##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    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.
  DELAWARE
    
    No. 59-1513162(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 Bentley Park, 2 Holland Way, Exeter, New Hampshire 03833    (603) 658-6100
 þ o
  Large accelerated filer: o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### 



Bentley Pharmaceuticals, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended March 31, 2008
 Index
 PagePart I. Financial InformationItem 1. Unaudited Condensed Consolidated Financial Statements:Unaudited Consolidated Balance Sheets as of March 31, 2008
and December 31, 2007
    
    
    3Unaudited Consolidated Income Statements for the three months
ended March 31, 2008 and 2007
    
    
    4Unaudited Consolidated Statement of Changes in Stockholders
Equity for the three months ended March 31, 2008
    
    
    5Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2008 and 2007
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 6. Exhibits
    
    
    36EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Unaudited Consolidated Balance Sheets
 March 31,
    
    
    December 31,(in thousands, except per share data)
    
    2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    33,279
    
    
    $
    33,706Marketable securities
    
    
    1,084
    
    
    
    1,010Receivables, net
    
    
    46,137
    
    
    
    39,324Inventories
    
    
    19,536
    
    
    
    17,658Deferred taxes
    
    
    1,038
    
    
    
    1,067Prepaid expenses and other
    
    
    1,827
    
    
    
    1,915Total current assets
    
    
    102,901
    
    
    
    94,680Non-current assets:Fixed assets, net
    
    
    63,620
    
    
    
    59,191Drug licenses and related costs, net
    
    
    17,613
    
    
    
    16,624Restricted cash
    
    
    1,000
    
    
    
    1,000Deferred taxes
    
    
    348
    
    
    
    676Other
    
    
    1,016
    
    
    
    925Total non-current assets
    
    
    83,597
    
    
    
    78,416Total assets
    
    $
    186,498
    
    
    $
    173,096Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    18,664
    
    
    $
    19,413Accrued expenses
    
    
    13,643
    
    
    
    10,623Short-term borrowings
    
    
    186
    
    
    
    116Current portion of long-term debt
    
    
    1,304
    
    
    
    608Deferred income
    
    
    1,296
    
    
    
    1,186Other current liabilities
    
    
    1,206
    
    
    
    1,137Total current liabilities
    
    
    36,299
    
    
    
    33,083Non-current liabilities:Long-term debt
    
    
    16,076
    
    
    
    15,595Deferred income
    
    
    6,620
    
    
    
    5,976Other
    
    
    2,645
    
    
    
    2,470Total non-current liabilities
    
    
    25,341
    
    
    
    24,041Commitments and contingenciesStockholders equity:Preferred stock, $1.00 par value, authorized 2,000 shares,
issued and outstanding, none
    
    
    
    
    
    
    Common stock, $0.02 par value, authorized 100,000 shares,
issued and outstanding, 22,450 and 22,376 shares
    
    
    448
    
    
    
    447Additional paid-in capital
    
    
    144,533
    
    
    
    143,269Accumulated deficit
    
    
    (45,672
    )
    
    
    (46,736Accumulated other comprehensive income
    
    
    25,549
    
    
    
    18,992Total stockholders equity
    
    
    124,858
    
    
    
    115,972Total liabilities and stockholders equity
    
    $
    186,498
    
    
    $
    173,096
 The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Unaudited Consolidated Income Statements
 For the Three Months EndedMarch 31,(in thousands, except per share data)
    
    2008
    
    
    2007Revenues:Net product sales
    
    $
    36,364
    
    
    $
    29,114Licensing and collaboration revenues
    
    
    3,649
    
    
    
    2,277Total revenues
    
    
    40,013
    
    
    
    31,391Cost of net product sales
    
    
    19,947
    
    
    
    15,897Gross profit
    
    
    20,066
    
    
    
    15,494Operating expenses:Selling and marketing
    
    
    5,763
    
    
    
    4,445General and administrative
    
    
    4,213
    
    
    
    3,577Research and development
    
    
    2,804
    
    
    
    2,675Separation costs
    
    
    3,834
    
    
    
    69Depreciation and amortization
    
    
    526
    
    
    
