UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               AMENDMENT NO. 2 TO
                                   FORM 10-K/A

      FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
 X  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001
                                                   -----------------
                                       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 1-10581
                                                -------

                          BENTLEY PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                       No. 59-1513162
--------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. employer identification no.)
  incorporation or organization)

65 Lafayette Road, 3rd Floor, North Hampton, NH                  03862
-----------------------------------------------         ----------------------
    (Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (603) 964-8006
                                                          -----------------

                    Securities registered pursuant to section 12(b) of the Act:
    Title of each class             Name of each exchange on which registered
    -------------------             -----------------------------------------
Common Stock, $.02 par value        American Stock Exchange and Pacific Exchange
Class B Redeemable Warrants         American Stock Exchange

        Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.

     Title of Class          Aggregate Market Value   As of Close of Business on
    ----------------         ----------------------   --------------------------
Common Stock, $.02 par value      $123,008,607             March 19, 2002

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

      Title of Class           Shares Outstanding     As of Close of Business on
    -----------------          ------------------     --------------------------
Common Stock, $.02 par value       14,708,228               March 19, 2002

                       DOCUMENTS INCORPORATED BY REFERENCE
  Proxy Statement for the 2002 Annual Meeting of Stockholders - Incorporated by
                    Reference into Part III of this Form 10-K

<PAGE>

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     We are a specialty pharmaceutical company focused on advanced drug delivery
technologies and pharmaceutical products. We have U.S. and international patent
and other proprietary rights to technologies that enhance or facilitate the
absorption of drugs across membranes of the skin, mouth, nose, vagina and eye.
We are developing products incorporating these technologies and seek to form
strategic alliances with major pharmaceutical and biotechnology companies to
facilitate the development and commercialization of our products. We currently
have strategic alliances regarding our drug delivery technologies with Pfizer
Inc and Auxilium Pharmaceuticals, Inc. and are in preliminary discussions with a
number of other pharmaceutical companies to form additional alliances.

     We have a significant commercial presence in Spain, where we manufacture
and market more than 100 pharmaceutical products, representing various dosage
strengths and product formulations of more than 30 chemical entities. Our
product line consists of generic and branded products within four primary
therapeutic areas: cardiovascular, gastrointestinal, infectious and neurological
diseases. Additionally, we have a strategic alliance with Teva Pharmaceutical
Industries Ltd. granting us the right to register and market in Spain more than
75 of Teva's pharmaceutical products through our sales force of approximately
150 full-time personnel located in major cities throughout Spain.


INDUSTRY OVERVIEW

Drug Delivery Industry

     Drug delivery companies develop technologies to improve the
administration of therapeutic compounds. These technologies are designed to
enhance safety, efficacy, ease-of-use and patient compliance with prescribed
therapy. Drug delivery technologies provide opportunities for pharmaceutical and
biotechnology companies to extend their drug franchises as well as develop new
and innovative products. The worldwide market for drug delivery systems was
estimated to be $35 billion in 2000 and is projected to increase to $75 billion
by 2005.

     The vast majority of the drugs currently on the market are taken orally or
are administered by injection. Oral drug delivery methods, while simple to use,
typically subject drugs to first-pass metabolism in the body, which results in
drug degradation in the stomach and further neutralization in the liver before
reaching the bloodstream. In order to achieve efficacy, higher drug dosages are
often used, with increased risks of side effects. The injection of
pharmaceuticals, while avoiding first-pass metabolism in the body, also has
major limitations, including pain, which can lead to decreased patient
acceptance and compliance with prescribed therapy. A decline in patient
compliance can increase the risk of medical complications and lead to higher
healthcare costs. Also, the costs of injectable drugs typically are higher as a
result of the additional costs associated with medical personnel to administer
the injections and the costs associated with the purchase and disposal of
syringes.

<PAGE>

     Pharmaceutical and biotechnology companies look to drug delivery
enhancements as a way of gaining a competitive advantage. Alternative drug
delivery technologies, which avoid first-pass metabolism and are less invasive,
are often sought by pharmaceutical and biotechnology companies to extend the
period of market exclusivity for a branded drug and thus postpone competition
from generic drugs. In order to maintain the competitiveness of their
proprietary drug candidates, large pharmaceutical companies seek delivery
enhancements that will increase safety and efficacy, reduce side effects and
make administration more convenient. Further, drug delivery companies can apply
their technologies to off-patent products to formulate their own proprietary
products, which they often commercialize by seeking marketing collaborations
with larger pharmaceutical companies that have greater capabilities and
resources.

     Developing safer and more efficacious ways of delivering existing drugs
generally is less risky than attempting to discover new drugs, because of the
lower product development cost. On average, it takes 15 years for an
experimental new drug to progress from the laboratory to commercialization in
the U.S., with an average cost of approximately $500 million. Typically, only
one in 5,000 compounds entering preclinical testing advances into human testing
and only one in five tested in humans is approved. By contrast, drug delivery
companies typically target drugs that already have been approved, have a track
record of safety and efficacy and have established markets for which there is a
proven medical need. Consequently, clinical trials related to drug delivery
technologies applied to previously-approved pharmaceuticals need only show that
carrier technologies deliver the drug without harming the patient or changing
the clinical attributes of the drug.

Market Overview of Europe and Spain

     The European Union, with an increasingly affluent population of
approximately 375 million people, represents the second largest pharmaceutical
market in the world with approximately $75 billion in pharmaceutical sales in
2000, according to IMS Health. Healthcare expenditures in Western Europe, as in
the U.S., are growing at a rate faster than the overall economy and drug
expenditures as a percentage of total gross domestic product are lower than the
2.3% in the U.S., according to IMS Health.

     With Spain's entry into the European Union in 1986, the Spanish
pharmaceutical market has been evolving steadily into a market that is
increasingly similar to those of other countries in Western Europe and the U.S.
With a population of approximately 40 million, Spain was ranked in 1999 as the
seventh largest pharmaceutical market in the world. Pharmaceutical sales in
Spain reached approximately $6.6 billion in 1999 and are expected to grow to
more than $10 billion by 2005, according to IMS Health.

     Over the last decade, there has been significant evolution of patent and
similar protections of pharmaceutical products in Spain. Prior to 1992,
manufacturing processes for active pharmaceutical ingredients could be patented,
but active pharmaceutical ingredients could not be patented as products.
Commencing in late 1992 active ingredients may be patented with protection
running for 20 years from the date of application. This was followed by
legislation in December 1996 that created a legal class of generic
pharmaceuticals. Generic products are required to be therapeutically equivalent,
have a similar composition to that of the original branded product and
demonstrate their safety and efficacy. Safety and efficacy is presumed if the
original reference product has been commercialized in Spain for 10 years.
Generic products also must comply with product labeling requirements and be
priced at a discount, typically 20-30%, to the price of the original branded
product.

     Although comprising less than three percent of the Spanish pharmaceutical
market, generic pharmaceuticals are expected to significantly increase their
market penetration due to increases in drug


                                       2
<PAGE>

usage driven by an aging population and opportunities to launch new generic
products as patents expire for blockbuster drugs. Several initiatives are
underway by the Spanish government, including education, financial incentives to
prescribing physicians and public campaigns to stimulate the use of generic
pharmaceuticals in response to the rise in healthcare costs.


OUR STRATEGY

     Our primary objective is to be a leading specialty pharmaceutical company
focused on advanced drug delivery and formulation technologies to improve the
effectiveness of new and existing pharmaceuticals, while expanding our generic
and branded operations in Spain and Europe. Our strategy to accomplish this
objective includes the following:

Focus on marketing and commercializing our CPE-215 permeation enhancement
platform technology

     Our CPE-215 technology enhances the absorption of drugs across membranes of
the skin, mouth, nose, vagina and eye. Our CPE-215 technology can be
incorporated into a wide variety of pharmaceutical formats and products,
including those formulated as creams, ointments, gels, solutions, lotions,
sprays or patches. CPE-215 has a record of safety in humans as a food additive
and fragrance. In addition, preclinical testing to date on CPE-215 as a drug
delivery enhancement has further indicated its safety. We believe that this past
experience with CPE-215 may result in reduced preclinical development time
relating to its use in new formulations of previously approved compounds. We
market our CPE-215 technology to major pharmaceutical and biotechnology
companies whose products we believe would benefit from its permeation
enhancement properties.

These benefits include:

o    improving efficacy relative to oral administration, which subjects the drug
     to first-pass metabolism;

o    extending the period of market exclusivity for a branded compound based on
     the grant of a patent that incorporates new drug delivery methods;

o    allowing branded and generic drug companies to differentiate their products
     from those of competitors;

o    improving utilization of costly and/or scarce drugs and active ingredients;

o    expanding the market to patients less suitable for injection, especially
     children and the elderly; and

o    improving patient convenience and compliance, and lowering costs relative
     to a doctor's office visit for an injection.

     We currently have a research licensing agreement with Pfizer and a
royalty-based license agreement with Auxilium and are in preliminary discussions
with other pharmaceutical companies to commercialize our technologies across a
wide range of pharmaceutical applications.


                                       3
<PAGE>

Develop proprietary products based on our technologies

     We apply our drug delivery and oral drug formulation technologies to
improve the performance of existing pharmaceutical products with respect to
their method of delivery and effectiveness. We also may be able to reduce
manufacturing costs for certain products as a result of our proprietary
manufacturing process, which permits improved purity, stability and production
yields.

     In addition to marketing our CPE-215 technology to pharmaceutical companies
for application with their branded or generic products, we selectively apply
this technology to our own development of certain products. We target compounds
with established market demand or that face limited market acceptance as a
result of inferior drug delivery methods. As an illustration of this strategy,
we currently are completing Phase I/II clinical trials for the treatment of nail
fungus infections and currently are engaged in preliminary negotiations with
several pharmaceutical companies to continue the development of and to
commercialize the product.

     Also, as part of this strategy, we have developed and filed a patent for
improved oral dosage forms of acetaminophen, and improved manufacturing of
omeprazole and lansoprazole. In the case of acetaminophen, we believe that we
have developed dosages that result in increased solubility in water for
administration to patients who have difficulty swallowing pills, faster relief
of pain and inflammation and better taste. With respect to omeprazole and
lansoprazole, we believe that we have created an improved method of manufacture,
requiring less time and producing higher purity amid better stability.

     Once we have brought our internally developed products to an advanced stage
of development, we intend to develop collaborative relationships that leverage
the clinical development and marketing and sales capabilities of our strategic
partners. We believe that this will allow us to license our products on terms
that are more favorable than those that would be possible earlier in the
development cycle. In Spain we may directly market these new products through
our existing sales force. We also seek to manufacture and supply our
pharmaceutical partners with the products they have licensed from us.

Increase our product sales through targeted promotion and expansion of our
product portfolio

     We plan to expand our portfolio of products in Spain through the
acquisition of currently marketed and late stage pharmaceutical products, as
well as through strategic alliances with other pharmaceutical and biotechnology
companies. We intend to directly promote and sell these products in Spain
through our own sales force of approximately 150 full-time personnel located in
major cities throughout Spain.

     We focus on obtaining the rights to pharmaceutical products that are less
actively promoted by larger pharmaceutical companies or are in a late stage of
development and have good potential for acceptance in our markets. We believe
that we have expertise in assessing potential market opportunities related to
particular pharmaceuticals and in negotiating and acquiring from pharmaceutical
companies the rights to market pharmaceuticals in Spain and other countries.
Products that already are selling in the U.S. or other major markets demonstrate
commercial viability and typically encounter fewer barriers to regulatory
approval for introduction into other countries. The acquisition and subsequent
manufacture of these products will permit our Spanish operations to more fully
utilize our existing manufacturing capacity and allow us to further leverage our
sales force by giving them more products to sell. We believe that we have
developed particular expertise in marketing pharmaceutical products to
physicians and pharmacies in Spain.


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<PAGE>

     In July 2000, we entered into a strategic alliance with Teva, a world
leader in generic pharmaceutical products, pursuant to which we were granted a
royalty-free non-exclusive license to register and sell more than 75 finished
pharmaceutical products representing more than 25 different chemical entities.
Under this license agreement, we will register each product with Spain's
Ministry of Health.

PRODUCTS IN DEVELOPMENT

         The following are products that we are currently developing. Before
they are commercialized, they must be approved by regulatory authorities, such
as the FDA or Spanish Ministry of Health, in each jurisdiction where they will
be marketed or sold.

<TABLE>
<CAPTION>

Product Candidate                  Technology                      Used To Treat                        Status
-----------------                  ----------                      -------------                        ------
<S>                                <C>                             <C>                                  <C>

Topical testosterone gel           CPE-215                         Hypogonadism                         New Drug Application

Improved acetaminophen             Solubility Enhancement          Pain relief                          Bioequivalence

Antifungal nail lacquer            CPE-215                         Onychomycosis                        Phase I/II

Androgenic steroid therapy         CPE-215                         Chronic Fatigue Syndrome;            Pilot study
                                                                   Fibromyalgia

Intranasal insulin                 CPE-215                         Diabetes                             Preclinical

Intranasal pain management         CPE-215                         Pain relief                          Preclinical

Topical hormonal therapy           CPE-215                         Osteoporosis;                        Preclinical
                                                                   Erectile Dysfunction
</TABLE>

Topical Testosterone Gel

     Testosterone replacement therapy is used to treat men whose bodies produce
insufficient amounts of testosterone (Hypogonadism), which can be a natural
result of aging. Symptoms associated with low testosterone levels in men include
depression, decreased libido, erectile dysfunction, muscular atrophy, loss of
energy, mood alterations, increased body fat and reduced bone density. Currently
marketed hormone replacement therapies involve delivery of hormones by
injections, through transdermal patches and by gels. Injection therapy has major
limitations, including pain, which can lead to decreased patient acceptance and
compliance with prescribed therapy. Although patches have been able to alleviate
many of the gastrointestinal side effects associated with oral delivery of
hormones, patches, even in their smallest form, are often conspicuous and
typically result in skin irritation or inaccurate dosing should the patch fall
off. The transdermal delivery of hormones through gels, creams and lotions
provides commercially attractive and efficacious alternatives to current methods
of delivery. As more baby-boomers enter middle age and more attention is focused
on male hormonal deficiencies, the worldwide testosterone replacement market is
expected to reach $1 billion by 2005.

         In May 2000, we entered into a research services agreement with
Auxilium to develop and test various pharmaceutical compositions of topical
testosterone using our CPE-215 technology. A license of our technology to
Auxilium became effective in September 2000. Phase III clinical trials performed
by Auxilium for approval in the U.S. have been completed and a New Drug
Application was submitted to the


                                       5
<PAGE>

FDA in December 2001. Under the license, we granted to Auxilium a sole and
exclusive, royalty-based license worldwide to develop, market and sell a topical
testosterone product using our CPE-215 technology.

Improved Acetaminophen

     We have developed and patented improved oral formulations of acetaminophen,
the active ingredient in such products as McNeil Consumer Healthcare's
Tylenol(R) line of products commonly used for controlling pain, fever and
inflammation. Our improved oral formulations of acetaminophen make it highly
dispersible, rapidly soluble in water, better tasting and faster in reaching
peak blood levels. These characteristics give our oral formulations superior
properties over other currently marketed products, which do not dissolve easily
in water and may cause bitter taste and flatulence. These improvements are
particularly useful for treating children, the elderly, and those who have
difficulty swallowing pills. Clinical studies in Europe documenting the
product's improved dissolution and absorption were completed in 2001. We
currently are conducting bioequivalency studies, which compare the rate and
extent of absorption and levels of concentration in the blood stream of our
improved oral formulations needed to produce a therapeutic effect, with other
formulations of acetaminophen that previously have been approved by the FDA. We
also are in preliminary discussions with potential collaborators in Europe, Asia
and the United States to license and market this product.

Antifungal Nail Lacquer

     We have developed a new topical nail lacquer for treating fingernail and
toenail fungal infections (Onychomycosis). We believe that our product is an
improvement over oral therapies, which can cause liver damage, and other topical
treatments that typically have low levels of efficacy. We currently are
conducting Phase I/II clinical trials for the treatment of nail fungal
infections in the hands and feet at the University of Alabama at Birmingham.
According to the National Onychomycosis Society, nail fungus affects almost 30
million people, primarily between the ages of 40 and 65. Patients electing to
take oral therapy must undergo blood monitoring during the course of treatment
to monitor for liver damage. The cost of oral therapy is in excess of $500 for a
twelve-week treatment regimen, not including physician costs or other periodic
monitoring costs.

Androgenic Steroid Therapy

     We are developing a topical therapy utilizing androgenic steroids, which
may incorporate our CPE-215 technology, for the treatment of Chronic Fatigue
Syndrome and Fibromyalgia. The manifestations of Chronic Fatigue Syndrome are
continuous exhaustion, muscle pain, cognitive disorientation and various other
physical or psychological symptoms. Chronic Fatigue Syndrome has not received a
high degree of publicity since it is often improperly diagnosed and lacks proven
therapies. Chronic Fatigue Syndrome is recognized by the National Institutes of
Health, the FDA and the Social Security Administration as a serious, disabling
affliction. A study by DePaul University estimates that as many as 800,000
people in the U.S. suffer from this condition and that it is approximately three
times more common in women than in men.

     According to the National Census Bureau and Dartmouth Medical School,
Fibromyalgia afflicts six to eight million people. Fibromyalgia primarily
affects women between the ages of 40 and 60 with symptoms of muscle pain,
fatigue, chronic headache and sleeplessness and has been estimated to strike as
many as five percent of peri/postmenopausal women. A preliminary study conducted
by Dartmouth


                                       6
<PAGE>

scientists indicates that Fibromyalgia patients demonstrated improved muscle
function, higher energy levels and restorative sleep in response to androgenic
steroid therapy. We have licensed from Dartmouth College their exclusive U.S.
patent rights covering the novel use of androgenic steroid therapy for treating
Chronic Fatigue Syndrome and Fibromyalgia. In 2001, a pilot study of this
therapy was initiated in female volunteers at the Dartmouth Medical Center.

Intranasal Insulin

     We are developing intranasal formulations of insulin to treat patients
suffering from Type I and Type II diabetes. Based on preclinical studies at
various universities, we believe our intranasal insulin formulation can achieve
higher levels of bioavailability compared to other drug delivery systems
currently being developed and of which we are aware. Our product is designed to
deliver insulin through a small, discreet metered nasal spray that can be
carried in a patient's pocket. We currently are in preclinical development in
collaboration with an independent clinical research organization and the
University of New Hampshire in preparation for a pilot study.

     Diabetes is a metabolic disorder affecting approximately 100 million people
worldwide that is projected to affect more than 300 million people worldwide in
the next 25 years. The market for insulin treatment of diabetes in the United
States is estimated at $1.25 billion annually and Frost & Sullivan estimates
that the worldwide market is estimated at $3 billion. Diabetic patients who must
endure frequent injections prefer less invasive methods of administering their
medications. Alternative and more desirable methods of delivery would not only
improve their quality of life but also would contribute to patient compliance
with prescribed therapy.

Intranasal Pain Management

     Many people suffer from chronic moderate to severe pain that is related to
cancer, back problems and orthopedic injury. These people also may experience
intermittent flares of pain that can occur even though a person is taking
analgesic medications on a fixed schedule for pain control. A severe flare of
pain is called breakthrough pain because the pain breaks through the regular
pain medication. About one-half to two-thirds of patients with chronic
cancer-related pain also experience episodes of breakthrough cancer pain.
Generally, breakthrough pain occurs without prior onset symptoms and may last
anywhere from seconds to minutes or hours. The U.S. prescription market for the
treatment of moderate to severe pain, including breakthrough pain, is
approximately $2 billion annually.

     We are developing an intranasal pain product using our CPE-215 technology
with a chemical agent that is widely used for the relief of acute and chronic
moderate to severe pain and that commonly is prescribed for pain associated with
cancer. Orally delivered pain products may not provide rapid relief and
typically demonstrate considerable patient-to-patient variability in absorption.
Injectable formulations of pain products provide rapid and effective pain
relief, but administration often requires professional assistance or
hospitalization. Our intranasal pain product is in preclinical development for
the treatment of chronic pain and acute episodes of chronic pain. We believe our
intranasal pain product would provide significant medical benefits over oral and
injectable formulations as it combines patient convenience and ease of use with
the rapid onset of pain relief and the same potency as injectable delivery
routes.

     We have signed a research agreement with Auxilium pursuant to which we will
develop and test the intranasal delivery of a pain management chemical agent
using our CPE-215 technology. As part of our


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<PAGE>

strategic alliance with Auxilium, upon Auxilium's acceptance of our preclinical
studies, we will grant to them a worldwide license to develop, market and sell
the products using our CPE-215 technology.

Topical Hormonal Therapy

     Osteoporosis is a disease characterized by low bone mass and structural
deterioration of bone tissue, leading to bone fragility and increased
susceptibility to fractures of the hip, spine and wrist. According to the
National Osteoporosis Foundation, two million American men have Osteoporosis,
and another three million are at risk for this disease. We believe that our
topical hormonal therapies, incorporating our CPE-215 technology, have the
potential to effectively treat Osteoporosis in men, without the gastrointestinal
side effects of the leading oral treatments.

     Erectile Dysfunction is defined as the inability to achieve and/or maintain
an erection adequate for satisfactory sexual function. Approximately 30 million
men in the U.S. and 150 million men worldwide suffer from Erectile Dysfunction.
The condition is correlated with increasing age, cardiovascular disease,
hypertension, diabetes, hyperlipidemia and smoking. The leading treatments
include oral preparations, which have been associated with a slow onset of
action and drug interactions, as well as injections, which can cause pain when
administered. We believe that our topical hormonal therapies, incorporating our
CPE-215 technology, have the potential to effectively treat Erectile
Dysfunction, without the side effects of the leading treatments.

     Our topical hormonal therapy incorporates the use of metabolic steroids
that regulate most of the hormonal action in adult males. Hormone replacement
therapies using these metabolic steroids, including testosterone and
dihydrotestosterone, may have significant benefits in treating a number of
medical afflictions in men, including Osteoporosis and sexual dysfunction. We
have signed a research agreement with Auxilium pursuant to which we will provide
various topical formulations of the hormones incorporating our CPE-215
technology. Auxilium is evaluating our formulations and plans to perform
appropriate preclinical studies. As part of our strategic alliance with
Auxilium, upon Auxilium's acceptance of preclinical studies, we will grant to
them a worldwide license to develop, market and sell topical hormonal therapies
containing our CPE-215 technology to treat Osteoporosis in men and Erectile
Dysfunction.


STRATEGIC PARTNERS

Pfizer

     In October 2001, we entered into a research collaboration with Pfizer in
which we were granted a non-exclusive worldwide royalty-free license to use
Pfizer's compounds and technology to assess the performance of our CPE-215
technology with Pfizer's compounds. As part of the agreement, we granted to
Pfizer the non-exclusive right to test the ability of our CPE-215 technology to
enhance delivery of certain compounds proprietary to Pfizer. Pfizer is providing
the funding necessary to conduct these studies using our CPE-215 technology and
has agreed to provide additional funding for costs of further studies that are
approved by a joint working committee consisting of designees of Pfizer and us.
Pfizer has agreed to inform us if, following completion of the research, it is
interested in further development of the formulations. The term of the agreement
is the greater of one year or until work under the agreement has been completed.
Pfizer would have to enter into a separate license agreement with us with
respect to the manufacture, use,


                                       8
<PAGE>

sale, offer for sale and import of the products using our CPE-215 technology
before it could begin to distribute, market and sell these products.

