FREE Breaking News Alerts from StreetInsider.com!
(Exact name of registrant as specified in its charter)
Alon Rozner, Chief Financial Officer, +97235148777
(Name and telephone number, including area code, of the person to contact in connection with this report)
Check the appropriate box to indicate the rule pursuant to which this form is being filed:
☒ Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2021.
Section 1- Conflict Minerals Disclosures
Item 1.01 Conflict Minerals Disclosure and Report
A copy of the Conflict Minerals Report of Kornit Digital Ltd. (the “Company”) is provided as Exhibit 1.01 to this Form SD and is publicly available at: http://www.kornit.com/conflict-minerals-policy/
The foregoing website is referenced for general information only; the contents thereof are not incorporated by reference in this Form SD.
The Company has filed its Conflict Minerals Report as Exhibit 1.01 hereto as required by Item 1.01 of Form SD.
Section 2 – Resource Extraction Issuer Disclosure
Item 2.01 Resource Extraction Issuer Disclosure and Report
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the duly authorized undersigned.
Conflict Minerals Report of Kornit Digital Ltd.
Kornit Digital Ltd. (“Kornit,” “we,” the “Company” or “our company”) develops, designs and markets innovative digital printing solutions for the global printed textile industry, with a major focus on the fashion, apparel and home décor segments of the industry.
Our vision is to create a better world where everybody can bond, design and express their identities, one impression at a time.
Our mission is to revolutionize the fast-changing industry by facilitating and expediting the transition from analog processes that have not evolved for decades and are not fit for the rapidly changing business models and self-disruption needs of the industry, to digital methods of garment, apparel and home decor finished goods production and decoration that address the contemporary supply, demand, social and environmental needs of the industry in which we operate.
We focus on the rapidly growing high throughput, direct-to-garment, or DTG, and Direct-to-Fabric, or DTF, segments of the printed and decorated textile industry. Our solutions include our proprietary digital printing systems, ink and other consumables, associated software and value-added services that allow for quality and cost-effective large-scale printing of short runs of complex images and designs directly on finished garments and fabrics. Our solutions address the growing production gaps reflected in the need to shift to shorter runs, proximity production, proximity decoration, partial or full on-demand production, and microfactory models by enabling our customers to print and decorate high quality products in a time efficient, cost-effective and environmentally-friendly manner. This allows textile manufacturers to transition from their traditional business and operating models of supply based on demand predictions, to partial or full on demand or made-to-order models, by which decoration of fabric and production of finished goods only takes place once a customer order has been issued.
Our solutions are differentiated from other digital methods of production because they eliminate the need to pretreat fabrics prior to printing, thereby offering our customers the ability to digitally print high quality images and designs on a variety of fabrics in a streamlined and environmentally-friendly manner. When compared to analog methods of production, our solutions also significantly reduce production lead times and enable customers to more efficiently and cost-effectively produce smaller quantities of individually printed designs, thereby mitigating the risk of excess inventory, which is a significant challenge for the industry.
The success of evolving omni-channel apparel retail is dependent heavily on the ability to show a large variety of designs. Since it is more and more difficult to predict consumer preferences and demand, it is increasingly difficult to stock every possible design. Having digital capacity available allows printers, brands and retailers to offer unlimited design with minimal to no inventory risk. We believe we are well positioned to continue taking advantage of this trend.
Our DTG solutions utilize our patented wet-on-wet printing methodology that eliminates the common practice of separately coating and drying textiles prior to printing. This methodology also enables printing on a wide range of untreated natural, synthetic and man-made fabrics, including cotton, wool, polyester, lycra and denim. With throughputs ranging from 40 to 235 garments per hour, our entry level, industrial and mass production DTG solutions are suited to the needs of a variety of customers, from smaller industrial operators with limited budgets to mass producers with complex manufacturing requirements. Our patented NeoPigment ink and other consumables have been specially formulated to be compatible with our systems and overcome the quality-related challenges that pigment-based inks have traditionally faced when used in digital printing. Our software solutions simplify order to production workflows in the printing process, by offering a complete solution from web and traditional order intake through graphic job preparation and execution. We also offer customers maintenance and support services, as well as value-added services and application consulting, aimed at optimizing the number of impressions printed by our systems.
