UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of 1934
 
 For the quarterly period ended June 30, 2004
 
 or
 
 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of 1934
 
 For the Transition Period From ___________ to ___________
 
 Commission file number 0-30318
 
 VENTIV HEALTH, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware      52-2181734
 (State or other jurisdiction    (IRS Employer
 of incorporation or organization)   Identification No.)
 
 200 Cottontail Lane
 Vantage Court North
 Somerset, New Jersey 08873
 (Address of principal executive office and zip code)
 
 (800) 416-0555
 (Registrant's telephone number, including area code)
 
 Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]
 
 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes [X] No [ ]
 
 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 Common Stock, par value $0.001, 23,814,840 shares outstanding as of July 30, 2004
 
 
 
 
    VENTIV HEALTH, INC.
 INDEX TO QUARTERLY REPORT ON
 FORM 10-Q
 
 PagePART I. FINANCIAL INFORMATIONITEM 1.Financial StatementsConsolidated Balance Sheets as of June 30, 2004 and December 31, 2003 (unaudited)
1Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003 (unaudited)
2Consolidated Statements of Cash Flows for the six monthsended June 30, 2004 and 2003 (unaudited)
3Notes to Consolidated Financial Statements (unaudited)
4 - 10ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
11 - 19ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
20ITEM 4. Controls and Procedures
20PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
21ITEM 4. Submission of Matters to a Vote of Security Holders
21ITEM 6. Exhibits and Reports on Form 8-K
22SIGNATURES
23EXHIBITS
24  27 
 
    PART I. FINANCIAL INFORMATION
 
 ITEM 1.  Financial Statements
 
 VENTIV HEALTH, INC.
 
 CONSOLIDATED BALANCE SHEETS
 
 (in thousands, except share amounts)
 (unaudited)
 June 30,
December 31,2004
2003ASSETSCurrent assets:Cash and equivalents
$78,486
$54,970Restricted cash
3,903
1,672Accounts receivable, net of allowances for doubtful accounts of $1,693and $2,019 at June 30, 2004 and December 31, 2003, respectively
33,249
41,836Unbilled services
24,645
21,347Prepaid expenses and other current assets
3,423
1,146Current deferred tax assets
1,660
1,660Total current assets
145,366
122,631Property and equipment, net
30,411
31,457Goodwill
26,644
20,638Other intangibles, net
2,632
85Deferred tax assets
5,438
5,438Other assets
707
459Total assets
$211,198
$180,708LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Current portion of capital lease obligations
$9,858
$8,100Accrued payroll, accounts payable and accrued expenses
35,828
32,105Current income tax liabilities
14,681
9,165Client advances and unearned revenue
6,723
4,859Total current liabilities
67,090
54,229Capital lease obligations
19,143
18,488Other non-current liabilities
270
266Total liabilities
86,503
72,983Commitments and contingenciesStockholders' Equity:Preferred stock, $.001 par value, 10,000,000 shares authorized, none issuedand outstanding at June 30, 2004 and December 31, 2003

Common stock, $.001 par value, 50,000,000 shares authorized; 23,814,590 and23,094,503 shares issued and outstanding at June 30, 2004 andDecember 31, 2003, respectively
24
23Additional paid-in-capital
164,573
159,359Deferred compensation
(61)
(85)Accumulated other comprehensive earnings
122
103Accumulated deficit
(39,963)
(51,675)Total stockholders' equity
124,695
107,725Total liabilities and stockholders' equity
$211,198
$180,708 
 The accompanying notes are an integral part of these consolidated financial statements
 1 VENTIV HEALTH, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 
 (in thousands, except per share amounts)
 (unaudited)
 For the Three Months
For the Six MonthsEnded June 30,
Ended June 30,2004
2003
2004
2003Revenues
$75,221
$46,239
$145,882
$89,893Operating expenses:Cost of services
60,297
37,984
116,607
75,840Selling, general and administrative expenses
7,299
5,802
13,570
11,234Restructuring
(264)
--
(264)
--Gain on sale of real estate
--
(392)
--
(392)Total operating expenses
67,332
43,394
129,913
86,682Operating earnings
7,889
2,845
15,969
3,211Interest expense
(200)
(139)
(381)
(246)Interest income
142
122
225
226Earnings from continuing operations before income taxes
7,831
2,828
15,813
3,191Income tax provision
2,976
1,075
6,009
1,212Earnings from continuing operations
4,855
1,753
9,804
1,979Earnings (losses) from discontinued and held for sale operations:Losses from discontinued operations, net of taxes
--
(2,786)
--
(3,629)Gains (losses) on disposals of discontinued operations, net of taxes
1,754
(799)
1,908
(1,353)Net earnings (losses) from discontinued operations
1,754
(3,585)
1,908
(4,982)Net earnings (losses)
$6,609
$(1,832)
$11,712
$(3,003)Earnings (losses) per share:Continuing operations:Basic
$0.21
$0.08
$0.42
$0.09Diluted
$0.19
$0.07
$0.39
$0.08Discontinued operations:Basic
$0.07
$(0.16)
$0.08
$(0.22)Diluted
$0.07
$(0.15)
$0.08
$(0.21)Net earnings (losses):Basic
$0.28
$(0.08)
$0.50
$(0.13)Diluted
$0.26
$(0.08)
$0.47
$(0.13)Weighted average number of common shares outstanding:Basic
23,546
22,887
23,353
22,889Diluted
25,297
23,575
24,933
23,381 
 The accompanying notes are an integral part of these consolidated financial statements
 
 2 VENTIV HEALTH, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 (in thousands)
 (unaudited)
 For the Six Months Ended June 30,2004
2003Cash flows from operating activities:Net earnings (losses)
$11,712
$(3,003)Adjustments to reconcile net earnings (losses) to net cash provided by operating activities:(Earnings) losses from discontinued operations
(1,908)
4,982Depreciation
7,544
4,258Amortization
9
9Gain on sale of real estate
--
(392)Stock compensation expense
45
264Executive share surrender
--
(185)Changes in assets and liabilities, net of effects from discontinued operations:Restricted cash
(1,231)
270Accounts receivable, net
10,575
10,977Unbilled services
(2,128)
3,250Prepaid expenses and other current assets
(2,269)
(843)Accrued payroll, accounts payable and accrued expenses
1,866
(1,943)Current income tax liabilities
5,516
1,219Client advances and unearned revenue
1,840
5,110Other
(269)
501Net cash provided by operating activities
31,302
24,474Cash flows from investing activities:Cash paid for acquisition of Franklin Group, Inc. and Lincoln, Ltd., Inc.
(6,667)
--Proceeds from disposals of discontinued operations
701
1,202Proceeds from sale of real estate
--
1,099Purchases of property and equipment
(2,111)
(1,213)Proceeds from manufacturers rebates on leased vehicles
3,479
--Net cash (used in) provided by investing activities
(4,598)
1,088Cash flows from financing activities:Collateralization of obligations under standby letter of credit
(1,000)
(788)Repayments of capital lease obligations
(5,026)
(2,287)Proceeds from exercise of stock options
1,612
3Net cash used in financing activities
(4,414)
(3,072)Net cash provided by (used in) discontinued operations
1,207
(3,053)Effect of exchange rate changes
19
615Net increase in cash and equivalents
23,516
20,052Cash and equivalents, beginning of period
54,970
46,059Cash and equivalents, end of period
$78,486
$66,111Supplemental disclosures of cash flow information:Cash paid for interest
$381
$259Cash paid for income taxes
$682
$284Supplemental disclosure of non-cash activities:Vehicles acquired through capital lease agreements
$5,563
$2,836Stock issuance related to acquisition of Franklin Group, Inc. and Lincoln Ltd., Inc.
$3,580
-- 
 The accompanying notes are an integral part of these consolidated financial statements
 3VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   1.  Organization, Business and Basis of Presentation:
 
 Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is a leading provider of outsourced sales and marketing solutions for the pharmaceutical, biotechnology and life sciences industries. The Company offers a broad range of integrated and standalone services, in a context of consultative partnership that identifies strategic goals and applies targeted, tailored solutions. These programs include:
 
 Sales and Marketing TeamsRecruitmentProfessional Development and TrainingMarketing SupportData SolutionsClinical SupportSample Compliance ServicesPatient Assistance ProgramsBrand/portfolio analytics and forecastingMarket research and intelligenceStrategic and tactical planning 
 Over almost three decades, Ventiv's businesses have provided a broad range of innovative strategic and tactical solutions to many of the world's leading pharmaceutical and life sciences companies.
 
 The accompanying unaudited consolidated financial statements present the financial position, results of operations and cash flows of the Company and its subsidiaries (the "consolidated financial statements"). These consolidated financial statements have been prepared pursuant to the interim rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been omitted. The Company believes that the disclosures made herein are adequate such that the information presented is not misleading. These consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary to fairly present the Company's financial position as of June 30, 2004 and December 31, 2003, the results of operations of the Company for the three and six months ended June 30, 2004 and 2003 and the cash flows for the six months ended June 30, 2004 and 2003. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Certain balances as of December 31, 2003, have been reclassified to conform to the June 30, 2004 balance sheet presentation.
 
 These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on March 12, 2004.
 
 2.  Acquisition:
 
 On June 9, 2004, the Company acquired the net assets of Franklin Group, Inc. and Lincoln Ltd., Inc. (together, Franklin), privately-held companies based in Somerville, New Jersey. Franklin specializes primarily in conducting patient assistance programs and pharmaceutical compliance services. The Company paid approximately $11.2 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) and will be obligated to make certain earn-out payments contingent on Franklins future performance measurements to acquire approximately $2.6 million of net assets.
 
 Pro forma financial statements were not presented as the acquisition was not deemed significant. The purchase price and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of Franklins assets acquired and liabilities assumed may be necessary as additional information becomes available and a third-party valuation of certain intangible assets is finalized. The excess of the purchase price over the fair market value of the net assets acquired consists of $6.0 million of goodwill, and two other intangible assets: approximately $1.5 million for the Franklin tradename, which has an indefinite life, and $1.1 million of customer relationships, which will be amortized over a five-year term.
 4VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued)   3.  Employee Stock Compensation:
 
 In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an Amendment of FASB Statement No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have adopted the disclosure requirements of SFAS No. 148 as of December 31, 2002. We account for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and comply with the disclosure provisions of SFAS No. 123, as amended. Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the quoted market price of our stock and the exercise price.
 
 The following table illustrates the effect on net earnings (losses) and net earnings (losses) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation arrangements:
 
 Three months endedJune 30,
Six months endedJune 30,2004
2003
2004
2003Net earnings (losses) attributable to common shareholders, as reported
$6,609
$(1,832)
$11,712
$(3,003)Less: stock-based employee compensation expense determined under the fair value
method, net of related income taxes
(341)
(353)
(665)
(706)Pro forma net earnings (losses)
$6,268
$(2,185)
$11,047
$(3,709)Net earnings (losses) per share attributable to common shareholders:As reported: Basic
$0.28
$(0.08)
$0.50
$(0.13)As reported: Diluted
$0.26
$(0.08)
$0.47
$(0.13)Pro forma: Basic
$0.27
$(0.09)
$0.47
$(0.16)Pro forma: Diluted
$0.25
$(0.09)
$0.44
$(0.16) 
 The per share weighted-average fair value of stock options granted during the three months ended June 30, 2004 and 2003 were $11.47 and $2.52 per share, respectively, and in addition, during the six months ended June 30, 2004 and 2003 were $10.50 and $1.91 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
 
 Employee Stock OptionsThree months endedJune 30,
Six months endedJune 30,2004
2003
2004
2003Expected dividend yield
0%
0%
0%
0%Risk-free interest rate
3.93%
2.27%
3.69%
2.52%Expected volatility
89%
97%
89%
98%Expected life of options
4 yrs
4 yrs
4 yrs
4 yrs 
 5VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued)
**** 4.  Earnings (Losses) Per Share (EPS):
 
 Basic earnings or losses per share excludes dilution for potentially dilutive securities and is computed by dividing net earnings or losses attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings or losses per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted earnings or losses per share when their inclusion would be antidilutive. A summary of the computation of basic and diluted earnings (losses) per share from continuing operations is as follows:
 
 Three Months Ended June 30,
Six Months Ended June 30,2004
2003
2004
2003(in thousands, except per share data)Basic EPS from Continuing Operations ComputationEarnings (losses) from continuing operations
$6,609
$(1,832)
$11,712
$(3,003)Weighted average number of common shares outstanding
23,546
22,887
23,353
22,889Basic EPS from continuing operations
$0.28
$(0.08)
$0.50
$(0.13)Diluted EPS from Continuing Operations ComputationEarnings (losses) from continuing operations
$6,609
$(1,832)
$11,712
$(3,003)Adjustments
--
--
--
--Adjusted earnings (losses) from continuing operations
$6,609
$(1,832)
$11,712
$(3,003)Weighted average number of common shares outstanding
23,546
22,887
23,353
22,889Stock options
1,747
688
1,577
492Restricted stock awards
4
--
3
--Total diluted common shares outstanding
25,297
23,575
24,933
23,381Diluted EPS from continuing operations
$0.26
$(0.08)
$0.47
$(0.13) 
 For the three and six months ended June 30, 2004, 40,509 shares and 30,345 shares, respectively, were excluded from the calculation of diluted EPS because the grant prices exceeded the market prices during those periods. Similarly, for the three six months ended June 30, 2003, 1,624,349 shares and 2,468,005 shares, respectively, were excluded from the calculation of diluted EPS because the grant prices exceeded the market prices during those periods. For the three and six months ended June 30, 2003, the dilutive effect of all stock options were excluded from the calculation of diluted EPS because the Company incurred losses during those periods.
  5.  Significant Clients:
 
 During the six months ended June 30, 2004, three clients accounted for approximately 25%, 19% and 15%, individually, of the Company's total revenues. For the six months ended June 30, 2003, two clients, accounted for 26% and 16%, individually, of the Company's total revenues.
 