    508Total operating expenses
    
    
    17,140
    
    
    
    11,274Income from operations
    
    
    2,926
    
    
    
    4,220Other income (expenses):Interest income
    
    
    260
    
    
    
    182Interest expense
    
    
    (279
    )
    
    
    (50
    )Other, net
    
    
    99
    
    
    
    89Income before income taxes
    
    
    3,006
    
    
    
    4,441Provision for income taxes
    
    
    1,942
    
    
    
    2,081Net income
    
    $
    1,064
    
    
    $
    2,360Net income per common share:Basic
    
    $
    0.05
    
    
    $
    0.11Diluted
    
    $
    0.05
    
    
    $
    0.10Weighted average common shares outstanding:Basic
    
    
    22,469
    
    
    
    22,293Diluted
    
    
    23,588
    
    
    
    22,534
 The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Unaudited Consolidated Statement of Changes in Stockholders Equity
 Accumulated$0.02 Par Value
    
    
    Additional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive(in thousands, except per share data)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance at January 1, 2008
    
    
    22,376
    
    
    $
    447
    
    
    $
    143,269
    
    
    $
    (46,736
    )
    
    $
    18,992
    
    
    $
    115,972Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,064
    
    
    
    
    
    
    
    1,064Other comprehensive income:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,557
    
    
    
    6,557Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,621Exercise of stock options
    
    
    66
    
    
    
    1
    
    
    
    454
    
    
    
    
    
    
    
    
    
    
    
    455Stock-based compensation
    
    
    8
    
    
    
    
    
    
    
    810
    
    
    
    
    
    
    
    
    
    
    
    810Balance at March 31, 2008
    
    
    22,450
    
    
    $
    448
    
    
    $
    144,533
    
    
    $
    (45,672
    )
    
    $
    25,549
    
    
    $
    124,858
 The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flows
 For the Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    1,064
    
    
    $
    2,360Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,744
    
    
    
    1,548Non-cash charge for inventory write-down and reserves
    
    
    
    
    
    
    302Non-cash charge for write-down of intangible assets
    
    
    195
    
    
    
    47Foreign currency gains
    
    
    (206
    )
    
    
    (74
    )Stock-based compensation expense
    
    
    810
    
    
    
    559Change in fair value of derivative instrument
    
    
    129
    
    
    
    9Loss on disposal of assets
    
    
    44
    
    
    
    63Other non-cash items
    
    
    3
    
    
    
    3(Increase) decrease in assets and
increase (decrease) in liabilities:Receivables, net
    
    
    (3,907
    )
    
    
    (88
    )Inventories
    
    
    (555
    )
    
    
    (447
    )Deferred income taxes
    
    
    451
    
    
    
    46Prepaid expenses and other current assets
    
    
    166
    
    
    
    (288
    )Other assets
    
    
    (51
    )
    
    
    (24
    )Accounts payable and accrued expenses
    
    
    401
    
    
    
    2,756Deferred income
    
    
    214
    
    
    
    98Other liabilities
    
    
    60
    
    
    
    998Net cash provided by operating activities
    
    
    562
    
    
    
    7,868Cash flows from investing activities:Additions to fixed assets
    
    
    (1,628
    )
    
    
    (1,954
    )Additions to drug licenses and related costs
    
    
    (661
    )
    
    
    (515
    )Proceeds from maturity of investments
    
    
    
    
    
    
    2,661Net cash (used in) provided by investing activities
    
    
    (2,289
    )
    
    
    192
  The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows (Concluded)
 For the Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Cash flows from financing activities:Proceeds from the exercise of stock options
    
    $
    455
    
    
    $
    Proceeds from borrowings
    
    
    172
    
    
    
    Repayment of borrowings
    
    
    (116
    )
    
    
    (554
    )Net cash provided by (used in) financing activities
    
    
    511
    
    
    
    (554
    )Effect of exchange rate changes on cash
    
    
    789
    
    
    
    151Net (decrease) increase in cash and cash equivalents
    
    
    (427
    )
    
    
    7,657Cash and cash equivalents at beginning of period
    
    
    33,706
    
    
    
