Matria Healthcare, Inc. provides home healthcare, primarily in the area of women's health.

The Complaint charges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of materially false and misleading statements to the market between October 24, 2001 and June 25, 2002. During the Class Period, the Defendants touted the "strong performance" of all of its diabetes businesses and repeatedly bragged about the Company's growth, noting the signing of new contracts and anticipated contracts. Defendants assured the market during this time they were ramping up the Company's infrastructure and implementing a major systems change that would help them fulfill their goal to be the most technologically advanced provider in their sector of the health industry and that would significantly increase their capabilities. Citing their growth, Defendants explained that the reason expenses had exceeded anticipated revenues at certain times was that it was difficult to time the need for additional personnel and infrastructure with the receipt of large contracts because "contractual negotiations can delay the anticipated start dates for new disease management programs."

Unbeknownst to the investors, however, the Complaint alleges that the Company was experiencing serious known problems that rendered Defendants' Class Period statements false and misleading and that Defendants had a duty to disclose under Item 303(a)(ii) to Regulation S-K. Specifically, the Complaint alleges that the Defendants failed to disclose until June 25, 2002, despite a duty to do so, the following adverse, known facts: (a) the Company's Health Enhancement Segment was experiencing significant "information system constraints" which led to unfilled customer orders; (b) the Company's Facet Technologies division was experiencing higher costs as a result of undisclosed inventory and supply chain management problems; (c) Facet's gross margins were materially and adversely affected by decreasing price concessions from its major suppliers; (d) Matria's gross profit margins were being negatively impacted by an increase in the price of one of its key drugs; and (e) the Company's Health Enhancement revenues would be negatively impacted by at least $800,000 due to the bankruptcy of a health plan whose deteriorating financial condition the Defendants knew of or were severely reckless in disregarding. The Complaint alleges that the Defendants were motivated to conceal these problems in order to inflate the purchase price of Matria common stock because Defendants negotiated two acquisitions during the Class Period, using Matria common stock as currency.

On June 25, 2002, after the close of trading, Defendants shocked the market by revising the Company's financial outlook for fiscal 2002 and revealing the problems discussed above. In response to the Company's shocking news, the price of Matria's common stock plummeted on unusually heavy volume the next trading day, dropping from nearly $12 to $7 before closing at $8.95 per share. A chorus of Wall Street analysts also downgraded the stock as a result.

According to a press release dated July 20, 2004, the securities class action filed has again been dismissed by the United States District Court. The Court's ruling included the specific holding that there were no allegations to support a claim that the Company or its executives violated the securities laws. This is the second time this case has been dismissed by the court.

As reported by the Company’s Form 10-Q for the Quarterly Period Ended September 30, 2004, on September 17, 2004, an Entry of Dismissal was filed in the United States Court of Appeals, formally dismissing the Plaintiff’s appeal of the lower court’s dismissal, with prejudice, of the class action lawsuit filed by Richard M. Barr in the United States District Court for the Northern District of Georgia against the Company and certain individuals.