Exhibit 1.01
Conflict Minerals Report
For The Year Ended December 31, 2017
This Conflict Minerals Report (this “Report” or “CMR”) of Abaxis, Inc. (“Abaxis,” “our,” “us,” or “we”), for the period from January 1, 2017 through December 31, 2017 (the “Reporting Period”) is presented to comply with Rule 13p-1 under the Securities Exchange Act of 1934 (the “Rule”). The Rule was adopted by the Securities and Exchange Commission (“SEC”) to implement reporting and disclosure requirements related to Conflict Minerals (as defined below) as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Rule, through Form SD, imposes certain reporting obligations on SEC registrants whose manufactured products contain Conflict Minerals that are necessary to their functionality or production. Form SD defines “Conflict Minerals” as cassiterite, columbite-tantalite, gold, wolframite, and their derivatives, which are limited to tin, tantalum, and tungsten (“3TG” or “Conflict Minerals”). The intent of these requirements is to further the goal of ending violent conflict in the Democratic Republic of Congo and in adjoining countries (the “Covered Countries”), which conflict has been financed, in part, by the exploitation and trade of conflict minerals. These requirements apply to registrants whatever the geographic origin of the Conflict Minerals and whether or not they fund armed conflict.
Abaxis conducted an analysis of the products manufactured, or contracted to be manufactured, during the Reporting Period and found that certain Conflict Minerals are necessary to the functionality or production of some of its products. This Report describes the process undertaken by Abaxis for identifying Conflict Minerals necessary to the functionality or production of these products, as well as its country of origin inquiry and additional due diligence measures as to the source and chain of custody of these Conflict Minerals.
Company Overview
Abaxis, Inc. is a worldwide developer, manufacturer and marketer of portable blood analysis systems that are used in a broad range of medical specialties in human or veterinary patient care to provide clinicians with rapid blood constituent measurements. Our mission is to improve the efficiency of care delivery to and the quality of life of patients in the medical and veterinary markets. Abaxis is a California corporation and was incorporated in 1989.
Description of Abaxis Products Covered by this Report
This Report relates to Abaxis’ products: (i) for which Conflict Minerals are necessary to the functionality or production of that product; (ii) that were manufactured, or contracted to be manufactured, by Abaxis; and (iii) for which the manufacture was completed during calendar year 2017.
Abaxis’ medical devices are manufactured using parts and components that are several levels removed from the actual mining of conflict minerals. The blood chemistry analyzers that Abaxis manufactures employ a variety of components designed or specified by us that contain Conflict Minerals that are necessary to their functionality or production (the “Covered Products”). The components are manufactured by several third-party suppliers that have been qualified and approved by Abaxis and then assembled by our contract manufacturers.
Reasonable Country-of-Origin Inquiry and Due Diligence Process
Abaxis’ supply chain with respect to the Covered Products is complex, and its manufacturing process is significantly removed from the mining, smelting and refining of Conflict Minerals. Abaxis does not purchase Conflict Minerals directly from mines, smelters or refiners, and there are many third parties in the supply chain between the ultimate manufacture of the Covered Products and the original sources of Conflict Minerals. Abaxis believes that the smelters and refiners of the Conflict Minerals are best situated to identify the sources of Conflict Minerals, and, therefore, has taken steps to identify the applicable smelters and refiners of Conflict Minerals in Abaxis’ supply chain. However, tracing these minerals to their sources is a challenge that requires us to rely on our direct suppliers to work with their upstream suppliers to provide us with accurate information about the origin of the Conflict Minerals in the materials and parts that we purchase. The information provided by suppliers may be inaccurate or incomplete or subject to other irregularities. The ability to verify the accuracy of information reported by suppliers is limited due to Abaxis’ relative location within the supply chain in relation to the actual extraction and transport of Conflict Minerals.
Where Abaxis completed manufacture of Covered Products during calendar year 2017, we have undertaken a reasonable country-of-origin inquiry (“RCOI”) and due diligence on the source and chain of custody of the Conflict Minerals that were included in those products. We surveyed our suppliers using the Conflict Minerals Reporting Template (the “Template”) from the Responsible Minerals Initiative (“RMI”). The Template facilitates the transfer of information through the supply chain regarding country of origin and smelters and refiners, including suppliers’ conflict-free policies and information regarding their engagement with lower-tier suppliers and the identification of smelters used to supply Conflict Minerals contained in materials or products provided by the supplier and whether those smelters are located in one of the Covered Countries.