Auxilium

     In May 2000, we entered into a research agreement with Auxilium to develop
and test the application of our CPE-215 technology with respect to the
transdermal delivery of testosterone. Auxilium is an emerging therapeutic
pharmaceutical company focused on diseases related to aging. In September 2000,
a license to Auxilium of our CPE-215 technology became effective for a topical
testosterone product. Phase III clinical trials performed by Auxilium for
approval in the U.S. have been completed and a New Drug Application has been
submitted to the FDA. In May 2001 we entered into research agreements with
Auxilium to develop and test our CPE-215 technology with respect to delivery of
a pain management compound and a topical hormonal therapy. Preclinical studies
currently are underway regarding the application of our CPE-215 technology to a
topical hormone therapy.

     As part of our collaboration with Auxilium, we also entered into a
perpetual license agreement whereby we granted to Auxilium an exclusive
royalty-based worldwide license, to develop, market and sell topical
testosterone gel containing our CPE-215 technology. This license also provides
us with an opportunity to fulfill Auxilium's manufacturing requirements for the
sale of the products in the European market. Under the license agreement we
would receive payments based upon Auxilium's completion of certain milestones in
an aggregate of $550,000 plus royalties based on net sales. Upon successful
completion of preclinical studies for the intranasal pain management and topical
hormone products, similar licenses would become effective.

Teva

     In July 2000, we entered into a strategic alliance with Teva, a world
leader in generic pharmaceutical products, in which we were granted a
royalty-free non-exclusive license to register and sell more than 75 finished
pharmaceutical products representing more than 25 different chemical entities.
We are obligated under this license agreement to submit a registration file for
each product to the relevant regulatory authorities in Spain in order to receive
marketing authorizations in our name for that product. The marketing
authorizations provide us with the requisite approvals, licenses and permits
from the regulatory authorities to import, distribute, market and sell the
products in Spain. In connection with this strategic alliance, Teva also entered
into a supply agreement with us pursuant to which it would manufacture the
products and supply them to us for marketing and sale in Spain. Our obligation
to purchase the products from Teva is non-exclusive, allowing us to purchase any
of the products from sources other than Teva if we can show that Teva's prices
for the products exceed the current price from other qualified sources and if
Teva has not exercised its right to match the lower price. The license agreement
and the supply agreement have five year terms and both are renewed automatically
for one-year terms for each product.

     We have submitted registration applications to the Spanish Ministry of
Health for 8 Teva products, none of which applications have been approved as of
this date. Under a rights agreement entered into with Teva in July 2000, we
granted Teva a right of first refusal to purchase Laboratorios Davur in the
event that we decide to sell Laboratorios Davur or Laboratorios Belmac. We also
granted Teva the right to bid for Laboratorios Belmac in the event we intend to
sell Laboratorios Belmac.


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<PAGE>

OUR PROPRIETARY DRUG TECHNOLOGIES

     We believe that there are numerous opportunities to enter into additional
collaborations with pharmaceutical and biotechnology companies and expand our
product lines using our proprietary drug technologies.

CPE-215 Permeation Enhancement Platform Technology

     Our permeation enhancement technology consists of a series of related
chemical compounds that enhance the absorption of a wide variety of products
across various biological membranes. Our primary compound and the foundation for
our drug delivery platform technology is CPE-215 (cyclopentadecanolide).
CPE-215, when combined with certain drugs, has been shown to significantly
enhance the amount and rate of absorption of those drugs through various
biological membranes. By controlling the amount of CPE-215 that is combined with
certain drugs, we have the ability to affect the quantity and rate at which the
drug is absorbed through biological membranes. We believe that our CPE-215
technology is superior to certain other non-injection and non-oral drug delivery
systems based on the following characteristics:

o    broad applicability - works with a wide range of pharmaceutical compounds,
     including water and oil soluble and insoluble compounds as well as high and
     low molecular weight compounds, including peptides and proteins;

o    format independence - can be formulated into creams, ointments, gels,
     solutions, lotions and patches;

o    biological membrane independence - works across the biological membranes of
     the skin, mouth, nose and eye; and

o    well tolerated - no reported cases of irritation or toxicity.

     CPE-215 has a long history of safe use in humans as a food additive and
fragrance. In addition, our preclinical testing to date on CPE-215 as a drug
delivery enhancement has further indicated its safety. We believe that this past
experience with CPE-215 may result in reduced preclinical development activities
required for new product formulations of previously approved pharmaceutical
compounds.

Solubility Enhancement Technology

     Our solubility enhancement technology involves patent pending chemical and
manufacturing procedures that enhance solubility without changing the compound's
therapeutic properties. Although this technology can be applied to other
chemical entities, to date we have incorporated this technology only in
acetaminophen compounds, which are known to have problems of insolubility and
undesirable taste. Based upon clinical studies completed in the year 2001, we
believe that our technology enables us to develop and deliver dosages of
acetaminophen that make it highly dispersible, rapidly soluble in water, better
tasting and faster in reaching peak blood levels to deliver pain relief. The use
of our technology to increase solubility lessens undesirable side effects, such
as flatulence and the bitter taste of pills, which commonly are associated with
acetaminophen and many other oral medications.


                                       10
<PAGE>

Improved Oral Formulation Technologies

     Our oral formulation technologies involve the application of a new vacuum
dry and desiccation manufacturing process as well as specialized equipment, each
of which plays a role in producing pharmaceutical products that are more stable
and pure, while reducing manufacturing time and costs. We have developed this
technology to create new methods for manufacturing products such as omeprazole,
lansoprazole and other similar products that are stability sensitive to humidity
and temperature. We filed four new patents in 2000 and 2001 relating to these
processes and equipment. The patents claim as innovative the manufacturing
process that renders these products more stable, while protecting active
substances from gastric degradation utilizing microgranulation and
microencapsulation techniques. These patent pending technologies can contribute
to our ability to compete against other companies whose manufacturing processes
are more costly and time consuming.

Hydrogel Technology

     Our hydrogel technology involves a patented synthetic material, which
produces a water soluble drug release system capable of being formulated for
immediate onset or sustained release over a 24 hour period. The hydrogel
technology is capable of adhering to the mucous membranes of the vagina for
extended periods of time without typical discharge, improving the treatment of
conditions such as yeast and fungal infections or conditions requiring
moisturizers or antibiotics. We seek to license this technology to other
pharmaceutical companies for co-development and marketing of potential
applications of this technology.


PRODUCT SALES AND MARKETING IN SPAIN

     In Europe, primarily Spain, we manufacture and market more than 100
pharmaceutical products, representing various dosage strengths and product
formulations of more than 30 chemical entities. Our product lines consist of
generic and branded products within four primary therapeutic categories:
cardiovascular, gastrointestinal, infectious and neurological diseases. Our
generic and branded products are marketed to physicians and pharmacists by our
two separate sales and marketing organizations, Laboratorios Davur and
Laboratorios Belmac. To a lesser extent, we also market over-the-counter
products through Laboratorios Belmac. There are approximately 90,000 physicians
and 20,000 pharmacies in Spain. Revenues from products whose active ingredient
is omeprazole accounted for approximately 56% of our net sales in 2001.

     We continuously review and modify our product portfolio. We add to our
portfolio to respond to increasing market demand for generic and branded
products in Spain and we divest from our portfolio products that we consider to
be redundant or that have become non-strategic. We export a small portion of the
pharmaceuticals manufactured by Laboratorios Belmac outside Spain through local
distributors and brokers, particularly in Eastern Europe, Northern Africa,
Central and South America.

Generic Pharmaceuticals

     Our generic product line consists of 39 pharmaceutical products
representing various dosage strengths and product formulations of ten chemical
entities. We entered the generic pharmaceutical market in Spain in September
2000. Laboratorios Davur, our generic sales and marketing organization, markets
generic pharmaceutical products to physicians and pharmacists through a sales
force of approximately 60


                                       11
<PAGE>

full-time sales personnel located in major cities throughout Spain. In 2001,
generic pharmaceuticals accounted for approximately 30% of our total product
sales. We also supplement our sales and marketing efforts for generic products
through advertising in trade publications.

     We believe we can grow by providing to our generic products sales force a
more extensive line of products to market to physician and pharmacy clients. To
strengthen our entry into the generic market, in July 2000, we entered into a
strategic alliance with Teva, one of the world's leaders in generic
pharmaceuticals. Under this alliance, we have licensed from Teva the right to
register and market in Spain more than 75 of Teva's pharmaceutical products,
representing more than 25 different chemical entities. Pursuant to the
arrangement, Teva will supply the pharmaceutical products to us and we will
register and, upon regulatory approval, market the products in Spain.

     The following are descriptions of our generic products that contribute
significantly to our sales and gross profits:

<TABLE>
<CAPTION>

Our Generic
Product Name                    Active Ingredient             Sold By Others As                Used To Treat
------------                    -----------------             -----------------                -------------
<S>                             <C>                           <C>                              <C>

Amoxicilina Davur               amoxicillin trihydrate        Amoxil(R)(GlaxoSmithKline)       infections

Ciprofloxacino Davur            ciprofloxacin hydrochloride   Cipro(R)(Bayer)                  microbial infections,
                                                                                               including anthrax

Enalapril Davur                 enalapril maleate             Vasotec(R)(Merck)                cardiovascular disease
                                                                                               and hypertension

Fluoxetina Davur                fluoxetine hydrochloride      Prozac(R)(Eli Lilly)             depression

Omeprazol Davur                 omeprazole                    Prilosec(R)(AstraZeneca)         gastroesophageal reflux
                                                                                               disease

Simvastatina Davur              simvastatin                   Zocor(R)(Merck)                  high cholesterol

</TABLE>

Branded Pharmaceuticals

     Our branded product line consists of 62 pharmaceutical products
representing various dosage strengths and product formulations of 22 chemical
entities. Sales of branded pharmaceuticals accounted for 77% of our product
sales in 2000 and 47% in 2001. We market our branded and, to a lesser extent,
certain of our generic and over-the-counter products through our Laboratorios
Belmac subsidiary, which has approximately 90 full-time sales personnel located
in major cities throughout Spain. We supplement our sales and marketing efforts
for branded products through advertising in trade publications.

     The following are descriptions of the branded products that contribute
significantly to our sales and gross profits:


                                       12

<PAGE>

<TABLE>
<CAPTION>

Our Branded
Product Name                    Active Ingredient              Sold By Others As              Used To Treat
------------                    -----------------              -----------------              -------------
<S>                             <C>                            <C>                            <C>
Amoxicilina Belmac(R)           amoxicillin trihydrate         Amoxil(R)(GlaxoSmithKline)     infectionS

Belmazol(R)                     omeprazole                     Prilosec(R)(AstraZeneca)       gastroesophageal reflux
                                                                                              disease

Cimascal D Forte(R)             calcium carbonate and          Calcite-D(R)(Riva)             osteoporosis
                                vitamin D3

Codeisan(R)                     codeine                        Tricodein(R)(Solco)            cough and bronchitis

Simvacol(R)                     simvastatin                    Zocor(R)(Merck)                high cholesterol

Enalapril Belmac(R)             enalapril maleate              Vasotec(R)(Merck)              cardiovascular disease
                                                                                              and hypertension

Mio Relax(R)                    carisoprodol                   Soma(R)(MedPointe)             muscle spasms

Pentoxifilina(R)                pentoxifylline                 Trental(R)(Aventis)            peripheral vascular ischemia

Senioral(TM)                    oxymetazoline and              Denoral(R)(Aventis)            cold and sinus congestion
                                chlorpheniramine
</TABLE>


INTELLECTUAL PROPERTY

     We actively seek to protect our products and proprietary information by
means of U.S. and foreign patents, trademarks and contractual arrangements. Our
success will depend in part on our ability to obtain and enforce patents on our
products, processes and technologies to preserve our trade secrets and other
proprietary information and to avoid infringing on the patents or proprietary
rights of others. Our CPE-215 technology is covered by our U.S. patent and 11
foreign patents, including those in Japan, Korea and most major European
countries. We also have three U.S. and four foreign patents pending regarding
our CPE-215 technology. The patents for our CPE-215 technology expire in the
U.S. in 2008 and in foreign countries between 2006 and 2014. We have one
international patent application and one foreign patent application pending
regarding our antifungal nail lacquer product. We also have two issued U.S.
patents regarding our hydrogel technology that expire in 2008. In addition, we
have one U.S. patent pending for an insulin composition. We licensed from
Dartmouth College the exclusive rights to a patent covering the novel use of
androgen therapy for treating Fibromyalgia and Chronic Fatigue Syndrome. In 2000
and 2001, we filed four new patents in Europe for improved oral formulations of
pharmaceutical products, including omeprazole and lansoprazole.

     We own approximately 50 trademarks for pharmaceutical products in Spain. In
addition, we also rely on unpatented proprietary technologies in the development
and commercialization of our products. We also depend upon the unpatentable
skills, knowledge and experience of our scientific and technical personnel, as
well as those of our advisors, consultants and other contractors. To help
protect our proprietary know-how that is not patentable, and for inventions for
which patents may be difficult to enforce, we rely on trade secret protection
and confidentiality agreements to protect our interests. To this end, we require


                                       13
<PAGE>

employees, consultants and advisors to enter into agreements that prohibit the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions that
arise from their activities for us. Additionally, these confidentiality
agreements require that our employees, consultants and advisors do not bring to
us, or use without proper authorization, any third party's proprietary
technology.


RESEARCH AND DEVELOPMENT

     Our research and product development efforts are focused on developing new
product applications of our drug delivery and drug formulation technologies. We
currently have ten scientists and technicians working on research and product
development. For the years ended December 31, 1999, 2000 and 2001, our research
and product development expenditures were $685,000, $1,102,000 and $2,084,000,
respectively.


MANUFACTURING

     Our 64,000 square-foot manufacturing facility is located in Zaragoza,
Spain. Our manufacturing facility complies with European Good Manufacturing
Practices and is capable of producing tablets, capsules, suppositories, creams,
ointments, lotions, liquids and sachets, as well as microgranulated and
microencapsulated products. The facility also includes analytical chemistry,
quality control, quality assurance and formulation research laboratories.

     Since we currently utilize less than 100% of our existing capacity to
manufacture our own products, we have engaged in contract manufacturing of
pharmaceuticals owned by other companies such as Antibioticos S.A., Laboratorios
Cantabria S.A., and Shire Iberica S.A. We believe contract manufacturing
provides a stable, recurring source of cash flow, a means of absorbing overhead
costs, and experience in manufacturing a broad line of formulations that is
advantageous to us in pursuing and integrating acquired products. Although the
volume of our contract manufacturing continues to increase, contract
manufacturing as a percentage of consolidated net sales declined from
approximately 50% in 1994 to approximately 18% in 2001. We attribute this
decline to the growth in sales of our own branded and generic pharmaceutical
products over the period. We expect that contract manufacturing activities as a
percentage of our overall sales will continue to decrease in the future.

     We have fully integrated manufacturing support systems including quality
assurance, quality control, regulatory compliance and inventory control. These
support systems enable us to maintain high standards of quality for our products
and deliver reliable products and services to our customers on a timely basis.
We require a supply of quality raw materials and packaging materials to
manufacture and package drug products. Historically we have not had difficulty
obtaining raw materials and packaging materials from suppliers. Currently, we
rely on approximately 70 suppliers to deliver our required raw materials and
packaging materials. We have no reason to believe that we will be unable to
procure adequate supplies of raw materials and packaging materials on a timely
basis. Union Quimico Farmaceutica, S.A. is our sole supplier of omeprazole.
Revenues from products whose active ingredient is omeprazole accounted for
approximately 56% of our net sales in 2001. We believe that alternative sources
of omeprazole are available and we will obtain required governmental approval to
source from them, if necessary.


                                       14
<PAGE>

COMPETITION

     All of our current and future products face strong competition both from
new and existing drugs and drug delivery technologies. This competition
potentially includes national and multi-national pharmaceutical and healthcare
companies of all sizes. Many of these other pharmaceutical and healthcare
companies have far greater financial resources, technical staffs, research and
development, and manufacturing and marketing capabilities. We believe that
owning our own development, manufacturing and marketing facilities in Spain
allows us to effectively compete with other pharmaceutical companies in this
market. Our access to these resources enables us to reduce costs otherwise
associated with contracting for the development, manufacture or marketing of our
products by other companies. These reduced costs allow us to sell our products
at competitive prices while maintaining attractive margins.

     We compete with both large multinational companies and national Spanish
companies, which produce most of the same products that we manufacture. In
Spain, our principal competitors include companies such as Ratiopharm
International GmbH, Merck Sharp & Dohme de Espana, S.A. and Almirall Prodes
Farma.

CUSTOMERS

     In Spain, our sales representatives from Laboratorios Belmac and
Laboratories Davur actively promote our products to physicians and retail
pharmacists. We sell our products directly to pharmaceutical distributors and
indirectly to customers who purchase our products from distributors. The
wholesale distributor network for pharmaceutical products in Europe and more
specifically in Spain, in recent years has been subject to increasing
consolidation, which has increased and we expect will continue to increase our,
and other industry participants', customer concentration.

     In 2001 and 2000, Cofares was our only customer accounting for more than
ten percent of our consolidated net sales of approximately 15% and 14%,
respectively. In 1999, Cofares and Antibioticos Farma, each of whose purchases
accounted for approximately 13% of consolidated net sales, were the only
customers which accounted for more than ten percent of consolidated net sales.


REGULATION

     Numerous governmental authorities in the U.S. and other countries
extensively regulate the activities of pharmaceutical manufacturers. If we fail
to comply with the applicable requirements of governmental authorities, we may
be subject to administrative or judicial sanctions such as warning letters,
fines, injunctions, product seizures or recalls, total or partial suspension of
production, or refusal by governmental authorities to approve pending marketing
approval applications or supplements to approved applications, as well as
criminal prosecution.

United States

     Prior to marketing a pharmaceutical product in the U.S., the product must
be approved by the FDA. For new compounds, the regulatory approval process
begins with preclinical laboratory and animal testing. Upon completion, an
Investigational New Drug Application is submitted to the FDA, which must become
effective before human clinical trials may be commenced. Sometimes, to minimize
costs, we have chosen to


                                       15
<PAGE>

conduct pilot studies. The data they produce can permit us to move directly into
Phase II or III studies with the FDA.

     Following completion of laboratory animal testing, human clinical trials
typically are conducted in three sequential phases that may overlap.

o    Phase I - involves the initial introduction of the pharmaceutical into
     healthy human volunteers, the emphasis is on testing for safety (adverse
     effects), dosage tolerance, metabolism, excretion and clinical
     pharmacology.

o    Phase II - involves studies in a limited patient population to determine
     the efficacy of the pharmaceutical for specific targeted indications, to
     determine dosage tolerance and optimal dosage and to identify possible
     adverse side effects and safety risks.

o    Phase III - involves trials undertaken to evaluate clinical efficacy once a
     compound is found to be effective and to have an acceptable safety profile
     in Phase II evaluations, and to further test for safety within an expanded
     patient population at multiple clinical study sites.

     The FDA reviews both the clinical plans and the trial results and may
discontinue the trials at any time if there are significant safety issues. The
results of preclinical and clinical trials are submitted to the FDA in the form
of a New Drug Application for marketing approval. The approval process is
affected by a number of factors, including the severity of the disease, the
availability of alternative treatments and the risks and benefits demonstrated
in clinical trials. Additional animal studies or clinical trials may be
requested during the FDA review process and may delay marketing approval. After
FDA approval for the initial indications, further clinical trials would be
necessary to gain approval for the use of the product for any additional
indications. The FDA may also require post-marketing testing to monitor for
adverse effects, which can involve significant expense. Our products under
development and future products to be developed must go through the approval
process delineated above prior to gaining approval by the FDA for
commercialization.

     FDA approval is required for the marketing of generic equivalents or new
dosage forms of an existing drug. An Abbreviated New Drug Application is
required to be submitted to the FDA for approval. When processing an ANDA, the
FDA waives the requirement of conducting complete clinical studies, although it
normally requires bioavailability and/or bioequivalence studies. Bioavailability
indicates the rate and extent of absorption and levels of concentration of a
drug product in the blood stream. Bioequivalence compares the bioavailability of
one drug product with another, and when established, indicates that the rate of
absorption and levels of concentration of a generic drug in the body closely
approximate those of the previously approved drug. An ANDA may be submitted for
a drug on the basis that it is the equivalent to a previously approved drug.

     In addition to obtaining FDA approval for each product, each manufacturer
of drugs must be registered with the FDA. Domestic manufacturing establishments
are subject to biennial inspections by the FDA and must comply with current Good
Manufacturing Practices for drugs. To supply products for use in the U.S.,
foreign manufacturing establishments must comply with GMPs and are subject to
periodic inspection by the FDA or by regulatory authorities in such countries
under reciprocal agreements with the FDA.


                                       16
<PAGE>

Spain and Europe

     As a pharmaceutical manufacturer in Spain, which is a member of the
European Union, we are subject to the regulations enacted by the European Union.
Prior to Spain's entry into the European Union in 1986, the pharmaceutical
regulations in Spain were less stringent. Since that time, we, along with all
Spanish pharmaceutical companies, must obtain manufacturing, marketing and
pricing authorizations to commercialize pharmaceutical products in Spain.
Pharmaceutical manufacturers in Spain must obtain from the Spanish Ministry of
Health a general permit to operate a pharmaceutical business certifying that its
facilities comply with European Good Manufacturing Practices. For marketing
authorization of new products, the development process in Spain is comprised of
three clinical phases for branded drugs and bioequivalent studies for generic
drugs as in the U.S. to assure their safety and efficacy. A dossier must be
prepared on each pharmaceutical product and, upon approval of the product by the
Spanish Ministry of Health, it may be marketed in Spain. Finally, the Spanish
Ministry of Health sets maximum prices and reimbursement rates for our products.

Trends in Healthcare Regulation

     The cost of healthcare continues to be a subject of investigation and
action by governmental agencies, legislative bodies and private organizations.
In the United States, most states have enacted generic substitution legislation
requiring or permitting a dispensing pharmacist to substitute a different
manufacturer's version of a drug for the one prescribed. Federal and state
governments continue their efforts to reduce costs of subsidized healthcare
programs, including restrictions on amounts agencies will reimburse for the use
of products. Efforts to reduce healthcare costs are also being made in the
private sector. Healthcare providers have responded by instituting various cost
reduction and containment measures of their own. It is not possible to predict
the extent to which we or the healthcare industry in general might be affected
by these changes.

     Continuing reviews of the utilization, safety and efficacy of healthcare
products and their components are being conducted by industry, government
agencies and others. These studies, which employ increasingly sophisticated
methods and techniques, can call into question the utilization, safety and
efficacy of previously marketed products and in some cases have resulted, and
may in the future result, in the discontinuance of such products and give rise
to claims for damages from persons who believe they have been injured as a
result of their use. We maintain product liability insurance for such potential
claims; however, no such claims have ever been asserted against us.

     Many countries, directly or indirectly through reimbursement limitations,
control the selling price of certain healthcare products. In addition, the
prices for all prescription products in Spain are determined by the Spanish
Ministry of Health. In Western Europe, efforts are under way by the European
Union to harmonize technical standards for many products, including drugs, to
make more uniform the requirements for marketing approval from the various
regulatory agencies.

Other Regulations

     We believe that we comply with environmental laws that apply to us and we
do not anticipate that compliance will have a material effect on our financial
condition.


                                       17
<PAGE>

EMPLOYEES

     We employ approximately 271 people, nine of whom are employed in the U.S.
and 262 in Spain, as of February 28, 2002. Approximately 75 of these employees
principally are engaged in manufacturing activities, 153 in sales and marketing,
ten in product development and 33 in management and administration. In general,
we consider our relations with our employees to be good.


RISK FACTORS

     You should carefully consider the following risk factors and warnings. The
risks described below are not the only risks we face. Additional risks that we
do not yet know of or that we currently think are immaterial may also impair our
business operations. If any of the events or circumstances described in the
following risks actually occurs, our business, financial condition, or results
of operations could be materially adversely affected. In such case, the trading
price of our common stock could decline and you may lose all of part of your
investment.