 The Company had three clients at June 30, 2004 that accounted for 20%, 17% and 13%, individually, of billed account receivables. At December 31, 2003, the Company had three clients, who comprised 22%, 18% and 12%, individually, of billed account receivables. The Company had three clients at June 30, 2004 that accounted for 23%, 19% and 14%, individually, of unbilled receivables. At December 31, 2003, the Company had three clients, which comprised 28%, 22% and 18% of unbilled receivables, individually.
 
 During the first quarter of 2004, the Company won several new contracts amounting to an additional 365 sales representatives. These contracts mainly comprise of small to mid-size clients looking to enter new markets or looking to build infrastructure. Among the notable contracts were Synthon Pharmaceuticals, Ltd. and ISTA Pharmaceuticals, Inc.
 
 During the second quarter of 2004, the Company won two additional contracts, each adding 200 sales representatives during the second half of the year, one with an existing client and another for a new client, Yamanouchi Pharmaceutical Company, Ltd., in which deployment is scheduled to occur during the fourth quarter of 2004.
 
 6VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued)
****
  In July 2004, the Company entered into an agreement with Aventis Pharmaceuticals, Inc. (Aventis) to provide a national sales force including recruiting, training and operational support. Under the terms of the agreement, Ventiv will provide approximately 450 representatives and 50 district managers. The field teams will be deployed in separate waves during the second half of 2004.
  In June 2004, Watson Pharmaceuticals, Inc. (Watson) elected to exercise its option to not continue its sales force contract for a second year, effective around August 1, 2004. The contract originated in March 2003 to provide for approximately 385 sales representatives.  6.  Restricted Cash:
 
 In January 2004, the Company pledged $1.0 million of cash as collateral on an outstanding standby letter of credit to support the insurance policy relating to a fleet leasing arrangement for the Ventiv Pharma Services (VPS) segment. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, it is restricted from use for general purposes and has been classified accordingly in the Consolidated Balance Sheet as of June 30, 2004.
 
 In March 2003, the Company pledged approximately $0.8 million of cash as collateral on an outstanding standby letter of credit, issued in support of the insurance policy relating to another fleet leasing arrangement for the VPS segment. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, it is restricted from use for general purposes and has been classified accordingly in the Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.
 
 The Company often receives cash advances from its clients as funding for specific projects and engagements. These funds are deposited into segregated bank accounts and used solely for purposes relating to the designated projects. Although these funds are not held subject to formal escrow agreements, the Company considers these funds to be restricted and has classified these balances accordingly. Cash held in such segregated bank accounts totaled approximately $0.9 million held in escrow on behalf of clients and was included in restricted cash in the Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.
 
 Included in restricted cash is approximately $1.2 million currently due to the former managing partners of Franklin as a result of the acquisition. The entire amount will be paid as the accounts are finalized and approved.
 
 7.  Goodwill and Other Intangible Assets:
 
 Goodwill is recorded in the VPS segment and consists of the following:
 
 (in thousands)
June 30,2004
December 31,2003Goodwill *
$26,644
$20,638 
 Other intangible assets consist of the following:
 
 **June 30, 2004**

December 31, 2003(in thousands)

Accumulated



AccumulatedGross
Amortization
Net

Gross
Amortization
NetCustomer relationships *
$1,067
$--
$1,067

$--
$--
$--Other
236
(161)
75

236
(151)
85Total
1,303
(161)
1,142

236
(151)
85Unamortizable intangible *
1,490
--
1,490

--
--
--Total other intangibles
$2,793
$(161)
$2,632

$236
$(151)
$85 
 * The increases in goodwill and other intangible assets arose from the acquisition of Franklin (see Note 2).
 
 Amortization expense, based on intangibles subject to amortization held at June 30, 2004, is expected to be $0.1 million for the second half of 2004, $0.2 million annually from 2005 through 2008, and $0.1 million in 2009.
 7VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued)
****
 8.  Comprehensive Earnings (Losses):
  Comprehensive earnings (losses) reports the effect on net earnings (losses) of transactions that are related to equity of the Company, but that have not been transacted directly with the Company's shareholders. Total comprehensive earnings (losses) and its components are as follows:
 
 Three Months Ended June 30,
Six Months Ended June 30,2004
2003
2004
2003(in thousands)Net earnings (losses)
$6,609
$(1,832)
$11,712
$(3,003)Other comprehensive earnings (losses), net of tax:Foreign currency translation adjustments
(9)
496
19
615Comprehensive earnings (losses)
$6,600
$(1,336)
$11,731
$(2,388) 
 9.  Capital Lease Obligations:
 
 During 2000, the Company entered into a master lease agreement to provide a fleet of automobiles for sales representatives of its VPS operating segment. Based on the terms of the agreement, management concluded that the leases were capital in nature based on the criteria established by SFAS No. 13, "Accounting for Leases". The Company capitalized leased vehicles and recorded the related lease obligations totaling approximately $5.6 million and $2.8 million during the six months ended June 30, 2004 and 2003, respectively.
  10.  Restructuring
 
 During 2001, the Company completed an evaluation of the operations of certain U.S. based operations. As a result of this evaluation, the Company adopted a plan of restructuring and recorded a charge of approximately $2.0 million, which included provisions for the severance of 23 people and costs to reduce the size of the Somerset, NJ and New York, NY administrative offices.
 
 In May 2004, the Companys VPS segment signed an agreement to release one of its tenants from a sublease in the facility which is currently under lease in Somerset, New Jersey. VPS has decided to occupy this space as an extension to its current space; as such, approximately $0.3 million of restructuring reserves, which were originally recorded in September 2001, was reversed during the second quarter of 2004.
 
 The following table summarizes the activity in the integration activities liability account (in thousands):
 
 **Beginning**
**Balance**
****
**Additions**
**Deductions for**
**Amounts Paid**
****
**Adjustments**
****
**Balance at End of Period**Year Ended December 31, 2001
$--
$2,025
$(961)
$--
$1,064Year Ended December 31, 2002
1,064
--
(530)
--
534Year Ended December 31, 2003
534
--
(232)
--
302Six Months Ended June 30, 2004
$302
$--
$(23)
$(264)
$15
  11.  Discontinued Operations:
 
 For the six months ended June 30, 2004 and 2003, earnings (losses) from discontinued operations, net of taxes, were earnings of $1.9 million and losses of $5.0 million, respectively. The 2003 results from discontinued operations of $3.6 million mainly consisted of the results of our France-based operations during the first half of that year. The 2004 gains on disposals of discontinued operations of $1.9 million mainly consisted of contingency payments due from our previously divested Germany, Hungary and Alpharetta, Georgia-based units. The 2003 losses on disposals of discontinued operations of $1.4 million comprised mainly of legal and professional fees related to the divestiture of the U.K. and France-based contract sales organizations, which were divested in October 2002 and September 2003, respectively, and the divestiture of the Hungary-based contract sales organization, which was divested in January 2003.
 
 
 8VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued) On June 3, 2003, the Company placed the subsidiaries in its France-based contract sales business unit into receivership.  An agency of the French government is the receiver and acts as the administrator to sell the net assets of the unit.  On July 24, the receiver agreed to sell the major assets of the subsidiaries to a France-based pharmaceutical sales training organization.  The sale was consummated on September 1, 2003. The balance of the subsidiaries net assets will be liquidated by the receiver.
 