In April 2019, we also supplemented our original DTG printing technology with our Kornit NeoPoly Technology, which is our industry’s first digital, industrial process for high-quality printing on polyester, thereby opening the large sport and athleisure market to our digital printing solutions. The new Kornit NeoPoly Technology addresses existing challenges with a new process and ink set implemented in the Kornit NeoPigmentT process. Our new process handles polyester applications without having to compromise on design, run size, substrate or labor. The breakthrough technological innovation has been achieved by an innovative ink set and a physical and chemical process specifically developed for low temperature curing, and polyester-enhancing functionalities developed to maintain fabric characteristics and provide superior fastness. This unique process overcomes dye migration on polyester. The inks are Eco-Passport certified, and do not contain PVCs or any other toxic ingredients. The first system equipped with our Kornit NeoPoly Technology is the Kornit Avalanche Poly Pro, a member of our industrial platform, which became commercially available in April 2019.
Building on the expertise and capabilities that we have accumulated in developing and offering differentiated solutions for the industrial DTG market, we also market an industrial digital printing solution, the Kornit Presto, which targets the on-demand DTF market. While the DTG market generally involves printing on finished garments, the DTF market is focused on printing on fabrics that are subsequently converted into finished garments, home or office décor, and other items. The Kornit Presto (like our predecessor DTF product, the Kornit Allegro) utilizes our proprietary wet-on-wet printing methodology and houses an integrated curing system. It offers the sole (following its predecessor, the Allegro) single-step, eco-friendly, stand-alone industrial DTF digital textile printing solution available on the market. We primarily market the Kornit Presto to businesses seeking horizontal or vertical expansions into fabric decoration, such as innovative web-based businesses operating on-demand business models that require a high degree of variety and limited quantity orders, as well as to fabric converters, which source large quantities of fabric and convert untreated fabrics into finished materials to be sold to garment and home décor manufacturers, and to sustainable fashion producers seeking a competitive edge in today’s changing supply chains. We believe that with the Presto we are well positioned to take advantage of the growing trend towards customized fashion, home décor and on-demand fabric printing, with increased focus on sustainable production. We began selling the Presto commercially in the second quarter of 2019 (after having introduced our initial DTF digital textile printing solution, the Kornit Allegro, four years earlier, in the second quarter of 2015).
Kornit Digital Ltd. was founded in 2002 in Israel, shipped its first system in 2005 and, as of December 31, 2021, had approximately 1,200 active customers globally. As of December 31, 2021, we had 882 employees located primarily across four regions: Israel, America, Europe and Asia Pacific. In the year ended December 31, 2021, we generated revenues of $322 million, representing an increase of 66.6% over the prior fiscal year. In the year ended December 31, 2021, we generated 65.6% of our revenues from the Americas region, 24.4% from the Europe, Middle East and Asia (“EMEA”) region, 7.2% from the Asia Pacific region and 2.8% from other regions.
Conflict Mineral Rule Overview, Scope, and Covered Products:
Issuers that file reports with the Securities and Exchange Commission (“SEC”) under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), must comply with Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which contains reporting requirements associated with conflict minerals that are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by an issuer. These reporting requirements are implemented by the SEC’s Rule 13p-1 under the Exchange Act (the “Rule”).
If a registrant cannot establish with absolute certainty that the necessary conflict minerals in its products originated from sources other than the Democratic Republic of the Congo (“DRC”) or an adjoining country (the “Covered Countries”), or originate solely from recycled and/or scrap sources, the registrant must submit a specialized disclosure report under Form SD that describes the steps that the registrant took to determine the origin, or likely origin, of the necessary conflict minerals in its products or in the manufacture of its products.