OUR GROWTH DEPENDS ON IDENTIFYING DRUGS SUITABLE FOR OUR DRUG DELIVERY
TECHNOLOGIES AND EXPANDING OUR GENERIC AND BRANDED DRUG OPERATIONS.

     Bentley's growth depends on the identification of pharmaceutical products
that are suitable for delivery using our technologies. Our principal drug
technology is our CPE-215 permeation enhancement platform technology. This
technology, like other drug delivery enhancement technologies, operates to
enhance the amount and rate of absorption of certain drugs across biological
membranes. This technology does not operate independently and must be coupled
with suitable pharmaceutical products in order to provide value. Consequently,
our growth will depend to a great extent on identifying and commercializing
these suitable drugs with respect to which we intend to expend significant
resources and efforts. Identifying suitable products is a lengthy and complex
process that may not succeed. Even if identified, products may not be available
to us or we may otherwise be unable to enter into licenses or other agreements
for their use. In our efforts to identify suitable products, we compete with
other pharmaceutical delivery companies with greater research and development,
financial, marketing and sales resources. If we do not effectively identify
drugs to be used with our technologies, improve the delivery of drugs with our
technologies and bring the improved drugs to commercial success, then we will
not be able to continue our growth and we will be adversely affected.

     We intend to expend significant resources and efforts toward identifying
and commercializing products and technologies to expand our generic and branded
drug operations in Spain. Although we already manufacture and market generic and
branded drugs in Spain, the growth of these operations in particular and Bentley
in general will depend to a great extent on identifying and commercializing
additional such drugs for which we have existing capacity and infrastructure
and, to a lesser extent, on increasing sales of existing products. Identifying
and pursuing these new opportunities involves significant time and expense and
we may not succeed. Even if identified, these products and technologies may not
be commercially successful. Once identified, products to be manufactured and/or
marketed by us under generic or branded names are subject to successful
negotiation of acceptable economic and legal terms, and successful progress of
the product through commercialization, as to which we cannot assure you. In
these efforts, we compete with other pharmaceutical companies having generic and
branded drug operations with greater financial, marketing and sales resources.
If we do not effectively identify generic and branded drug


                                       18
<PAGE>

products and technologies and bring them to commercial success, then we will not
be able to continue our growth and we will be adversely affected.

     The growth of our generic and branded operations may be adversely impacted
by claims by others that our products infringe on the proprietary rights of
their existing "brand-name" products. For example, in February 2002 we were
notified that a legal proceeding seeking an injunction had been commenced in
Madrid against us by Merck & Co. Inc. and its Spanish subsidiary alleging that
we violated their patents in our production of the product simvastatin. Although
the court in the same month dismissed the action, which could be brought in
another proceeding, we cannot assure you that similar actions will not be
brought nor that they will not have an adverse effect on us.

PRODUCTS USING OUR TECHNOLOGIES ARE IN VARIOUS STAGES OF DEVELOPMENT AND MAY NOT
ACHIEVE COMMERCIAL SUCCESS.

     Independently as well as in conjunction with strategic partners, we are
investigating the use of our technologies with respect to a variety of
pharmaceutical compounds and products that are in various stages of development.
We are unable to predict whether any of these products will receive regulatory
clearances or be successfully developed, manufactured or commercialized.
Further, due to the extended testing and regulatory review process required
before marketing clearance can be obtained, the time periods before
++commercialization of any of these products are long and uncertain. Risks
during development include the possibility that:

o    any or all of the proposed products will be found to be ineffective;

o    the proposed products will have adverse side effects or will otherwise fail
     to receive necessary regulatory clearances;

o    the proposed products may be effective but uneconomical to market; or

o    other pharmaceutical companies may market equivalent or superior products.

WE WILL RELY ON STRATEGIC PARTNERS TO COMMERCIALIZE PRODUCTS THAT USE OUR DRUG
DELIVERY TECHNOLOGIES.

     In light of our resources and the significant time, expense, expertise and
infrastructure necessary to bring new drugs and formulations from inception to
market, we are particularly dependent on resources from third parties to
commercialize products incorporating our technologies. Our strategy involves
forming alliances with others to develop, manufacture, market and sell our
products in the United States and other countries. We continue to pursue
strategic partners for these purposes. We may not be successful in finding
strategic partners or in otherwise obtaining financing, in which case the
development of our products would be delayed or curtailed.

     We must enter into agreements with strategic partners to conduct clinical
trials, manufacturing, marketing and sales necessary to commercialize product
candidates. In addition, our ability to apply our drug delivery technologies to
any proprietary drugs will depend on our ability to establish and maintain
strategic partnerships or other collaborative arrangements with the holders of
proprietary rights to such drugs. Arrangements with strategic partners may be
established through a single comprehensive agreement or may evolve over time
through a series of discrete agreements, such as letters of intent, research


                                       19
<PAGE>

agreements and license agreements. We cannot assure you that we will be able to
establish such strategic partnerships or collaborative arrangements on favorable
terms or at all or that any agreement entered into with a strategic partner will
lead to further agreements or ultimately result in commercialization of a
product.

     In collaborative arrangements, we will depend on the efforts of our
strategic partners and will have limited participation in the development,
manufacture, marketing and commercialization of the products subject to the
collaboration. We cannot assure you that these strategic partnerships or
collaborative arrangements will be successful, nor can we assure you that
strategic partners or collaborators will not pursue alternative technologies or
develop alternative products on their own or with others, including our
competitors. We could have disputes with our existing or future strategic
partners or collaborators. Any such disagreements could lead to delays in the
research, development or commercialization of potential products or could result
in time-consuming and expensive litigation or arbitration.

A SIGNIFICANT PORTION OF OUR REVENUES ARE GENERATED BY THE SALE OF PRODUCTS THAT
ARE FORMULATED FROM ONE ACTIVE INGREDIENT.

     Revenues from products whose active ingredient is omeprazole accounted for
approximately 56% of our net sales in 2001. We currently purchase omeprazole
from a single supplier. If we lose and cannot effectively replace this supplier
or are otherwise unable to continue the sales of products that contain this
active ingredient, our revenues would decline significantly.

IF OUR CLINICAL TRIALS FAIL, WE WILL BE UNABLE TO MARKET PRODUCTS.

     Any human pharmaceutical product developed by us would require clearance by
the U.S. Food and Drug Administration for sales in the United States, by Spain's
Ministry of Health for sales in Spain and by comparable regulatory agencies for
sales in other countries. The process of conducting clinical trials and
obtaining FDA and other regulatory approvals is lengthy and expensive and we
cannot assure you of success. In order to obtain FDA approval of any product
candidates using our technologies, a New Drug Application must be submitted to
the FDA demonstrating that the product candidate, based on preclinical research
and animal studies as well as human clinical trials, is safe for humans and
effective for its intended use. Positive results from preclinical studies and
early clinical trials do not ensure positive results in more advanced clinical
trials designed to permit application for regulatory approval. We may suffer
significant setbacks in clinical trials, even in cases where earlier clinical
trials show promising results. Any of our product candidates may produce
undesirable side effects in humans that could cause us or regulatory authorities
to interrupt, delay or halt clinical trials of a product candidate. We, the FDA
or other regulatory authorities may suspend our clinical trials at any time if
we or they believe the trial participants face unacceptable health risks or if
they find deficiencies in any of our regulatory submissions. Other factors that
can cause delay or terminate our clinical trials include:

o    slow or insufficient patient enrollment;

o    slow recruitment and completion of necessary institutional approvals at
     clinical sites;

o    longer treatment time required to demonstrate efficacy;

o    lack of sufficient supplies of the product candidate;


                                       20
<PAGE>

o    adverse medical reactions or side effects in treated patients;

o    lack of effectiveness of the product candidate being tested;

o    regulatory requests for additional clinical trials; and

o    instability of the pharmaceutical formulations.

OUR PATENT POSITIONS AND INTENDED PROPRIETARY OR SIMILAR PROTECTIONS ARE
UNCERTAIN.

     We have filed numerous patent applications and have been granted licenses
to, or have acquired, a number of patents. We cannot assure you, however, that
our pending applications will be issued as patents or that any of our issued or
licensed patents will afford adequate protection to us or our licensees. We
cannot determine the ultimate scope and validity of patents that are now owned
by or may be granted to third parties, the extent to which we may wish or be
required to acquire rights under such patents or the cost or availability of
such rights.

     Competitors may interfere with our patent process in a variety of ways.
Competitors may claim that they invented the claimed invention prior to us.
Competitors also may claim that we are infringing their patents, interfering
with or preventing the use of our technologies. Competitors also may contest our
patents by showing the patent examiner that the invention was not original, was
not novel or was obvious. In litigation, a competitor could claim that our
issued patents are not valid for a variety of other reasons as well. If a person
claims we infringe their technology, we could face a number of consequences,
including lawsuits, which take significant time and can be very expensive,
payment of substantial damages for infringement, prohibition from selling or
licensing the product unless the patent holder licenses the patent to us, or
reformulation, if possible, of the product so it does not infringe, which could
require substantial time and expense.

     As an example of the risk of infringement claims, in February 2002 we were
notified that a legal proceeding seeking an injunction had been commenced in
Madrid against us by Merck & Co. Inc. and its Spanish subsidiary alleging that
we violated their patents in our production of the product simvastatin. Although
the court in the same month dismissed the action, which could be brought in
another proceeding, we cannot assure you that similar such actions will not be
brought nor that they will not have an adverse effect on us.

     We also rely on trade secrets, unpatented proprietary technologies and
continuing technological innovations in the development and commercialization of
our products. We cannot assure you that others will not independently develop
the same or similar technologies or obtain access to our proprietary
technologies. It is unclear whether our trade secrets will be protected under
law. While we use reasonable efforts to protect our trade secrets, our employees
or consultants may unintentionally or willfully disclose our information to
competitors. Our employees and consultants with access to our proprietary
information have entered into or are subject to confidentiality arrangements
with us and have agreed to disclose and assign to us any ideas, developments,
discoveries and inventions that arise from their activities for us. We cannot
assure you, however, that others may not acquire or independently develop
similar technologies or, if effective patents in applicable countries are not
issued with respect to our products or technologies, that we will be able to
maintain information pertinent to such research as proprietary technologies or
trade secrets.


                                       21
<PAGE>

Enforcing a claim that another person has illegally obtained and is using our
trade secrets, like patent litigation, is expensive and time consuming, and the
outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets.

REGULATORY APPROVALS MUST BE OBTAINED AND MAINTAINED FOR PRODUCTS INCORPORATING
OUR TECHNOLOGIES AND, IF APPROVALS ARE DELAYED OR WITHDRAWN, WE WILL BE UNABLE
TO COMMERCIALIZE THESE PRODUCTS.

     Government regulations in the United States, Spain and other countries have
a significant impact on our business and affect the research and development,
manufacture and marketing of products incorporating our technologies. In the
United States, Spain and other countries, governmental agencies have the
authority to regulate the distribution, manufacture and sale of drugs. Failure
to comply with applicable regulatory approvals can, among other things, result
in fines, suspension or withdrawal of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. In addition, governmental
regulations may be established that could prevent, delay, modify or rescind
regulatory approval of our products.

IF WE ARE UNABLE TO OBTAIN MARKETING APPROVALS TO SELL OUR PRODUCTS IN COUNTRIES
OTHER THAN SPAIN, WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL REVENUES FROM SALES IN
THOSE COUNTRIES.

     We cannot assure you that products that have obtained marketing approval in
Spain will be approved for marketing elsewhere. If we are unable to obtain
marketing approval for our products in countries other than Spain, we may not be
able to obtain additional revenues from sales in those countries. If we are
unable to obtain these marketing approvals, we would have to seek to enter into
collaborative arrangements to sell or license our products to strategic partners
that have marketing approval in those countries. We can not assure you that we
would find or enter into acceptable arrangements with such strategic partners to
market our products, nor can we assure you that any such arrangements would be
successful.

WE MUST COMPLY WITH GOOD MANUFACTURING PRACTICES IN THE PRODUCTION OF
PHARMACEUTICAL PRODUCTS.

     Any manufacturing facility for pharmaceutical products to be marketed in
the United States is subject to FDA inspection both before and after approval of
a New Drug Application to determine compliance with the FDA's Good Manufacturing
Practices requirements, as well as local, state and other federal regulations.
Manufacturing facilities for our compounds to be marketed in European countries
and elsewhere are also subject to European Union and/or other applicable GMP
regulations. Facilities used to produce our compounds may not achieve or
maintain compliance with GMP or other requirements. The GMP regulations are
complex and, if we fail to comply with them, it could lead to rejection or delay
of an NDA or comparable application. Any delay in approval of an NDA or
comparable application would delay product launch. Violation of GMP requirements
after approval of an NDA or comparable application, could result in remedial
action, penalties and delays in production.

WE OPERATE A SIGNIFICANT PORTION OF OUR BUSINESS IN, AND PLAN TO EXPAND FURTHER
INTO, MARKETS OUTSIDE THE UNITED STATES, WHICH SUBJECTS US TO ADDITIONAL
BUSINESS RISKS.

     In the year ended December 31, 2001, substantially all of our revenues were
derived from sales made by our Spanish subsidiaries in Spain and a small portion
of those revenues (one to two percent) were derived from sales made by the
subsidiaries to customers in other foreign countries. We believe that a
significant portion of our revenues will continue to be derived from sales in
foreign countries. Conducting business internationally subjects us to a number
of risks and uncertainties, including:


                                       22
<PAGE>

o    unexpected delays or changes in regulatory requirements;

o    difficulties and costs related to complying with a wide variety of complex
     foreign laws and treaties;

o    delays and expenses associated with tariffs and other trade barriers;

o    restrictions on and impediments to repatriation of our funds and our
     customers' ability to make payments to us;

o    political and economic instability;

o    difficulties and costs associated with staffing and managing international
     operations and implementing, maintaining and improving financial controls;

o    dependence upon independent sales representatives and other indirect
     resellers who may not be as effective and reliable as our employees;

o    inadequate or uncertain protection of intellectual property in foreign
     countries;

o    increased difficulty in collecting accounts receivable and longer accounts
     receivable cycles in certain foreign countries; and

o    adverse tax consequences or overlapping tax structures.

CURRENCY FLUCTUATIONS AND THE TRANSITION TO THE EURO COULD HAVE A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS.

     Our revenues may be impacted by fluctuations in local currencies due to the
fact that substantially all of our revenues currently are generated by sales in
Spain by our Spanish subsidiaries, Laboratorios Belmac S.A. and Laboratorios
Davur S.L. Our Spanish subsidiaries reported an increase in net sales of 50% in
local currency for the year ended December 31, 2001 compared to the prior year;
this increase, however, was partially offset by a decline in the value of the
Spanish Peseta, when expressed in U.S. Dollars. We do not currently engage in
foreign exchange hedging transactions to manage our foreign currency exposure.
Our foreign operations expose us to a number of currency related risks,
including the following:

o    fluctuations in currency exchange rates;

o    limitations on the conversion of foreign currency;

o    fluctuations of the carrying value of long lived assets; and

o    limitations on the remittance of dividends by foreign subsidiaries.

     On January 1, 2002, European Union countries, which includes Spain, began
operating with the Euro as their single currency. Uncertainty exists as to the
effect the Euro will have on the marketplace. The currency conversion to the
Euro exposes us to certain risks, including the following:


                                       23
<PAGE>

o    the creation of suitable clearing and settlement payment schemes for the
     Euro;

o    the legal treatment of outstanding financial contracts after the conversion
     date that refer to currencies other than the Euro; and

o    whether the interest rate, tax and labor regimes of the European countries
     participating in the Euro will successfully converge over time, if at all.

IF WE CANNOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND MEET THE INTENSE
COMPETITION IN OUR INDUSTRY, WE MAY NOT SUCCEED.

     Our success depends, in part, on achieving and maintaining a competitive
position in the development of products and technologies in a rapidly evolving
industry. If we cannot maintain competitive products and technologies, our
current and potential strategic partners may choose to adopt the drug delivery
technologies of our competitors. We also compete generally with other drug
delivery, biotechnology and pharmaceutical companies engaged in the development
of alternative drug delivery technologies or new drug research and testing. Many
of these competitors have substantially greater financial, technological,
manufacturing, marketing, managerial and research and development resources and
experience than we do and represent significant competition for us. Our
competitors may succeed in developing competing technologies or obtaining
governmental approval for products before we achieve success, if at all. The
products of our competitors may gain market acceptance more rapidly than our
products. Developments by competitors may render our existing or proposed
products noncompetitive or obsolete.

     Our competitive positions in our generic and branded drug operations as
well as with our drug delivery enhancement technologies are uncertain and
subject to risks. In Spain, and in other countries, we must demonstrate
bioequivalence of our generic products, which may be challenged by branded and
other generic competitors as well as regulatory authorities. In order to
demonstrate bioequivalence of our generic products, we must show that the rate
and extent of absorption and levels of concentration in the bloodstream of our
generic products are not statistically different from other pharmaceutical
equivalents that have previously been approved by the regulatory authorities of
the respective country, when administered at the same dosage level under similar
clinical conditions.

     The competitive position of our drug delivery enhancement technologies is
subject to the possible development by others of superior technologies. Other
drug delivery technologies, including oral and injection methods, have wide
acceptance, notwithstanding certain drawbacks, and are the subject of
improvement efforts by other entities having greater resources. In addition, our
drug delivery technologies are limited by the number and commercial magnitude of
drugs with which they can successfully be combined.

WE MAY BE UNABLE TO MEET INCREASING EXPENSES AND DEMANDS ON OUR RESOURCES FROM
FUTURE GROWTH, IF ANY, OR TO EFFECTIVELY PURSUE ADDITIONAL BUSINESS
OPPORTUNITIES.

     Our revenues increased 42% and our research and development expenditures
increased 89% from the year ended December 31, 2000 to the year ended December
31, 2001, challenging our management, administrative, financial, marketing,
operational and research and development resources. In addition, we routinely
consider acquisition and investment opportunities, although we have no current
agreements or


                                       24
<PAGE>

commitments with respect to any acquisitions or investments. Any future
acquisitions or investments would further challenge our resources. If we do not
properly meet the increasing expenses and demands on our resources from future
growth, we will be adversely affected. To properly manage our growth, we must,
among other things, implement additional and improve existing administrative,
financial, marketing, operational and research and development systems,
procedures and controls on a timely basis. We may also need to expand our staff
in these and other areas. We may not be able to complete the improvements to our
systems, procedures and controls necessary to support our future operations in a
timely manner. We may not be able to hire, train, integrate, retain, motivate
and manage required personnel, successfully integrate acquisitions or
investments, nor successfully identify, manage and pursue existing and potential
market opportunities. If we fail to generate additional revenue in excess of
increased operating expenses in any fiscal period, we may incur losses, or our
losses may increase in that period.

PHARMACEUTICAL PRICING, CHANGES IN THIRD-PARTY REIMBURSEMENT AND GOVERNMENTAL
MANDATES ARE UNCERTAIN AND MAY ADVERSELY AFFECT US.

     Our revenues and profitability may be adversely affected by the continuing
efforts of governmental and third party payors to contain or reduce the costs of
healthcare. A substantial portion of our operations consists of marketing and
manufacturing, primarily in Spain, generic and branded pharmaceutical products.
The use of generic drugs is regulated in Spain, the U.S. and many other
countries, subject to many changing and competing public policy considerations.
In addition, in certain markets, such as Spain, pricing or profitability of
prescription pharmaceuticals is subject to government control. Some governmental
agencies, including those in Spain, can, due to insufficient supply, compel
companies to continue to produce products that are not profitable for the
company. In the U.S., there have been, and we expect that there will continue to
be, a number of federal and state proposals to implement similar government
controls.

     Successful commercialization of many of our products, including those using
our permeation enhancement technologies as well as our generic and branded
products, may depend on the availability of reimbursement for the cost of such
products and related treatment from third-party healthcare payors, such as the
government, private insurance plans and managed care organizations. Third-party
payors are increasingly challenging the price of medical products and services.
Such reimbursement may not be available for any of our products at all or for
the duration of the recommended treatment with a drug, which could materially
adversely affect our ability to commercialize that drug. The increasing emphasis
on managed care in the U.S. continues to increase the pressure on pharmaceutical
pricing.

     We anticipate that there will continue to be a number of proposals in the
U.S. to implement government control over the pricing or profitability of
prescription pharmaceuticals, as is currently the case in many foreign markets.
The announcement or adoption of such proposals could adversely affect us.
Further, our ability to commercialize our products may be adversely affected to
the extent that such proposals materially adversely affect the business,
financial condition and profitability of companies that are prospective
strategic partners.

     The cost of healthcare in Spain, the U.S. and elsewhere continues to be a
subject of investigation and action by various governmental agencies. Certain
resulting legislative proposals may adversely affect us. For example,
governmental actions to reduce or eliminate reimbursement for drugs may directly
diminish our markets. In addition, legislative safety and efficacy measures may
be invoked that lengthen and increase the costs of drug approval processes.
Further, social, economic and other broad policy legislation may induce
unpredictable changes in the healthcare environment. As examples of pending
legislative proposals that may adversely affect us, groups in Spain have urged
the Spanish Parliament to consider


                                       25
<PAGE>

proposals that would revise the pharmaceutical laws in response to social
policy. One would change the pricing and availability of drugs in Spain and the
other would conform Spanish drug exportation to international standards for
certain purposes. We cannot assure you whether these proposals or others may be
enacted in some form, if at all, or the impact they may have if enacted.

OUR OPERATIONS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO RAISE OR OBTAIN
NEEDED FUNDING.

     We have used cash from outside financing to fund our operations.
Substantial time and financial and other resources will be required to complete
ongoing development and clinical testing of our products. Regulatory efforts and
collaborative arrangements also will be necessary for our products that are
currently under development and testing in order for them to be marketed.
Assuming we continue our operations as presently conducted, we believe that we
have sufficient working capital to meet our needs for at least the next twelve
months. However our revenues from operations and cash may not be sufficient over
the next several years for commercializing all of the products we are currently
developing. Consequently, we seek strategic partners for all phases of
development, marketing and commercialization of product candidates employing our
technologies. Further, we cannot assure you as to the sufficiency of our
resources or the time required to complete any ongoing development and clinical
testing, since the extent to which we conduct such testing is dependent on
resource allocation decisions that we make from time to time based on numerous
financial as well as operational conditions.

     In addition to development and other costs, we expect to incur capital
expenditures from time to time. These capital expenditures will be influenced by
our regulatory compliance efforts, our success, if any, at developing
collaborative arrangements with strategic partners, our needs for additional
facilities and capital equipment and the growth, if any, of our business in
general. We cannot assure you that we will receive additional funding on
favorable terms if at all, or that we will be successful in attracting strategic
partners. If we cannot raise funds or engage strategic partners on acceptable
terms when needed, we may not be able to continue our research and development
activities, develop or enhance our products and services, take advantage of
future opportunities, grow our business or respond to competitive pressures or
unanticipated requirements.

IF WE CANNOT ATTRACT AND RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO EXECUTE OUR
BUSINESS PLAN AS ANTICIPATED.

     We have assigned many key responsibilities within our company to, and are
dependent on, a relatively small number of individuals. If we lose the services
of our Chief Executive Officer, Chief Science Officer or Vice President of
Pharmaceutical Development, our ability to execute our business plan in the
manner we currently anticipate would be adversely affected. The competition for
qualified personnel is intense and the loss of key personnel could adversely
affect our business. We maintain key person life insurance only for our Chief
Executive Officer. We have an employment agreement with each of our executive
officers.

WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT
COMMERCIALIZATION OF OUR PRODUCTS IN RESPONSE TO PRODUCT LIABILITY CLAIMS.