    12,424Cash and cash equivalents at end of period
    
    $
    33,279
    
    
    $
    20,081Supplemental Disclosures of Cash Flow InformationThe Company paid cash during the period for:Interest
    
    $
    240
    
    
    $
    Supplemental Disclosures of Non-Cash Financing and Investing
ActivitiesThe Company has issued Common Stock as stock-based compensation
in lieu of cash during the period as follows:Shares
    
    
    8
    
    
    
    9Amount
    
    $
    113
    
    
    $
    75Amounts included in accounts payable at end of period for
fixed asset and drug license purchases
    
    $
    434
    
    
    $
    1,267
 The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 History and Operations
  
    
    Specialty Generics: development, licensing and sales of generic and branded generic
pharmaceutical products and active pharmaceutical ingredients (API) and the manufacturing
of pharmaceuticals for others; and
    
    Drug Delivery: research, development and licensing/commercialization of advanced drug
delivery technologies and pharmaceutical products.
   Planned Spin-off
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Merger Agreement with Teva Pharmaceutical Industries Ltd.
   separation costs general and
administrative expenses separation costs
 Basis of Unaudited Condensed Consolidated Financial Statements
  9




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Cash and cash equivalents
 marketable
securities
 cash and cash equivalents
 Fair value measurements
  Fair Value Measurements at March 31, 2008 Using:Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableTotal at
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs(In Thousands)
    
    March 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable Securities
    
    $
    1,084
    
    
    $
    1,084
    
    
    $
    
    
    
    $
    Liabilities:Cash flow hedges
    
    $
    571
    
    
    $
    
    
    
    $
    
    
    
    $
    571
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Fair Value Measurements atMarch 31, 2008 UsingSignificant Unobservable Inputs(Level 3)(In Thousands)
    
    Cash Flow HedgesBeginning Balance at January 1, 2008
    
    $
    374Total gains or losses (realized/unrealized):Included in earnings (or changes in net assets)
    
    
    197Included in other comprehensive income
    
    
    Purchases, issuances, and settlements
    
    
    Transfers in and/or out of Level 3
    
    
    Ending balance at March 31, 2008
    
    $
    571The amount of total gains or losses for the
period included in earnings (or changes in net
assets) attributable to the change in unrealized
gains or losses relating to assets still held at
March 31, 2008
    
    $
    
 Other income (expenses)
 Other income (expenses)Total gains or losses included in earnings (or changes in net
assets) for the three months ended March 31, 2008
    
    $
    197Changes in unrealized gains or losses relating to assets
held at March 31, 2008
    
    $
    
  (In Thousands)
    
    
    
    
    
    Fair Value Measurements at March 31, 2008 Using:Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    SignificantTotal at
    
    
    for Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsAssets:
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Drug licenses and
related costs, net
    
    $
    17,613
    
    
    $
    
    
    
    $
    
    
    
    $
    17,613
    
    
    $
    (195
    )
 Accounting for the Impairment of Long-Lived Assets research and development
 Receivables
  March 31, 2008
    
    
    December 31, 2007Trade receivables
    
    $
    38,112
    
    
    $
    32,279VAT, income
and social security taxes receivable
    
    
    5,369
    
    
    
    4,333Royalties receivable
    
    
    3,291
    
    
    
    3,237Other
    
    
    171
    
    
    
    16146,943
    
    
    
    40,010Less-allowance for doubtful accounts
    
    
    (806
    )
    
    
    (686
    )$
    46,137
    
    
    $
    39,324
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Inventories
   March 31, 2008
    
    
    December 31, 2007Raw materials
    
    $
    13,364
    
    
    $
    11,802Finished goods
    
    
    6,324
    
    
    
    6,79819,688
    
    
    
    18,600Less allowance for slow moving
inventory
    
    
    (152
    )
    
    
    (942
    )$
    19,536
    
    
    $
    17,658
  Fixed assets
 
 March 31, 2008
    
    
    December 31, 2007Land
    
    $
    3,298
    
    
    $
    3,128Buildings and improvements
    
    
    28,158
    
    
    
    26,185Equipment
    
    
    29,126
    
    
    
    26,813Furniture and fixtures
    
    
    2,602
    
    
    