 12.  Segment Information:
 
 The Company currently operates under three segments: VPS (formerly known as Ventiv Health Sales and Marketing), Planning and Analytics (operated through the Companys wholly-owned subsidiary, Health Products Research, Inc. (HPR)) and Other.
 
 The Company's reportable segments are:
 
 VPS
 
 The VPS segment offers a broad array of services across the full spectrum of sales and marketing, with both integrated and independent programs. These programs include:
 Sales and Marketing TeamsRecruitmentProfessional Development and TrainingMarketing SupportData SolutionsClinical SupportSample Compliance ServicesPatient Assistance Programs 
 VPS focuses on the delivery of services within sales and marketing disciplines, so that client companies can leverage this concentration of expertise in meeting their own strategic goals. The Franklin acquisition and financial results are reported in the VPS segment.
 
 HPR
 
 Through the wholly-owned subsidiary, HPR, the planning and analytics segment is responsible for the design of a product launch program and monitoring that program's development to maximize the potential for a product's success. This is achieved by using proprietary software to analyze data compiled from internal sources and third parties to determine specifically how a targeted strategy can maximize asset utilization and return on investment for our clients. HPR's distinctive process for developing strategic and tactical resource allocation is predicated upon the linking of services and data through solutions based on doctor-level intelligence. HPR also conducts primary and secondary research, syndicated studies, market tracking and custom research audits, with proven expertise in developing proprietary, customized market research projects that measure attitudes and behaviors of diverse audiences including both physicians and consumers.
 
 Other
 
 The Other segment encompasses the activities of the corporate management group.
 
 9VENTIV HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (Continued) For the three months ended June 30, 2004 (in thousands):
 
 VPS
HPR
Other
TotalRevenues
$66,847
$8,374
$--
$75,221Depreciation and amortization
3,777
160
20
3,957Restructuring
249
--
15
264Interest expense
126
--
74
200Interest income
8
2
132
142Earnings (losses) from continuing
operations, before income taxes
$7,509
$1,856
$(1,534)
$7,831
 
 For the three months ended June 30, 2003 (in thousands):
 
 VPS
HPR
Other
TotalRevenues
$38,803
$7,436
$--
$46,239Depreciation and amortization
1,820
264
85
2,169Gain on sale of real estate
392
--
--
392Interest expense
57
--
82
139Interest income
--
4
118
122Earnings (losses) from continuing
operations, before income taxes
$2,548
$1,539
$(1,259)
$2,828 
 For the six months ended June 30, 2004 (in thousands):
 
 VPS
HPR
Other
TotalRevenues
$129,657
$16,225
$--
$145,882Depreciation and amortization
7,194
326
33
7,553Restructuring
249
--
15
264Interest expense
239
--
142
381Interest income
8
5
212
225Earnings (losses) from continuing
operations, before income taxes
$14,912
$3,917
$(3,016)
$15,813 
 For the six months ended June 30, 2003 (in thousands):
 
 VPS
HPR
Other
TotalRevenues
$76,156
$13,737
$--
$89,893Depreciation and amortization
3,680
456
131
4,267Gain on sale of real estate
392
--
--
392Interest expense
117
--
129
246Interest income
--
8
218
226Earnings (losses) from continuing
operations, before income taxes
$2,757
$2,805
$(2,371)
$3,191 
 June 30,2004
December 31, 2003(in thousands)Total Assets:VPS
$141,685
$106,887HPR
29,324
29,465Other
40,189
44,356Total assets
$211,198
$180,708 
 The Company's continuing operations are exclusively in the United States.
 
 10   ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (the Report), other than statements or characterizations of historical fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning future revenues, operating expenses, capital requirements, growth rates, cash flows, operational performance, sources and uses of funds and acquisitions, our accounting estimates, assumptions and judgments, the competitive nature of and anticipated growth in our markets, the need for additional capital, changes in the pharmaceutical industry, uncertainty related to the continued growth of pharmaceutical outsourcing, changes in the competitive climate in which we operate, our ability to maintain large client contracts or enter into new contracts, uncertainties related to future incentive payments and earnings generated through revenue sharing arrangements and the emergence of future opportunities and other factors. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "potential," "continue," similar expressions and variations or negatives of these words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section Risks Related to Our Business in Item 7 of our 2003 Annual Report on Form 10-K.
 
 The forward-looking statements contained in this Report speak only as of the date hereof and are based upon information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. Except as required by applicable laws or regulations, we undertake no obligation to revise or update any forward-looking statements for any reason.
 
 Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is a leading provider of outsourced sales and marketing solutions for the pharmaceutical, biotechnology and life sciences industries. The Company offers a broad range of integrated and standalone services, in a context of consultative partnership that identifies strategic goals and applies targeted, tailored solutions. The portfolio of offerings includes: integrated sales force recruitment, training and management; standalone sales force recruitment, training, systems automation and regulatory compliance services; product, sample and literature fulfillment; telemarketing and other marketing support; product/brand management; brand/portfolio analytics and forecasting; market research and intelligence; strategic and tactical planning; sample compliance services; and patient assistance programs. Over almost three decades, Ventiv's businesses have provided a broad range of innovative strategic and tactical solutions to many of the world's leading pharmaceutical and life sciences companies.
 
 This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, accompanying notes and other financial information included in the Annual Report on Form 10-K for the years ended December 31, 2003, 2002 and 2001.
 
 Overview
 
 The Company provides integrated sales and marketing services for its clients, primarily pharmaceutical, biotechnology and life sciences companies. Ventiv's services are designed to develop, execute and monitor strategic and tactical sales and marketing plans and programs for the promotion of pharmaceutical, biotechnology and other life sciences products. The Company currently conducts its continuing operations in the United States, serving U.S. companies and domestic affiliates of foreign corporations. The Company is organized into two operating segments based on products and services offered: Ventiv Pharma Services ("VPS"), formerly known as Ventiv Health Sales and Marketing, and Planning and Analytics (as provided by the Company's Health Products Research ("HPR") subsidiary).
 11 The VPS segment offers a broad array of services across the full spectrum of sales and marketing, with both integrated and independent programs. These programs include:
 Sales and Marketing TeamsRecruitmentProfessional Development and TrainingMarketing SupportData SolutionsClinical SupportSample Compliance ServicesPatient Assistance Programs 
 VPS focuses on the delivery of services within sales and marketing disciplines, so that clients can leverage this concentration of expertise in meeting their own strategic goals. The Companys non-operating reportable segment, Other, encompasses the activities of the corporate group.
 
 HPR is capable of designing product launch programs and monitoring each program's progress to maximize the potential for a product's success. This is achieved by using proprietary software to analyze data compiled from internal sources and third parties to determine specifically how a targeted strategy can maximize asset utilization and return on investment for our clients. HPR's distinctive process for developing strategic and tactical resource allocation is predicated upon the linking of services and data through solutions based on physician-level intelligence. HPR also conducts primary and secondary research, syndicated studies and market tracking and custom research audits, with proven expertise in developing proprietary, customized market research projects that measure attitudes and behaviors of diverse audiences including both physicians and consumers.
 