     The testing and marketing of medical products entails an inherent risk of
product liability. We may be held liable to the extent that there are any
adverse reactions from the use of our products. Our products involve new methods
of delivery for drugs, some of which may require precautions to prevent
unintended use, especially since they are designed for patients' self-use rather
than being administered by medical


                                       26
<PAGE>

professionals. The FDA may require us to develop a comprehensive risk management
program for our products. The failure of these measures could result in harmful
side effects or death. As a result, consumers, regulatory agencies,
pharmaceutical companies or others might make claims against us. If we cannot
successfully defend ourselves against product liability claims, we may incur
substantial liabilities, lose market share or be required to limit
commercialization of our products.

     Our inability to obtain sufficient product liability insurance at an
acceptable cost to protect against potential product liability claims could
inhibit or prevent the commercialization of pharmaceutical products we develop
alone or with corporate collaborators. We maintain product liability insurance
in the amount of $3 million Euros (approximately $2.6 million U.S. Dollars) and
clinical trial insurance in connection with our clinical testing activities in
various amounts on a study-by-study basis. While management believes that this
insurance is reasonable, we cannot assure you that any of this coverage will be
adequate to protect us in the event of a claim. We, or any corporate
collaborators, may not be able to obtain or maintain insurance at a reasonable
cost, if at all. Even if our agreements with any future corporate collaborators
entitle us to indemnification against losses, such indemnification may not be
available or adequate if any claim arises.

YOUR PERCENTAGE OF OWNERSHIP AND VOTING POWER AND THE PRICE OF OUR COMMON STOCK
MAY DECREASE AS A RESULT OF EVENTS THAT INCREASE THE NUMBER OF OUR OUTSTANDING
SHARES.

     As of December 31, 2001, we had the following capital structure:


Common stock outstanding............................................  14,585,200
Common stock issuable upon:
  Exercise of Class B Warrants......................................   3,003,560
  Exercise of other warrants........................................     420,000
  Exercise of options which are outstanding.........................   2,937,256
  Exercise of options which have not been granted...................   1,006,000
                                                                       ---------
Total common stock outstanding assuming exercise
of all of the above.................................................  21,952,016
                                                                      ==========

     As of December 31, 2001, we had outstanding options and warrants to
purchase approximately 6,360,816 shares of common stock at exercise prices
ranging from $1.50 to $45.00 (exercisable at a weighted average of $4.83 per
share), of which approximately 5,740,716 options and warrants were then
exercisable. Since December 31, 2001 we have granted options to purchase 477,500
shares of common stock, exercisable at a weighted average of $9.76 per share. In
addition, we may conduct future offerings of our common stock or other
securities with rights to convert the securities into shares of our common
stock. Exercise of our outstanding options and warrants into our common stock
may significantly and negatively affect the market price for our common stock as
well as decrease your percentage ownership and voting power.

OUR STOCK IS VOLATILE.

     The market prices for our securities and for securities of emerging growth
companies have historically been highly volatile. During the last two years, the
price of our common stock has ranged from a high of $11.57 to a low of $3.56.
Future announcements concerning us or our competitors may have a significant
impact on the market price of our common stock. Factors which may affect our
market price include:


                                       27
<PAGE>

o    progress of our relationships with strategic partners;

o    results of clinical studies and regulatory reviews;

o    technological innovations by us or our competitors;

o    market conditions in the pharmaceutical, drug delivery and biotechnology
     industries;

o    competitive products;

o    financings;

o    sales or the possibility of sales of our common stock;

o    our results of operations and financial condition;

o    proprietary rights;

o    public concern as to the safety or commercial value of our products; and

o    general economic conditions.

     These uncertainties have adversely affected and may continue to adversely
affect the market price of our common stock. Furthermore, the stock market has
experienced significant price and volume fluctuation unrelated to the operating
performance of particular companies. These market fluctuations may also
adversely affect the market price of our common stock.

DELAWARE LAW AND PROVISIONS IN OUR CERTIFICATE OF INCORPORATION, BYLAWS AND
STOCKHOLDER RIGHTS PLAN MAY PREVENT OR DISCOURAGE THIRD PARTIES OR STOCKHOLDERS
FROM ATTEMPTING TO REPLACE THE MANAGEMENT OF BENTLEY.

     As a Delaware company, we are subject to Section 203 of the Delaware
General Corporation Law, as amended, which is a statutory provision intended to
discourage certain takeover attempts that are not approved by the board of
directors. Section 203 prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder
subject to certain exceptions.

     Our certificate of incorporation and bylaws include provisions that also
may have the effect of discouraging, delaying or preventing a change in control
or an unsolicited acquisition proposal that a stockholder might consider
favorable. Our board of directors is divided into three classes with staggered
three-year terms, which makes it more difficult for an acquiror to change the
overall composition of the board in a short period of time. The positive vote of
at least two-thirds is required to approve a merger, a sale or lease of all or
most of our assets, certain other business combinations or dissolution or
liquidation, and an affirmative vote of two-thirds is required to amend any
provision in our certificate of incorporation relating to our directors and
officers or to amend any provision in our certificate of incorporation.
Additionally, our certificate of incorporation authorizes our board of directors
to issue preferred stock in one


                                       28
<PAGE>

or more series with the rights, obligations and preferences of each series to be
determined by our board without stockholder approval. Our staggered board, the
super-majority voting provisions and the potential issuance of preferred stock
may have the effect of delaying or preventing or discouraging third parties or
stockholders from attempting to replace our management.

     To the same potential effect, we have a stockholder rights plan designed to
prevent a potential acquirer from gaining control of us and to protect us from
coercive takeover attempts. The rights will become exercisable only if any
person or group of affiliated persons beneficially acquires 15% or more of our
common stock. Under certain circumstances, each holder of a right (other than
the person or group who acquired 15% or more of our common stock) is entitled to
purchase a defined number of shares of our common stock at 50% of its market
price at the time that the right becomes exercisable.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.

     Words such as expects, anticipates, intends, believes, will and similar
words are used to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements, including, but not limited to, the statements in the Risk Factors
and other sections in this Annual Report on Form 10-K, are not based on
historical facts, but rather reflect our current expectations concerning future
results and events. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, such statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be different from any future results,
performance and achievements expressed or implied by these statements, including
the risks outlined in the Risk Factors section and elsewhere in this Annual
Report on Form 10-K. You are cautioned not to place undue reliance on these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as the result of new information,
future events or otherwise.

ITEM 2. PROPERTIES

     We lease a 3,200 square foot facility in North Hampton, New Hampshire,
which houses our corporate headquarters and research and development laboratory.
We are located approximately 45 minutes north of Boston, Massachusetts. The
lease for this facility expires in March 2004.

     We own a 64,000 square foot facility in Zaragoza, Spain, which accommodates
our manufacturing plant, warehouse, research and development laboratory and
office space. The facility is located in an industrial park and is situated on
sufficient acreage to accommodate future expansion.

     We lease a 10,700 square foot facility in San Sebastian de los Reyes,
Spain, an area northwest of Madrid, which houses the administrative offices for
our Spanish and European operations. The lease for this facility expires in
2006.


ITEM 3. LEGAL PROCEEDINGS

         We were awarded a judgment of approximately $2,130,000 in the Circuit
Court of the


                                       29
<PAGE>

Thirteenth Judicial Circuit, State of Florida, Hillsborough County Civil
Division during the year ended December 31, 1998, relating to our claims of
civil theft and breach of employment agreement filed against our former
President and Chief Executive Officer, Michael M. Harshbarger. The judgment
included treble damages totaling $418,000 related to our civil theft claim and
$1,712,000 related to our breach of employment agreement claim. Harshbarger
originally filed suit against us in November 1993, alleging wrongful
termination, seeking monetary damages in excess of $1,400,000. In addition to
establishing a receivable on our books, we have established a reserve equal to
the receivable, as we are of the opinion that Harshbarger does not have the
financial resources to satisfy the judgment. Harshbarger filed a Motion for
Relief From Judgment in September 1999, alleging among other things that he was
not provided notice of the August 24, 1998 jury trial. A hearing was held on
November 27, 2001 to determine the merits of Harshbarger's claims. The judge
determined that the facts of the case did not warrant setting aside the default
and judgment against Harshbarger and denied all of Harshbarger's motions.
Harshbarger did not file a notice of appeal within the requisite time period,
therefore, we consider that this matter has been concluded and expect no further
action other than any action we may take to enforce our judgment.

     On January 22, 2001, we settled a legal dispute, by paying $140,000 to
Creative Technologies, Inc. and Creative Technologies, Inc. agreed to the
dismissal of the related suit with prejudice. Creative Technologies had asserted
that it was due a brokerage or finder's fee with respect to our 1999 acquisition
of permeation enhancement technology. We included the accrual for the $140,000
charge in our Consolidated Balance Sheet as of December 31, 2000 and included
the $140,000 charge and related legal costs of approximately $55,000 in
operating expenses in our Consolidated Statement of Operations for the year
ended December 31, 2000.

     On February 4, 2002, we were notified that a legal proceeding had been
commenced against us by Merck & Co. Inc. and its Spanish subsidiary, Merck Sharp
& Dohme de Espana, S.A., alleging that we violate their patents in our
production of the product simvastatin and requesting an injunction ordering us
not to manufacture or market the product. The case was brought against our
Spanish subsidiaries in the 39th First Instance Court of the City of Madrid.
After a hearing on February 18, 2002, the court refused to grant the requested
injunction and dismissed the case on February 25, 2002, awarding us court and
legal fees. Merck has appealed the award of fees. Under Spanish law, Merck can
reinstitute its claim against us in another proceeding. There were no sales of
simvastatin in 2001, as the product was launched in late January 2002.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.


                                       30
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The following table sets forth, for the periods indicated, the range of
quarterly high and low sales prices for our common stock as reported on the
American Stock Exchange under the symbol "BNT." Our common stock began trading
on the American Stock Exchange on July 31, 1990 and on the Pacific Exchange on
March 27, 1996.

                                                             High       Low
                                                             ----       ---
Fiscal 2000
  First Quarter......................................      $12.50     $5.88
  Second Quarter.....................................        9.50      5.88
  Third Quarter......................................       11.00      6.88
  Fourth Quarter.....................................       11.00      3.56

Fiscal 2001
  First Quarter......................................        7.50      4.40
  Second Quarter.....................................        6.35      4.40
  Third Quarter......................................        7.25      5.50
  Fourth Quarter.....................................       10.50      6.25

Fiscal 2002
  First Quarter (through March 25, 2002).............       11.57      7.60

     As of March 25, 2002 there were 1,611 holders of record of our common
stock, which does not reflect stockholders whose shares are held in street name.

DIVIDENDS

     We have never paid cash dividends on our common stock. We intend to retain
future earnings in order to finance the growth and development of our business.


ITEM 6. SELECTED FINANCIAL DATA

     The following sets forth the selected consolidated statement of operations
data for each of the five years in the period ended December 31, 2001 and
consolidated balance sheet data as of December 31, 2000 and 2001, all of which
are derived from our audited consolidated financial statements and related
notes. The following selected financial data for each of the three years in the
period ended December 31, 2001 and as of December 31, 2000 and 2001 should be
read together with our consolidated financial statements and related notes
appearing elsewhere in Item 14 of this Annual Report on Form 10-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Our independent auditors have audited our consolidated financial
statements for each of the five years in the period ended December 31, 2001. The
consolidated statement of operations for each of the two years in the period
ended December 31,


                                       31
<PAGE>

1998 are derived from our audited consolidated financial statements and related
notes not included in Item 14 of this Annual Report on Form 10-K.

CONSOLIDATED STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>

                                                                                         YEAR ENDED DECEMBER 31,
                                                                                         -----------------------
                                                                            1997         1998        1999          2000         2001
                                                                            ----         ----        ----          ----         ----
                                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                      <C>          <C>         <C>           <C>          <C>

Net sales.........................................................       $14,902      $15,243     $20,249       $18,617      $26,411
Cost of sales.....................................................         8,010        6,601       8,445         7,189       11,462
                                                                           -----        -----       -----         -----       ------

Gross profit......................................................         6,892        8,642      11,804        11,428       14,949
Operating expenses................................................         8,438       10,710      11,226        11,942       16,137
Gain on sale of drug licenses.....................................             -            -           -             -        5,050
Provision for income taxes........................................           621          236         781           222        2,452
Net income (loss).................................................      $(3,815)     $(2,876)    $(1,090)       $ (745)      $ 1,361
                                                                        ========     ========    ========       =======      =======
Income (loss) per common share - basic............................       $ (.97)      $ (.35)     $ (.12)       $ (.06)        $ .10
                                                                         =======      =======     =======       =======        =====


Income (loss) per common share - diluted..........................       $ (.97)      $ (.35)     $ (.12)       $ (.06)        $ .08
                                                                         =======      =======     =======       =======        =====


Weighted average number of common shares outstanding - basic......         4,072        8,431       9,147        12,981       14,196
                                                                           =====        =====       =====        ======       ======


Weighted average number of common shares outstanding - diluted....         4,072        8,431       9,147        12,981       16,147
                                                                           =====        =====       =====        ======       ======
</TABLE>

CONSOLIDATED BALANCE SHEET DATA

                                                              DECEMBER 31,
                                                           2000           2001
                                                           ----           ----
                                                             (IN THOUSANDS)

Working capital....................................        $3,742        $6,276
Non-current assets.................................        15,773        16,280
Total assets.......................................        28,877        32,119
Non-current liabilities............................         1,699         2,132
Redeemable preferred stock.........................             -             -
Stockholders' equity...............................        17,816        20,424


                                       32
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        -----------------------------------------------------------------------
        OF OPERATIONS
        -------------

GENERAL

     We are a specialty pharmaceutical company focused on advanced drug delivery
technologies and pharmaceutical products. A substantial part of our operations
is in Spain, where we manufacture and market generic and branded pharmaceutical
products and from which market we derive the majority of our sales.

     Our primary objective is to be a leading specialty pharmaceutical company
focused on advanced drug delivery and formulation technologies that improve the
effectiveness of existing and new pharmaceuticals. We have patents and
proprietary technologies that enhance or facilitate the absorption of drugs
across membranes of the skin, mouth, nose, vagina and eye. We are developing
products incorporating these technologies and seek to form strategic alliances
with major pharmaceutical and biotechnology companies to facilitate the
development and commercialization of our products. We currently have strategic
alliances with Pfizer and Auxilium and are in preliminary discussions with a
number of other pharmaceutical companies to form additional alliances.

     We have entered into a research services agreement with Auxilium, an
emerging therapeutic pharmaceutical company focused on diseases related to aging
to develop and test various pharmaceutical compositions of a topical
testosterone using our CPE-215 permeation enhancement technology. We have
licensed our drug delivery technology to Auxilium for use in the development and
commercialization of a topical testosterone product. Phase III clinical trials
performed by Auxilium for the approval of this product in the U.S. have been
completed and a New Drug Application has been submitted to the FDA.

     We have entered into a research collaboration with Pfizer in which we were
granted a non-exclusive worldwide royalty-free license to use Pfizer's compounds
and technology to assess the performance of our CPE-215 technology with Pfizer's
compounds. As part of the agreement, we granted to Pfizer the non-exclusive
right to test the ability of our CPE-215 technology to enhance delivery of
certain compounds proprietary to Pfizer.

     We entered into a strategic alliance with Teva in July 2000 whereby we,
through our Spanish subsidiaries, received the right to register and market in
Spain more than 75 of Teva's products. The products are comprised of both
branded and generic forms. Sales from the products are expected to begin
gradually, but will progress over the next two to three years. An investment in
additional sales representatives has been and will continue to be required,
along with an increase in regulatory activities, both of which may create a
short-term decrease in our earnings. Through our subsidiary, Laboratorios Davur
S.L., we also submitted registrations to the Spanish Ministry of Health for
generic versions of various products in response to growing interest in generic
drug products in Spain. We believe that gross margins may be lower on sales of
these products.

     We manufacture generic and branded pharmaceutical products in our Zaragoza,
Spain facility and sell and market these products to physicians and pharmacists
throughout Spain. In addition to manufacturing our own products, we utilize our
excess capacity by acting as a contract manufacturer for other pharmaceutical
companies.

         We have not realized domestic taxable income to date. At December 31,
2001, net operating losses available to offset future domestic taxable income
for federal income tax purposes were approximately


                                       33
<PAGE>

$36,047,000 million. Our U.S. federal net operating loss carryforwards, if not
utilized, expire at various dates from 2007 to 2022. We have recorded a
valuation allowance against our entire future tax benefit arising from our
domestic net operating losses. The future utilization of our net operating loss
carryforwards may be limited pursuant to U.S. tax regulations.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2001 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2000

     Net sales. Net sales increased by 41.9% from $18,617,000 in 2000 to
$26,411,000 in 2001. The $7,794,000 increase was primarily the result of our
continuing efforts in the generic drug market in Spain. We anticipated the
opportunities in the emerging generic drug market in Spain and began taking
measures over three years ago to enter the Spanish generic drug market. We began
to register, market and distribute generic pharmaceutical products in Spain and
began aligning our business model to be competitive in this arena, including
hiring and training a new generic products sales force, submission of generic
products to the Spanish Ministry of Health for approval and a marketing campaign
designed to position ourselves as a leader in the Spanish generic drug market.
Although in Spain we reported an increase in net sales of 50% in local currency
in 2001 compared to the prior year, a three percent decline in the value of the
Spanish Peseta and related Euro negatively impacted revenues by approximately
$579,000. Sales of the product Controlvas(R), which accounted for approximately
$2,208,000 of net sales in 2000, declined to approximately $60,000 in 2001 as a
result of our divestiture of the related drug license during the first quarter
of 2001, which resulted in a pre-tax gain of approximately $4,977,000. Net sales
in 2001 included sales of the product Arzimol(TM) totaling approximately
$600,000, which will not continue in 2002 due to termination of our joint
marketing agreement with Bristol-Myers Squibb for this product.

     Gross Profit. Gross profit increased by 30.8% from $11,428,000 in 2000 to
$14,949,000 in 2001. The $3,521,000 increase was the direct result of the growth
in our net sales from 2000 to 2001. However, our gross margins for 2001
decreased to 57% compared to gross margins of 61% in the prior year, primarily
as a result of the mix of products sold, including the effects of the addition
of our new generic product line and disposition of the Controlvas(R) drug
license, as well as higher depreciation charges resulting from the recent
renovations and improvements at our manufacturing facility. Net sales of
Controlvas(R) products contributed approximately $1,493,000 to gross profit
during 2000; however, the divestiture of the Controlvas(R) drug license during
the first quarter of 2001 reduced the gross profit contribution from sales of
these products to approximately $41,000, in 2001. Approximately 30% of our net
sales during the year ended December 31, 2001 were generic product sales, which
typically have lower sales prices and gross margins than branded products. In
comparison, we sold no generic drug products during the first three quarters of
the prior year. As generic product sales become more significant in the future,
gross margins may continue to decrease. Additionally, the Ministry of Health in
Spain levies on pharmaceutical companies a tax for the purposes of funding
rising healthcare costs in Spain. In 2001, this tax had the effect of reducing
gross profit by $228,000, or one percentage point.

     Selling and Marketing Expenses. Selling and marketing expenses increased by
39.5% from $6,494,000 in 2000 to $9,057,000 in 2001. The $2,563,000 increase in
2001 was the result of our introduction and support of the launches of new
generic drug products. Selling and marketing expenses as a percent of sales,
however, declined slightly to 34.3% in 2001 compared to 34.9% in 2000. The three
percent decline in the value of the Spanish Peseta and related Euro, in relation
to the U.S. Dollar, during the year, had the effect of reducing selling and
marketing expenses by $221,000 in 2001.


                                       34
<PAGE>

     General and Administrative Expenses. General and administrative expenses
increased by 8.5% from $3,766,000 in 2000 to $4,085,000 in 2001. The $319,000
increase in 2001 was the result of increased general and administrative
activities required to support our revenue growth in 2001. General and
administrative expenses as a percent of sales declined to 15.5% of net sales in
2001 compared to 20.2% of net sales in 2000. The three percent decline in the
value of the Spanish Peseta and related Euro, in relation to the U.S. Dollar,
during the period, had the effect of reducing general and administrative
expenses by $58,000 in 2001.

     Research and Development Expenses. Research and development expenses
increased by 89.1% from $1,102,000 in 2000 to $2,084,000 in 2001. The $982,000
increase in 2001 was the result of an increase in our costs associated with
Phase I Clinical Studies (treatment of nail fungal infections), preclinical
programs underway in collaboration with universities and with product
formulation and testing efforts being performed in the laboratory in our U.S.
headquarters and at our facility in Zaragoza, Spain. We are using our U.S.
laboratory to develop potential product applications using our drug delivery
technologies. The expenditures in research and development, which totaled
$732,000 in the fourth quarter, reflect our focus on projects that are necessary
for expansion of our portfolio of marketed products and clinical trials
involving our technologies. We expect that our future expenditures for research
and development activities will continue to increase as a result of programs
that are necessary to advance new applications of our technologies.

     Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased by 57.1% from $580,000 in 2000 to $911,000 in 2001. The
$331,000 increase in 2001 was the result of increased amortization charges
related to our recent acquisition of drug licenses and technologies, including
Codeisan(R), (approximately $289,000) and to a lesser extent, higher
depreciation charges with respect to recent asset additions (approximately
$107,000), partially offset by the effect of fluctuations in foreign currency
exchange rates (approximately $13,000). Depreciation and amortization charges
are expected to be higher than in 2001 as a result of these acquisitions.

     Interest Income. Interest income decreased by 51.6% from $347,000 in 2000
to $168,000 in 2001. The $179,000 decrease was the result of lower short-term
interest bearing investment balances and lower interest rates on the existing
investment balances during 2001 compared to 2000.

     Interest Expense. Interest expense decreased by 44.4% from $439,000 in 2000
to $244,000 in 2001. The $195,000 decrease was the result of the conversion of
all outstanding debentures into shares of our common stock in the second quarter
of 2000. Interest expense incurred during 2001 resulted primarily from the
outstanding balances on lines of credit used for operating purposes and lines of
credit and borrowings used to finance the purchase of the product Codeisan(R)
and capital equipment and improvements in Spain.

     Provision for Income Taxes. We generated additional U.S. federal net
operating loss carryforwards in 2001. However, since we are not assured of
future profitable domestic operations, we have recorded a valuation allowance
for any future benefit of such losses. We recorded a provision for foreign
income taxes totaling $2,452,000 for 2001 as a result of reporting taxable
income in Spain (approximately $607,000) and capital gains tax (approximately
$1,845,000) primarily arising from the sale of Controlvas(R) and Amantadine(R),
compared to the provision for foreign income taxes of $222,000 in the prior year
as a result of taxable income earned in Spain. The provision for foreign income
taxes would have been $159,000


                                       35
<PAGE>

higher than reported, absent the three percent decline in the value of the
Spanish Peseta and related Euro in relation to the U.S. Dollar during the year.

     Net Income. We sold the trademarks, registration rights and dossiers for
our branded pharmaceutical products, Controlvas(R) and Amantadine(R), for
approximately $5,148,000 and $114,000, respectively, during 2001, generating
pre-tax gains of approximately $4,977,000 and $73,000, respectively. Including
the $5,050,000 pre-tax gains on sale of these drug licenses, we reported income
from operations of $3,862,000 for 2001 compared to a loss from operations of
$514,000 in the prior year. Excluding the $5,050,000 pre-tax gain from the sale
of the Controlvas(R) and Amantadine(R) drug licenses, the loss from operations
for the year ended December 31, 2001 totaled $1,188,000. The combination of
income from operations of $3,862,000 and the non-operating items, primarily the
provision for income taxes of $2,452,000, resulted in net income of $1,361,000,
or $.10 per basic common share ($.08 per diluted common share) on 14,196,000
weighted average basic common shares outstanding (16,147,000 weighted average
diluted common shares outstanding) for 2001, compared to a net loss in the prior
year of $745,000, or $.06 per basic and diluted common share on 12,981,000
weighted average common shares outstanding.

