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                                                                   EXHIBIT 10.37


                              SETTLEMENT AGREEMENT


This Agreement which is executed on this 17th day of January, 2000 is by and
among:

MFIC Corporation, formerly Microfluidics International Corporation, a
corporation organized under the laws of Delaware ("MFIC" or the "Company"); and

J.B. Jennings and Bret A. Lewis ("Jennings & Lewis") in their individual
capacities and Bret Lewis' in his capacity as the President of JLJ Properties,
Inc. ("JLJ Inc.") and Lake Shore Industries, Inc., formerly Epworth
Manufacturing Company ("Lake Shore").

WHEREAS: On or about August 14, 1998 MFIC purchased the assets and selected
liabilities of Epworth Manufacturing Company, a corporation organized under the
laws of Michigan ("Epworth") and the purchased the assets and selected
liabilities of Morehouse-COWLES, Inc., a corporation organized under the laws of
California ("MC");

WHEREAS: The beneficial owners of Epworth and MC were Jennings & Lewis, each of
whom held 50% of the outstanding shares of Epworth and MC;

WHEREAS: As a result of the August 14, 1998 purchase of the assets and selected
liabilities of Epworth and MC by MFIC, said MFIC issued two promissory notes to
Lake Shore in the aggregate amount of Eight Hundred Thousand Dollars ($800,000)
(the "Subordinated Loans") where said notes were subordinated to a loan to MFIC
from Comerica Bank ("Comerica").

WHEREAS: MFIC, Lakeshore and Jennings & Lewis have indicated their intention to
restate the Subordinated Notes and to settle other pending disputes between them
through this Agreement;

WHEREAS: MFIC and JLJ Inc. have been involved in litigation pertaining to a
dispute relating to a lease executed by MFIC in favor of JLJ Inc. (the "M-43
lease"), which the parties now agree to settle, and

WHEREAS: MFIC, Jennings & Lewis, Lake Shore, and JLJ Inc. have executed a letter
of understanding dated December 20, - 1999, which agreement is herein
incorporated by reference and a copy of which is attached hereto as EXHIBIT A.

THEREFORE: the parties warrant and agree as follows:

     1.   MFIC and JLJ Inc. warrant and agree to settle all disputes relating to
          the M-43 litigation, including the - withdrawal by MFIC of all pending
          litigation, with prejudice, in exchange for MFIC tendering JLJ Inc.
          payment totaling Fifty Eight Thousand Dollars ($58,000) under the
          following terms and conditions:

          A.   MFIC shall, upon execution of: (i) this Agreement and (ii) the
               Termination of Lease agreement attached hereto as EXHIBIT B,
               tender to JLJ Inc. a check in the amount of Thirty Thousand
               Dollars ($30,000) - based upon approval of a letter of
               understanding dated December 20, 1999 by JLJ Inc., Lake Shore,
               and Jennings & Lewis.


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               The balance due to JLJ Inc. in the amount of Twenty Eight
               Thousand Dollars ($28,000) shall be paid to JLJ Inc. not later
               than one business day after the closing by MFIC of a new credit
               facility of up to Four Million Five Hundred Thousand Dollars
               ($4,500,000) which shall replace the current facility with
               Comerica (the "2000 Credit Facility"). However, JLJ Inc.
               acknowledges and agrees that should MFIC be unable to close on
               the 2000 Credit Facility on or before June 30, 2000 then the
               balance due shall be added to the balance of any then outstanding
               subordinated promissory note(s) due Lake Shore or such notes as
               shall be contemplated hereby or entered into herein after.

     2.   The subordinated loans ("Subordinated Loans") as set forth in the
          August 14, 1998 Acquisition of the Assets and Assumption of Selected
          Liabilities Agreement (the "August 14 Agreements") will be restated as
          of the date of the closing of the 2000 Credit Facility and will
          reflect that at such closing, the total obligation to Jennings & Lewis
          will be Eight Hundred Thousand Dollars ($800,000) (the "Subordinated
          Loan Balance") which will specifically include any and all interest
          which has accrued and is then currently unpaid and any other
          deductions or set-off to which either MFIC, Lake Shore, or Jennings &
          Lewis may have or be entitled to under any rights or agreements.

