ITEM 1. BUSINESS
Forward Looking Statements
This Annual Report on Form 10-K ("Annual Report") contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology.
Forward looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
The safe harbors of forward-looking statements provided by Section 21E of the Exchange Act are unavailable to issuers of penny stock. As we issued securities at a price below $5.00 per share, our shares are considered penny stock and such safe harbors set forth under the Private Securities Litigation Reform Act of 1995 are unavailable to us.
Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common stock" refer to the common shares in our capital stock.
As used in this Annual Report, the terms "we," "us," "Company", "our", "Kelvin" and "Kelvin Medical " mean Kelvin Medical, Inc., unless otherwise indicated.
THERE IS SUBSTANTIAL UNCERTAINTY ABOUT OUR ABILITY TO CONTINUE OUR OPERATIONS AS A GOING CONCERN.
In their audit report dated October
12, 2017 our
auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. Because our officers may be unwilling or unable to loan or advance any additional capital to us, we believe that if we do not raise additional capital, we may be required to suspend or cease the implementation of our business plan. See the Audited Financial Statements – "Auditors Report". Because our auditor has issued an opinion that substantial doubt exists as to whether we can continue as a going concern, it may be more difficult to attract investors.
Corporate Information
Kelvin Medical, Inc. (the "Company") was incorporated in the State of Nevada on May 5, 2016. We are a recently organized company that is engaged in the development, eventual production, and sale of a medical device. The Company was founded to develop the product called Therm-N-Ice. The Therm-N-Ice is a programmable device to be strapped on externally to a body part that can maintain a certain temperature, whether hot or cold. Hot and cold treatment options are commonplace and used routinely as a therapy in medical and non-medical locations. The Company's device looks to help reduce the tasks of applying hot and cold therapy and help people remain mobile rather than pausing life activities in order to obtain repetitive hot/cold therapy.
In 2016 we launched our website
www.kelvinmedical.com
, and commenced implementation of our business plan.
The Company's fiscal year end is June 30.
Company Overview
Kelvin Medical, Inc. was incorporated in the State of Nevada on May 5, 2016. We are a medical device technology development company that engages in the development, eventual production and sale of a hot and cold device. In 2016 we launched our website
www.kelvinmedical.com
and commenced implementation of our business plan. William Mandel, who is currently our sole officer, and a director, has been with our Company since May 5, 2016, and manages our day to day operations. Dr. Margaret Austin serves as our Chairman of the Board of Directors, and is the spouse of Mr. Mandel. Our headquarters are located at 10930 Skyranch Place Nevada City, CA 95959.
On May 10, 2016 we entered into a patent license agreement with Oasis Medical Solutions ("OMS"), a sole proprietorship organized in the State of California controlled by our Board of Directors ("Licensor") under which the Licensor desires to grant and the Company desires to accept an exclusive license of the Patent for the building of, and use of, machines incorporating the Patent's technology under certain terms and conditions. Licensor is the holder, via assignment from the inventor, William R. Mandel of the U.S. Patent Number: PCT/US11/39860 "APPARATUS FOR THERAPEUTIC COOLING AND WARMING OF A BODY PORTION OF A HUMAN OR MAMMAL" (the "Patent," "Medical Device") that, among other things, warms and cools portions of the human or mammal body".
The provisional patent was filed June 11, 2010 and filed under the Patent Cooperation Treaty (PCT). The patent will expire June 11, 2030. The term of the agreement shall be for 15 years and shall not extend beyond the full term of the patent."
The Company pays a monthly maintenance fee, along with an annual fee to maintain the license; additionally, the Company agreed to pay 6% royalty to OMS per machine sold. Presently we have a deposit on three units, but have not yet been able to undertake our first commercial production of the units. If the product has not reached production within 5 years, the license will be considered null and void with all rights returning to Oasis Medical Solutions. Rights may not be sold or transferred without agreement between OMS and Kelvin.
We plan to produce and resell our products to health care services companies who specialize in distribution of medical products, pharmacies, representatives and sporting goods stores. The Company plans to produce our production prototype for the Therm-N-Ice arm band in the USA as our initial product launch. The Company does not maintain any inventory currently.
Our CEO has spent over 5 years and his own funds and time to develop our working prototype, and has secured a Chinese Patent, as well as have been approved for a US Patent which has not yet been issued.
Governmental Approval Of Our Product
All medical devices companies need to register with the FDA and pay the registration fee. We will also register and request that Kelvin Medical Inc. have "Small Business Status". This will help to reduce fees in the future. A Small Business is defined by having gross receipts of sales of no more than $100 million for the most recent tax year.