 Recent Business Developments
 
 Effective January 23, 2003, the Company entered into a letter agreement to provide ALTANA Pharma (ALTANA) with a second nationwide sales force, including recruitment, training and operational support.  The agreement was finalized on August 23, 2003. Under the terms of the agreement, Ventiv provides 248 additional full-time sales representatives and six Regional Training and Administrative Managers. Revenues associated with the initial recruiting and training of this sales force were recognized in the second quarter of 2003, while the revenue related to the promotion activities for this engagement commenced in the third quarter of 2003.
 
 During the first quarter of 2004, the Company won several new contracts amounting to an additional 365 sales representatives. These contracts mainly comprise of small to mid-size clients looking to enter new markets or looking to build infrastructure. Among the notable contracts were Synthon Pharmaceuticals, Ltd. and ISTA Pharmaceuticals, Inc.
 
 During the second quarter of 2004, the Company won two additional contracts, each adding 200 sales representatives during the second half of the year, one with an existing client and another for a new client, Yamanouchi Pharmaceutical Company, Ltd., in which deployment is scheduled to occur during the fourth quarter of 2004.
 
 In July 2004, the Company entered into an agreement with Aventis Pharmaceuticals, Inc. (Aventis) to provide a national sales force including recruiting, training and operational support. Under the terms of the agreement, Ventiv will provide approximately 450 sales representatives and 50 district managers. The field teams will be deployed in separate waves during the second half of 2004.
 
 In September 2003, the Company was notified by Endo Pharmaceuticals, Inc. (Endo) of its intent to convert the field sales force working under the Ventiv-Endo contract from full-time Ventiv employment to full-time Endo employment effective December 15, 2003. The conversion resulted in approximately 160 sales representatives employed by Endo by December 31, 2003.
 
 In June 2004, Watson Pharmaceuticals, Inc. (Watson) elected to exercise its option to not continue its sales force contract for a second year, effective on or about August 1, 2004. This action was related to Watsons strategic decision to refocus its broader business priorities, and was not a reflection on the performance of the Ventiv sales team. The contract originated in March 2003 to provide for approximately 385 sales representatives.
 
 Acquisition
 
 On June 9, 2004, the Company acquired the net assets of Franklin Group, Inc. and Lincoln Ltd., Inc. (together, Franklin), privately-held companies based in Somerville, New Jersey. Franklin specializes primarily in conducting patient assistance programs and pharmaceutical compliance services. The Company paid approximately $11.2 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) and will be obligated to make certain earn-out payments contingent on Franklins future performance measurements to acquire approximately $2.6 million of net assets. Franklins financial results are reported in the VPS segment from June 9, 2004 through June 30, 2004.
 12
 Divesting Transactions
 
 On June 3, 2003, the Company placed the subsidiaries in its France-based contract sales business unit into receivership.  An agency of the French government is the receiver and acts as the administrator to sell the net assets of the unit.  On July 24, 2003 the receiver agreed to sell the major assets of the subsidiaries to a France-based pharmaceutical sales training organization.  The sale was consummated on September 1, 2003. The balance of the subsidiaries net assets will be liquidated by the receiver.
 
 Over the past two years, the Company has divested its Communications and European Contract Sales businesses. The Company has been receiving payments subsequent to some of these divestitures based on the subsequent earnings of the divested unit. The following table summarizes the additional contingent consideration the Company is continuing to receive subsequent to these divestitures:
 
 Operation
Consideration at Closing
Additional ConsiderationAlpharetta, Georgia-based business unit
$0.9 million in cash
Up to $0.5 million in contingent payments based on results of divested unit (all received as of June 30, 2004)Ventiv Health Germany
EUR 6.2 million ($6.1 million) in cash
Up to EUR 5.0 million payable from future earnings of the business ($1.7 million earned through June 30, 2004)Hungary-based contract sales business
$0.3 million in cash
Up to $0.3 million($0.2 million received as of June 30, 2004) 
 
 
 13 Results of Operations
 
 The following sets forth, for the periods indicated, certain components (in thousands, except per share amounts) of Ventiv's consolidated statements of operations, including such data as a percentage of revenues.
 
 Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
 
 For the Three MonthsEnded June 30,2004
2003Revenues
$75,221
100.0%
$46,239
100.0%Operating expenses:Cost of services
60,297
80.2%
37,984
82.1%Selling, general and administrative expenses
7,299
9.7%
5,802
12.6%Restructuring
(264)
(0.4%)
--
--Gain on sale of real estate
--
--
(392)
(0.8)%Total operating expenses
67,332
89.5%
43,394
93.9%Operating earnings
7,889
10.5%
2,845
6.1%Interest expense
(200)
(0.3%)
(139)
(0.3)%Interest income
142
0.2%
122
0.3%Earnings from continuing operations before income taxes
7,831
10.4%
2,828
6.1%Income tax provision
2,976
3.9%
1,075
2.3%Earnings from continuing operations
4,855
6.5%
1,753
3.8%Earnings (losses) from discontinued and held for sale operations:Losses from discontinued operations, net of taxes
--
--
(2,786)
(6.0)%Gains (losses) on disposals of discontinued operations, net of taxes
1,754
2.3%
(799)
(1.8)%Net earnings (losses) from discontinued operations
1,754
2.3%
(3,585)
(7.8)%Net earnings (losses)
$6,609
8.8%
$(1,832)
(4.0)%Earnings (losses) per share:Continuing operations:Basic
$0.21

$0.08Diluted
$0.19

$0.07Discontinued operations:Basic
$0.07

$(0.16)Diluted
$0.07

$(0.15)Net earnings (losses):Basic
$0.28

$(0.08)Diluted
$0.26

$(0.08) 
 Revenues : Revenues increased by approximately $29.0 million, or 62.7%, to $75.2 million in the three months ended June 30, 2004, from $46.2 million in the three months ended June 30, 2003.
 
 Revenues in our VPS business increased by approximately $28.0 million, or 72.3%, to $66.8 million in the three months ended June 30, 2004 from $38.8 million in the three months ended June 30, 2003, and accounted for 88.9% of total Ventiv revenues for the three months ended June 30, 2004. This increase resulted primarily from new contracts, such as ALTANA, initiating subsequent to the first quarter of 2003 and continuing through the second quarter of 2004. As previously discussed, d uring the first half of 2004, the Company also won several new contracts amounting to an additional 765 sales representatives. These increases were partially offset by a conversion of a sales team for Endo during the fourth quarter of 2003. As previously indicated, in July 2004, the Company entered into a new contract with Aventis in which deployment is scheduled to occur in separate waves in the second half of 2004. Watson has elected to terminate its sales contract effective August 1, 2004. Revenues from the Aventis and other 2004 contract wins are expected to offset the preceding losses and diversify the Companys client base.
 
 Our HPR business generated $8.4 million of revenue, which was 11.1% of total revenues, in the three months ended June 30, 2004, compared to $7.4 million in the three months ended June 30, 2003. Increased marketing projects for GlaxoSmithKline and Novartis Pharmaceuticals Corporation mainly contributed to this variance for the second quarter.
 