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999

     Net sales. Net sales decreased by 8.1% from $20,249,000 in 1999 to
$18,617,000 in 2000. The $1,632,000 decrease was the result of increased generic
drug competition that reduced sales of certain of our branded pharmaceutical
products and a 16% decline in the value of the Spanish Peseta and related Euro
in relation to the U.S. Dollar. The decline in the value of the local currency
negatively impacted net sales by $2,736,000 in 2000, resulting in net sales
generated in Spain of $18,487,000 when expressed in U.S. Dollars. Our Spanish
subsidiaries reported an increase in net sales of 5% in local currency for 2000
compared to the prior year. Also impacting net sales was a decision by the
Spanish Ministry of Health to suspend from commercialization a class of drugs
that included Finedal, a product we previously marketed. Our net sales in 2000
included sales of Finedal totaling approximately $230,000, while net sales in
1999 included Finedal sales of approximately $880,000. We do not anticipate any
future sales of this product nor do we anticipate incurring any future costs
with respect to this product. Net sales in 2000 included $130,000 related to
research and licensing agreements and fees from research and product formulation
activities in the U.S.

     Gross Profit. Gross margins for 2000 increased to 61.4% compared to 58.3%
in the prior year, primarily as a result of the mix of products sold and
manufacturing efficiencies realized at our manufacturing facility during 2000
compared to the prior year. However, foreign currency fluctuations during 2000
had the effect of decreasing net sales and the related gross profit by $376,000,
or 3.2%, from $11,804,000 in 1999 to $11,428,000 in 2000.

     Selling and Marketing Expenses. Selling and marketing expenses increased by
5.3% from $6,166,000 in 1999 to $6,494,000 in 2000. The $328,000 increase in
2000 was the result of selling and marketing efforts to maintain and grow market
share. Selling and marketing expenses, as a percent of net sales, increased to
34.9% in 2000 from 30.5% in 1999. Selling and marketing expenses, as reported in
U.S. Dollars, were approximately $1,012,000 lower than would have been reported
as a result of the 16% decline in the value of the Spanish Peseta and related
Euro in relation to the U.S. Dollar during the period.

     General and Administrative Expenses. General and administrative expenses
decreased by 1.3% from $3,816,000 in 1999 to $3,766,000 in 2000. The $50,000
decrease was the result of a decline in the


                                       36
<PAGE>

value of the Spanish Peseta and related Euro. General and administrative
expenses, as reported in U.S. Dollars, were approximately $274,000 lower than
would have been reported as a result of the 16% decline in the value of the
Spanish Peseta and related Euro in relation to the U.S. Dollar during the
period. General and administrative expenses as a percent of net sales, increased
from 18.8% in 1999 to 20.2% in 2000.

     Research and Development Expenses. Research and development expenses
increased by 60.9% from $685,000 in 1999 to $1,102,000 in 2000. The $417,000
increase was the result of costs associated with conducting clinical trials,
preclinical programs and product formulation and testing efforts.

     Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased by 3.8% from $559,000 in 1999 to $580,000 in 2000. The
$21,000 increase was the result of higher depreciation charges related to
renovations and improvements in our manufacturing facility and our U.S.
laboratory and higher amortization charges for recently acquired drug licenses
and technologies, partially offset by the effect of fluctuations in foreign
currency exchange rates.

     Interest Income. Interest income increased by 42.2% from $244,000 in 1999
to $347,000 in 2000. The $103,000 increase was the result of higher short-term
interest bearing investment balances and higher interest rates earned on the
investment balances during 2000 as compared to 1999.

     Interest Expense. Interest expense decreased by 62.4% from $1,168,000 in
1999 to $439,000 in 2000. The $729,000 decrease was the result of the conversion
into common stock of our 12% Senior Subordinated Debentures in the second
quarter of 2000. Interest expense incurred during the nine months ended December
31, 2000 resulted primarily from the outstanding balances on lines of credit
used for operating purposes and lines of credit and borrowings used to fund the
purchase of the product Codeisan(R), in Spain, during the third and fourth
quarters of 2000. We financed approximately $4,900,000 of the purchase, using
short-term lines of credit and long-term borrowings. We used a portion of the
deposit that we received from the sale of the trademark, registration rights and
dossier for our branded pharmaceutical product, Controlvas(R), to reduce
short-term borrowings during the fourth quarter of 2000.

     Provision for Income Taxes. We generated additional U.S. federal net
operating loss carryforwards in 2000. However, since we are not assured of
future profitable domestic operations, we have recorded a valuation allowance
for any future benefit of such losses. We recorded a current provision for
foreign income taxes totaling $222,000 for 2000 as a result of taxable income
earned in Spain, compared to $781,000 in the same period of the prior year. The
provision for foreign income taxes would have been $31,000 higher than reported,
absent the 16% decline in the value of the Spanish Peseta and related Euro in
relation to the U.S. Dollar during the period.

     Net Income. We reported a loss from operations of $514,000 for 2000
compared to income from operations of $578,000 in the prior year. The impact of
non-operating items, primarily interest income of $347,000, interest expense of
$439,000 and the resulting provision for income taxes of $222,000 resulted in a
net loss of $745,000, or $.06 per basic and diluted common share (12,981,000
weighted average common shares outstanding) for 2000, compared to the net loss
in the prior year, of $1,090,000, or $.12 per basic and diluted common share
(9,147,000 weighted average common shares outstanding).


                                       37
<PAGE>

SELECTED QUARTERLY FINANCIAL DATA

     The following table sets forth certain operating data for our last eight
quarters. We have derived this data from our unaudited quarterly financial
statements.

<TABLE>
<CAPTION>

                                                                   THREE MONTHS ENDED (UNAUDITED)
                                                                   ------------------------------
                                                   FISCAL 2000                                        FISCAL 2001
                                                   -----------                                        -----------
                                     3/31/00     6/30/00     9/30/00      12/31/00     3/31/01     6/30/01      9/30/01     12/31/01
                                     -------     -------     -------      --------     -------     -------      -------     --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>         <C>           <C>         <C>          <C>         <C>          <C>

Net sales.....................        $5,085      $4,594      $3,626        $5,312      $5,814      $6,125       $6,316       $8,156
Gross profit..................         3,127       2,858       2,143         3,300       3,365       3,438        3,608        4,538
Income (loss) from operations.           468       (101)       (476)         (405)       4,612       (468)          120        (402)
Net income (loss).............            41       (182)       (419)         (185)       2,642       (569)        (149)        (563)
Net income (loss) per common
  share:
  Basic.......................            $-      $(.01)      $(.03)        $(.02)        $.19      $(.04)       $(.01)       $(.04)
  Diluted.....................            $-      $(.01)      $(.03)        $(.02)        $.17      $(.04)       $(.01)       $(.04)

</TABLE>

-----------

(1)  Includes pre-tax gain of approximately $4,977,000 related to the sale of
     the Controlvas(R)drug license.

LIQUIDITY AND CAPITAL RESOURCES

     Our total assets increased from $28,877,000 at December 31, 2000 to
$32,119,000 at December 31, 2001, while stockholders' equity increased from
$17,816,000 at December 31, 2000 to $20,424,000 at December 31, 2001. The
increase in stockholders' equity reflects primarily the net income of $1,361,000
in 2001, and net proceeds from the exercise of stock options and warrants
totaling $1,827,000, partially offset by the negative impact of the fluctuation
of the Spanish Peseta and related Euro exchange rate of $842,000 in 2001.

     Our working capital increased from $3,742,000 at December 31, 2000 to
$6,276,000 at December 31, 2001, primarily as a result of collection of the
remainder of the cash due upon the sale of the product Controlvas(R)
(approximately $2,582,000), most of which was used to reduce short-term and
long-term borrowings, the recognition of deferred income of approximately
$2,564,000 related to the sale of Controlvas(R), and net proceeds received from
the exercise of stock options and warrants totaling $1,827,000 during 2001.

     Cash and cash equivalents increased from $4,816,000 at December 31, 2000 to
$5,736,000 at December 31, 2001, as a result of net cash generated by investing
activities of $744,000, which included proceeds received from the sale of the
Controlvas(R) drug license (approximately $2,582,000) partially offset by
additions to fixed assets of approximately $1,595,000 and additions to drug
licenses of approximately $437,000. Cash and cash equivalents also increased as
a result of proceeds from the exercise of stock


                                       38
<PAGE>

options and warrants (approximately $1,827,000), which was partially offset by
net repayments of borrowings (approximately $1,704,000).

     Receivables increased from $5,135,000 at December 31, 2000 to $6,937,000 at
December 31, 2001 as a direct result of sales growth. Receivables increased by
approximately $2,222,000 in local currency, but fluctuations in foreign currency
exchange rates offset the increase by approximately $344,000. We have not
experienced any material delinquencies on our receivables. Inventories increased
from $1,827,000 at December 31, 2000 to $2,563,000 at December 31, 2001
primarily as a result of raw materials purchases in anticipation of demand for
our generic products.

     The combined total of accounts payable and accrued expenses increased from
$3,613,000 at December 31, 2000 to $7,310,000 at December 31, 2001, primarily
due to accruals for social security taxes payable, salaries payable and taxes
payable (approximately $866,000), as well as for inventory purchases
(approximately $1,445,000), additions to fixed assets (approximately $322,000)
and reserves for potential sales returns (approximately $402,000), partially
offset by the effect of fluctuations in foreign currency exchange rates
(approximately $472,000).

     Short-term borrowings and current portion of long-term debt decreased from
$3,185,000 at December 31, 2000 to $1,757,000 at December 31, 2001, as a result
of utilizing proceeds from the sale of the product Controlvas(R) to reduce
balances outstanding, combined with the effect of fluctuations in foreign
currency exchange rates, partially offset by additional borrowings during the
year ended December 31, 2001 to finance capital expenditures at our
manufacturing plant in Spain and working capital needs. The weighted average
interest rate on our short-term borrowings is 5.9%.

     Long-term debt, which totaled $623,000 at December 31, 2000, was reduced to
zero during the year ended December 31, 2001 as a result of using proceeds from
the sale of Controlvas(R) to reduce the outstanding balance and was subsequently
increased to $214,000 as of December 31, 2001 as a result of a
Government-sponsored loan program in Spain, whereby a non-interest bearing loan
has been provided for product development. We have recorded a discount on the
obligation of $72,000 using an imputed interest rate of 6%. The discount will be
amortized to interest expense over the ten-year term of the loan.

     In addition to our short-term borrowings and long-term debt, we have fixed
contractual obligations under various lease agreements. Our contractual
obligations were comprised of the following as of December 31, 2001:

<TABLE>
<CAPTION>

                                                                                      PAYMENTS DUE BY PERIOD
                                                                                      ----------------------
                                                                                  LESS
                                                                                 THAN 1        1-3       4-6     7-10
CONTRACTUAL OBLIGATIONS                                                TOTAL       YEAR      YEARS     YEARS    YEARS
                                                                       -----       ----      -----     -----    -----
                                                                                        (IN THOUSANDS)
<S>                                                                  <C>        <C>        <C>        <C>       <C>

Short-term borrowings...........................................     $ 1,757    $ 1,757    $     -    $    -    $   -
Long-term debt, including imputed interest of $72,000...........         214          -         30        92       92
Operating leases................................................       2,945        736      2,117        92        -
                                                                     -------    -------    -------    ------    -----

Total contractual cash obligations..............................     $ 4,916    $ 2,493    $ 2,147    $  184    $  92
                                                                     =======    =======    =======    ======    =====
</TABLE>


                                       39
<PAGE>

     Operating activities for the year ended December 31, 2001 provided net cash
of $139,000. Investing activities, primarily the proceeds from the sale of drug
licenses ($2,698,000), partially offset by additions to machinery and equipment
and capital improvements to our facilities in Spain and the U.S. ($1,595,000)
and the purchase of drug licenses ($437,000) provided net cash of $744,000
during the year ended December 31, 2001. Financing activities, primarily
proceeds from the exercise of stock options and warrants ($1,827,000), partially
offset by net repayments of borrowings ($1,704,000) provided net cash of
$122,000 during the year ended December 31, 2001.

     Seasonality, Effect of Inflation and Liquidity. In the past, we have
experienced lower sales in the third calendar quarter and higher sales in the
fourth calendar quarter due to seasonality. As we market more pharmaceutical
products whose sales are seasonal, seasonality of sales may become more
significant. Neither inflation nor changing prices has materially impacted our
net sales or income from operations for the periods presented. We expect to have
sufficient liquidity to fund operations for at least the next twelve months. We
continue to explore alternative sources for financing our business activities,
including the possibility of public and/or private offerings of our securities.
In appropriate situations, that will be strategically determined, we may seek
financial assistance from other sources, including contribution by others to
joint ventures and other collaborative or licensing arrangements for the
development, testing, manufacturing and marketing of products under development.

CRITICAL ACCOUNTING POLICIES

     Our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements. However, certain of our accounting
policies are particularly important to the portrayal of our financial position
and results of operations and require the application of significant judgment by
our management; as a result they are subject to an inherent degree of
uncertainty. In applying those policies, our management uses its judgment to
determine the appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on our historical experience, terms of
existing contracts, our observance of trends in the industry, information
provided by our customers and information available from other outside sources,
as appropriate. Our significant accounting policies include:

o    Inventories. Inventories are stated at the lower of cost or market, cost
     being determined on the first-in, first-out method. Reserves for slow
     moving and obsolete inventories are provided based on historical experience
     and current product demand. We evaluate the adequacy of these reserves
     quarterly.

o    Revenue recognition and accounts receivable. Revenue on product sales is
     recognized when persuasive evidence of an arrangement exists, the price is
     fixed and final, delivery has occurred and there is a reasonable assurance
     of collection of the sales proceeds. We generally obtain oral or written
     purchase authorizations from our customers for a specified amount of
     product at a specified price and consider delivery to have occurred at the
     time of shipment. We provide our customers with a limited right of return.
     Revenue is recognized at shipment and a reserve for sales returns is
     recorded. We have demonstrated the ability to make reasonable and reliable
     estimates of product returns in accordance with SFAS No. 48 and of
     allowances for doubtful accounts based on significant historical
     experience. Revenue from service sales is recognized when the service
     procedures have been completed or applicable milestones have been achieved.
     Revenue from research and development contracts is recognized over
     applicable contractual


                                       40
<PAGE>

     periods or as defined milestones are attained, as specified by each
     contract and as costs related to the contracts are incurred.

o    Foreign currency translation. The financial position and results of
     operations of our foreign subsidiaries are measured using local currency as
     the functional currency. Assets and liabilities of each foreign subsidiary
     are translated at the rate of exchange in effect at the end of the period.
     Revenues and expenses are translated at the average exchange rate for the
     period. Foreign currency translation gains and losses not impacting cash
     flows are credited to or charged against other comprehensive income (loss).
     Foreign currency translation gains and losses arising from cash
     transactions are credited to or charged against current earnings.

o    Drug licenses and related costs. Drug licenses and related costs incurred
     in connection with acquiring licenses, patents and other proprietary rights
     related to our commercially developed products are capitalized. Capitalized
     drug licenses and related costs are being amortized on a straight-line
     basis over fifteen years from the dates of acquisition. Carrying values of
     such assets are reviewed quarterly and are adjusted for any diminution in
     value.

NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The new standard,
which was adopted on January 1, 2001, requires that all companies record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
are accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The adoption of this standard on January 1, 2001
had no impact on our financial position or results of operations.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 supersedes APB No. 16, Business Combinations, and SFAS No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises and
requires that all business combinations be accounted for by a single method -
the purchase method. SFAS No. 141 also provides guidance on the recognition of
intangible assets identified in a business combination and requires enhanced
financial statement disclosures. SFAS No. 142 adopts a more aggregate view of
goodwill and bases the accounting for goodwill on the units of the combined
entity into which an acquired entity is integrated. In addition, SFAS No. 142
concludes that goodwill and intangible assets that have indefinite useful lives
will not be amortized but rather will be tested at least annually for
impairment. Intangible assets that have finite lives will continue to be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. The adoption of SFAS No. 142 is
required for fiscal years beginning after December 15, 2001 (the year 2002 for
us), except for the nonamortization and amortization provisions which are
required for goodwill and intangible assets acquired after June 30, 2001. We
believe that the adoption of SFAS No. 141 and SFAS No. 142 will not have a
material impact on our financial position or results of operations.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supersedes previous guidelines for financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to be
disposed of. We believe that the adoption of SFAS No. 144 will not have a
material impact on our financial position or results of operations.


                                       41
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Foreign Currency. A substantial amount of our business is conducted in
Europe and is therefore influenced to the extent to which there are fluctuations
in the U.S. Dollar's value against other currencies, specifically the Euro and
the Spanish Peseta. On January 1, 1999, the Euro became the official currency of
European Union (EU) member states with a fixed conversion rate against their
national currencies. The value of the Euro against the U.S. Dollar and all other
currencies, including the EU member states that are not participating in the
Euro zone, will fluctuate according to market conditions. The permanent value of
one Euro in Spain was fixed at 166.386 Spanish Pesetas. The exchange rate at
December 31, 2001 and 2000 was 186.93 Spanish Pesetas (1.12 Euros) and 178.02
Spanish Pesetas (1.07 Euros) per U.S. Dollar, respectively. The weighted average
exchange rate for the years ended December 31, 2001 and 2000 was 185.93 Spanish
Pesetas (1.12 Euros) and 180.66 Spanish Pesetas (1.09 Euros) per U.S. Dollar,
respectively. The effect of foreign currency fluctuations on long lived assets
for the year ended December 31, 2001 was a decrease of $842,000 and the
cumulative historical effect was a decrease of $3,470,000, as reflected in our
Consolidated Balance Sheets as accumulated other comprehensive loss. Although
exchange rates fluctuated significantly in recent years, including, the
weakening of the Euro in relation to the U.S. Dollar in 1999, 2000 and the first
six months of 2001, we do not believe that the effect of foreign currency
fluctuation is material to our results of operations as the expenses related to
much of our foreign currency revenues are in the same currency as such revenues.
However, the carrying value of assets and reported values can be materially
impacted by foreign currency translation, as can the translated amounts of net
sales and expenses.

     We have relied primarily upon financing activities to fund our operations
in the U.S. In the event that we are required to fund U.S. operations or cash
needs with funds generated in Spain, currency rate fluctuations in the future
could have a significant impact on us. However, at the present time, we do not
anticipate altering our business plans and practices to compensate for future
currency fluctuations.

     Interest Rates. The weighted average interest rate on our short-term
borrowings is 5.9% and the balance outstanding is $1,757,000 as of December 31,
2001. Our long-term borrowings are non-interest bearing and the balance
outstanding at December 31, 2001 is $214,000 including imputed interest (at
6.0%) of $72,000. The effect of an increase in the interest rate of one hundred
basis points (to 6.9% on short-term borrowings and to 7.0% on long-term
borrowings) would have the effect of increasing interest expense by
approximately $20,000 annually.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14 of this Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

     Not applicable.


                                       42
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>

NAME                             AGE      POSITION

<S>                              <C>      <C>
James R. Murphy                  52       Chairman, President, Chief Executive Officer and Director

Michael McGovern                 58       Vice Chairman and Director

Robert M. Stote, M.D.            62       Senior Vice President, Chief Science Officer and Director

Michael D. Price                 44       Vice President, Chief Financial Officer, Treasurer, Secretary and Director

Robert J. Gyurik                 55       Vice President of Pharmaceutical  Development and  Director

Jordan A. Horvath                40       Vice President and General Counsel

Charles L. Bolling               78       Director

Miguel Fernandez                 71       Director

William A. Packer                67       Director

</TABLE>

     JAMES R. MURPHY has served as one of our directors since 1993. Mr. Murphy
became President of Bentley in September 1994, was named Chief Executive Officer
effective January 1995 and became Chairman of the Board in June 1995. Prior to
rejoining Bentley, Mr. Murphy served as Vice President of Business Development
at MacroChem Corporation, a publicly owned pharmaceutical and drug delivery
company, from March 1993 through September 1994. From September 1992 until March
1993, Mr. Murphy served as a consultant in the pharmaceutical industry with his
primary efforts directed toward product licensing. Prior thereto, Mr. Murphy
served as Director - Worldwide Business Development and Strategic Planning of
Bentley from December 1991 to September 1992. Mr. Murphy previously spent 14
years in pharmaceutical research and product development with SmithKline
Corporation and in international business development with contract research and
consulting laboratories. Mr. Murphy received a B.A. in Biology from Millersville
University.

     MICHAEL MCGOVERN has served as one of our directors since 1997 and was
named Vice Chairman of Bentley in October 1999. Mr. McGovern serves as President
of McGovern Enterprises, a provider of corporate and financial consulting
services, which he founded in 1975. Mr. McGovern is Chairman of the Board of
Specialty Surgicenters, Inc. and Training Solutions Interactive, Inc.; is Vice
Chairman of the Board of Employment Technologies, Inc. and is a Director on the
corporate board of the Reynolds Development Company. Mr. McGovern received a
B.S. and M.S. in accounting and his Juris Doctor from the University of
Illinois.

     ROBERT M. STOTE, M.D. became Senior Vice President and Chief Science
Officer of Bentley in March 1992 and has served as one of our directors since
1993. Prior to joining Bentley, Dr. Stote was


                                       43
<PAGE>

employed for 20 years by SmithKline Beecham Corporation serving in a variety of
executive clinical research positions. Dr. Stote was Chief of Nephrology at
Presbyterian Medical Center of Philadelphia from 1972 to 1989 and was Clinical
Professor of Medicine at the University of Pennsylvania. Dr. Stote also serves
as a Director of Datatrak International, Inc. and of Auxilium. Dr. Stote
received a B.S. in Pharmacy from the Albany College of Pharmacy, an M.D. from
Albany Medical College and is Board Certified in Internal Medicine and
Nephrology. He was a Fellow in Nephrology and Internal Medicine at the Mayo
Clinic and is currently a Fellow of the American College of Physicians.

     MICHAEL D. PRICE became Chief Financial Officer, Vice President/Treasurer
and Secretary of Bentley in October 1993, April 1993 and November 1992,
respectively, and has served as one of our directors since 1995. He has served
Bentley in other capacities since March 1992. Prior to joining Bentley, he was
employed as a financial and management consultant with Carr Financial Group from
March 1990 to March 1992. Prior thereto, he was employed as Vice President of
Finance with Premiere Group, Inc. from June 1988 to February 1990. Prior
thereto, Mr. Price was employed by Price Waterhouse from January 1982 to June
1988 where his last position with that firm was as an Audit Manager. Mr. Price
received a B.S. in Business Administration with a concentration in Accounting
from Auburn University and an M.B.A. from Florida State University. Mr. Price is
a Certified Public Accountant licensed by the State of Florida.

     ROBERT J. GYURIK has served as one of our directors since 1998 and became
Vice President of Pharmaceutical Development of Bentley in March 1999. Mr.
Gyurik was Manager of Development and Quality Control at MacroChem Corporation,
a position he held from May 1993 to February 1999. From 1971 to 1993 Mr. Gyurik
worked in various research and development positions at SmithKline Beecham.
Prior thereto, Mr. Gyurik worked at Schering as a Medicinal Chemist. Mr. Gyurik
received a B.A. in Biology and Chemistry from Immaculata College. Mr. Gyurik is
a member of the American Chemical Society, International Society for
Chronobiology and the New York Academy of Sciences.

