8. Related-Party Transactions

Hirsch Acquisition – Secure Keyboards and Secure Networks. Prior to the Company’s acquisition of Hirsch Electronics Corporation (“Hirsch”), effective November 1994, Hirsch had entered into a settlement agreement (the “1994 Settlement Agreement”) with two limited partnerships: Secure Keyboards, Ltd. (“Secure Keyboards”) and Secure Networks, Ltd. (“Secure Networks”), whereby Hirsch was obligated to make royalty based payments to Secure Keyboards and Secure Networks. Secure Keyboards and Secure Networks were related to Hirsch through certain common shareholders and limited partners, including Hirsch’s then-president Lawrence Midland, who is now the president and a director of the Company. Following the acquisition of Hirsch, Mr. Midland continues to own 30% of Secure Keyboards and 9% of Secure Networks.

On April 8, 2009, Secure Keyboards, Secure Networks and Hirsch amended and restated the 1994 Settlement Agreement to replace the royalty-based payment arrangement under the 1994 Settlement Agreement with a new, definitive installment payment schedule with contractual payments to be made by Hirsch in future periods through 2020 (the “2009 Settlement Agreement”). Prior to the acquisition of Hirsch, the Company was not a party to the 2009 Settlement Agreement. The Company has, however, provided Secure Keyboards and Secure Networks with a limited guarantee of Hirsch’s payment obligations under the 2009 Settlement Agreement (the “Guarantee”). The 2009 Settlement Agreement and the Guarantee became effective upon the acquisition of Hirsch on April 30, 2009. Hirsch’s annual payment to Secure Keyboards and Secure Networks in any given year under the 2009 Settlement Agreement is subject to increase based on the percentage increase in the Consumer Price Index during the prior calendar year.

The final payment to Secure Networks was due on January 30, 2012 and the final payment to Secure Keyboards is due on January 30, 2021. Hirsch’s payment obligations under the 2009 Settlement Agreement will continue through the calendar year period ending December 31, 2020, unless Hirsch elects at any time on or after January 1, 2012 to earlier satisfy its obligations by making a lump-sum payment to Secure Keyboards.

The Company recognized $0.2 million and $0.5 million of interest expense for the interest accreted on the discounted liability amount during the three and nine months ended September 30, 2013, respectively, and $0.2 million and $0.6 million of interest expense during the three and nine months ended September 30, 2012, respectively, which is included as a component of interest expense, net in its condensed consolidated statements of operations. As of September 30, 2013 and December 31, 2012, approximately $6.9 million and $7.3 million, respectively, were outstanding for related-party liability in connection with the Hirsch acquisition, of which approximately $1.1 million and $1.1 million, respectively, were shown as a current liability on the condensed consolidated balance sheets.

The payment amounts for related-party liability in connection with the Hirsch acquisition for the next five years are as follows (in thousands):

September 30, 2013:
2013 (remaining three months)	$	274
2014		1,131
2015		1,176
2016		1,223
2017		1,272
Thereafter		4,616
Present value discount factor		(2,768	)
Total	$	6,924

payment solution Acquisition – Unsecured Loan. In connection with its acquisition of payment solution, through its majority-owned subsidiary, Bluehill ID AG, the Company assumed an unsecured loan payable to Mountain Partners AG, a significant shareholder of the Company. At the inception of the loan agreement, an amount of €250,000 was provided for working capital needs. An amount of €327,000, or approximately $0.4 million, was outstanding as of the payment solution acquisition date of January 30, 2012. The loan carries an interest rate of 8% per year. There are no specific payment terms and the amount outstanding under the loan agreement, including accrued interest, is due to be paid upon demand by Mountain Partners AG. The Company recorded interest expense on the loan of $6,900 and $21,900 during the three and nine months ended September 30, 2013, and $6,200 and $17,200 during the three and nine months ended September 30, 2012, respectively which is included as a component of interest expense, net, in the condensed consolidated statements of operations. The Company initiated discussions with Mountain Partners early in September 2013 to restructure its obligations under unsecured loan as it became apparent that it would prove difficult to continue to fulfill its obligations. The Company has not made any payments of principal or interest to Mountain Partners since it has assumed this loan in January 2012. As of September 30, 2013 and December 31, 2012, approximately $0.5 million and $0.5 million, respectively, were outstanding under the loan, which is shown as a current liability on the condensed consolidated balance sheets.