 14
  Costs of Services : Costs of services increased by approximately $22.3 million or 58.7%, to $60.3 million this fiscal quarter from $38.0 million in the three months ended June 30, 2003. Costs of services decreased as a percentage of revenues to 80.2% from 82.1% in the three months ended June 30, 2004 and 2003, respectively.
 
 Costs of services at the VPS business increased by approximately $22.0 million, or 66.0%, to $55.3 million in the second quarter of 2004 from $33.3 million in the second quarter of 2003. Costs of services increased at a lower rate than revenues between quarters. Costs of services were 82.8% of VPS revenue in the second quarter of 2004, compared to 85.9% in the second quarter of 2003. The decrease of costs of services as a percentage of revenue in 2004 as compared to 2003 was attributable to ongoing cost savings measures implemented by management to align the support and infrastructure of the Company with the current level of operations.
 
 HPR's costs of services were $5.0 million in the second quarter of 2004, an increase of $0.3 million or 6.7%, from $4.7 million in the second quarter of 2003. Costs of services represented 59.2% of revenue in the second quarter of 2004 compared to 62.5% in the second quarter of 2003. The decrease as a percentage of revenue is due to tighter cost control over market research projects in 2004 that helped to produce higher margins in 2004.
 
 Selling, General and Administrative Expenses : Selling, general and administrative ("SG&A") expenses increased by approximately $1.5 million, or 25.8%, to $7.3 million from $5.8 million in the three months ended June 30, 2004 and 2003, respectively. This increase was primarily due to increased compensation levels in 2004 versus 2003, and increases in advertising and professional fees, such as fees related to comply with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002.
 
 SG&A expenses at VPS increased by approximately $0.8 million, or 26.9%, to $4.1 million in the second quarter of 2004 from $3.3 million incurred in the second quarter of 2003. This increase was primarily due to increased compensation levels in 2004 versus 2003, offset by ongoing cost savings measures implemented by management to align the support and infrastructure of the Company with the current level of operations.
 
 SG&A expenses at HPR increased by approximately $0.3 million during the second quarter of 2004 when compared to the second quarter of 2003. This was also due to increased compensation for 2004 versus 2003.
 
 Other SG&A was approximately $1.6 million for the three months ended June 30, 2004, an increase of approximately $0.3 million or 24.0% from $1.3 million for the three months ended June 30, 2003. The increase was mainly related to increases in advertising and professional fees, primarily related to the Companys compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002.
 
 Restructuring : In May 2004, the Companys VPS segment signed an agreement to release one of its tenants from a sublease in the facility which is currently under lease in Somerset, New Jersey. VPS has decided to occupy this space as an extension to its current space; as such, approximately $0.3 million of restructuring reserves, which were originally recorded in September 2001, was reversed during the second quarter of 2004.
 
 Gain on Sale of Real Estate : Ventivs VPS business unit sold its Colorado-based warehousing facility and the associated land in June 2003 for $1.1 million.  In conjunction with this sale, the Company recorded a net gain of approximately $0.4 million.
 
 Provision for Income Taxes : Ventiv recorded a provision for income taxes on continuing operations using an estimated effective tax rate of 38.0% for the three months ended June 30, 2004 and June 30, 2003. Our current effective tax rate is based on current projections for earnings in the tax jurisdictions in which the Company does business and is subject to taxation. Our effective tax rate could fluctuate due to changes in earnings between operating entities and related tax jurisdictions, or to the potential tax impact arising from previous divestitures.
 
 Discontinued Operations : For the three months ended June 30, 2004 and 2003, earnings (losses) from discontinued operations, net of taxes, were earnings of $1.8 million and losses of $3.6 million, respectively. The 2003 results from discontinued operations of $2.8 million mainly consisted of the results of our France-based operations during the second quarter of that year. The 2004 gains on disposals of discontinued operations of $1.8 million mainly consisted of contingency payments due from our previously divested Germany, Hungary and Alpharetta, Georgia-based units, as more fully described in Recent Business Developments. The 2003 losses on disposals of discontinued operations of $0.8 million comprised mainly of legal and professional fees related to the divestiture of the U.K. and France-based contract sales organizations, which were divested in October 2002 and September 2003, respectively.
 
 15
  Net Earnings and Earnings Per Share (EPS) : Ventivs net earnings increased by approximately $8.4 million to a gain of $6.6 million, from a loss of $1.8 million in the three months ended June 30, 2004 and 2003, respectively. Diluted earnings per share increased to earnings of $0.26 per share for the three months ended June 30, 2004 from losses of $0.08 per share for the three months ended June 30, 2003.  Operating results were higher due to increased revenues from certain contracts and various cost saving strategies. In addition, 2003 included losses from discontinued operations from our previously-divested U.K. and France-based business units.
 
 Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
 
 For the Six Months Ended June 30,2004
2003Revenues
$145,882
100.0%
$89,893
100.0%Operating expenses:Cost of services
116,607
79.9%
75,840
84.4%Selling, general and administrative expenses
13,570
9.3%
11,234
12.5%Restructuring
(264)
(0.2)%
--
--Gain on sale of real estate
--
--
(392)
(0.4)%Total operating expenses
129,913
89.0%
86,682
96.5%Operating earnings
15,969
10.9%
3,211
3.5%Interest expense
(381)
(0.3%)
(246)
(0.3)%Interest income
225
0.2%
226
0.3%Earnings from continuing operations before income taxes
15,813
10.8%
3,191
3.5%Income tax provision
6,009
4.1%
1,212
1.3%Earnings from continuing operations
9,804
6.7%
1,979
2.2%Earnings from discontinued and held for sale operations:Losses from discontinued operations, net of taxes
--
--
(3,629)
(4.0)%Earnings (losses) on disposals of discontinued operations, net of taxes
1,908
1.3%
(1,353)
(1.5)%Net earnings (losses) from discontinued operations
1,908
1.3%
(4,982)
(5.5)%Net earning (losses):
$11,712
8.0%
$(3,003)
(3.3)%Earnings (losses) per share:Continuing operations:Basic
$0.42

$0.09Diluted
$0.39

$0.08Discontinued operations:Basic
$0.08

$(0.22)Diluted
$0.08

$(0.21)Net earnings (losses):Basic
$0.50

$(0.13)Diluted
$0.47

$(0.13) 
 Revenues : Revenues increased by approximately $56.0 million, or 62.3%, to $145.9 million in the six months ended June 30, 2004, from $89.9 million in the six months ended June 30, 2003.
 
 Revenues in our VPS business were $129.7 million, an increase of $53.5 million or 70.3% from the $76.2 million in the same period in 2003, and accounted for 88.9% of total Ventiv revenues for the six months ended June 30, 2004. This increase resulted primarily from new contracts, such as ALTANA, initiating subsequent to the first quarter of 2003 and continuing through the second quarter of 2004. As previously discussed, d uring the first half of 2004, the Company also won several new contracts amounting to an additional 765 sales representatives. These increases were partially offset by a conversion of a sales team for Endo during the fourth quarter of 2003. As previously indicated, in July 2004, the Company entered into a new contract with Aventis in which deployment is scheduled to occur in separate waves in the second half of 2004. Watson has elected to terminate its sales contract effective August 1, 2004. Revenues from the Aventis and other 2004 contract wins are expected to offset the preceding losses and diversify the Companys client base.
 