    2,537Other
    
    
    372
    
    
    
    35063,556
    
    
    
    59,013Capital in-progress
    
    
    25,131
    
    
    
    22,31488,687
    
    
    
    81,327Less accumulated depreciation
    
    
    (25,067
    )
    
    
    (22,136
    )$
    63,620
    
    
    $
    59,191
 depreciation and amortization expense cost of net product sales
 Debt
  March 31,
    
    
    December 31,2008
    
    
    2007(In Thousands)Revolving lines of credit payable to Spanish
financial institutions, weighted average
interest rate is 5.06% and 5.05%,
respectively
    
    $
    186
    
    
    $
    116
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March 31,
    
    
    December 31,2008
    
    
    2007(In Thousands)Loans payable
    
    $
    17,380
    
    
    $
    16,203Less-current portion of long-term debt
    
    
    (1,304
    )
    
    
    (608
    )Total long-term debt
    
    $
    16,076
    
    
    $
    15,595
  Year
    
    Principal Payment2008
    
    $
    6522009
    
    
    2,6072010
    
    
    2,6072011
    
    
    2,6072012
    
    
    2,6072013
    
    
    6,300Total
    
    $
    17,380
  Stockholders equity
  U.S. Dollars per Euro
    
    March 31, 2008
    
    December 31, 2007YTD weighted average exchange rate
    
    
    1.50
    
    
    
    1.37Exchange rate
    
    
    1.58
    
    
    
    1.47
 other
comprehensive income accumulated other comprehensive income
 13




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Revenue recognition
 Revenue Recognition When Right of Return Exists ,
  Accounting for Revenue Arrangements with Multiple Deliverables
 Provision for income taxes
 Accounting for Income
Taxes Accounting for Income Taxes  Special Areas
  14




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Basic and diluted net income per common share
 Earnings per
Share
   Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet income
    
    $
    1,064
    
    
    $
    
    
    
    $
    1,064Weighted average common
shares outstanding
    
    
    22,469
    
    
    
    1,119
    
    
    
    23,588Net income per common share
    
    $
    0.05
    
    
    $
    
    
    
    $
    0.05
 15




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Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet income
    
    $
    2,360
    
    
    $
    
    
    
    $
    2,360Weighted average common
shares outstanding
    
    
    22,293
    
    
    
    241
    
    
    
    22,534Net income per common share
    
    $
    0.11
    
    
    $
    
    
    
    $
    0.10
  Share-based compensation plans
   Common stock and restricted stock unit transactions
  Stock-based compensation
  For the Three Months Ended March 31,2008
    
    
    2007Cost of net product sales
    
    $
    10
    
    
    $
    8Selling and marketing expenses
    
    
    5
    
    
    
    5General and administrative expenses
    
    
    409
    
    
    
    310Research and development expenses
    
    
    273
    
    
    
    161$
    697
    
    
    $
    484
  16




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For the Three Months Ended March 31,2008
    
    
    2007General and administrative expenses
    
    $
    57
    
    
    $
    31Research and development expenses
    
    
    56
    
    
    
    44$
    113
    
    
    $
    75
 Business segment information
 Disclosures About Segments of an Enterprise and Related Information,
    17




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Specialty Generics
    

Drug DeliveryEurope
    
    U.S.
    

Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    36,364
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    36,364Licensing and collaboration revenues
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    3,450
    
    
    
    3,649Total revenues
    
    
    36,563
    
    
    
    
    
    
    
    
    
    
    
    3,450
    
    
    
    40,013Cost of net product sales
    
    
    19,913
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    19,947Gross profit
    
    
    16,650
    
    
    
    (34
    )
    
    
    
    
    
    
    3,450
    
    
    
    20,066Selling and marketing expense
    
    
    5,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,763General and administrative expense
    
    
    2,703
    
    
    
    (17
    )
    
    
    
    
    
    
    1,527
    
    
    
    4,213Research and development expense
    
    
    692
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    2,804Separation Costs
    
    
    1,960
    
    
    
    
    
    
    
    
    
    
    
    1,874
    
    
    
    3,834Depreciation and amortization
expense
    
    
    334
    
    
    
