Item 4.01. Changes in Registrant’s Certifying Accountant.
(a) On July 25, 2019, the Audit Committee of the Board of Directors of International Stem Cell Corporation (the “Company”) elected to conclude
the Company’s
8-year
engagement with its independent registered public accounting firm Mayer Hoffman McCann P.C. (“MHM”).
MHM’s audit reports on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2018 and 2017 did not
contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except for the inclusion of an explanatory paragraph regarding the Company’s ability to continue
as a going concern.
During the fiscal years ended December 31, 2018 and 2017, and the subsequent interim period through July 25, 2019, there
were (i) no disagreements between the Company and MHM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, any of which, if not resolved to MHM’s satisfaction, would have
caused MHM to make reference thereto in its reports, and (ii) except as noted in the following paragraph, no reportable events within the meaning of Item 304(a)(1)(v) of Regulation
S-K.
As previously disclosed in the Company’s Annual Reports on Form
10-K
for the fiscal year ended December 31,
2017 (the “2017
10-K”)
and for the fiscal year ended December 31, 2018 (the “2018
10-K”),
the Company reported material weaknesses (the
“Material Weaknesses”) in its internal control over financial reporting. In particular, as of December 31, 2017, the Company concluded its disclosure controls and procedures were not effective due to a material weakness in internal
control over financial reporting related to the accounting for and disclosure of equity transactions. As of December 31, 2018, the Company concluded that its disclosure controls and procedures were not effective due to a material weakness in
internal control over financial reporting including the areas of financial reporting and technical accounting, disclosures of equity, complex,
non-routine,
and significant transactions, and adoption of new
accounting standards, collectively resulting from lack of continuity and sufficient accounting and finance resources. MHM was not required to, and did not, audit the Company’s internal control over financial reporting. The Audit Committee and
management discussed the Material Weaknesses with MHM. The Company has authorized MHM to respond fully and without limitation to any inquiries of BDO USA, LLP (“BDO”), the Company’s successor independent registered public accounting
firm, concerning the Material Weaknesses.
The Company provided MHM with a copy of the disclosures it is making in this Current Report on Form
8-K
and requested that MHM furnish a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the statements made herein. A copy of MHM’s letter dated July 26, 2019,
is filed as Exhibit 16.1 hereto.
(b) Following a selection process that evaluated several potential successor independent registered public accounting
firms, on July 25, 2019, the Audit Committee approved the appointment of BDO as the independent registered public accounting firm for the Company’s fiscal year ending December 31, 2019. During the fiscal years ended December 31,
2018 and 2017, and the subsequent interim period through July 25, 2019, neither the Company nor anyone on its behalf consulted with BDO regarding (i) the application of accounting principles to a specific transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that BDO concluded was an important factor considered by the Company
in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation
S-K,
or
(iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation
S-K.