 Our HPR business generated $16.2 million of revenue, which was 11.1% of total revenues, in the six months ended June 30, 2004, compared to $13.7 million in the six months ended June 30, 2003. Increased business from GlaxoSmithKline and Novartis Pharmaceuticals Corporation mainly contributed to this variance.
 
 Costs of Services : Costs of services increased by approximately $40.8 million or 53.8%, to $116.6 million during the six months ended June 30, 2004 from $75.8 million in the six months ended June 30, 2003. Costs of services decreased as a percentage of revenues to 79.9% from 84.4% in the six months ended June 30, 2004 and 2003, respectively.
 
 16
  Costs of services at the VPS business increased by approximately $39.8 million, or 59.1%, to $107.1 million in the six months ended June 30, 2004 from $67.3 million in the six months ended June 30, 2003. This variance is lower than the percentage increase in revenue between the related periods. Costs of services were 82.6% of VPS revenue in the six months ended June 30, 2004, compared to 88.4% in the six months ended June 30, 2003. The decrease of costs of services as a percentage of revenue in 2004 as compared to 2003 was attributable to ongoing cost savings measures implemented by management to align the support and infrastructure of the Company with the current level of operations.
 
 HPR's costs of services were $9.5 million in the six months ended June 30, 2004, an increase of $1.0 million or 11.5%, from $8.5 million in the six months ended June 30, 2003. Costs of services represented 58.6% of revenue in the six months ended June 30, 2004 compared to 62.0% in the six months ended June 30, 2003. The decrease as a percentage of revenue is due to tighter cost control over market research projects in 2004 that helped to produce higher margins in 2004.
 
 Selling, General and Administrative Expenses : SG&A expenses increased by approximately $2.4 million, or 20.8%, to $13.6 million from $11.2 million in the six months ended June 30, 2004 and 2003, respectively. This increase was primarily due to increased compensation levels in 2004 versus 2003, and increases in advertising and professional fees, such as fees related to the compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002.
 
 SG&A expenses at VPS increased by approximately $1.3 million, or 20.5%, to $7.7 million in the six months ended June 30, 2004 from $6.4 million incurred in the six months ended June 30, 2003. This increase was primarily due to increased compensation levels in 2004 versus 2003, offset by ongoing cost savings measures implemented by management to align the support and infrastructure of the Company with the current level of operations.
 
 SG&A expenses at HPR increased by approximately $0.4 million during the six months ended June 30, 2004 when compared to the same period in 2003. This was due to increased compensation for 2004 versus 2003.
 
 Other SG&A was approximately $3.1 million for the six months ended June 30, 2004, an increase of approximately $0.6 million or 26.1% from $2.5 million for the six months ended June 30, 2003. The increase was mainly related to increases in advertising and professional fees, primarily related to the Companys compliance with the internal control standards of Section 404 the Sarbanes-Oxley Act of 2002.
 
 Restructuring : In May 2004, the Companys VPS segment signed an agreement to release one of its tenants from a sublease in the facility which is currently under lease in Somerset, New Jersey. VPS has decided to occupy this space as an extension to its current space; as such, approximately $0.3 million of restructuring reserves, which were originally recorded in September 2001, was reversed during the second quarter of 2004.
 
 Gain on Sale of Real Estate : Ventivs VPS business unit sold a Colorado warehousing facility and the associated land in June 2003 for $1.1 million.  In conjunction with this sale, the Company recorded a net gain of approximately $0.4 million.
 
 Provision for Income Taxes : Ventiv recorded a provision for income taxes on continuing operations using an estimated effective tax rate of 38.0% for the six months ended June 30, 2004 and June 30, 2003. Our current effective tax rate is based on current projections for earnings in the tax jurisdictions in which the Company does business and is subject to taxation. Our effective tax rate could fluctuate due to changes in earnings between operating entities and related tax jurisdictions, or to the potential tax impact arising from previous divestitures.
 
 Discontinued Operations : For the six months ended June 30, 2004 and 2003, earnings (losses) from discontinued operations, net of taxes, were earnings of $1.9 million and losses of $5.0 million, respectively. The 2003 results from discontinued operations of $3.6 million mainly consisted of the results of our France-based operations during the first half of that year. The 2004 gains on disposals of discontinued operations of $1.9 million mainly consisted of contingency payments due from our previously divested Germany, Hungary and Alpharetta, Georgia-based units, as more fully described in Recent Business Developments. The 2003 losses on disposals of discontinued operations of $1.4 million comprised mainly of legal and professional fees related to the divestiture of the U.K. and France-based contract sales organizations, which were divested in October 2002 and September 2003, respectively, and the divestiture of the Hungary-based contract sales organization, which was divested on January 23, 2003.
 
 17
  EPS : Ventivs net earnings increased by approximately $14.7 million to earnings of $11.7 million, from losses of $3.0 million in the six months ended June 30, 2004 and 2003, respectively. Diluted earnings per share increased to earnings of $0.47 per share for the six months ended June 30, 2004 from losses of $0.13 per share for the six months ended June 30, 2003.  Operating results were higher due to increased revenues from certain contracts and various cost saving strategies, while losses from discontinued operations were incurred in 2003 from our previously divested business units.
 
 Liquidity and Capital Resources
 
 At June 30, 2004, the Company had $78.5 million of unrestricted cash and equivalents, an increase of $23.5 million from December 31, 2003. For the six months ended June 30, 2003 compared to the six months ended June 30, 2004, cash provided by operations increased by $6.8 million from $24.5 million to $31.3 million. Cash provided by investing activities decreased from a source of $1.1 million to a use of $4.6 million in the six months ended June 30, 2004. Cash used in financing activities increased by $1.3 million from $3.1 million to $4.4 million over the same comparative periods.
 
 Cash provided by operations was $31.3 million and $24.5 million in the six months ended June 30, 2004 and 2003, respectively. This increase was, in large part, due to increased revenues for the first half of 2004 when compared to the first half of 2003. As discussed previously, many new contracts were initiated in the first quarter of 2004 and generated cash during the second quarter of 2004. In addition, operational cash flow increased due to the billing and collection of certain payments due under various contracts.
 
 Cash used in investing activities was $4.6 million for the six months ended June 30, 2004 compared to $1.1 million provided in the same period during 2003. In June 2004, the Company acquired the net assets of Franklin for $6.7 million in cash and $3.6 million in stock (see Recent Business Developments for further detail). This outflow was partially offset by $3.5 million of proceeds from manufacturers rebates received on leased vehicles; in past years, these rebates were not issued until the second half of the year. During the six months ended June 30, 2004 and 2003, the Company received approximately $0.7 and $1.2 million, respectively, in proceeds contingent on earnings from its previously-divested business units. Investing activities also included capital expenditures of approximately $2.1 million and $1.2 million for the six months ended June 30, 2004 and June 30, 2003, respectively. These expenditures mainly relate to computer equipment purchased as a result of the increased business from several new contracts. Finally, the Company received $1.1 million from the sale of real estate in VPS during the second quarter of 2003.
 