    20
    
    
    
    
    
    
    
    172
    
    
    
    526Income from operations
    
    
    5,198
    
    
    
    (37
    )
    
    
    
    
    
    
    (2,235
    )
    
    
    2,926Interest income
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    260Interest expense
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (279
    )Other income (expense), net
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99Income before income taxes
    
    
    5,133
    
    
    
    (37
    )
    
    
    
    
    
    
    (2,090
    )
    
    
    3,006Provision for income taxes
    
    
    1,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,942Net income (loss)
    
    
    3,191
    
    
    
    (37
    )
    
    
    
    
    
    
    (2,090
    )
    
    
    1,064Expenditures for fixed assets
    
    
    1,590
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    1,628Expenditures for drug licenses
    
    
    661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    661
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    28,906
    
    
    $
    208
    
    
    $
    
    
    
    $
    
    
    
    $
    29,114Licensing and collaboration revenues
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    2,163
    
    
    
    2,277Total revenues
    
    
    29,020
    
    
    
    208
    
    
    
    
    
    
    
    2,163
    
    
    
    31,391Cost of net product sales
    
    
    15,396
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    15,897Gross profit
    
    
    13,624
    
    
    
    (293
    )
    
    
    
    
    
    
    2,163
    
    
    
    15,494Selling and marketing expense
    
    
    4,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,445General and administrative expense
    
    
    2,275
    
    
    
    
    
    
    
    
    
    
    
    1,302
    
    
    
    3,577Research and development expense
    
    
    481
    
    
    
    
    
    
    
    1,097
    
    
    
    1,097
    
    
    
    2,675Separation Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    69Depreciation and amortization
expense
    
    
    274
    
    
    
    39
    
    
    
    
    
    
    
    195
    
    
    
    508Income from operations
    
    
    6,149
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (500
    )
    
    
    4,220Interest income
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    182Interest expense
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (50
    )Other income (expense), net
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    89Income before income taxes
    
    
    6,261
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (391
    )
    
    
    4,441Provision for income taxes
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,081Net income (loss)
    
    
    4,180
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (391
    )
    
    
    2,360Expenditures for fixed assets
    
    
    1,934
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    1,954Expenditures for drug licenses
    
    
    336
    
    
    
    32
    
    
    
    
    
    
    
    147
    
    
    
    515
  18




---



##### Table of Contents



Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    

Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    42,866
    
    
    $
    
    
    
    $
    
    
    
    $
    3,271
    
    
    $
    46,137Other current assets
    
    
    36,358
    
    
    
    
    
    
    
    
    
    
    
    20,406
    
    
    
    56,764Fixed assets
    
    
    60,851
    
    
    
    
    
    
    
    
    
    
    
    2,769
    
    
    
    63,620Drug licenses and related costs
    
    
    14,320
    
    
    
    455
    
    
    
    
    
    
    
    2,838
    
    
    
    17,613Other non-current assets
    
    
    1,280
    
    
    
    
    
    
    
    
    
    
    
    1,084
    
    
    
    2,364Total assets
    
    
    155,675
    
    
    
    455
    
    
    
    
    
    
    
    30,368
    
    
    
    186,498Current liabilities
    
    
    32,401
    
    
    
    
    
    
    
    
    
    
    
    3,898
    
    
    
    36,299Long term debt
    
    
    16,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,076Non-current liabilities
    
    
    9,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,265Total liabilities
    
    
    57,742
    
    
    
    
    
    
    
    
    
    
    
    3,898
    
    
    
    61,640
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    36,071
    
    
    $
    
    
    
    $
    
    
    
    $
    3,253
    
    
    $
    39,324Other current assets
    
    
    32,707
    
    
    
    274
    
    
    
    
    
    
    
    22,375
    
    
    
    55,356Fixed assets
    
    
    56,391
    
    
    
    
    
    
    
    
    
    
    
    2,800
    
    
    
    59,191Drug licenses and related costs
    
    
    13,206
    
    
    
    476
    
    
    
    
    
    
    
    2,942
    
    
    
    16,624Other non-current assets
    
    
    1,514
    
    
    
    
    
    
    
    
    
    
    
