company that accompanied the June 9, 2009 email,
OmniVet was already aligned with KSU, K-State Veterinary Diagnostic Laboratory and
NISTAC.
On June 9, 2009, OmniVet asked KBA for the HBV Request for Assistance form and sought
HBV Director of Commercialization Terry Osborn’s advice regarding venture financing. The
completed Request for Assistance was submitted to KBA on July 1, 2009. OmniVet was seeking
$1.7 million in start-up capital and $2.7 million to fund on-going operations.
Emails indicated that KBA provided space in its offices for meetings between representatives of
OmniVet, KSU and Abaxis on March 4 and 5, 2010. However, it does not appear that KBA
participated in those meetings. However, KBA continued to assist OmniVet and participated in a
lunch meeting on April 19, 2010 in which it appears KBA introduced OmniVet to Midpoint
Venture Capital (now Cultivian). Additionally, on May 21, 2010, Mr. Frumkin contacted Terry
Osborn and asked for a meeting in early June to discuss funding opportunities with KBA.
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