MGC Diagnostics Corporation has resolved pending litigation with neurology and sleep diagnostics equipment manufacturer NeuroVirtual regarding a disputed distribution agreement.

As a result of negotiations between MGC Diagnostics and NeuroVirtual, the parties agreed to settle the lawsuit for a one-time cash payment of $650,000 by MGC Diagnostics to NeuroVirtual, with each party agreeing to dismiss the lawsuit and all claims against the other party.

As part of the settlement, MGC agreed to retain the purchased NeuroVirtual sleep diagnostics inventory with NeuroVirtual continuing to support this inventory pursuant to the distribution agreement. MGC has no obligation to purchase additional NeuroVirtual sleep diagnostics products.

MGC Diagnostics CEO Todd Austin says in a release: “Although we believe that our December 2015 rescission of the distribution agreement was appropriate, we also believe that a mutually acceptable resolution of this matter allows both MGC Diagnostics and NeuroVirtual to focus on their respective core business opportunities without the expense and distraction of on-going litigation.”

In connection with the settlement, MGC will record a pre-tax charge of $670,000 for the quarter ended April 30, 2016, which includes an estimate for legal fees. This settlement will be reflected in the company’s financial statements included in its Form 10-Q for the quarter ended April 30, 2016, to be filed with the Securities and Exchange Commission. These financial statements will revise the fiscal 2016 second quarter results the company reported on June 1, 2016. The company believes that the sleep diagnostic inventory it is retaining is good and salable and it has not recorded an impairment with respect to this inventory.

MCG also announced that it has paid off the remaining $2.5 million balance of its 5-year, $4.0 million term loan and has terminated its revolving credit facility with BMO Harris Bank. MCG initiated the term loan in connection with its August 1, 2014 acquisition of Belgium-based Medisoft SA. MCG decided to pay off the loan consistent with its commitment to enhance shareholder value. Internally generated cash flow from operations allowed the company to pay off this bank debt early. The company also terminated its revolving credit facility with BMO Harris Bank, which the company had not drawn upon. These actions remove all bank liens on company assets and restrictions on uses of Company cash.

Austin says, “We are pleased with the early retirement of the term debt and the resolution of the outstanding issues with NeuroVirtual. We have strengthened our balance sheet and removed the uncertainty of on-going litigation. We continue to make great progress positioning the company for improved operational and financial results and enhanced shareholder value.”