    1,087
    
    
    
    2,601Total assets
    
    
    139,889
    
    
    
    750
    
    
    
    
    
    
    
    32,457
    
    
    
    173,096Current liabilities
    
    
    28,282
    
    
    
    315
    
    
    
    
    
    
    
    4,486
    
    
    
    33,083Long term debt
    
    
    15,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,595Non-current liabilities
    
    
    8,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,446Total liabilities
    
    
    52,323
    
    
    
    315
    
    
    
    
    
    
    
    4,486
    
    
    
    57,124
   % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    TotalMarch 31, 2008
    
    
    Revenues
    
    
    March 31, 2007
    
    
    RevenuesOmeprazole
    
    $
    5,830
    
    
    
    15
    %
    
    $
    4,421
    
    
    
    14
    %Simvastatin
    
    
    1,796
    
    
    
    4
    %
    
    
    1,705
    
    
    
    6
    %Enalapril
    
    
    1,754
    
    
    
    4
    %
    
    
    1,705
    
    
    
    6
    %Lansoprazole
    
    
    1,402
    
    
    
    4
    %
    
    
    1,170
    
    
    
    4
    %Paroxetine
    
    
    1,280
    
    
    
    3
    %
    
    
    1,346
    
    
    
    4
    %All other products
    
    
    8,435
    
    
    
    21
    %
    
    
    8,560
    
    
    
    27
    %Sales to licensees and others
    
    
    15,867
    
    
    
    40
    %
    
    
    10,207
    
    
    
    32
    %Total net product sales
    
    
    36,364
    
    
    
    91
    %
    
    
    29,114
    
    
    
    93
    %Licensing and collaborations
    
    
    3,649
    
    
    
    9
    %
    
    
    2,277
    
    
    
    7
    %Total Revenues
    
    $
    40,013
    
    
    
    100
    %
    
    $
    31,391
    
    
    
    100
    %
 Recently issued accounting pronouncements
 19




---



##### Table of Contents



The
Fair Value Option for Financial Assets and Financial Liabilities  including an amendment of FASB
Statement No. 115
 Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future
Research and Development Activities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Accounting for Collaborative Agreements Reporting Revenue Gross as a Principal versus Net as an Agent
 Accounting for Derivative Instruments and
 20




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##### Table of Contents



Hedging Activities
 Reclassifications
 general and administrative expenses general and administrative expenses separation
costs
 21




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Planned Spin-off
   Merger Agreement with Teva Pharmaceutical Industries Ltd.
   22




---



##### Table of Contents



separation costs general and
administrative expenses separation costs
 Overview
  
    
    Specialty Generics: development, licensing and sales of generic and branded generic
pharmaceutical products and active pharmaceutical ingredients (API) and the manufacturing
of pharmaceuticals for others; and
    
    Drug Delivery: research, development and licensing/commercialization of advanced drug
delivery technologies and pharmaceutical products.
 Specialty Generic Pharmaceuticals
   23




---



##### Table of Contents



Drug Delivery Technologies and Products
  th Diabetes Technology & Therapeutics th
 Effect of Foreign Currency Fluctuations
  24




---



##### Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS:
 Three Months Ended March 31, 2008 compared to Three Months Ended March 31, 2007
 Revenues
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2008
    
    %
    
    2007
    
    %
    
    $
    
    %Specialty GenericsNet product sales
    
    $
    36,364
    
    
    
    91
    %
    
    $
    29,114
    
    
    
    93
    %
    
    $
    7,250
    
    
    
    25
    %Licensing and collaboration revenues
    
    
    199
    
    
    
    *
    
    
    
    114
    
    
    
    *
    
    
    
    85
    
    
    
    75
    %36,563
    
    
    
    91
    %
    
    
    29,228
    
    
    
    93
    %
    
    
    7,335
    
    
    
    25
    %Drug DeliveryLicensing and collaboration revenues
    
    
    3,450
    
    
    
    9
    %
    
    
    2,163
    
    
    
    7
    %
    
    
    1,287
    
    
    
    60
    %Total revenues
    
    $
    40,013
    
    
    
    100
    %
    
    $
    31,391
    
    
    