FDA provides guides on when to submit a 510(k). A 510(K) is a premarket submission made to FDA to demonstrate that the device to be marketed is at least as safe and effective, that is, substantially equivalent, to a legally marketed device (21 CFR §807.92(a)(3)) that is not subject to premarket approval.
Under FDA guides, the Therm-n-Ice device is 510(k) exempt, falling under these 21CFR listings:
890.5700 Cold Pack.
890.5710 Hot Or Cold Disposable Pack.
890.5720 Water Circulating Hot Or Cold Pack. (II)
890.5730 Moist Heat Pack.
890.5740 Powered Heating Pad. (II)
Under FDA classifications, the Therm-N-Ice is a Class II device. FDA has 3 classifications, Class I, Class II, Class III. These classifications are risk based, that is, the risk the device poses to the patient and/or the user is a major factor in the class it is assigned. Class I includes devices with the lowest risk and Class III includes those with the greatest risk.
Some Class I and Class II devices can be exempt. However, although some Class II devices may be exempt from 510(k), they are not exempt from current Good Manufacturing Practices (cGMP). cGMP refers to the "Current Good Manufacturing Practice" regulations enforced by the US Food and Drug Administration (FDA). cGMPs provide for systems that assure proper design, monitoring, and control of manufacturing processes and facilities. Reference to GMP rather than cGMP is the older reference to the same regulations.
cGMP requirements for devices in part 820 (21 CFR part 820) were first authorized by section 520(f) of the Federal Food, Drug, and Cosmetic Act (the Act). Under section 520(f) of the Act, FDA issued a final rule in the Federal Register of July 21, 1978 (43 FR 31 508), prescribing cGMP requirements for medical devices. The requirement for Design Control was included later. These standards are harmonized with the International Organization for Standards (ISO)13485. In the future, if Kelvin Medical Inc. decides to market to the international market, we will be certified to ISO13485 and obtain CE (Conformité Européenne) markings under the guidance of a Notified Body.
cGMP defines the Quality System as required by the FDA. The quality system regulation includes requirements related to the methods used in, and the facilities and controls used for, designing, manufacturing, packaging, labeling, storing, installing, and servicing of medical devices intended for human use. Our president, William Mandel, has many years of experience dealing with the FDA and ISO in regard to medical device approval.
The process duration is that the guidelines state that 30 days after FDA registration, Kelvin Medical Inc. can commence putting a device into commercial distribution. During those 30 days, the FDA may conduct an inspection.
The FDA approval process for this medical device does not exist, because exempt devices do not have an approval process. The FDA calls this clearance.
The nature of regulatory oversight is for protecting the public health by assuring the safety, efficacy and security of human and veterinary drugs, biological products, medical devices, our nation's food supply, cosmetics, and products that emit radiation.
The results of noncompliance are the following:
There are different levels of noncompliance. When an audit occurs, the FDA auditor can give a 483 that list observations of noncompliance. These are reviewed and various types of actions can happen. The lowest is to verify that the noncompliance has been corrected upon the next audit, two year later. The next step up is that it is verified to be compliant with an audit in 30 days. If found non-compliant it can lead to fines, lock up the business, and jail time.
Another possible roadblock is a "Medical Device Report" (MDR). Getting a MDR is where someone has reported that an injury has occurred. There are strict guidelines, given by the FDA, on what to do and time frames to do it in. An internal investigation occurs and appropriate action takes place. If the device is found to be defective a recall of the device can occur.
None of the data relative to our product was purchased or commissioned.
Kelvin Medical is preparing to establish both commercial and retail markets with a national distribution channel. The target channels for commercial healthcare distribution are through organizations that are established for product distribution to consumer locations. Kelvin Medical will also market the product through retail distributors for consumer markets, as well as provide joint advertising support for direct distribution to sports medicine, physical therapy and general consumer medical device advertising channels, such as journals, local advertising newspaper inserts.
Opportunity
Critical care statistics show there are 420,870 cases of sprains, strains, or tears were the leading injury or illness in private industry and state and local government in the U.S. in 2014. "Type of injury or illness and body parts affected by nonfatal injuries and illnesses in 2014." (BLS.gov., 02 Dec 2015 Published. Web. 28 April 2016
Accessed.) Sprains and strains was the leading nature of injury and illness in every major industry sector in 2005. They accounted for 41 percent of all workplace injuries and illnesses requiring days away from work. (BLS.gov, U.S. Department of Labor,
The Economics Daily
, Sprains and strains again most common workplace injury. November 20, 2016 Published Web).