     JORDAN A. HORVATH became Vice President and General Counsel of Bentley in
August 2000. Prior to joining Bentley, he was a partner at Parker Chapin LLP,
the Company's legal counsel in New York City (which has since merged to become
Jenkens & Gilchrist Parker Chapin LLP), since 1996. He was an associate of that
firm from 1991 to 1995. Mr. Horvath received an A.B. from Princeton University
and a J.D. from the University of California, Berkeley.

     CHARLES L. BOLLING has served as one of our directors since 1991. Mr.
Bolling served from 1968 to 1973 as Vice President of Product Management and
Promotion (U.S.), from 1973 to 1977 as Vice President of Commercial Development
and from 1977 to 1986 as Director of Business Development (International) at
SmithKline & French Laboratories. Mr. Bolling has been retired since 1986.

     MIGUEL FERNANDEZ has served as one of our directors since 1999. Mr.
Fernandez served from 1980 to 1996 as President of the International Division
and corporate Vice President at Carter-Wallace, Inc., where he was responsible
for all product lines outside of the United States. Prior thereto, Mr. Fernandez
was employed for approximately eight years by SmithKline Beecham, where his last
position was Vice President for Latin America. Before SmithKline Beecham, Mr.
Fernandez served as Managing Director of Warner Lambert in Argentina for two
years. From 1962 to 1970, Mr. Fernandez was employed by Merck/Frost in Canada.
Mr. Fernandez attended the University of British Columbia in Canada and received
an M.B.A. from the Ivey School of Business at the University of Western Ontario
in London, Ontario, Canada. Mr. Fernandez has been retired since 1996.


                                       44
<PAGE>

     WILLIAM A. PACKER has served as one of our directors since 1999. Mr. Packer
has been a business and industry consultant to a number of biopharmaceutical
companies since 1998. From 1992 until 1998, Mr. Packer was President and Chief
Financial Officer of Virus Research Institute, Inc., a publicly owned
biotechnology company. Prior to this, Mr. Packer was employed by SmithKline
Beecham Plc, where he held various senior management positions, the most recent
as Senior Vice President, Biologicals, in which position he was responsible for
the direction of SmithKline's global vaccine business. Mr. Packer is a Chartered
Accountant.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and any persons who own more than 10% of
any class of our equity securities, to file certain reports relating to their
ownership of such securities and changes in such ownership with the Securities
and Exchange Commission and the American Stock Exchange and to furnish us with
copies of such reports. To the best of our knowledge during the year ended
December 31, 2001, all Section 16(a) filing requirements have been satisfied.

ITEM 11. EXECUTIVE COMPENSATION

     The information called for by this item is incorporated by reference to our
definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by this item is incorporated by reference to our
definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called for by this item is incorporated by reference to our
definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.


                                       45
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                           Page

(a)   The following documents are filed as a part of the initial filing
      of this report:

      (1)  Financial Statements:

      Index to Consolidated Financial Statements                             F-1

      Independent Auditors' Report                                           F-2

      Consolidated Balance Sheets as of December 31, 2001 and 2000           F-3

      Consolidated Statements of Operations and of Comprehensive
      Income (Loss) for the years ended December 31, 2001, 2000
      and 1999                                                               F-4

      Consolidated Statements of Changes in Stockholders' Equity
      for the years ended December 31, 2001, 2000 and 1999                   F-5

      Consolidated Statements of Cash Flows for the years ended
      December 31, 2001, 2000 and 1999                                F-6 to F-7

      Notes to Consolidated Financial Statements                     F-8 to F-28


                                       46
<PAGE>

                                  EXHIBIT INDEX

(3)      Exhibits filed as part of this report:

Exhibit
Number       Description
------       -----------

3.1          Articles of Incorporation of the Registrant, as amended and
             restated. (Reference is made to Appendix B to the Registrant's
             Definitive Proxy Statement for Annual Meeting of Stockholders filed
             with the Securities and Exchange Commission on May 18, 1999, which
             exhibit is incorporated herein by reference.)

3.2          Bylaws of the Registrant, as amended and restated. (Reference is
             made to Appendix C to the Registrant's Definitive Proxy Statement
             for Annual Meeting of Stockholders filed with the Securities and
             Exchange Commission on May 18, 1999, which exhibit is incorporated
             herein by reference.)

3.3          Rights Agreement, dated as of December 22, 1999, between the
             Registrant and American Stock Transfer and Trust Company, as Rights
             Agent, including the form of Rights Certificate as Exhibit B
             thereto. (Reference is made to Exhibit 4.1 to the Registrant's Form
             8-K, filed December 27, 1999 (date of earliest event reported
             December 22, 1999), Commission File No. 1-10581, which exhibit is
             incorporated herein by reference.)

4.1          Registrant's Amended and Restated 1991 Stock Option Plan.
             (Reference is made to Appendix D to the Registrant's Definitive
             Proxy Statement for Annual Meeting of Stockholders filed with the
             Securities and Exchange Commission on May 18, 1999, which exhibit
             is incorporated herein by reference.)

4.2          Form of Non-qualified Stock Option Agreement under the Registrant's
             1991 Stock Option Plan. (Reference is made to Exhibit 4.25 to the
             Registrant's Form 10-K dated June 30, 1992, Commission File No.
             1-10581, which exhibit is incorporated herein by reference.)

4.3          Form of Warrant Agreement, including form of Class A and Class B
             Warrant. (Reference is made to Exhibit 4.29 to the Registrant's
             Registration Statement on Form S-1, Commission File No. 33-65125,
             which exhibit is incorporated herein by reference.)

4.4          Form of Underwriter Warrant. (Reference is made to Exhibit 4.30 to
             the Registrant's Registration Statement on Form S-1, Commission
             File No. 33-65125, which exhibit is incorporated herein by
             reference.)

4.5          Warrant issued by the Registrant for the benefit of Hsu, dated
             February 11, 1999. (Reference is made to exhibit 7.4 to the
             Registrant's Form 8-K filed


                                       47
<PAGE>

Exhibit
Number       Description
------       -----------

             February 26, 1999, Commission File No. 1-10581, which exhibit is
             incorporated herein by reference.)

4.6          Registrant's 2001 Employee Stock Option Plan. (Reference is made to
             Appendix B to the Registrant's Definitive Proxy Statement for he
             Annual Meeting of Stockholders filed with the SEC on April 9, 2001,
             which exhibit is incorporated herein by reference.)

4.7          Registrant's 2001 Directors' Stock Option Plan. (Reference is made
             to Appendix C to the Registrant's Definitive Proxy Statement for he
             Annual Meeting of Stockholders filed with the SEC on April 9, 2001,
             which exhibit is incorporated herein by reference.)

4.8*         Form of Stock Option contract under the Registrant's 2001 Employee
             Stock Option Plan.

4.9*         Form of Stock Option contract under the Registrant's 2001
             Directors' Stock Option Plan.

10.1**       Employment Agreement dated as of January 1, 2002 between the
             Registrant and James R. Murphy.

10.2         Employment Agreement dated as of August 31, 1998 between the
             Registrant and Robert M. Stote, M.D. (Reference is made to Exhibit
             10.2 to the Registrant's Form 10-K dated December 31, 1998,
             commission file no. 1-10581, which exhibit is incorporated herein
             by reference.)

10.3**       Employment Agreement dated as of January 1, 2002 between the
             Registrant and Michael D. Price.

10.4**       Employment Agreement dated as of January 1, 2002 between the
             Registrant and Robert J. Gyurik.

10.5         Employment Agreement dated as of August 14, 2000 between the
             Registrant and Jordan A. Horvath. (Reference is made to Exhibit
             10.1 to the Registrant's Form 10-Q dated September 30, 2000,
             Commission File No. 1-10581, which exhibit is incorporated herein
             by reference.)

10.6         Agreement between the Registrant and Hsu dated February 1, 1999,
             effective as of December 31, 1998. (Reference is made to Exhibit
             7.1 to the Registrant's Form 8-K filed February 26, 1999,
             Commission File No. 1-10581, which exhibit is incorporated herein
             by reference.)

10.7         Agreement between the Registrant and Fabrica De Productos Quimicos
             Y Farmaceuticos Abello, S.A. relating to the Registrant's
             acquisition of the Codeisan Health Registration in Spain, along
             with the related trademark, inventory and production equipment.
             (Reference is made to Exhibit 10.2 to


                                       48
<PAGE>

Exhibit
Number       Description
------       -----------

             the Registrant's Form 10-Q dated September 30, 2000, Commission
             File No. 1-10581, which exhibit is incorporated herein by
             reference.)

10.8         Purchase and Sale Agreement between Laboratorios Belmac, S.A. and
             Shire Pharmaceuticals Iberica, S.L. dated November 21, 2000
             relating to the sale of the registration rights and dossier of the
             product Controlvas (in summary translation from Spanish) (Reference
             is made to Exhibit 2.1 to Amendment No. 2 to the Registrant's Form
             8-K/A filed May 7, 2001, Commission File No. 1-10581, which exhibit
             is incorporated herein by reference.)

10.9         Purchase and Sale Agreement between Laboratorios Belmac, S.A. and
             Shire Pharmaceuticals Iberica, S.L. dated November 21, 2000
             relating to the sale of the trademark to the product Controlvas (in
             summary translation from Spanish). (Reference is made to Exhibit
             2.2 to Amendment No. 2 to the Registrant's Form 8-K/A filed May 7,
             2001, Commission File No. 1-10581, which exhibit is incorporated
             herein by reference.)

10.10(a)***  License Agreement between the Registrant and Auxilium A2, Inc.
             dated May 31, 2000. (1)

10.10(b)***  Amendment No. 1, dated October 2000, to License Agreement between
             the Registrant and Auxilium A2, Inc.

10.10(c)***  Amendment No. 2, dated May 31, 2001, to License Agreement between
             the Registrant and Auxilium A2, Inc. (1)

10.11**      Agreement between the Registrant and Pfizer Inc dated October 25,
             2001.

10.12(a)***  License Agreement between Laboratorios Belmac, S.A., Laboratorios
             Davur, S.A. and Teva Pharmaceutical Industries Ltd. dated July 18,
             2000. (1)

10.12(b)***  Supply Agreement between Laboratorios Belmac, S.A., Laboratorios
             Davur, S.A. and Teva Pharmaceuticals Industries Ltd. dated July 18,
             2000. (1)

10.12(c)***  Rights Agreement betweenLaboratorios Belmac, S.A. and Teva
             Pharmaceuticals Industries Ltd. dated July 18, 2000.

21.1*        Subsidiaries of the Registrant.

23.1***      Consent of Deloitte & Touche LLP.

(b)          Reports on Form 8-K filed during the fiscal quarter ended December
             31, 2001:

             None.

---------------

*            Previously filed with initial filing of this Form 10-K.
**           Previously filed with Amendment No. 1 to this Form 10-K.
***          Filed herewith.

(1)          Confidential treatment has been requested with respect to certain
             portions of this exhibit.


                                       49
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                   BENTLEY PHARMACEUTICALS, INC.


                                   By:      /s/ MICHAEL D. PRICE
                                            ------------------------------------
                                            Michael D. Price
                                            Vice President and Chief Financial
                                            Officer
                                            Date:  April 11, 2002


                                       50
<PAGE>

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

                                                                PAGE
                                                              --------

Independent Auditors' Report................................    F-2

Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................    F-3

Consolidated Statements of Operations and of Comprehensive
  Income (Loss) for the years ended December 31, 2001, 2000
  and 1999..................................................    F-4

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2001, 2000 and 1999......    F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................    F-6

Notes to Consolidated Financial Statements..................    F-8


                                      F-1
<Page>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Bentley Pharmaceuticals, Inc.
North Hampton, New Hampshire

We have audited the accompanying consolidated balance sheets of Bentley
Pharmaceuticals, Inc. and subsidiaries (the "Company") as of December 31, 2001
and 2000, and the related consolidated statements of operations and of
comprehensive income (loss), changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.



/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Boston, Massachusetts
February 8, 2002


                                      F-2

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                                                                 DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                               (IN THOUSANDS)

                                     ASSETS
Current assets:
  Cash and cash equivalents................................  $ 5,736    $ 4,816
  Receivables, net.........................................    6,937      5,135
  Inventories, net.........................................    2,563      1,827
  Deferred foreign taxes...................................      141        851
  Prepaid expenses and other...............................      462        475
                                                             -------    -------
    Total current assets...................................   15,839     13,104
                                                             -------    -------
Non-current assets:
  Fixed assets, net........................................    5,595      4,139
  Drug licenses and related costs, net.....................   10,276     10,979
  Other....................................................      409        655
                                                             -------    -------
    Total non-current assets...............................   16,280     15,773
                                                             -------    -------
                                                             $32,119    $28,877
                                                             =======    =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.........................................  $ 4,820    $ 2,645
  Accrued expenses.........................................    2,490        968
  Short-term borrowings....................................    1,757      2,447
  Current portion of long-term debt........................       --        738
  Deferred income..........................................      496      2,564
                                                             -------    -------
    Total current liabilities..............................    9,563      9,362
                                                             -------    -------
Non-current liabilities:
  Foreign taxes payable....................................    1,827        908
  Long-term debt...........................................      142        623
  Other....................................................      163        168
                                                             -------    -------
    Total non-current liabilities..........................    2,132      1,699
                                                             -------    -------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, $1.00 par value, authorized 2,000
    shares, issued and outstanding, none...................       --         --
  Common stock, $.02 par value, authorized 35,000 shares,
    issued and outstanding, 14,585 and 13,914 shares.......      292        278
  Stock purchase warrants (to purchase 3,424 and 4,038
    shares of common stock)................................      433        632
  Additional paid-in capital...............................   97,501     95,227
  Accumulated deficit......................................  (74,332)   (75,693)
  Accumulated other comprehensive loss.....................   (3,470)    (2,628)
                                                             -------    -------
    Total stockholders' equity.............................   20,424     17,816
                                                             -------    -------
                                                             $32,119    $28,877
                                                             =======    =======


          The accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.


                                      F-3

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                       AND OF COMPREHENSIVE INCOME (LOSS)

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                                              --------------------------------------
                                                                2001           2000           1999
                                                              --------       --------       --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>            <C>            <C>
Net sales...................................................  $26,411        $18,617        $20,249
Cost of sales...............................................   11,462          7,189          8,445
                                                              -------        -------        -------
Gross profit................................................   14,949         11,428         11,804
                                                              -------        -------        -------
Operating expenses:
  Selling and marketing.....................................    9,057          6,494          6,166
  General and administrative................................    4,085          3,766          3,816
  Research and development..................................    2,084          1,102            685
  Depreciation and amortization.............................      911            580            559
                                                              -------        -------        -------
    Total operating expenses................................   16,137         11,942         11,226
                                                              -------        -------        -------
Gain on sale of drug licenses...............................    5,050             --             --
                                                              -------        -------        -------
Income (loss) from operations...............................    3,862           (514)           578
                                                              -------        -------        -------
Other income (expenses):
  Interest income...........................................      168            347            244
  Interest expense..........................................     (244)          (439)        (1,168)
  Other.....................................................       27             83             37
                                                              -------        -------        -------
Income (loss) before income taxes...........................    3,813           (523)          (309)
Provision for foreign income taxes..........................    2,452            222            781
                                                              -------        -------        -------
Net income (loss)...........................................  $ 1,361        $  (745)       $(1,090)
                                                              =======        =======        =======
Net income (loss) per common share:
  Basic.....................................................  $   .10        $  (.06)       $  (.12)
                                                              =======        =======        =======
  Diluted...................................................  $   .08        $  (.06)       $  (.12)
                                                              =======        =======        =======
Weighted average common shares outstanding:
  Basic.....................................................   14,196         12,981          9,147
                                                              =======        =======        =======
  Diluted...................................................   16,147         12,981          9,147
                                                              =======        =======        =======

Net income (loss)...........................................  $ 1,361        $  (745)       $(1,090)

Other comprehensive income (loss):
  Foreign currency translation losses, net..................     (842)          (289)          (737)
                                                              -------        -------        -------
  Comprehensive income (loss)...............................  $   519        $(1,034)       $(1,827)
                                                              =======        =======        =======
</Table>

          The accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.


                                      F-4

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                    $.02 PAR VALUE                                             ACCUMULATED
                                     COMMON STOCK        STOCK     ADDITIONAL                     OTHER
                                  -------------------   PURCHASE    PAID-IN     ACCUMULATED   COMPREHENSIVE
                                   SHARES     AMOUNT    WARRANTS    CAPITAL       DEFICIT         LOSS         TOTAL
                                  --------   --------   --------   ----------   -----------   -------------   --------
                                                                        (IN THOUSANDS)
<S>                                <C>         <C>        <C>        <C>          <C>            <C>          <C>
BALANCE AT DECEMBER 31, 1998....    8,443      $168       $556       $83,728      $(73,858)      $(1,602)     $ 8,992
Exercise of Class A Redeemable
  Warrants......................      859        18        (39)        2,584            --            --        2,563
Exercise of other stock
  warrants......................       50         1        (42)          116            --            --           75
Conversion of Debentures........       77         1         --           132            --            --          133
Issuance of warrants to acquire
  technology....................       --        --        375            --            --            --          375
Common stock issued to acquire
  technology....................      585        12         --           838            --            --          850
Common stock issued as
  compensation..................      150         3         --           222            --            --          225
Common stock issued to
  consultants...................       66         1         --           187            --            --          188
Expiration of unexercised
  warrants......................       --        --        (51)           51            --            --           --
Foreign currency translation
  adjustment....................       --        --         --            --            --          (737)        (737)
Net loss........................       --        --         --            --        (1,090)           --       (1,090)
                                   ------      ----       ----       -------      --------       -------      -------
BALANCE AT DECEMBER 31, 1999....   10,230       204        799        87,858       (74,948)       (2,339)      11,574
Exercise of Class B Redeemable
  Warrants......................       99         1         (2)          493            --            --          492
Conversion of Debentures........    2,901        58         --         4,682            --            --        4,740
Exercise of stock
  options/warrants..............      684        15       (414)        2,197            --            --        1,798
Exercise of underwriter's
  warrants......................       --        --        249            (3)           --            --          246
Foreign currency translation
  adjustment....................       --        --         --            --            --          (289)        (289)
Net loss........................       --        --         --            --          (745)           --         (745)
                                   ------      ----       ----       -------      --------       -------      -------
BALANCE AT DECEMBER 31, 2000....   13,914       278        632        95,227       (75,693)       (2,628)      17,816
Exercise of stock
  options/warrants..............      171         4         --           443            --            --          447
Exercise of underwriter's Class
  A Warrants....................      460         9       (199)        1,570            --            --        1,380
Equity based compensation.......       40         1         --           261            --            --          262
Foreign currency translation
  adjustment....................       --        --         --            --            --          (842)        (842)
Net income......................       --        --         --            --         1,361            --        1,361
                                   ------      ----       ----       -------      --------       -------      -------
BALANCE AT DECEMBER 31, 2001....   14,585      $292       $433       $97,501      $(74,332)      $(3,470)     $20,424
                                   ======      ====       ====       =======      ========       =======      =======
</Table>

          The accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.


                                      F-5

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               FOR THE YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2001        2000        1999
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $  1,361    $   (745)    $(1,090)
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities
     Gain on sale of drug licenses..........................    (5,050)         --          --
     Depreciation and amortization..........................       911         580         559
     Equity-based compensation expense......................       262          69         225
     Other non-cash items...................................       136         262         904
  (Increase) decrease in assets and increase (decrease)
     in liabilities
     Receivables............................................    (2,060)     (1,385)     (1,495)
     Inventories............................................      (864)     (1,003)         85
     Deferred taxes.........................................     1,629          --          --
     Prepaid expenses and other current assets..............       100        (205)        504
     Other assets...........................................       (11)        (97)        109
     Accounts payable and accrued expenses..................     3,306        (171)        163
     Deferred income........................................       496          --          --
     Other liabilities......................................       (77)         (5)        (27)
                                                              --------    --------     -------
        Net cash provided by (used in)
          operating activities..............................       139      (2,700)        (63)
                                                              --------    --------     -------
Cash flows from investing activities:
   Proceeds from sale of drug licenses......................     2,698       2,564          --
   Additions to fixed assets................................    (1,595)     (1,014)       (969)
   Additions to drug licenses and related costs.............      (437)     (5,560)     (1,775)
   Proceeds from sale of investments........................    31,645      17,193          --
   Purchase of investments..................................   (31,567)    (15,171)     (1,893)
   Deferred compensation....................................        --        (440)         --
                                                              --------    --------     -------
        Net cash provided by (used in) investing
          activities........................................       744      (2,428)     (4,637)
                                                              --------    --------     -------
Cash flows from financing activities:
   Proceeds from exercise of stock options/warrants.........     1,827       2,843       2,639
   Proceeds from borrowings.................................     2,515       5,009       1,418
   Repayments of borrowings.................................    (4,219)     (2,279)     (1,533)
   Payments on capital leases...............................        (1)         (5)         (5)
                                                              --------    --------     -------
        Net cash provided by financing activities...........       122       5,568       2,519
                                                              --------    --------     -------
Effect of exchange rate changes on cash.....................       (85)        (46)       (100)
                                                              --------    --------     -------
Net increase (decrease) in cash and cash equivalents........       920         394      (2,281)
Cash and cash equivalents at beginning of year..............     4,816       4,422       6,703
                                                              --------    --------     -------
Cash and cash equivalents at end of year....................  $  5,736    $  4,816     $ 4,422
                                                              ========    ========     =======

                                                                  (CONTINUED ON FOLLOWING PAGE)
</Table>


                                      F-6

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<Table>
<Caption>
                                                               FOR THE YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2001        2000        1999
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid cash during the year for:
  Interest..................................................  $    247    $    486     $ 1,003
                                                              ========    ========     =======
  Taxes.....................................................  $    317    $    897     $   980
                                                              ========    ========     =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING
  ACTIVITIES
The Company has issued or is obligated to issue Common Stock
  in exchange for services and the purchase of drug delivery
  technology as follows:
  Shares....................................................        40           8         801
                                                              ========    ========     =======
  Amount....................................................  $    233    $     69     $ 1,263
                                                              ========    ========     =======
Deferred income.............................................  $     41    $     --     $    --
                                                              ========    ========     =======
Fixed asset and drug license purchases included in accounts
  payable...................................................  $    514    $    225     $   261
                                                              ========    ========     =======
</Table>

    During the year ended December 31, 2000, 7,254 of the Company's 12%
Convertible Debentures with principal amount of $7,254,000, net of discount of
$1,585,000 (and applicable unamortized debt issuance costs totaling $929,000)
were converted into approximately 2,901,000 shares of Common Stock.

    During the year ended December 31, 1999, the Company issued Warrants to
purchase 450,000 shares of Common Stock as partial consideration for the
purchase of drug delivery technology, of which 50,000 were exercised during the
year ended December 31, 1999. During the year ended December 31, 1999, 193 of
the Company's 12% Convertible Debentures were converted into 77,200 shares of
Common Stock. The Company recorded the assignment of patents and technology with
an estimated value of $553,000 during the year ended December 31, 1999.

  The accompanying Notes to Consolidated Financial Statements are an integral
                      part of these financial statements.


                                      F-7
<Page>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--HISTORY AND OPERATIONS

    Bentley Pharmaceuticals, Inc. and its Subsidiaries (the "Company") is a
specialty pharmaceutical company focused on advanced drug delivery technologies
and pharmaceutical products. The Company owns U.S. and international patent and
other proprietary rights to technologies that enhance or facilitate the
absorption of drugs across biological membranes. The Company is developing
products incorporating these technologies and seeks to form strategic alliances
with major pharmaceutical and biotechnology companies to facilitate the
development and commercialization of its products. The Company currently has
strategic alliances regarding its drug delivery technologies with Pfizer Inc and
Auxilium A(2), Inc. and is in preliminary discussions with a number of large
pharmaceutical companies to form additional alliances. The Company is
incorporated in the State of Delaware.