     3.   Jennings & Lewis, individually and on behalf of Lake Shore, warrant
          and agree that they will accept as payment in full for Five Hundred
          Thousand Dollars ($500,000) of the Subordinated Loan Balance, Five
          Hundred Thousand (500,000) shares of MFIC Common Stock (the "Shares").
          The Shares shall be issued to Jennings & Lewis, without registration,
          at a price of One Dollar ($1.00) per share (the "Issue Price").
          Jennings & Lewis acknowledge that they are currently shareholders in
          MFIC and that they fully understand that MFIC shares are traded solely
          on the NASDAQ - Over The Counter Bulletin Board ("OTC-BB") and that as
          such, the per share value determined herein above has been set solely
          by agreement of MFIC and Jennings & Lewis and is not necessarily
          reflective of the book, current or future value of MFIC stock.
          Jennings & Lewis further acknowledge that as of the date of execution
          of this Agreement, MFIC stock is trading on the OTC-BB at a price
          which is substantially less then the agreed Issue Price and that MFIC
          has not represented or otherwise warranted to them that the value of
          the stock is expected or will rise to or above the price set forth
          herein above.

     4.   Jennings & Lewis warrant and agree that under the terms of their
          acceptance of the Shares as payment for $500,000 of the Subordinated
          Loan Balance, that they shall grant to MFIC, an unconditional right to
          purchase back from them the 500,000 shares of MFIC stock, as described
          herein above, for a term not to exceed three (3) years from the date
          of the issuance of the Shares for a fixed price of One Dollar and
          seventy five cents ($1.75) per share. Jennings & Lewis further warrant
          and agree that MFIC shall have a first right of refusal to purchase
          the Shares during the three-year period.

     5.   Lake Shore agrees to convert the remaining portion of the Subordinated
          Loan Balance into a five (5) year promissory note which will become a
          general corporate obligation of MFIC and which will be subordinated
          under terms and conditions similar to those set forth in an


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          agreement of subordination between Jennings & Lewis and Comerica,
          executed and effective as of August 12, 1998 and which may also
          include those terms and conditions of subordination as set forth in a
          "Position Statement Regarding Subordinated Debt and Requirements of a
          Subordination Agreement with a Replacement Lender", which is attached
          hereto as a portion of EXHIBIT A.. This note would be executed by MFIC
          in favor of Lake Shore in the amount Three Hundred Thousand Dollars
          ($300,000), at a per annum interest of 10% for a five (5) year term
          and subject to the terms and conditions which are set forth below (the
          "2000 Subordinated Loan").

          A.   The execution of the 2000 Subordinated Loan shall not be effected
               until MFIC has executed the 2000 Credit Facility. Jennings &
               Lewis and Lake Shore acknowledge and agree that MFIC shall be
               bound to execute the 2000 Subordinated Loan documents (under the
               terms and conditions as set forth in this Agreement) not later
               then two (2) business days after the closing of the 2000 Credit
               Facility.

          B.   The 2000 Subordinated Loan shall be subordinated to the interests
               of the lender(s) under the 2000 Credit Facility without regard to
               any provisions contained in the August 14 Agreements. Any
               provisions regarding acceleration of the subordinated debt or its
               collection thereof which are contained in the 2000 Credit
               Facility shall be considered to be binding on the 2000
               Subordinated Loan and Lake Shore warrants and agrees that it will
               not attempt to collect or otherwise accelerate the payment of the
               2000 Subordinated Loan except under those provisions which will
               be contained in the 2000 Subordinated Loan agreement or in the
               2000 Credit Facility.