Reasonable Country-of-Origin Inquiry Responses and Follow-Up
Abaxis has conducted a good faith RCOI that was reasonably designed to determine whether any of the Conflict Minerals in the Covered Products originated in the Covered Countries and whether any of the Conflict Minerals may be from recycled or scrap sources. Using the Template, Abaxis conducted a survey of all suppliers that provided components or parts used in Covered Products the manufacture of which was completed in 2017 that we reasonably believed were likely to contain 3TG. Because we were unable to determine the country of origin of all Conflict Minerals in our supply chain, we performed due diligence on the source and chain of custody to determine whether the Conflict Minerals directly or indirectly financed or benefitted armed groups in the Covered Countries.
Conflict Minerals Due Diligence Process
Design of Due Diligence
Abaxis’ Conflict Minerals due diligence process has been designed to conform, in all material respects, with the framework developed by The Organisation of Economic Co-operation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, and the related supplements on gold, tin, tantalum and tungsten (the “OECD Guidance”), specifically as it relates to our position in the minerals supply chain as a downstream purchaser.
Description of Due Diligence Measures
Abaxis’ due diligence on the source and chain of custody of the Conflict Minerals contained in the Covered Products included the following measures:
(a) Establish Strong Company Management Systems
| · | Conflict Minerals Policy. Abaxis has adopted a conflict minerals policy (the “Conflict Minerals Policy”), which provides in part as follows: |
Abaxis’ Commitment: We support the objectives underlying Section 1502 and the efforts being made to reduce the risk that trade in Conflict Minerals contributes to this humanitarian crisis.
Process to Meet Regulatory Obligation: We have initiated a process designed to comply with the Rules. In particular, we are taking steps to (1) conduct an inquiry regarding the origin of any necessary Conflict Minerals in our supply chain and due diligence on the source and chain of custody of those minerals and enhance our supply chain internal controls; (2) strive to eliminate Conflict Minerals that may be supporting the conflict in the DRC; and (3) notify our suppliers of our policy on Conflict Minerals and encourage them to make similar commitments and take similar measures.
We are in the process of determining the exposure of our supply chain to Conflict Minerals mined in conditions of armed conflict and human rights abuses and following an internationally recognized due diligence framework to understand and minimize our risk. However, the global supply chain for these Minerals is complex, and tracing these Minerals to their sources is a challenge. To meet that challenge, we must rely on the cooperation of our suppliers. To help us adhere to our policy, implement the tracking process and meet our SEC reporting obligations, we expect our suppliers to respond to our queries about purchased components on a timely basis, including assistance in reaching out to their suppliers when necessary to trace the source of minerals and regular communications with us about supplier’s Conflict Minerals tracking and tracing efforts.
Commitment to Working with Our Suppliers: In addition, we are taking steps to encourage our suppliers to commit to responsible “conflict-free” sourcing to prevent directly or indirectly contributing to armed conflicts and human rights abuses. If Conflict Minerals are identified in our supply chain, we plan to work with our suppliers to determine if practical conflict-free sources certified under the RMI’s Responsible Minerals Assurance Process (“RMAP), are available and work to qualify those sources. We have also advised our suppliers about the Conflict Minerals Policy and have encouraged them to adopt similar policies.
We expect to review and update this policy regularly as needed. We have posted our Conflict Minerals Policy on our website (http://www.abaxis.com).