    The Company also has a commercial presence in Spain, where it manufactures
and markets branded and generic pharmaceutical products within four therapeutic
areas: cardiovascular, gastrointestinal, infectious and neurological diseases.

    The Company anticipated the opportunities that the emerging generic drug
market in Spain present and began taking measures over three years ago to enter
the Spanish generic drug market. The Company created a wholly-owned subsidiary
to register, market and distribute generic pharmaceutical products in Spain and
began aligning its business model to be competitive in this arena, including
hiring and training a new generic sales force, submission of generic-equivalent
products to the Spanish Ministry of Health for approval and a marketing campaign
designed to position the Company as a leader in the Spanish generic drug market.
In July 2000, the Company entered into a strategic alliance with Teva
Pharmaceutical Industries, Ltd. ("Teva"), whereby the Company has received the
right to register and market in Spain more than 75 of Teva's products. Teva also
entered into a supply agreement with the Company pursuant to which Teva will
manufacture the products and supply them to us for marketing and sale in Spain.
Teva was also granted a right of first refusal to acquire Laboratorios Davur in
the event that the Company decides to sell that subsidiary or its direct parent,
Laboratorios Belmac. The Company also granted Teva the right to bid for
Laboratorios Belmac in the event the Company intends to sell that subsidiary.

    Given the Company's current liquidity and cash balances and expectations
with respect to the execution of its business model, management believes that it
has sufficient resources to fund operations for the year 2002 and into the year
2003. However, there can be no assurance that changes in the Company's research
and development plans or other events affecting the Company's revenues or
operating expenses will not result in the earlier depletion of the Company's
funds.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION

    The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: Pharma de Espana, Inc. and its wholly-owned
subsidiary, Laboratorios Belmac S.A. and its wholly-owned subsidiaries,
Laboratorios Davur S.L. and Laboratorios Rimafar S.L.; Bentley Healthcare
Corporation and its wholly-owned subsidiary, Belmac Hygiene, Inc.; Belmac Health
Corporation; Belmac Holdings, Inc. and its wholly-owned subsidiary, Belmac
A.I., Inc.; B.O.G. International Finance, Inc.; and Belmac Jamaica, Ltd. All
significant inter-company balances have been eliminated in consolidation. The
financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of each foreign subsidiary are translated at the rate of
exchange in effect at the end of the period. Revenues and


                                      F-8
<Page>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expenses are translated at the average exchange rate for the period. Foreign
currency translation gains and losses not impacting cash flows are credited to
or charged against other comprehensive income (loss). Foreign currency
translation gains and losses arising from cash transactions are credited to or
charged against current earnings.

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents for purposes of
the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
Investments in securities which do not meet the definition of cash equivalents
are classified as marketable securities available-for-sale in the Consolidated
Balance Sheets.

MARKETABLE SECURITIES

    The Company had no marketable securities at December 31, 2001 or 2000.

INVENTORIES

    Inventories are stated at the lower of cost or market, cost being determined
on the first-in, first-out ("FIFO") method. Reserves for slow moving and
obsolete inventories are provided based on historical experience and current
product demand.

FIXED ASSETS

    Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the following estimated economic lives of the assets:

                                                               YEARS
                                                              --------

Buildings and improvements..................................     30
Equipment...................................................    3-7
Furniture and fixtures......................................    5-7
Other.......................................................      5


    Leasehold improvements are amortized over the life of the respective lease.
Expenditures for replacements and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized, while
expenditures for maintenance and repairs are charged against operations as
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized currently.

DRUG LICENSES AND RELATED COSTS

    Drug licenses and related costs incurred in connection with acquiring
licenses, patents, and other proprietary rights related to the Company's
commercially developed products are capitalized. Capitalized drug licenses and
related costs are being amortized on a straight-line basis over fifteen years
from the dates of acquisition. Carrying values of such assets are reviewed
quarterly by the Company and are adjusted for any diminution in value.


                                      F-9
<Page>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT

    Research and development costs are expensed when incurred.

USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

ORIGINAL ISSUE DISCOUNT/DEBT ISSUANCE COSTS

    Original issue discount related to the issuance of debt was amortized to
interest expense using the effective interest method over the lives of the
related debt. The costs related to the issuance of debt were capitalized and
amortized to interest expense using the effective interest method over the lives
of the related debt.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying amounts of cash, cash equivalents, accounts payable, accrued
expenses and short-term borrowings approximate fair value because of their
short-term nature. The carrying amount of the Company's long-term obligations
approximate fair value given the amounts outstanding at December 31, 2001 and
2000.

    The fair value information presented herein is based on information
available to management as of December 31, 2001. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore the current estimates
of fair value may differ significantly from the amounts presented herein.

STOCK-BASED COMPENSATION PLANS

    SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, addresses the
financial accounting and reporting standards for stock or other equity-based
compensation arrangements. The Company has elected to continue to use the
intrinsic value-based method to account for employee stock option awards under
the provisions of Accounting Principles Board Opinion No. 25 and provides
disclosures based on the fair value method in the notes to the financial
statements as permitted by SFAS No. 123. Stock or other equity-based
compensation for non-employees must be accounted for under the fair value-based
method as required by SFAS No. 123 and Emerging Issues Task Force ("EITF")
No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN
EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES and
other related interpretations. Under this method, the equity-based instrument is
valued at either the fair value of the consideration received or the equity
instrument issued on the date of grant. The resulting compensation cost is
recognized and charged to operations over the service period, which is usually
the vesting period.


                                      F-10

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

    Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, the price is fixed and final, delivery has occurred and
there is a reasonable assurance of collection of the sales proceeds. The Company
generally obtains oral or written purchase authorizations from its customers for
a specified amount of product at a specified price and considers delivery to
have occurred at the time of shipment. The Company provides its customers with a
limited right of return. Revenue is recognized at shipment and a reserve for
sales returns is recorded. The Company has demonstrated the ability to make
reasonable and reliable estimates of product returns in accordance with SFAS
No. 48 based on significant historical experience.

    Revenue from service sales is recognized when the service procedures have
been completed or applicable milestones have been achieved. Revenue from
research and development contracts is recognized over applicable contractual
periods or as defined milestones are attained, as specified by each contract and
as costs related to the contracts are incurred. Payments received under such
arrangements prior to the completion of the related procedures or attainment of
milestones are recorded as deferred income.

INCOME TAXES

    The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES, which requires the recognition of deferred tax assets and
liabilities relating to the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements and tax
returns. Unrecognized provisions for income taxes on undistributed earnings of
foreign subsidiaries which are considered permanently invested are not material
to the Company's consolidated financial statements.

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

    Basic and diluted net income (loss) per common share is based on the
weighted average number of shares of Common Stock outstanding during each
period. The effect of the Company's outstanding stock options and stock purchase
warrants were considered in the diluted net income per share calculation for the
year ended December 31, 2001. The effect of outstanding stock options and stock
purchase warrants were not considered for the years ended December 31, 2000 and
1999, because the results would have been anti-dilutive.

    The following is a reconciliation between basic and diluted net income per
common share for the year ended December 31, 2001. Dilutive securities issuable
for the year ended December 31, 2001 include approximately 663,000 shares
issuable as a result of Class B Warrants and approximately 1,288,000 shares
issuable as a result of various stock options and warrants outstanding.

<Table>
<Caption>
                                                                     EFFECT OF
                                                       BASIC          DILUTIVE        DILUTED
                                                        EPS          SECURITIES         EPS
                                                      --------       ----------       --------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>              <C>            <C>
Net income..........................................  $ 1,361          $   --         $ 1,361
Weighted average common shares outstanding..........   14,196           1,951          16,147
Net income per common share.........................  $   .10          $ (.02)        $   .08

</Table>


                                      F-11
<Page>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    Common Stock Equivalents totaling 3,013,000 and 3,025,000, representing the
effect of potential exercises of options and warrants and the effect of
potential conversion of Debentures into shares of Common Stock for each of the
years ended December 31, 2000 and 1999, respectively, were not included in the
computation of diluted net loss per common share because the effect would have
been anti-dilutive.

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

    SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about a company's
operating segments. The Company operates in one business segment, which is
described in Note 2; however, see Note 13 for geographical data.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The new standard
requires that all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The adoption of this
standard on January 1, 2001 had no impact on the Company's financial position or
results of operations.

    In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
SFAS No. 141 supersedes APB No. 16, BUSINESS COMBINATIONS, and SFAS No. 38,
ACCOUNTING FOR PREACQUISITION CONTINGENCIES OF PURCHASED ENTERPRISES and
requires that all business combinations be accounted for by a single method--the
purchase method. SFAS No. 141 also provides guidance on the recognition of
intangible assets identified in a business combination and requires enhanced
financial statement disclosures. SFAS No. 142 adopts a more aggregate view of
goodwill and bases the accounting for goodwill on the units of the combined
entity into which an acquired entity is integrated. In addition, SFAS No. 142
concludes that goodwill and intangible assets that have indefinite useful lives
will not be amortized but rather will be tested at least annually for
impairment. Intangible assets that have finite lives will continue to be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. The adoption of SFAS No. 142 is
required for fiscal years beginning after December 15, 2001 (the year 2002 for
the Company), except for the nonamortization and amortization provisions which
are required for goodwill and intangible assets acquired after June 30, 2001.
The Company believes that the adoption of SFAS No. 141 and SFAS No. 142 will not
have a material impact on the Company's financial position or results of
operations.

    In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS
No. 144 supersedes previous guidelines for financial accounting and reporting
for the impairment or disposal of long-lived assets and for segments of a
business to be disposed of. The adoption of SFAS No. 144 on January 1, 2002 did
not have a material impact on the Company's financial position or results of
operations.


                                      F-12

<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

    Certain prior year amounts have been reclassified to conform with the
current year's presentation format. Such reclassifications are not considered
material to the consolidated financial statements.

NOTE 3--RECEIVABLES

    Receivables consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                               (IN THOUSANDS)

Trade receivables (of which $1,747 and $967, respectively,
  collateralize short-term borrowings with Spanish financial
  institutions)............................................   $6,397     $4,807
VAT, income and social security taxes receivable...........      584        214
Other......................................................       22        184
                                                              ------     ------
                                                               7,003      5,205
Less-allowance for doubtful accounts.......................      (66)       (70)
                                                              ------     ------
                                                              $6,937     $5,135
                                                              ======     ======


NOTE 4--INVENTORIES

    Inventories consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                               (IN THOUSANDS)

Raw materials..............................................   $1,387     $  692
Finished goods.............................................    1,230      1,196
                                                              ------     ------
                                                               2,617      1,888
Less-allowance for slow moving inventory...................      (54)       (61)
                                                              ------     ------
                                                              $2,563     $1,827
                                                              ======     ======


                                      F-13
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--FIXED ASSETS

    Fixed assets consist of the following:

                                                                DECEMBER 31.
                                                            -------------------
                                                              2001       2000
                                                            --------   --------
                                                               (IN THOUSANDS)

Land.......................................................  $   790    $   830
Buildings and improvements.................................    3,008      2,607
Equipment..................................................    3,168      1,843
Furniture and fixtures.....................................      692        610
Leasehold improvements.....................................       44         44
Equipment under capital lease..............................       --         27
                                                             -------    -------
                                                               7,702      5,961
Less-accumulated depreciation..............................   (2,107)    (1,822)
                                                             -------    -------
                                                             $ 5,595    $ 4,139
                                                             =======    =======


    Depreciation expense of approximately $139,000, $72,000 and $43,000 has been
charged to operations as a component of depreciation and amortization expense on
the Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999, respectively. The Company has included depreciation totaling
approximately $324,000, $260,000 and $203,000 in cost of sales during the years
ended December 31, 2001, 2000 and 1999, respectively.

    Net book value of equipment under capital lease was $0 and approximately
$1,000 at December 31, 2001 and 2000, respectively.

NOTE 6--DRUG LICENSES AND RELATED COSTS

    Drug licenses and related costs consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                              2001       2000
                                                            --------   --------
                                                                (IN THOUSANDS)

Drug licenses and related costs............................  $12,245    $12,269
Less-accumulated amortization..............................   (1,969)    (1,290)
                                                             -------    -------
                                                             $10,276    $10,979
                                                             =======    =======


    In November 2000, Laboratorios Belmac entered into an agreement to sell the
trademark, registration rights and dossier for its branded pharmaceutical
product, Controlvas-Registered Trademark-, for 950 million Spanish Pesetas
(approximately $5,148,000). Laboratorios Belmac received a 50% deposit from the
purchaser in November 2000, which was reflected as deferred income in the
Consolidated Balance Sheet as of December 31, 2000. The sale closed in
February, 2001, resulting in a gain of approximately $4,977,000 being recognized
in the year ended December 31, 2001.

    In June 2001, Laboratorios Belmac agreed to sell the trademark, registration
rights and dossier for its pharmaceutical product,
Amantadine-Registered Trademark-, to a third party for 30 million Spanish
Pesetas (approximately $153,000). A deposit of 11 million Spanish Pesetas
(approximately $56,000) was received

                                      F-14
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--DRUG LICENSES AND RELATED COSTS (CONTINUED)

from the purchaser in June 2001 and a second payment of 11 million Spanish
Pesetas was received upon approval of the transfer of the rights to the
purchaser by the Spanish Ministry of Health, which occurred during the quarter
ended September 30, 2001, resulting in a recognized pre-tax gain of
approximately $73,000. The remaining 8 million Spanish Pesetas (approximately
$41,000) is payable over the next five years, in the form of a royalty
arrangement.

    The Company acquired the rights to market and manufacture in Spain, the
product and trademark Codeisan-Registered Trademark- from Abello, a subsidiary
of Merck & Co., Inc. during the year ended December 31, 2000 for 986 million
Spanish Pesetas (approximately $5,200,000). The brand line consists of tablet
and liquid presentations, which is marketed and promoted by the Laboratorios
Belmac sales force. Also acquired in the transaction was the associated
manufacturing equipment.

    On February 11, 1999, the Company acquired rights to certain U.S. and
international patents and related technology (the "Assets") covering methods to
enhance the absorption of drugs delivered to biological tissues. Consideration
for the Assets was paid to Yungtai Hsu, an individual, in the form of a cash
payment of approximately $1.1 million, approximately 226,000 shares of Common
Stock and ten-year warrants to purchase 450,000 shares of common stock. In
addition, approximately 359,000 shares of Common Stock were conveyed to Conrex
Pharmaceutical Corporation. The total of all consideration paid for the Assets
was approximately $2,600,000. Furthermore, terms of this transaction provide for
certain royalty payments upon commercialization of products using the
technologies.

    Belmac Hygiene, Inc., a wholly owned subsidiary of the Company, entered into
a 50/50 partnership in March 1994 with Maximed Corporation ("Maximed") to
develop and market feminine healthcare products. Maximed contributed the
hydrogel-based technology and the Company, through its subsidiary, was
responsible for providing financing and funding of the partnership's activities.
In December 1994, the Company commenced litigation against Maximed and was
awarded a judgment in the amount of $7.68 million in 1998, which was affirmed by
the U.S. Court of Appeals. The Company attempted to collect the judgment, but
was unable to obtain cash from Maximed to satisfy the judgment. Consequently,
the Company decided to seek assignment of the technology and related patents in
an effort to satisfy the judgment. As a result, the technology and patents were
assigned to the Company in October 1999 and the Company treated such assignment
as a distribution from the partnership. The Company estimated the value of the
patents and technology to be approximately $550,000 and recorded these assets as
Drug licenses and related costs, net during the year ended December 31, 1999.
The Company recorded no gain or loss as a result of this assignment. Management
has determined that no reserve for impairment in value on these assets is
necessary at December 31, 2001. The partnership is not currently engaged in
business activities, nor does the Company anticipate that it will engage in any
business activities in the future.

    Amortization expense for drug licenses and related costs was approximately
$772,000, $508,000 and $516,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

NOTE 7--RELATED PARTY NOTES

    The Company provided loans to each of Messrs. Murphy, Price and Gyurik, who
are executive officers of the Company, in the amounts of $250,000, $50,000 and
$140,000, respectively, in March 2000, which Messrs. Murphy, Price and Gyurik
used to pay income taxes on equity-based compensation received in the prior
year. In December 2001, the Compensation Committee of the Company's Board of
Directors agreed to amend the loan agreements resulting in the forgiveness of

                                      F-15
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--RELATED PARTY NOTES (CONTINUED)

principal and accrued interest totaling approximately $56,000, $11,000 and
$31,000, due from Messrs. Murphy, Price and Gyurik, respectively. The amounts
forgiven were applied first to unpaid accrued interest and then to principal.
These amounts were recorded as compensation expense during the year ended
December 31, 2001 and treated as taxable income to the respective executives.
The remaining loan balances, which bear interest at 2.37% annually, mature in
March 2003 and are secured by 24,900, 5,400 and 14,200 shares of the Company's
Common Stock owned by Messrs. Murphy, Price and Gyurik, respectively, as of
December 31, 2001. Accrued interest on such loans totals approximately $1,000
and $23,000 at December 31, 2001 and 2000, respectively.

    In January 2002, the Compensation Committee of the Company's Board of
Directors agreed to amend the loan agreements, resulting in the forgiveness of
principal and accrued interest totaling approximately the same amounts as in
December 2001 and the reduction in the number of shares collateralizing the
remaining loan amounts to 18,700, 4,000 and 10,700 shares of the Company's
Common Stock owned by Messrs. Murphy, Price and Gyurik, respectively. These
amounts were recorded as compensation expense during the year ended
December 31, 2002 and treated as taxable income to the respective executives.

    The Company has included the current portion of approximately $98,000 in
prepaid expenses and other current assets and the non-current portion of
approximately $294,000 in other non-current assets in the Consolidated Balance
Sheet as of December 31, 2001. The balance outstanding at December 31, 2000 of
approximately $463,000 has been included in other non-current assets.

NOTE 8--ACCRUED EXPENSES

    Accrued expenses consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                                (IN THOUSANDS)

Foreign income taxes payable................................   $  596      $ 13
Provision for sales returns.................................      402        53
Accrued payroll.............................................      698       269
Other accrued expenses......................................      794       633
                                                               ------      ----
                                                               $2,490      $968
                                                               ======      ====


                                      F-16
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--DEBT

    Short-term borrowings consist of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                                (IN THOUSANDS)

Trade receivables discounted with a Spanish financial
  institution, with recourse, effective interest rate is
  5.9% and 6.0%, respectively...............................   $1,747     $  967
Revolving lines of credit payable to Spanish financial
  institutions, average interest rate is 5.3% and 6.0%,
  respectively..............................................       10      1,480
                                                               ------     ------
                                                               $1,757     $2,447
                                                               ======     ======


    The weighted average stated interest rate on short-term borrowings
outstanding at December 31, 2001 and 2000 was 5.9% and 6.0%, respectively.

    The Company has revolving lines of credit with Spanish financial
institutions, which lines total $4,627,000 at December 31, 2001. The lines are
scheduled to mature on various dates through November 30, 2002 and are
renewable. At December 31, 2001, advances outstanding under the lines of credit
were approximately $10,000. The weighted average interest rate at December 31,
2001 and 2000 was 5.3% and 6.0%, respectively, and interest is payable
quarterly.

    Long-term debt consists of the following:

                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                               (IN THOUSANDS)

Loan payable to Spanish government, net of unamortized
  discount of $72,000.......................................    $142      $  --
Loans payable to Spanish financial institutions.............      --      1,360
Capitalized lease obligations relating to equipment.........      --          1
                                                                ----      -----
                                                                 142      1,361
Less-current portion........................................      --       (738)
                                                                ----      -----
  Total long-term debt......................................    $142      $ 623
                                                                ====      =====

    In December 2001, the Company entered into a loan agreement with the Spanish
government as part of a research funding program. The loan is non-interest
bearing and is payable in equal annual installments of approximately $30,600
beginning in 2005. Accordingly, the Company has imputed interest at the market
rate in Spain (6%) and recorded a discount on the obligation of $72,000 and has
classified the obligation at December 31, 2001 as non-current. The discount will
be amortized over the ten-year term of the loan.

    Loans payable to Spanish financial institutions were entered into in
March 2000 to finance the acquisition of the Codeisan-Registered Trademark- drug
license. The terms of the loans called for repayment over three years at an
average interest rate of 6%. In September 2001 the loans were repaid using the
proceeds from the sale of the Controlvas-Registered Trademark- drug license (see
Note 6).

                                      F-17
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--DEBT (CONTINUED)

    In February 1996, the Company publicly sold 6,900 Units at $1,000 per Unit.
Each Unit consisted of One Thousand Dollars ($1,000) Principal Amount 12%
Convertible Senior Subordinated Debenture due February 13, 2006 and 1,000
Class A Redeemable Warrants, each to purchase one share of Common Stock and one
Class B Redeemable Warrant. Two Class B Redeemable Warrants entitle a holder to
purchase one share of Common Stock at $5.00 per share. During the year ended
December 31, 2000, holders of the Company's 12% Debentures, converted all 7,254
of such Debentures, with a net carrying value of approximately $5,669,000, into
approximately 2,901,000 shares of Common Stock. Interest on the Debentures was
payable quarterly.

    For financial reporting purposes, the $1,000 purchase price of each Unit was
allocated as follows: $722 to the Debenture, $224 to the conversion discount
feature of the Debenture and $54 to the 1,000 Class A Warrants. None of the Unit
purchase price was allocated to the Class B Warrants. Such allocation was based
upon the relative fair value of each security on the date of issuance. Such
allocation resulted in recording a discount on the Debentures of approximately
$1,900,000. The original issue discount and the costs related to the issuance of
the Debentures was being amortized to interest expense using the effective
interest method over the lives of the related Debentures until the date that
such Debentures were converted into shares of Common Stock. The remaining
unamortized original issue discount and related issuance costs were recorded an
offset to Additional Paid-in Capital at the time of conversion. The effective
interest rate on the Debentures was 18.1%.

    On May 29, 1996, the Debentures and Class A Redeemable Warrants began
trading separately. The expiration date of the Class A Warrants was extended to
August 16, 1999. The expiration date of the underlying Class B Warrants was
subsequently extended to December 31, 2002.

NOTE 10--PREFERRED STOCK

    The Company has 2,000,000 shares of $1.00 Preferred Stock authorized for
issuance. As of December 31, 2001 and 2000, no shares of Preferred Stock were
outstanding.

NOTE 11--STOCKHOLDERS' EQUITY

    At December 31, 2001 the Company had the following Common Stock reserved for
issuance under various plans and agreements (in thousands):

                                                                   COMMON SHARES
                                                                   -------------

For exercise of stock purchase warrants.....................           3,424
For exercise of outstanding stock options...................           2,937
For future stock option grants..............................           1,006
                                                                       -----
                                                                       7,367
                                                                       =====

    The Company has never paid any dividends on its Common Stock. The current
policy of the Board of Directors is to retain earnings to finance the operation
of the Company's business. Accordingly, it is anticipated that no cash dividends
will be paid to the holders of the Common Stock in the foreseeable future.

                                      F-18
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)

STOCK PURCHASE WARRANTS

    At December 31, 2001, warrants to purchase an aggregate of approximately
3,424,000 shares of Common Stock were outstanding, which were exercisable at
prices ranging from $1.50 to $20.00 per share, of which 400,000 warrants have an
exercise price of $1.50 per share, approximately 3,004,000 warrants have an
exercise price of $5.00 per share and 20,000 warrants have an exercise price of
$20.00 per share. The warrants expire on various dates from December 2002
through December 2009.

