By Brenda Bouw, The Canadian Press

Afexa Life Sciences Inc. (TSX: FXA.TO), maker of the popular cold and flu treatment Cold-FX, has reached a settlement with investors who accused the company of misleading financial statements after the disappointing launch of its product in the United States.

The $7.1-million settlement comes after the company, formerly known as CV Technologies, reached an agreement last month with the Alberta Securities Commission related to "wrongly recognizing revenue" from its Cold-FX sales to U.S. retailers.

The settlements come as the Edmonton-based company rebrands under new management, tries to build up its sunken share price and prepares for its role as an official supplier at the 2010 Winter Olympics.

"We decided to settle the action rather than fight it because the legal costs would have been in the millions, regardless of what the outcome in the court would have been," Cold-FX spokesman Warren Michaels said.

"We have a busy fall ahead of us. We are moving into the Olympic activities ... . We are pleased we have an agreement that brings the entire matter to an end. That creates a finality that is helpful. These kinds of situations can be a distraction."

Afexa said claims made by the investors in the class action remain unproven. The settlement still requires court approval.

The settlements also come ahead of the upcoming flu season, which is a crucial sales period for Afexa and has heightened awareness this year thanks to the menacing swine flu.

Afexa also continues to push sales of its ginseng-based product in Canada by giving away its product to school teachers and releasing a survey showing the reluctance of Canadians to get the shot for swine flu.

The lawsuits were launched in Ontario and Alberta in August 2007 against the company, some of its officers, former directors and former auditor and relate to an ambitious launch of Cold-FX in the U.S. market in 2006.

The class action alleged the company's financial statements were misleading for the year ended Sept. 30, 2006, and its interim unaudited financial statements for the first quarter of fiscal 2007.

The company reported revenue of about $47 million in 2006. However, it later said those figures were based on volume of product delivered to U.S. retailers to stock their store shelves. Expected Cold-FX sales didn't materialize south of the border and some of product was returned.

In March 2007, the company announced it would restate its results for 2006 and the first quarter of 2007 as a result.

In July 2007, it restated those earnings, saying its profit for 2006 was reduced to $639,000, down from the previously reported. $4.1-million. Revenues were revised to $41.4 million for 2006.

For the first quarter of 2007, the loss was restated as $3.6-million, which was steeper than the originally reported loss of $1.6-million. Revenues were reduced to $22.6 million, from $25.2 million.

The proposed class action included investors who bought the company's shares between Dec. 11, 2006, which is when the company said it would enter the U.S. market, and March 23, 2007, when it announced U.S. sales had disappointed and could have a " serious impact" on its cash position.

The stock, which was trading just above $2 in at the time the news was released, plummeted and has never recovered.

On Thursday, Afexa shares closed down a penny at 55 cents on the Toronto Stock Exchange, after hitting a 52-week high of 58 cents last week.

The stock was trading at a low of 23 cents in December. It hit an all-time of $4.46 in October 2006.

Afexa said the proposed class action settlement dismisses all claims.

"The settlement does not constitute any admission of liability by Afexa or its officers, directors and employees," Afexa stated in a release late Wednesday.

The company said it will use its insurance to cover the settlement costs.

Lawyer Jay Strosberg, who helped launch the class action, called the settlement "an excellent result."

Strosberg, whose Windsor, Ont.-based firm Sutt Strosberg LLP handled the legal action alongside Siskinds LLP of London, Ont., said the case would have likely involved a long battle through the courts.

"This was a risky case," he said, citing in part the company's current financial position.

During the first nine months of fiscal 2009, Afexa revenue fell to $32 million from $35.3 million for the same time last year. The company also reported a net loss in the period ended June 30th of $1.5 million or a penny per share, compared to a profit of $4.1 million or four cent per share for the first nine months of fiscal 2008.

On Thursday, Afexa released a survey showing 74 per cent of Canadians believe an outbreak of the H1N1 virus, better known as swine flu, may be the same or even get worse than it was this spring. The survey, conducted by Harris-Decima, also said 48 per cent of Canadians are hesitant to get the H1N1 shot.

Afexa claims its Cold-FX product strengthens the immune system and helps prevent and relieve cold and flu infections.

While the product hasn't been specifically tested on strains of the H1N1 virus, the company said recently it is analysing "how best to position its products, given the recent pandemic status of H1N1, without contravening any Health Canada or advertising regulations."

The company recently announced it would provide 8,000 kindergarten, elementary and secondary school teachers in Edmonton with Cold-FX to protect them during the upcoming flu season.

Afexa, which uses sporting world celebrities such as Don Cherry and Mark Messier to pitch its Cold-FXproduct, is an official supplier at the upcoming 2010 Olympic Games.

It is also planning to launch Cold-FX in Hong Kong later this year as well as a new product in Canada called Immunity-FX.