 Cash used in financing activities was $4.4 million and $3.1 million for the six months ended June 30, 2004 and 2003, respectively. The Company made capital lease payments of $5.0 million and $2.3 million for the six months ended June 30, 2004 and 2003, respectively, under the fleet lease agreement in its VPS business unit. Increased business in 2004 resulted in additional vehicles leased in 2004 versus 2003. During the six months ended 2004, the Company received $1.6 million of proceeds from the exercise of stock options. There was minimal exercise activity during the six months ended June 30, 2003 due to the Companys stock price at that time. The Company also has existing letters of credit for insurance on its automobile fleet in its VPS business unit. These letters of credit have been fully cash collateralized by the Company in the six months ended June 30, 2004 and 2003.
 
 On March 29, 2002, the Company entered into an asset-based lending agreement, expiring on March 31, 2005, with Foothill Capital Corporation, a wholly owned subsidiary of Wells Fargo and Company. This revolving credit facility provides for a maximum borrowing amount of $50 million, subject to a borrowing base calculation, on a revolving basis and is secured by substantially all of the Company's assets. Interest on the new facility is payable at the Company's option at a base rate (defined as the lending institution's prime rate) plus a margin of up to 0.75%, or at LIBOR plus a margin ranging from 2.25% to 2.75%, subject to a minimum borrowing rate of 4.75%. Under the facility, the Company pays an unused commitment fee of 0.375%. The Company is also subject to certain financial and other restrictive covenants, including, during any period in which any amounts are outstanding under the credit agreement, a requirement to maintain minimum levels of Earnings before Interest, Taxes, Depreciation and Amortization and U.S. Earnings before Interest and Taxes (in each case excluding the effect of certain non-recurring items). Additionally, the facility contains material adverse change clauses with regard to the financial condition of the assets, liabilities and operations of the Company. The Company does not have any amounts outstanding under the credit facility at June 30, 2004.
 18 
 A summary of our contractual obligations and commercial commitments as of June 30, 2004 are as follows:
 
 (Amounts in thousands)

Amounts Due InContractual Obligations
Total Obligation
2004
2005-2006
2007-2008
ThereafterCapital lease obligations (a)
$29,001
$4,929
$16,503
$7,569
$---Operating leases (b)
21,109
2,482
9,823
7,400
1,404Total obligations
$50,110
$7,411
$26,326
$14,969
$1,404 
 These future commitments include interest and management fees, which are not recorded on the Consolidated Balance Sheet as of June 30, 2004 but will be recorded as incurred.Operating leases include facility lease obligations in which the lease agreement may expire during the five-year period, but are expected to continue on a monthly basis beyond the lease term. 
 We believe that our cash and equivalents, cash to be provided by operations and available credit under our credit facility will be sufficient to fund our current operating requirements over the next 12 months and for the foreseeable future.
 
 We plan to focus on internal growth in the near term as the primary means of our expansion, although we consider acquisition and investment opportunities from time to time as they arise. Cash provided by operations may not be sufficient to fund all internal growth initiatives that we may wish to pursue or to fund investment and acquisition activities. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions. We cannot assure you that we will be successful in raising the cash required to complete all acquisition, investment or business opportunities which we may wish to pursue.
 
 Critical Accounting Policies
 
 The Companys critical accounting policies are set forth in its Annual Report on Form 10-K for the year ended December 31, 2003. There has been no change, update or revision to the Companys critical accounting policies subsequent to the filing of the Companys Form 10-K for the year ended December 31, 2003.
 
 Business Considerations
 
 Our business, financial condition and results of operations may be materially affected by the matters discussed under the caption Business Considerations within Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of the Companys Form 10-K for the year ended December 31, 2003.
 
 19 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 
 We are exposed to market risk from changes in market interest rates. We are subject to interest rate risk on our debt for changes in the LIBOR and base lending rates. We do not currently engage in hedging or other market risk management strategies.
 
  Long-Term Debt Exposure
 
 At June 30, 2004, the Company had no debt outstanding under its line of credit. See Liquidity and Capital Resources section for further detail on the Company's available line of credit. If the Company draws on its line of credit in the future, it may incur additional interest expense based on LIBOR and/or the base-lending rate of any future outstanding loans.
 
 Foreign Currency Exchange Rate Exposure
 
 The Company is not currently affected by foreign currency exchange rate exposure, except for any fluctuations in the foreign bank accounts remaining from the divestiture of the Companys European business units.
 
 ITEM 4. Controls and Procedures
 
 Based on their evaluation as of June 30, 2004, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and instructions for Form 10-Q.
 
 There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting. Ventiv is currently engaged in a broad review of its internal control procedures in anticipation of the need for Ventiv to issue its assessment as to the effectiveness of our internal controls over financial reporting and from our independent auditors to issue a report on managements assessment of the effectiveness of Ventivs internal control over financial reporting.
 
 20 
 PART II.  OTHER INFORMATION
 
 ITEM 1.  Legal Proceedings
 
 The Company is subject to lawsuits, investigations and claims arising out of the conduct of its business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against the Company. In the opinion of management and based on the advice of legal counsel, all matters are believed to be without merit or are of such kind, or involve such amounts, as would not have a material effect on the financial position or results of operations of the Company if disposed of unfavorably.
 
 ITEM 4. Submission of Matters to a Vote of Security Holders
 
 At an annual meeting of the stockholders of the Company, held on June 16, 2004, the following matters were submitted to a vote of our stockholders, with the following votes cast:
 
 (i)  the election of six directors to the Board of Directors for a term of one year, expiring at the 2005 Annual Meeting:
 
 For
WithheldDaniel M. Snyder
16,124,601
5,985,420Eran Broshy
16,124,734
5,985,287Fred Drasner
21,272,298
837,723A. Clayton Perfall
15,932,734
6,177,287Donald Conklin
21,101,258
1,008,763John R. Harris
21,333,181
776,840 
 (ii) the amendment of the Companys 1999 Stock Incentive Plan to increase the shares available for issuance to 2.4 million shares and to provide for the issuance of restricted stock units:
 
 For
Withheld
Abstain
UnvotedAmend 1999 Stock Incentive Plan
8,350,030
7,694,058
729,328
5,336,605 
 (iii) the ratification of  the appointment of Deloitte and Touche LLP as the Companys independent auditors for 2004:
 
 For
Withheld
Abstain
UnvotedDeloitte & Touche LLP ratification
21,808,062
274,450
27,508
1 
 21 
 ITEM 6.  Exhibits and Reports on Form 8-K
 
 (a) Exhibits
 
 31.1

Certification by the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act31.2

Certification by the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act32.1

Chief Executive Officers Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2

Chief Financial Officers Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 
 
 (b) Reports on Form 8-K
 
 Current Report on Form 8-K, filed as of April 29, 2004, Item 12, regarding the Companys release of financial information on April 29, 2004.
 
 Current Report on Form 8-K, filed as of June 14, 2004, Item 7 and Item 9, regarding the Companys acquisition of Franklin on June 9, 2004.
 22 SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 **VENTIV HEALTH, INC.**Date: August 9, 2004
By:
/s/ John R. EmeryChief Financial OfficerTitle
 23