    During the year ended December 31, 2001, underwriter's Class A Warrants were
exercised to acquire 460,000 shares of Common Stock and 460,000 underwriter's
Class B Warrants. Approximately 8,400 Class B Warrants and 150,000 other stock
purchase warrants were exercised during 2001 to acquire an aggregate of 154,200
shares of Common Stock. The Company received net cash proceeds of approximately
$1,776,000 from all such exercises during the year ended December 31, 2001.

    During the year ended December 31, 2000, approximately 197,000 Class B
Warrants were exercised to acquire approximately 98,500 shares of Common Stock.
Approximately 670,000 of other stock purchase warrants were also exercised to
acquire approximately 670,000 shares of Common Stock, and Underwriter's Warrants
were exercised to acquire 460 Debentures and 460,000 underwriter's Class A
Warrants. The Company received net cash proceeds of approximately $2,843,000
from all such exercises during the year ended December 31, 2000.

    During the year ended December 31, 1999, the Company issued warrants to
purchase an aggregate of 450,000 shares of Common Stock at $1.50 per share as
partial consideration for the purchase of permeation enhancement technology (see
Note 6), of which 50,000 were exercised during 1999. During the year ended
December 31, 1999, the Company also issued Class B Warrants to purchase 659,000
shares of Common Stock for $5.00 per share. In addition, Class A Warrants were
exercised during the year ended December 31, 1999 to acquire approximately
859,000 shares of Common Stock and approximately 859,000 Class B Warrants,
resulting in net cash proceeds to the Company of approximately $2,600,000.
Warrants to purchase approximately 1,322,000 shares of Common Stock (including
approximately 1,252,000 Class A Warrants) expired unexercised during the year
ended December 31, 1999.

    In addition, the Company has granted warrants in connection with various
services. These warrants have been granted for terms not exceeding ten years
from the date of grant.

                                      F-19
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
    The table below summarizes warrant activity for the years ended
December 31, 1999, 2000 and 2001.

<Table>
<Caption>
                                                                                           WEIGHTED
                                                                    NUMBER OF          AVERAGE EXERCISE
                                                                  COMMON SHARES         PRICE PER SHARE
                                                                  --------------       -----------------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                    <C>                    <C>
Outstanding at December 31, 1998...........................            5,928                  $3.84
  Granted..................................................            1,109                  $3.58
  Exercised................................................             (909)                 $2.92
  Canceled.................................................           (1,322)                 $3.05
                                                                      ------
Outstanding at December 31, 1999...........................            4,806                  $4.17
  Exercised................................................             (768)                 $2.93
                                                                      ------
Outstanding at December 31, 2000...........................            4,038                  $4.41
  Exercised................................................             (614)                 $2.89
                                                                      ------
Outstanding at December 31, 2001...........................            3,424                  $4.68
                                                                      ======
</Table>

COMMON STOCK TRANSACTIONS

    During the year ended December 31, 2001, the Company issued approximately
460,000 shares of Common Stock as a result of the exercise of underwriter's
Class A Warrants, approximately 4,200 shares of Common Stock upon exercise of
Class B Warrants, approximately 150,000 shares of Common Stock upon exercise of
150,000 other stock purchase warrants, approximately 16,900 shares of Common
Stock upon exercise of stock purchase options, and approximately 40,000 shares
of Common Stock as compensation in lieu of cash. General and administrative
expenses for the years ended December 31, 2001, 2000 and 1999 include $160,000,
$39,000 and $82,000, respectively, of non-cash equity-based compensation.
Research and development expenses for the years ended December 31, 2001, 2000
and 1999 include $102,000, $30,000 and $143,000, respectively, of non-cash
equity-based compensation.

    During the year ended December 31, 2000, the Company issued approximately
98,500 shares of Common Stock as a result of the exercise of approximately
197,000 Class B Warrants, approximately 670,000 shares of Common Stock upon
exercise of other stock purchase warrants, approximately 14,000 shares of Common
Stock upon exercise of stock purchase options and approximately 2,901,000 shares
of Common Stock upon conversion of 7,254 of the Company's 12% Convertible
Debentures.

    During the year ended December 31, 1999, the Company issued approximately
585,000 shares of Common Stock as partial consideration for the acquisition of
permeation enhancement technology, approximately 859,000 shares of Common Stock
as a result of the exercise of approximately 859,000 Class A Warrants,
approximately 77,000 shares of Common Stock upon conversion of 193 of the
Company's 12% Convertible Debentures, 150,000 shares of Common Stock as
compensation in lieu of cash, 66,000 shares of Common Stock for consulting fees
earned in 1996, 1997 and 1998 and 50,000 shares of Common Stock upon exercise of
other stock purchase warrants.

                                      F-20
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS

    The Company has in effect Stock Option Plans (the "Plans"), pursuant to
which directors, officers, and employees of the Company are eligible to receive
grants of options for the Company's Common Stock. Approximately 3,943,000 shares
of Common Stock have been reserved for issuance under the Plans, of which
approximately 943,000 are outstanding under the 1991 Plan, approximately 494,000
are outstanding under the 2001 Employee and Director Plans and 1,500,000 are
outstanding under the Executive Plan as of December 31, 2001. Options may be
granted for terms not exceeding ten years from the date of grant except for
stock options which are granted to persons owning more than 10% of the total
combined voting power of all classes of stock of the Company. For these
individuals, options may be granted for terms not exceeding five years from the
date of grant. Options may not be granted at a price which is less than 100% of
the fair market value on the date the options are granted (110% in the case of
persons owning more than 10% of the total combined voting power of the Company).
Options granted under the Plans generally vest over one, two or three years.
Options to purchase 16,900 and 14,000 shares of Common Stock were exercised
during the years ended December 31, 2001 and 2000, respectively, resulting in
net cash proceeds of approximately $51,000 and $35,000, respectively. No such
options were exercised during the year ended December 31, 1999.

    Had the compensation cost for the Plans been determined based on the fair
value at the grant dates for awards under the Plans, consistent with the method
described in SFAS 123, the Company's net income (loss) and basic and diluted net
income (loss) per common share on a pro forma basis would have been:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                   ---------------------------------------
                                                      2001          2000          1999
                                                   -----------   -----------   -----------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>           <C>           <C>
Net loss.........................................    $ (679)       $(3,299)      $(1,365)
Basic and diluted net loss per common share......    $ (.05)       $  (.25)      $  (.15)
</Table>

    The preceding pro forma results were calculated using the Black-Scholes
option-pricing model. The following assumptions were used for the years ended
December 31, 2001, 2000 and 1999, respectively: (1) risk-free interest rates of
5.2%, 6.6% and 5.8%, respectively; (2) dividend yields of 0.0%; (3) expected
lives of 10 years; and (4) volatility of 140.8%, 126.9% and 90.0%, respectively.
The weighted average fair value of options granted during the years ended
December 31, 2001, 2000 and 1999 was $3.72, $4.48 and $2.62, respectively.
Results may vary depending on the assumptions applied within the model.

                                      F-21
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)

    The table below summarizes activity in the Company's Plans for the years
ended December 31, 1999, 2000 and 2001.

<Table>
<Caption>
                                                                NUMBER OF        WEIGHTED AVERAGE
                                                              COMMON SHARES       EXERCISE PRICE
                                                             ----------------   ------------------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                <C>                <C>
Outstanding at December 31, 1998...........................        1,823              $ 5.64
  Granted..................................................          105                2.98
  Canceled.................................................           (1)               2.75
                                                                   -----
Outstanding at December 31, 1999...........................        1,927                5.50
  Granted..................................................          570                7.56
  Exercised................................................          (14)               2.52
  Canceled.................................................          (26)             113.96
                                                                   -----
Outstanding at December 31, 2000...........................        2,457                4.87
  Granted..................................................          553                6.04
  Exercised................................................          (17)               3.00
  Canceled.................................................          (56)               9.66
                                                                   -----
Outstanding at December 31, 2001...........................        2,937              $ 5.00
                                                                   =====
</Table>

    The table below summarizes options outstanding and exercisable at
December 31, 2001:

<Table>
<Caption>
                                                                 OPTIONS CURRENTLY
                     OPTIONS OUTSTANDING                            EXERCISABLE
-------------------------------------------------------------   --------------------
                                    WEIGHTED      WEIGHTED                  WEIGHTED
      RANGE OF           NUMBER     AVERAGE       AVERAGE        NUMBER     AVERAGE
      EXERCISE             OF       EXERCISE   REMAINING LIFE      OF       EXERCISE
       PRICES            OPTIONS     PRICE        (YEARS)        OPTIONS     PRICE
---------------------   ---------   --------   --------------   ---------   --------
<S>                     <C>          <C>            <C>         <C>          <C>
$1.50-$2.89.......        659,000    $ 2.78         4.8           659,000    $ 2.78
3.00-3.75.......          681,000      3.63         4.5           681,000      3.63
4.73............          500,000      4.73         4.3           500,000      4.73
5.25-5.88.......          211,000      5.84         8.4           150,000      5.88
6.00-6.38.......          439,000      6.01         9.3            10,000      6.38
7.10-7.90.......          289,000      7.51         8.7           159,000      7.41
8.00-10.75......           98,000      9.29         8.5            98,000      9.29
11.25-22.50.....           57,000     16.15         4.5            57,000     16.15
45.00...........            3,000     45.00         1.1             3,000     45.00
    ------------        ---------    ------         ---         ---------    ------
$1.50-$45.00......      2,937,000    $ 5.00         6.1         2,317,000    $ 4.64
    ============        =========    ======         ===         =========    ======
</Table>

    Options and warrants outstanding include approximately 3,424,000 warrants,
all of which are exercisable, and approximately 2,937,000 options, of which
approximately 2,317,000 are vested and exercisable at December 31, 2001.

401(K) RETIREMENT PLAN

    The Company sponsors a 401(k) retirement plan (the "401(k) Plan") under
which eligible employees may contribute, on a pre-tax basis, between 1% and 15%
of their respective total annual

                                      F-22
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)

income from the Company, subject to maximum aggregate annual contribution
imposed by the Internal Revenue Code of 1986, as amended. All full-time
employees who work for the Company in the U.S. are eligible to participate in
the 401(k) Plan. All employee contributions are allocated to the employee's
individual account and are invested in various investment options as directed by
the employee. Employees' cash contributions are fully vested and nonforfeitable.
The Company made matching contributions to the 401(k) Plan during the year ended
December 31, 2001 in the form of approximately 13,658 shares of the Company's
Common Stock valued at approximately $83,000. The Company made matching cash
contributions to the 401(k) Plan for the year ended December 31, 2000 of
approximately $2,500 and in the form of approximately 7,000 shares of the
Company's Common Stock valued at approximately $57,000. The Company made
matching cash contributions to the 401(k) Plan for the year ended December 31,
1999 of approximately $27,000. All Company matching contributions vest 25% each
year for the first four years of each employee's employment.

STOCKHOLDER RIGHTS PLAN

    On December 22, 1999, the Board of Directors adopted a stockholder rights
plan pursuant to which a dividend of one right for each outstanding share of the
Company's Common Stock on the record date of December 27, 1999 was declared. The
plan is designed to prevent a potential acquirer from gaining control of the
Company without fairly compensating all of the Company's stockholders and to
protect the Company from coercive takeover attempts. Each of the rights, which
are not currently exercisable, entitles the holder to purchase one
one-thousandth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $16.50. The rights will become exercisable only if a person or
group of affiliated persons beneficially acquire(s) 15% or more of the Company's
Common Stock. Under certain circumstances, each holder of a right (other than
the person or group who acquired 15% or more of the Company's Common Stock) is
entitled to purchase a defined number of shares of the Company's Common Stock at
50% of the market price of the Common Stock at the time that the right becomes
exercisable.

NOTE 12--PROVISION FOR INCOME TAXES

    For all periods presented the income (loss) before income taxes as shown in
the consolidated statements of operations consists of losses generated in the
United States and income derived from foreign operations.

    The provision (benefit) for income taxes consists of the following:

<Table>
<Caption>
                                                        FOR THE YEAR ENDED DECEMBER 31,
                                                       ---------------------------------
                                                         2001        2000        1999
                                                       ---------   ---------   ---------
                                                                (IN THOUSANDS)
<S>                                                     <C>         <C>         <C>
Foreign taxes........................................   $2,452      $  222      $   781
Tax benefit from US operating losses.................     (954)       (657)        (678)
Federal and state deferred taxes.....................     (898)      1,162       (1,042)
Change in valuation allowance........................    1,852        (505)       1,720
                                                        ------      ------      -------
    Total provision for income taxes.................   $2,452      $  222      $   781
                                                        ======      ======      =======
</Table>

                                      F-23
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--PROVISION FOR INCOME TAXES (CONTINUED)

    A reconciliation between the federal statutory rate and the Company's
effective income tax rate is as follows:

<Table>
<Caption>
                                                                 FOR THE YEAR ENDED DECEMBER 31
                                                             --------------------------------------
                                                               2001           2000           1999
                                                             --------       --------       --------
                                                                          (IN THOUSANDS)
<S>                                                           <C>            <C>            <C>
Statutory federal income tax (benefit)................        $1,296         $(178)         $(105)
Permanent differences from foreign subsidiary.........           202          (257)           208
Valuation allowance...................................           954           657            678
                                                              ------         -----          -----
                                                              $2,452         $ 222          $ 781
                                                              ======         =====          =====
</Table>

    The components of the Company's deferred taxes are as follows:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Deferred tax assets:
  NOL carryforwards.........................................  $14,075    $12,651
  Capital loss carryforwards................................   10,799     10,641
  Disposition of subsidiary.................................    6,850      6,750
  Foreign tax on deferred income............................      141        851
  Tax credit carryforwards..................................      415        415
  Other, net................................................      603        428
                                                              -------    -------
    Total deferred tax assets...............................   32,883     31,736

Deferred tax liabilities....................................     (275)      (270)
Valuation allowance.........................................  (32,467)   (30,615)
                                                              =======    =======
Deferred tax asset, net.....................................  $   141    $   851
                                                              =======    =======
</Table>

    The Company has established a valuation allowance equal to the full amount
of the domestic deferred tax asset, as future domestic operating profits cannot
be assured. The Company has a current deferred tax asset of $141,000 and a
non-current tax liability of $1,827,000 due to temporary differences arising as
a result of the Company's Spanish subsidiary recording the gain on the sale of
Controlvas-Registered Trademark- and the corresponding taxes for Spanish
statutory purposes during the year ended December 31, 2000. The deferred tax
asset is a result of taxes that related to deferred income and the tax liability
results from taxes that will be payable in Spain beginning in 2004.

    Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss (the "NOL") carryforwards which could be
utilized annually to offset future taxable income and income tax liabilities.
The amount of any annual limitation is determined based upon the Company's value
prior to an ownership change.

    At December 31, 2001, the Company has NOL carryforwards of approximately
$36,047,000 available to offset U.S. taxable income. The Company calculates that
its use of the NOL generated through December 31, 1997 may be limited to
approximately $1,000,000 each year as a result of stock option and warrant
issuances resulting in an ownership change of more than 50% of the Company's

                                      F-24
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--PROVISION FOR INCOME TAXES (CONTINUED)

outstanding equity. The NOL of approximately $3,200,000 generated during the tax
year ended December 31, 1998 is available to offset future taxable income along
with the 1999, 2000 and 2001 losses without limitation. Additionally,
approximately $1,800,000 of the NOL generated in 1995 available to offset future
U.S. taxable income will be limited to approximately $300,000 per year over the
subsequent six years due to the change in tax year end during 1995. If not
offset against future taxable income, the NOL carryforwards will expire in tax
years 2007 through 2022.

NOTE 13--BUSINESS SEGMENT INFORMATION

    The Company is a U.S.-based specialty pharmaceutical company focused on
advanced drug delivery technologies and pharmaceutical products. The Company
also has a commercial presence in Europe. The Company's Spanish subsidiaries,
Laboratorios Belmac S.A. and Laboratorios Davur S.L., manufacture and market
branded and generic pharmaceutical products in Spain. In the U.S., the Company's
activities consist primarily of limited product research and development,
business development activities, corporate management, and administration.

    Laboratorios Belmac and its subsidiaries derive its revenues from the sales
of its own products as well as from product manufacturing for others, within
four primary therapeutic categories of cardiovascular, gastrointestinal,
infectious and neurological diseases.

    Set forth in the tables below is certain financial information with respect
to the Company's geographical segments for the years ended December 31, 2001,
2000 and 1999. The geographical segments use the same accounting policies as
those described in the summary of significant accounting policies in Note 2.

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31, 2001
                                                                          (IN THOUSANDS)
                                                             ----------------------------------------
                                                                          CORPORATE/
                                                                        CONSOLIDATION/
                                                              SPAIN      ELIMINATION     CONSOLIDATED
                                                             --------   --------------   ------------
<S>                                                          <C>            <C>             <C>
Net sales..................................................  $26,411        $   --          $26,411
Interest income............................................       27           141              168
Interest expense...........................................      244            --              244
Depreciation and amortization expense......................      523           388              911
Income (loss) before income taxes..........................    6,618        (2,805)           3,813
Income tax expense.........................................    2,452            --            2,452
Net income (loss)..........................................    4,166        (2,805)           1,361
Fixed assets...............................................    5,427           168            5,595
Drug licenses..............................................    6,663         3,613           10,276
Total assets...............................................   24,890         7,229           32,119
Total liabilities..........................................   10,974           721           11,695
Expenditures for drug licenses/delivery technology.........      412            72              484
Expenditures for fixed assets..............................    2,029            40            2,069
</Table>

                                      F-25
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--BUSINESS SEGMENT INFORMATION (CONTINUED)

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31, 2000
                                                                          (IN THOUSANDS)
                                                             ----------------------------------------
                                                                          CORPORATE/
                                                                        CONSOLIDATION/
                                                              SPAIN      ELIMINATION     CONSOLIDATED
                                                             --------   --------------   ------------
<S>                                                          <C>            <C>             <C>
Net sales..................................................  $18,487        $  130          $18,617
Interest income............................................       16           331              347
Interest expense...........................................      205           234              439
Depreciation and amortization expense......................      235           345              580
Income (loss) before income taxes..........................    1,408        (1,931)            (523)
Income tax expense.........................................      222            --              222
Net income (loss)..........................................    1,186        (1,931)            (745)
Fixed assets...............................................    3,959           180            4,139
Drug licenses..............................................    7,135         3,844           10,979
Total assets...............................................   19,896         8,981           28,877
Total liabilities..........................................   10,567           494           11,061
Expenditures for drug licenses/delivery technology.........    5,518            42            5,560
Expenditures for fixed assets..............................      957            57            1,014
</Table>

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31, 1999
                                                                          (IN THOUSANDS)
                                                             ----------------------------------------
                                                                          CORPORATE/
                                                                        CONSOLIDATION/
                                                              SPAIN      ELIMINATION     CONSOLIDATED
                                                             --------   --------------   ------------
<S>                                                          <C>            <C>             <C>
Net sales..................................................  $20,249        $   --          $20,249
Interest income............................................       --           244              244
Interest expense...........................................      147         1,021            1,168
Depreciation and amortization expense......................      289           270              559
Income (loss) before income taxes..........................    1,686        (1,995)            (309)
Income tax expense.........................................      781            --              781
Net income (loss)..........................................      905        (1,995)          (1,090)
Fixed assets...............................................    3,512           172            3,684
Drug licenses..............................................    1,709         4,098            5,807
Total assets...............................................   11,739        10,498           22,237
Total liabilities..........................................    4,499         6,164           10,663
Expenditures for drug licenses/delivery technology.........      440         1,335            1,775
Expenditures for fixed assets..............................      799           170              969
</Table>

    Interest income and interest expense are based upon the actual results of
each operating segment's assets and borrowings. The consolidation/elimination
column includes the elimination of all inter-segment amounts as well as
corporate segment amounts. The principal component of the inter-segment amounts
related to inter-segment advances.

    Revenues from one customer exceeded 10% of consolidated net sales during the
year ended December 31, 2001, accounting for 15% of 2001 consolidated net sales
and 7.5% of the consolidated receivables balance at December 31, 2001. Revenues
from one customer exceeded 10% of consolidated net sales during the year ended
December 31, 2000, accounting for 14% of 2000 consolidated net sales. Revenues
from two customers exceeded 10% of consolidated net sales during the year ended
December 31, 1999, each accounting for 13% of 1999 consolidated net sales.

                                      F-26
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--COMMITMENTS AND CONTINGENCIES

    The Company is obligated to pay certain royalty payments upon
commercialization of products using technologies acquired in a transaction,
which it consummated during the year ended December 31, 1999 (see Note 6).

    The Company has entered into various employment agreements with its
executive officers, which agreements provide for salaries, potential bonuses and
other benefits in exchange for services provided by the executive officers. The
employment agreements also provide for certain compensation in the event of
termination or change in control of the Company. Such agreements, which are
renewable, are scheduled to expire on various dates through December 31, 2003.

    The Company was awarded a judgment of approximately $2,130,000 in the
Circuit Court of the Thirteenth Judicial Circuit, State of Florida, Hillsborough
County Civil Division during the year ended December 31, 1998, relating to its
claims of civil theft and breach of employment agreement filed against its
former President and Chief Executive Officer, Michael M. Harshbarger. The
judgment included treble damages totaling $418,000 related to the civil theft
claim and $1,712,000 related to the breach of employment agreement claim.
Harshbarger originally filed suit against the Company in November 1993, alleging
wrongful termination, seeking monetary damages in excess of $1,400,000. In
addition to establishing a receivable on the Company's books, it has established
a reserve equal to the receivable, as it is of the opinion that Harshbarger does
not have the financial resources to satisfy the judgment. Harshbarger filed a
Motion for Relief From Judgment in September 1999, alleging among other things
that he was not provided notice of the August 24, 1998 jury trial. A hearing was
held on November 27, 2001 to determine the merits of Harshbarger's claims. The
judge determined that the facts of the case did not warrant setting aside the
default and judgment against Harshbarger and denied all of Harshbarger's
motions. Harshbarger did not file a notice of appeal within the requisite time
period, therefore, the Company considers that this matter has been concluded and
expects no further action other than any action it may take to enforce the
judgment.

    On January 22, 2001, the Company settled a legal dispute, by paying $140,000
to Creative Technologies, Inc. and Creative Technologies, Inc. agreed to the
dismissal of the related suit with prejudice. Creative Technologies had asserted
that it was due a brokerage or finder's fee with respect to the Company's 1999
acquisition of permeation enhancement technology. The Company included the
accrual for the $140,000 charge in its Consolidated Balance Sheet as of
December 31, 2000 and included the $140,000 charge and related legal costs of
approximately $55,000 in operating expenses in the Consolidated Statement of
Operations for the year ended December 31, 2000.

     On February 4, 2002, the Company was notified that a legal proceeding had
been commenced against it by Merck & Co. Inc. and its Spanish subsidiary, Merck
Sharp & Dohme de Espana, S.A., (together "Merck") alleging that the Company
violated Merck's patents in the production of the product simvastatin. The case
was brought against the Company's Spanish subsidiaries in the 39th First
Instance Court of the City of Madrid. Merck requested after a hearing that the
court grant an injunction ordering the Company not to manufacture or market
simvastatin. On February 18, 2002, the court refused to grant the requested
injunction and dismissed the case on February 25, 2002, awarding the Company
court and legal fees. There were no sales of simvastatin included in
consolidated net sales for the year ended December 31, 2001, as the product was
launched in late January 2002.

                                      F-27
<Page>
                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)

    The Company leases certain equipment and facilities under non-cancelable
operating leases, which expire through the year 2006. Total charges to
operations under operating leases were approximately $705,000, $557,000 and
$442,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Future minimum lease payments under operating leases are as follows:


                                                        YEAR ENDING DECEMBER 31,
                                                        ------------------------
                                                              (IN THOUSANDS)

2002...................................................            $736
2003...................................................             737
2004...................................................             697
2005...................................................             683
2006 and beyond........................................              92


                                      F-28