| · | Conflict Minerals Team. Abaxis has established an internal Conflict Minerals Rule compliance team consisting of a cross-functional group that includes representatives from manufacturing, engineering, purchasing/procurement and finance. The compliance team is responsible for developing and implementing Abaxis’ compliance program. |
| · | Control Systems. Since Abaxis does not have direct relationships with Conflict Minerals smelters and refiners, we rely on the Template and associated due diligence information developed by the RMI and to work with our suppliers to identify upstream participants in the supply chain and conduct due diligence investigation of them. |
| · | Supplier Engagement. We have enhanced engagement with our suppliers principally by communicating to suppliers information and guidance regarding our requirements under the Rule, as well as the standards and expectations set forth in the Company Policy. |
| · | Grievance Mechanism. Abaxis’ Corporate Governance policies include a whistleblower compliance hotline (1-800-826-6762) to report any grievance, including issues concerning our Conflict Minerals compliance. |
(b) Identify and Assess Conflict Mineral Risks in the Supply Chain
| · | Identification of Conflict Minerals in the Supply Chain. Abaxis has a process to assess and identify suppliers of Covered Products (“In-Scope Suppliers”) the manufacture of which was completed during the Reporting Period and as such, the RCOI pertained only to those suppliers. We requested our In-Scope Suppliers to complete a Template to review Conflict Minerals risk within the supply chain, identify smelters and refiners and countries of origin of the Conflict Minerals, and provide additional information as necessary. |
| · | Risk Assessment. Abaxis reviewed the conflict minerals data, provided by the In-Scope Suppliers for the Reporting Period and assessed the reasonableness of the representations made and reviewed the responses against criteria developed to determine which responses required further engagement with suppliers. These criteria included untimely or incomplete responses as well as inconsistencies or other apparent inaccuracies within the data reported. Additionally, we contacted suppliers for follow-up, clarification or additional information on the supplier surveys, when needed. We also evaluated suppliers’ stated responses regarding the locations of origin of the Conflict Minerals. |
(c) Design and Implement a Strategy to Respond to Identified Risks
To the extent that suppliers identified smelters and refiners in the supply chain, we took steps to determine whether the Conflict Minerals directly or indirectly financed or benefitted armed groups in the Covered Countries. In particular, Abaxis compared the smelters and refiners identified by its In-Scope Suppliers against currently available independently verified lists of compliant smelters or refiners such as the RMAP Conformant Refiners/Smelters, the Responsible Jewellery Council (RJC) – Chain of Custody Certified Entities and the London Bullion Market Association (LBMA) – Good Delivery List. Generally, these programs identify smelters and refiners that an independent third-party audit has confirmed have systems in place designed to assure sourcing of only conflict-free minerals.
Of the smelters or refiners that have been identified as potentially applicable, some have not been identified as validated smelters. Through communication of our Conflict Minerals Policy and expectations for suppliers, as well as through our individual follow-up during the due diligence process, we have taken steps to encourage our suppliers to source from validated smelters. We have also developed a strategy for addressing the risk of unresponsive suppliers that do not source from validated smelters, including cautioning the supplier, providing additional education to the supplier and other corrective actions, giving the supplier an opportunity to change its sourcing to validated smelters, monitoring and tracking performance and elevating the problem to management. If, for any reason, the supplier were unable to change sources to validated smelters or were otherwise unresponsive, we may disengage from the supplier and seek new sources through the supply chain, depending on the criticality of the product supplied, including factors such as supplier size and capabilities, the availability of alternatives and our dependence on the supplier.
(d) Implement Independent Third-Party Audit of Supply Chain Due Diligence
We do not have any direct relationships with smelters or refiners that process Conflict Minerals, and we do not perform or direct audits of these entities within our supply chain. As an alternative, we have relied on audit results and information collected and provided by independent third-party smelter and refinery audit programs, such as the RMAP.
(e) Report Annually on Supply Chain Due Diligence
This Report is publicly available and posted at Abaxis’ website (www.abaxis.com). Abaxis currently expects to report annually on supply chain due diligence, as required by the Rule. However, Abaxis’s reporting obligations under the Rule may change in the future and its ability to implement certain processes or obtain information from its suppliers may differ materially from those anticipated or implied in this Report.
Conflict Minerals Due Diligence Results
We rely on our In-Scope Suppliers, to provide information on the origin of the Conflict Minerals contained in components and materials supplied to us and on the smelters and refiners used to process those Conflict Minerals. The information provided by the In-Scope Suppliers primarily includes a completed Template. We believe that this method of obtaining information about Abaxis’ supply chain from In-Scope Suppliers represents a reasonable effort to determine the mines or locations of origin of the Conflict Minerals in Abaxis’ supply chain and the smelters and refiners that processed those Conflict Minerals. Although we received a response from all of our known Conflict Minerals suppliers, the quality of the responses received varied, preventing management from relying fully on all of these responses. Our goal is to continue to improve our due diligence efforts to obtain more complete information, particularly as more of our suppliers increase their familiarity with the information required.