          C.   Lake Shore further warrants and agrees that the 2000 Subordinated
               Loan shall not be transferred, assigned, encumbered, pledged or
               hypothecated by it during its term, nor shall it dispose of any
               right, claim, title or interest in the 2000 Subordinated Loan
               without the express written approval of MFIC as evidenced solely
               by the Company's Chairman or Board of Directors. Lake Shore
               grants unconditionally to MFIC a first right of refusal (of not
               less then ten (10) business days) to purchase the 2000
               Subordinated Loan under the same terms and conditions as those
               offered by or to any qualified purchaser. Lake Shore warrants and
               agrees that should MFIC grant it the right to sell the 2000
               Subordinated Loan to a third party (where such agreement to sell
               shall not be unreasonably withheld by MFIC), then the terms and
               conditions of such sale shall clearly require that the purchaser
               be a qualified investor under the Securities Act of 1933, that
               such purchaser execute an investment representation letter under
               terms which are acceptable to MFIC and the terms of the 2000
               Credit Facility and that the purchaser execute a letter of
               assent, agreeing to be bound by the conditions as set forth in
               this Agreement and all succeeding documents, including the terms
               and conditions of the 2000 Credit Facility which specifically
               relate to the subordination of other MFIC obligations and the
               2000 Subordinated Loan.


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          D.   Lake Shore and MFIC each agree that the terms of the 2000
               Subordinated Loan shall provide that MFIC shall be required to
               pay Lake Shore interest only on a quarterly basis, interest in
               arrears, during the first year of the 2000 Subordinated Loan.
               Thereafter principal and interest shall be calculated into 48
               equal payments payable on the 15th day of each month following
               the one year anniversary of the 2000 Subordinated Loan agreement.

          E.   Lake Shore agrees that the terms of 2000 Subordinated Loan shall
               provide that neither it, nor the 2000 Subordinated Loan agreement
               shall restrict or take any action intended to limit or otherwise
               preclude the 2000 Credit Facility from being transferred or sold
               from one lender to another for any reason what so ever. Lake
               Shore further warrants and agrees that it will execute any
               additional subordination documents or agreements which may be
               required by each or any lender of the 2000 Credit Facility, or
               any subsequent borrowing which replaces the 2000 Credit Facility,
               so long as the terms of such additional subordination documents
               or agreements are not materially different from the terms as set
               forth in this document or where in fact they do not impose any
               restrictions or other conditions which would be considered a
               substantive change from the rights, duties and obligations of
               Lake Shore under this Agreement.

          F.   Lake Shore grants to MFIC, or a replacement senior lender
               participating in the 2000 Credit Facility, an unconditional right
               to purchase the 2000 Subordinated Loan for a discount of Twenty
               Percent (20%) where such purchase is completed prior to or
               simultaneous with the closing of the 2000 Credit Facility, as set
               forth herein above.

6.   Except as noted herein after, the parties do hereby release, remise and
     forever discharge the other of and from any and all claims, causes of
     action, costs and liabilities of any nature, known or unknown, to the
     fullest extent permitted by law, arising from or as a result of the August
     14 Agreements. Notwithstanding the foregoing, MFIC's obligations: (a) to
     Jennings & Lewis under their respective employment agreements dated August
     14, 1998, (b) to B2 Enterprises, Inc under a lease dated August 14, 1998,
     and to Lake Shore pursuant to the Subordinated Loans, are not affected by
     such release and discharge except under the terms and conditions and as
     anticipated by this Agreement.

Executed by the parties effective at the date first set forth herein above.

                                                      /s/ J. B. Jennings
MFIC Corporation                                  ------------------------------
                                                          J. B. Jennings
/s/ Irwin J. Gruverman
-------------------------------------
Irwin J. Gruverman, Chairman & C.E.O.

                                                      /s/ Bret A. Lewis
                                                  ------------------------------
                                                          Bret A. Lewis

JLJ Properties, Inc.                              Lake Shore Industries, Inc.


/s/ Bret A. Lewis                                 /s/ Bret A. Lewis
-------------------------------------             ------------------------------
Bret A. Lewis, President                          Bret A. Lewis, President


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