In the U.S., about 30 million children and teens participate in some form of organized sports, and more than 3.5 million injuries occur each year, which cause some loss of time of participation, are experienced by the participants. Almost one-third of all injuries incurred in childhood are sports-related injuries. The most common injuries are sprains and strains. More than 775,000 children, ages 14 and younger, are treated in hospital emergency rooms for sports-related injuries each year. Most of the injuries occurred as a result of falls, being struck by an object, collisions, and overexertion during unorganized or informal sports activities. ("Sports Injury Statistics" Stanford Childrens.org. Stanford Children's Health, 2016 Published. Web. 28 April 2016 Accessed.)
Professional athletes were among five occupations that had more than 1,000 injuries per 10,000 workers. Athletes and sports competitors suffer more than 2,000 injuries per 10,000 workers, according to the Bureau of Labor Statistics. (Fizgerald, Tim "Professional Athletes" Consumer Healthday.com. 20 Jan. 2016 Published. Web. 28 April 2016 Accessed.)
With the number of minor sprains, strains and contusions that occur, both in sports related and routine daily living and work activities, many require some form of intervention. A portion of these injuries can use a cold pack or heat as an option.
Industry Overview
The use of Hot and Cold Therapy, sometimes referred to as Contrast Therapy, can be placed in three different categories: Critical Care, Long-Term Acute Care, and Chronic Care.
Critical Care refers to the treatment of a trauma at the onset of an injury. The recommendation is to use the R.I.C.E. method at this time. R.I.C.E. stands for Rest, Ice, Compression and Elevation.
Long-Term Acute Care refers to the time frame between the 72-hour period to full recovery. Two types of intervention are typically suggested for this period of time, either warmth only or alternating warm and cold therapy.
The industry's leaders include Thermacare, Ace, Kaz Softheat, Bed Buddy, Thera Med, Cryo Max, Kaz Smart Heat, Well Patch, and Thermipaq. On Statistic.com the annual sales of the leading Over the counter pain relief products in the United States in July 2014 in million U.S. dollars showed Thermacare, one of the industry's leaders, had $58.6 million in U.S. sales in 2014 of its hot cold packs. Thermacare in 2008 showed sales of $51.6 million, showing a gain of $7 million in sales in the last 6 years. Although the industry's leaders as a whole do not have an up to date statistic less than two years old, Statistica.com did report in 2007/2008 combined sales of these 9 industry leaders, mentioned in this paragraph, to be $146.7 million.
Current Operations
Since inception, our operations have primarily consisted of the organization of our business and the development of our business plan. Our business plan includes a detailed three-phase plan in which we have mapped out all of the initial products that we will eventually plan to offer to our clients, as well as the development of the website. Phase 1 of our plan including the initial launch of our website has been completed, however we have not been successful in raising the required funds to implement Phase 2 or 3 of our plan. Phase 2 involves producing our first generation of devices, and finding distribution from pharmacies, sporting goods stores and health care services companies who specialize in distribution of medical products. Phase 3 we intend to produce a larger production of our initial arm band device, rent a warehouse for order fulfillment, hire an employee to fulfill orders and hire office support staff. We do not intend on entering Phase 2 or 3 until the Company raises additional funding either through loans from third parties or a further equity offering. We continue to actively seek investment capital to allow us to complete the remaining phases of our business plan.
Products
Arm Band Therm-N-Ice
Our initial product we will offer for sale will be the Therm-N-Ice arm band. We currently have a working prototype of this device. It has no moving parts, a rechargeable battery, and it is a mobile unit. The device will have 6 buttons. Red and blue lighting provides visual cues.
3 Concentrated therapy options:
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continuous contrast between the hot and cold
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The measurements of the arm band are H = 50 mm, W = 82 mm and D = 140 mm. The weight of the arm band is approximately .5 kg.
The setting of the arm band can be personalized for cooling time, cooling intensity, heating time, heating intensity. It will have proprietary software that operates the unit. Once the production and launch of the first generation of the arm band device is started we plan to make 2 subsequent versions of the arm band. One consumer version, and one professional version.
Our Product Prototype
Initially, our only product will be the Therm-N-Ice Band, which will have a 3-hour battery life, and a 4-button interface. The Professional product version will have a 3-6 hour battery life, dial in temperature control, with dial in time, and will also have the ability to download therapy history.
We have launched our corporate website and have a cursory discussion of our initial product, the Therm-N-Ice arm band.
Proposed Advertising
In the first 3 phases, we do not intend initially to directly advertise to customers, however, we will offer presales of units direct to customers on our website once we have the available resources.