If a registrant has reason to believe that any of the conflict minerals in its mineral supply chain may have originated in the DRC and/or a Covered Country, or if the registrant is unable to determine the absolute country of origin of those conflict minerals, then the registrant must exercise due diligence on the conflict minerals’ source and chain of custody, and the registrant must annually submit a Conflict Minerals Report to the SEC that includes a description of those due diligence measures.
As an SEC-registered issuer that offers products that include tin, tungsten, tantalum and gold (“Conflict Minerals”) that are necessary for the production and/or functionality of those manufactured products, we are subject to this Rule. As part of our company’s desire to take responsibility for and concern ourselves with human rights issues, we decided to review our company’s supply chain according to the EU regulation’s guidance as well, and, based on that guidance, have included conflict-affected or high-risk areas (“CAHRAs”) when approaching suppliers for information. As such, we conduct due diligence on our minerals supply chain according to the Organization for Economic Co-operation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (2016) and related Supplements (the “OECD Due Diligence Guidance”). It should be noted that our company does not directly purchase or procure raw materials from the mine sites, as we are a downstream company. Instead, we (or our suppliers) purchase cassiterite, columbite-tantalite (coltan), wolframite, gold, or their derivatives, which presently are limited to tin, tantalum, tungsten, and gold (collectively “3TG”) - related materials, after processing by smelters or refiners.
Kornit is committed to responsible sourcing practices and ensuring that it does not benefit, directly or indirectly, from the propagation of armed conflict or human rights abuses in areas of conflict, such as the CAHARAs. The goal of the due diligence process is not to eliminate sourcing from the CAHARAs, but rather to ascertain, to our best possible knowledge and per the requirements of the Rule, the most reasonable country of origin of the necessary conflict minerals, which were necessary to the functionality or production of our products manufactured or contracted to manufacture in 2021, as detailed in the reasonable country of origin inquiry (“RCOI”) section below.
Reasonable Country of Origin Inquiry (RCOI)
Kornit is committed to ethical practices and compliance with all applicable laws and regulations. We are committed to working with our customers and suppliers to responsibly source the materials and components that we use to manufacture our products that may contain the necessary conflict minerals.
In accordance with our Conflict Minerals Policy, which can be viewed at: http://www.kornit.com/conflict-minerals-policy/, Kornit has concluded in good faith that during the 2021 calendar year, we have manufactured and contracted to manufacture products containing all four Conflict Minerals and have determined that the use of these minerals is necessary to the functionality or production of our products.
We performed an RCOI simultaneously with the due diligence phase through which we sought to determine whether the Conflict Minerals necessary for the functionality or production of our products did or did not receive a compliant or active designation from the Responsible Minerals Initiative’s (“RMI”) independent smelter and refiner validation program, i.e., the Responsible Minerals Assurance Process (“RMAP”). This was conducted simultaneously due to the large number of applicable suppliers from which we source materials that we surveyed and the timeframe in which we needed to complete both the RCOI and due diligence efforts. Our RCOI employed several methods to assess whether the necessary Conflict Minerals in our products originated, or likely originated, from CAHRAs.
Based on the RCOI conducted, Kornit has reason to believe that a portion of the Conflict Minerals that are necessary for the functionality of its products originated, or likely originated, in the CAHRAs, and has reason to believe that those necessary Conflict Minerals may not be from entirely recycled or scrap sources. As part of our commitment to responsible sourcing, we do not seek to eliminate the sourcing of Conflict Minerals from the CAHRAs, but rather to source the necessary minerals from sources that do not directly or indirectly finance or benefit armed groups in those locations. Based on this result, we conducted due diligence activities and have detailed those efforts in this Conflict Minerals Report.
Due Diligence Design of Due Diligence
In accordance with the Rule and Form SD, we undertook due diligence to determine whether the Conflict Minerals necessary for the functionality or production of our products, which were manufactured, or contracted to manufacture in 2021, originated from smelters or refiners (“SoRs”) that have received a compliant or active designation from the RMI’s RMAP Third Party Audit program for smelters or refiners. We designed our due diligence measures to be in conformity, in all material respects, with the internationally recognized due diligence framework as set forth in the Organization for Economic Cooperation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2016) (“OECD Framework”) and related supplements for Conflict Minerals.