Based on the information obtained in the RCOI and due diligence process described above, management has been unable to determine the smelter, refiner or country of origin for a portion of the Conflict Minerals included in the Covered Products during the Reporting Period. This inability was due primarily to the quality of the information received from the known Conflict Minerals suppliers, some of which provided Template responses at a “company-wide” level rather than a “product-specific” level or included only partially completed Templates that did not, for example, identify all of the supplier’s smelters or refiners or all of the countries from which its Conflict Minerals were sourced.
For the Reporting Period, of the 484 facilities identified by suppliers and believed to be actual smelters or refiners, 252 or 52% were identified by one of the programs above as certified conflict-free based on currently available independently verified lists of compliant smelters or refiners.
Identified Smelters and Refiners
As noted above, some of our In-Scope Suppliers were not able to identify any smelters or refiners and some were not able to identify smelters or refiners at the product-level. Moreover, there were facilities identified by suppliers that were not identified as actual smelters or refiners on the list developed by the RMAP. As a result, at this point, Abaxis does not believe that it can reliably identify all smelters and/or refiners in its supply chain and, therefore, has presented in Table I of this CMR, only the 252 facilities believed to be actual smelters or refiners and that were identified by suppliers that provided product-level information. Additionally, in Table I, we provided the information listed by our suppliers in the Smelter Look-up tab list of the CMRT and were not listed as “Conformant” or “Active” by the RMAP.
We continue to work with our suppliers to encourage them to process Conflict Minerals supplied to us only through smelters and refiners that have been validated as conflict-free through programs such as the CFSP or are actively progressing toward validation.
Country of Origin of the Conflict Minerals
Based on the above-described due diligence process, Abaxis does not have sufficient information to determine the countries of origin of the 3TG in each of the Covered Products or whether the 3TG were from scrap or recycled sources. None of our suppliers provided the information regarding the country of origin of the Conflict Minerals at the product level for the Reporting Period. As a result, we have not identified any countries of origin of the Conflict Minerals.
Efforts to Determine the Mine or Location of Origin
To determine the mines or location of origin of the Conflict Minerals with the greatest possible specificity, Abaxis performed the due diligence measures described above.
Risk Mitigation and Future Due Diligence Measures
Abaxis strives to take the steps outlined above in an effort to ensure that Conflict Minerals contained in products are sourced with due respect for human rights, avoid contributing to conflict, and support development through responsible supply chain practices.
In addition to the steps already taken, we intend to improve due diligence measures and to further mitigate the likelihood that the Conflict Minerals contained in our products could benefit armed groups in the Covered Countries:
| · | Continue to engage with direct suppliers to obtain current, accurate and complete information about the supplier survey responses; |
| · | Continue, and seek to further improve, our direct supplier surveys and due diligence process and continue to review the refinement and expansion of the list of participating smelters and refiners through the RMI website to validate the smelters and refiners provided by suppliers; and |
| · | Encourage direct suppliers to implement responsible sourcing and to request that they encourage smelters and refiners to obtain a “conflict-free” designation from a recognized third-party auditor through a program such as the RMAP and other industry-sponsored programs. |
| · | In the event that any of our suppliers are found to be providing us with 3TG from sources that support conflict in the Covered Countries, work with the supplier to establish alternative sources of 3TG; and |
| · | Continue to refine our due diligence processes in accordance with the OECD Guidelines and supplements. |
Cautionary Note on Forward-Looking Statements
Forward-looking statements in this CMR are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. Investors are cautioned that statements in this CMR that are not strictly historical statements, including without limitation, Abaxis’ intentions and expectations regarding further supplier engagement, due diligence, future reporting and risk mitigation efforts and strategy, constitute forward-looking statements that involve risks and uncertainties. Words such as “expects,” “anticipates,” “goals,” “strives,” “intends,” “plans,” “believes,” “seeks,” variations of these words, and similar expressions are intended to identify such forward-looking statements. Actual results could differ materially from the forward-looking statements. Risks and uncertainties that could cause actual results to differ include, without limitation, risks and uncertainties associated with the progress of industry and other supply chain transparency and smelter or refiner validation programs for Conflict Minerals (including the possibility of inaccurate information, fraud and other irregularities), inadequate supplier education and knowledge, limitations on the ability or willingness of suppliers to provide more accurate, complete and detailed information and limitations on the Abaxis’ ability to verify the accuracy or completeness of any supply chain information provided by suppliers or others, as well as potential statutory or regulatory changes.