Marketing focus
In the beginning we plan to market our product through the established marketing channels of pharmacies, sporting goods stores, and health care services companies who specialize in distribution of medical products. We plan to contract with one doctor who has connections to health care services companies to introduce our product and create our initial sales. Our CEO has experience in the medical device field, and believes that direct marketing of our product to consumers would not have the potential for sales that it would have being sold through established service companies.
The Website
As we raise additional capital we will add to our website in order to provide more detailed product information and data including a product page containing the name of product, product number, and detailed description. Our current site lists our band, and a brief description only. The band is the only product we are starting sales with.
Product details
Therm-N-Ice Band Product Description
Therm-N-Ice is a product with no chemicals applied to the skin that provides consistent pre-set hot and cold temperatures and keeps you on the go.
Therm-N-Ice is a device that straps to your arm, leg, or almost any area of the body and delivers continuous hot, continuous cold, or Contrast Therapy at the touch of a button. The device is a prototype and it has been tested by William Mandel to deliver therapy from 3 to 5 hours. There are many factors that affect the therapy times. There is the number of batteries, the type of batteries, performing hot versus cold, the desired hot temperature, the desired cold temperature, and even the ambient temperature. The 3 hour time frame was measured for continuous cold and the 5 hour time frame was for continuous hot, using a 4 battery system. Settings between continuous cold and continuous hot will vary the results. Further, based on management's internal testing of the prototype, using only two batteries indicated the system lasted for 1.5 to 2.5 hours. These results triggered the decision to double the battery count to four in order to extend the therapy time frame.
Below is a graph of data collected 5 minutes hot 5 minutes cold over 3.8 hours (4 Batteries):
The device is rechargeable. Therm-N-Ice comes with an additional strap for tendon immobilization.
Hot and cold therapy in a portable device.
Plan of Operations
Upon raising suitable funding we will begin Phase 2 and 3 of our business plan. In order to initiate Phase 2 of our operation, we will need to raise enough money to pay to produce the first generation of the Therm-N-Ice arm band. Our goal would be to initially produce 200 devices for resale. In order to initiate Phase 3 of our operations, we will have to raise enough money to warehouse and pay for a second generation production for the arm band device. We would need to have raised enough money to pay for an employee to perform order fulfillment and hire office support staff.
In 2016 we launched the initial website and will plan to add products as we grow. The full extent of Phase 2 of our business plan and development, depending on suitable funding, will include:
a.
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Prototype production- We intend to work with engineers to create the final design, have molds built, and finally produce the first generation of Therm-N-Ice arm band devices for resale to distributors.
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b.
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Work with a graphic artist to design the packaging for the product. Produce the packaging with the arm bands.
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Establish resellers- We intend to contact and establish distribution through pharmacies, companies and health care companies that distribute medical devices.
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Phase 3 of our business plan
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Produce a second larger production of arm band devices
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Locating and renting warehouse space
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Hiring warehouse staff to perform order fulfillment
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Hire office support staff
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Use marketing dollars to increase acquisition of customers through promotions, endorsements from athletes and sports teams.
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In order to complete Phase 2 and 3 of our business plan, we will rely heavily on the management skills of our President and CEO, Mr. Mandel. The acquisition of the doctor to communicate with distributors for our initial product will be directly related to the work that our CEO does. In the months that follow our marketing plan launch, the work of a website developer will be critical as well. We hope to be in a phase of rapid growth, and our developer will be working hard to optimize our site to search engines so that our product gains customer awareness. Our President will have to work hard to keep all components of our business on track.
Marketing Strategy
We would like to put our marketing strategy on a sound footing right from the start. We have begun initial market research and our CEO has decided the strategy that we will implement to launch our Company. It is our belief this strategy will provide us with growth if executed properly and we obtain the right distribution networks.
We plan to focus on contacting three distributions in the industry:
Health Service Companies
– We believe that using health service companies that already have established customer base, website, and representatives will launch and diffuse our product into the market.
Pharmacies that represent 3
rd
party products
– We believe that using their established network, representatives, and store locations we will find distribution to customers all over the United States.
Sporting Goods Stores
- We believe that sporting goods stores have established clientele that frequent their locations, are involved in sports, and could be potential buyers of our product.