The five steps defined in the OECD Due Diligence Guidance are: (1) establishment of strong internal company management systems; (2) identification and assessment of risks in the supply chain; (3) design and implementation of a strategy to respond to risks as they are identified; (4) carrying out independent third-party audits of smelters’ and refiners’ due diligence practices; and (5) reporting annually on supply chain due diligence.
The due diligence measures we undertook consisted primarily of:
a. Establishing strong company management systems - We reviewed and maintained our management systems that had been previously established through the following actions:
b. Identified and assessed risks in the supply chain
As part of our risk-based approach, we have decided to focus on electronics suppliers and manufacturers. We assessed two primary risks in our supply chain: (1) the risk of not receiving timely and accurate information from the supplier; and (2) the risk of not being able to replace a supplier while trying to move towards the goal of responsibly sourcing all of the minerals and/or materials used in our products.
Based on this assessment method, we segmented our suppliers into three risk levels (high, medium and low). In order to allow us to invest our risk management efforts according to the supplier level of risk, we referred to Conflict Minerals-related risks based on supplier’s characteristics, such as: the volume of spending during 2021 and the extent to which we are dependent upon any particular supplier or, conversely, the availability of alternative suppliers.
We sent periodic reminders to any non-responsive suppliers to provide surveys or updated responses. We have identified, to the best of our efforts, the smelters/refiners in the supply chain by conducting a supply chain survey using the Conflict Minerals Reporting Template, or CMRT, version 6.01 and above, which requests suppliers and manufactures to identify smelters or refiners and the country of origin, or likely country of origin, of the conflict minerals in the products that they supply to us. In addition, we compared smelters or refiners identified in the supply chain survey against the list of facilities that have received a compliant or active designation from the Responsible Minerals Assurance Process (“RMAP”), or other independent third-party audit programs. We documented the country of origin, or likely country of origin, information for the smelters or refiners identified in the supply chain survey as provided from the different sources, as reported in Annex 2.
c. Designed and implemented a strategy to respond to identified risks
The findings of the supply chain risk assessment and due diligence process are reported to designated members of our senior management team — our CFO, EVP Operation, General Counsel and ESG Director, Supply Chain Director and CEO, who are updated regarding major findings and/or red flags, as they arise. As part of our risk management strategy, we continue to conduct business with any flagged supplier while we investigate such supplier’s’ sourcing practices.
We contact suppliers whose responses are identified as incomplete, inconsistent or inaccurate. We also review supplier responses to track smelters or refiners in our supply chain that supply us with Conflict Minerals and have not received a compliant or active designation based on the RMI’s RMAP or other independent third party validation programs.
We referred suppliers to training materials online that included an overview of the Rule and instructions on how to complete the Conflict Minerals Reporting Template. We also sent follow up letters to unresponsive suppliers as well as those suppliers that declared the existence of Conflict Minerals in their supply chain from the CAHRAs from uncertified smelters or refiners, according to the RMI’s Standard Smelter List that provides an indication of all of the smelters or refiners that are conformant or active according to the RMAP audit. These are suppliers that we classify as high risk.
Our supply chain due diligence is a dynamic process and requires on-going risk monitoring. Therefore, after implementing our risk mitigation strategy, we repeat Step 2 of the OECD guidelines to ensure effective management of risks. We have established procedures for employees, stakeholders, direct suppliers, and customers to communicate concerns about our responsible sourcing policies.
d. Reviewed independent third-party audit of smelter/refiner due diligence practices
We are a downstream company and are multiple layers removed from the smelters or refiners that directly process the minerals and mineral ores that are essential to the production or functionality of our products, i.e., the necessary Conflict Minerals. Our constitution as a downstream company means that we do not directly perform audits of the smelters or refiners in its mineral supply chain. As a result, our due diligence efforts relied on reviewing information on the status of smelters or refiners participating in Third Party Audit programs and cross-industry initiatives, such as those led by the RMI’s RMAP.
