NOTE 6 — INVESTMENTS

Equity Securities— The Company held 6,643,559 shares of capital stock of Telcon RF Pharmaceutical, Inc., a Korean corporation (formerly, Telcon Inc. and herein “Telcon”), which were acquired in July 2017 for approximately $31.8 million. As of December 31, 2019 and December 31, 2018, the closing prices per Telecon share on the Korean Securities Dealers Automated Quotations (“KOSDAC”) were approximately $4.20 and $7.43, respectively.

As of December 31,2019 and December 31, 2018, all shares of Telcon common stock were pledged to secure our obligation under the revised API agreement with Telcon. In December 2019, the API agreement was amended to permit the release the Telcon shares from the pledge and to permit the Company to sell the shares in exchange for the Company’s agreement that a portion of the net sale proceeds will be used to purchase at face value a 10-year convertible bond of Telcon in the principal amount of approximately $31.8 million to be substituted for the Telcon shares and pledged to Telcon to secure the Company’s obligations under the revised API Agreement between the Company and Telcon.

As of December 31, 2018, the Company held 39,250 shares of capital stock of CellSeed, Inc., Japanese Corporation (“CellSeed”), which shares were the remainder part of 147,100 shares acquired by the Company in January 2009 for approximately $1.1 million or $7.69 per share. As of December 31, 2018, the closing price per CellSeed share on the Tokyo Stock Exchange was approximately $6.07 and all the Company’s CellSeed shares were pledged to secure a $300,000 convertible note issued to Mitsubishi UFJ Capital III Limited Partnership that was due on demand and was classified as marketable securities, pledged to creditor in current assets. In June 2019, all the CellSeed shares were sold for net cash proceeds of approximately $221,000 after repayment of the secured convertible note.

Effective January 1, 2018, the Company adopted ASU 2016-01 which requires the Company to measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in earnings. The Company uses quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity securities without readily determinable fair values, the Company has elected the measurement alternative under which the Company measures these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Management assesses each of these investments on an individual basis. Additionally, on a quarterly basis, management is required to make a qualitative assessment of whether the investment is impaired; however, the Company is not required to determine the fair value of these investments unless impairment indicators existed. When impairment indicators exist, the Company generally uses discounted cash flow analyses to determine the fair value. For the year ended December 31, 2019, the Company recognized approximately $515,000 in impairment loss for equity securities without readily determinable fair value attributable to an investment in KPS Co., Ltd. No impairment loss was recognized during the year ended December 31, 2018. The Company recognized a cumulative effect adjustment of $41.4 million, net of $12.3 million income tax benefit, to increase the opening balance of accumulated deficit with an offset to accumulated other comprehensive income as of January 1, 2018, in connection with the adoption of ASU 2016-01.

The fair values of our equity securities were included in the following line items in the Consolidated Balance Sheets (in thousands):

Net unrealized losses on available-for-sale marketable securities held as of December 31, 2019 and 2018 were $21.4 million and $43.2 million, respectively.

Equity Method Investment – During 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings to acquire, own and operate an amino acids manufacturing facility in Ube, Japan. As part of the formation, the Company invested approximately $32,000 in exchange for 40% of EJ Holdings voting shares. JIP owns 60% of EJ Holdings voting shares. In October 2018, the Company entered into a loan agreement with EJ Holdings under which the Company made an unsecured loan to EJ Holdings in the amount of $13.6 million. The loan was valued at $13.8 million and $13.6 million as of December 31, 2019 and December 31, 2018 respectively. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. The loan matures on September 30, 2028 and bears interest at the rate of 1% payable annually. The parties also contemplated that the Ube facility will eventually supply the Company with the facility’s output of amino acids, that the operation of the facility will be principally for our benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility will be made by EJ Holdings’ board of directors, a majority of which are representatives of JIP.

EJ Holdings is engaged in phasing in the Ube facility, including obtaining FDA and other regulatory approvals for the manufacture of PGLG in accordance with cGMP. EJ Holdings has had no revenues since its inception, has depended on loans from the Company to acquire the Ube facility and fund its operations and will continue to be dependent on loans from us or other financing unless and until the Ube facility is activated and EJ Holdings can secure customers for its products.

The Company has determined that EJ Holdings is a variable interest entity, or VIE, based upon the facts that the Company provided the loan financing to acquire the Ube facility and the EJ Holdings activities at the facility are principally for the Company’s benefit. JIP, however, owns 60% of EJ Holdings and is entitled to designate a majority of EJ Holdings’ board of directors and its Chief Executive Officer and outside auditors, and, as such, controls the management, business and operations of EJ Holdings. Accordingly, the Company accounts for its variable interest in EJ Holdings under the equity method.

The Company’s share of the losses reported by EJ Holdings are classified as net losses from equity method investment. The investment is evaluated for impairment annually and if facts and circumstances indicate that the carrying value may not be recoverable, an impairment charge would be recorded.

 The following table sets forth certain financial information of EJ Holdings for years ended December 31, 2019 and 2018 (in thousands):