Growth Strategy
We believe our target customers in the public will be people that engage in hobby sports, families with children, college students that either play sports professionally or as a hobby, athletes, and people with injuries who seek an easy solution to apply hot and/or cold therapy. We see gradual expansion from a consumer model to a clinical model, sports model, and military model. We also hope to grow our website's popularity on the internet, providing us greater name recognition in the US. However, until such time as we have begun substantive operations, and have produced a greater line of product offerings, we will not be able to adequately assess what portions of our strategy for growth will be most appropriate. However, we envision our success being attributable to our ability to:
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attract new clients with the design, ease of use, and portability of our product
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to sustain lower operating costs per customer we plan to use third parties to market our product
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deploy our capital more effectively having successfully sold our first generation devices and to move to the production of a larger quantity of devices in the second generation production. Our first generation units will be costlier because they will include other related costs such as the initial engineering design expense and production grade molds. The second generation units will be less costly, because they do not include the other related costs.
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Competition
Our Company will compete for the sales with many other companies in the Hot and Cold market. One competitor that holds a large market share is Therma Care. They sell individual products for hot and cold, each with limited use. The heat product is for single use and can last for 8 to 16 hours. The cold pack is reusable for 10 refreezes. In contrast, the Company's Therm-N-Ice is one product that provides both hot and cold externally to a body part and is completely rechargeable.
Ace, Curad, and Sunbeam offer reusable gel packs that can be placed in the freezer for cold therapy and heated in the microwave for warm therapy. These companies offer gel packs that are reusable but limited in typically with a one-hour time frame that hot or cold can be delivered to the skin. The hot or cold temperature can start at one extreme and slowly reach skin temperature within that hour. Another disadvantage is possible frostbite or burns from uncontrolled temperature extremes. Therm-N-Ice will not only hold the same pre-determined temperature throughout the therapeutic timeframe but has been tested to verify maintenance of its hottest temperature for 5 hours and its coldest temperature for a minimum of 3 hours. Therm-N-Ice continuously monitors the temperature eliminating the possibility of frostbite or burns.
Thermipaq is another competitor that offers a clay based pack similar to the gel packs and is used for both hot and cold temperatures. This system has similar limitations as the gel pack.
The Company has established these five companies as the major competitors to the Therm-N-Ice product. However, we consider the Therm-N-Ice system to be unique because of the long lasting hot and cold options available on the go with a flick of a switch.
A challenge to face is to ensure that the cost of this device is low enough to be viable in the marketplace. We hope that by obtaining the US Patent and being one of the first on the market with a device such as this, it will enable the company to penetrate the market with "early adopters" - a person who starts using a product or technology as soon as it becomes available. Our belief is that the people who will be most eager to embrace this solution are those in the recreational sports industry because of their emphasis on mobility and ease of use. We will most likely face direct competitors who may seek to produce a similar device after the launch of this product. We have initiated patent protection to protect our intellectual property, as well as our place in the market. We have also planned for significant upgrade features that will be introduced over time and increase our advantage over competition that may occur in the future. We anticipate that most, if not all, of our competitors will initially have greater business name recognition and access to greater amounts of capital and established relationships with a larger base of current and potential customers. Because of their size and bargaining power, our competitors may be able to draw more customers by having established distribution channels and people familiar with their existent product. As a result, our operations may be significantly and negatively impacted by our larger, more established competitors. Once we commence Phase 2 of our operations, if we are not able to generate enough revenue through the sale of our device, we may be forced to cease operations.
Our ability to compete successfully will depend, in part, on our CEO finding a doctor who will be a spokesperson to the health services companies and pharmacies, and our ability to anticipate and respond to various competitive factors affecting the industry. These factors include the introduction of new products, changes in consumer preferences, demographic trends, economic conditions, and pricing strategies of competitors. As a result of competition, we may be required to:
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increase overall spending to ensure we are offering the best quality products and pricing to our customers;
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continually assess and evaluate our specials and other offers to ensure that we are offering the most compelling and affordable products
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increase our advertising, promotional spending, as well as other customer acquisition costs.
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Employees and Consultants
As of the date of this filing, the Company has no full time or part time employees other than our sole officer, and our director, Mr. William Mandel, and our Chairman of the Board, Dr. Austin. We currently rely on Mr. Mandel, and Dr. Austin, to manage all aspects of our business. Mr. Mandel has committed to devote 25 hours per week to our Company. We intend to add warehouse order fulfillment staff and an accountant as the Company grows. Any such additions will be made at the judgment of management and to meet the Company's then current needs. Mr. Mandel has entered into an employment agreement with the Company where under he is accruing compensation of $1,000 per month.
Recent Developments.
During the fiscal year ended June 30, 2017, the Company received proceeds totaling $21,950 from various parties subscribing for a total of 1,097,500 shares at $0.02 per share under our Form S-1 registration statement. We are still actively seeking further investment to complete the objectives of our business plan.
On August 23, 2017, Kelvin Medical, Inc. received its Trading Symbol, KVMD, and has been listed on the OTC Market Site (Pink).