e. Prepared an annual report on supply chain due diligence
Kornit’s Conflict Mineral Policy states that we will comply with Section 1502 of the Dodd Frank Act, which includes filing a Form SD and this Conflict Minerals report with the SEC annually and posting such report publicly on our website at:
https://ir.kornit.com/financial-information/sec-filings?items_per_page=10&page=2 . We have included such report on our website for the calendar year of 2021.
We conducted a supply-chain survey of the 264 direct suppliers and manufacturers that we identified as contributing the necessary conflict minerals to our products. Based on the survey, we are unable to determine with any level of certainty as to whether or not the Conflict Minerals used in our products may or may not have directly or indirectly financed armed groups in the CAHRAs. The overall response rate to our survey -- i.e., suppliers who delivered completed CMRTs-- was approximately 70.08%, (185 of 284 total suppliers), which responses contained the names and locations of smelters or refiners (see Annex 1) and the reasonable countries of origin see (Annex 2) that process Conflict Minerals. This response rate reflects an improvement relative to the response rate for the 2020 year (59.74%), evidencing an improved due diligence effort on our behalf in obtaining information from our suppliers and manufacturers as a means of mitigating the risk that the necessary Conflict Minerals in our products benefit armed groups.
Of this response rate (i.e., the 70.08% of suppliers that responded to the supply chain inquiry in 2021):
The terms above have the following meaning as part of our due diligence efforts:
We cannot assert with any level of certainty that our conclusions regarding the source, or likely source, and chain of custody of the necessary conflict minerals is accurate because we rely exclusively on information provided by our direct suppliers. In this regard, we have made reasonable inquiries in an effort to verify and assess the information provided based on the conclusions of an independent third-party audit program, i.e., the RMI’s RMAP validation program for smelters or refiners, or other relevant Third Party Audit bodies.
Despite the fact that some suppliers indicated that they source from the CAHRAs, these suppliers were unable to accurately report the specific smelters and/or refiners that were part of the supply chain for the components that were sold and which are necessary to the production and/or functionality of our products in 2021. Based on the lack of complete information from our suppliers, we are unable to determine with any level of certainty as to the complete list of facilities used to process those necessary Conflict Minerals, or their country of origin, and to conclude whether or not the Conflict Minerals used in our products may or may not have directly or indirectly financed armed groups in the CAHRAs. Our efforts to determine the mine(s) or location of origin included the use of the due diligence measures described above.
Smelters or refiners verified as conflict free or in the audit process:
The statements above are based on the RCOI process and supply due diligence that we in good faith conducted for 2021. These statements are based on the information available at the time of the writing and publication of this report. A number of factors could introduce errors or otherwise may affect our conclusions.
These factors include, but are not limited to, gaps in product or product content information, gaps in supplier data, errors and/or omissions by suppliers, confusion over requirements of the Rule, gaps in supplier education and knowledge, lack of timeliness of data, public information not discovered through a reasonable search, errors in public data, language barriers and translation, supplier unfamiliarity with the Rule, conflict-area sourced materials declared secondary materials, companies that went out of business in 2021, and smuggling of Conflict Minerals to countries beyond the CAHRAs.
We do not collect information from our suppliers on a continuous and real-time basis. Instead, we only collect such information in the context of the CMRTs provided by the suppliers at the time of the publication of this report. We cannot be certain about our conclusions regarding the source and chain of custody of the necessary Conflict Minerals as such information comes from direct suppliers, though we do verify their declarations against the conclusions of independent third-party audit programs, such as the RMI’s RMAP program.
Continuous improvement efforts to mitigate risk
We will continue working with our global supply chain in an effort to achieve responsible sourcing and compliance with international regulations, including through the following actions:
Reported Names and Locations of Smelters or Refiners
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!