    100
    %
    
    $
    8,622
    
    
    
    27
    %
 
 *
    
    Less than 1%   25




---



##### Table of Contents



(in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    499
    
    
    $
    5,331
    
    
    $
    
    
    
    $
    
    
    
    $
    5,830
    
    
    
    15
    %Simvastatin
    
    
    290
    
    
    
    1,506
    
    
    
    
    
    
    
    
    
    
    
    1,796
    
    
    
    4
    %Enalapril
    
    
    1,381
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    1,754
    
    
    
    4
    %Lansoprazole
    
    
    1,002
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    1,402
    
    
    
    4
    %Paroxetine
    
    
    464
    
    
    
    816
    
    
    
    
    
    
    
    
    
    
    
    1,280
    
    
    
    3
    %All other products
    
    
    3,268
    
    
    
    3,889
    
    
    
    310
    
    
    
    968
    
    
    
    8,435
    
    
    
    21
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    5,241
    
    
    
    10,626
    
    
    
    15,867
    
    
    
    40
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    199
    
    
    
    3,450
    
    
    
    3,649
    
    
    
    9
    %Total Revenues
    
    $
    6,904
    
    
    $
    12,315
    
    
    $
    5,750
    
    
    $
    15,044
    
    
    $
    40,013
    
    
    
    100
    %% of Q-1 2008 Revenues
    
    
    17
    %
    
    
    31
    %
    
    
    14
    %
    
    
    38
    %
    
    
    100
    %
  (in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    551
    
    
    $
    3,870
    
    
    $
    
    
    
    $
    
    
    
    $
    4,421
    
    
    
    14
    %Simvastatin
    
    
    366
    
    
    
    1,339
    
    
    
    
    
    
    
    
    
    
    
    1,705
    
    
    
    6
    %Enalapril
    
    
    1,314
    
    
    
    391
    
    
    
    
    
    
    
    
    
    
    
    1,705
    
    
    
    6
    %Lansoprazole
    
    
    856
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    1,170
    
    
    
    4
    %Paroxetine
    
    
    449
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    1,346
    
    
    
    4
    %All other products
    
    
    3,460
    
    
    
    3,868
    
    
    
    275
    
    
    
    957
    
    
    
    8,560
    
    
    
    27
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    3,670
    
    
    
    6,537
    
    
    
    10,207
    
    
    
    32
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    2,163
    
    
    
    2,277
    
    
    
    7
    %Total Revenues
    
    $
    6,996
    
    
    $
    10,679
    
    
    $
    4,059
    
    
    $
    9,657
    
    
    $
    31,391
    
    
    
    100
    %% of Q-1 2007 Revenues
    
    
    22
    %
    
    
    34
    %
    
    
    13
    %
    
    
    31
    %
    
    
    100
    %
 Branded Generic Pharmaceutical Products
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2008
    
    %
    
    2007
    
    %
    
    $
    
    %Branded Generic Product Sales:Enalapril
    
    $
    1,381
    
    
    
    20
    %
    
    $
    1,314
    
    
    
    19
    %
    
    $
    67
    
    
    
    5
    %Codeisan
    
    
    1,186
    
    
    
    17
    %
    
    
    1,270
    
    
    
    18
    %
    
    
    (84
    )
    
    
    -7
    %Lansoprazole
    
    
    1,002
    
    
    
    15
    %
    
    
    856
    
    
    
    12
    %
    
    
    146
    
    
    
    17
    %Ibuprofen
    
    
    648
    
    
    
    9
    %
    
    
    483
    
    
    
    7
    %
    
    
    165
    
    
    
    34
    %Omeprazole
    
    
    499
    
    
    
    7
    %
    
    
    551
    
    
    
    8
    %
    
    
    (52
    )
    
    
    -9
    %All other branded products
    
    
    2,188
    
    
    
    32
    %
    
    
    2,522
    
    
    
    36
    %
    
    
    (334
    )
    
    
    -13
    %Total branded generic sales
    
    $
    6,904
    
    
    
    100
    %
    
    $
    6,996
    
    
    
    100
    %
    
    $
    (92
    )
    
    
    -1
    %
  26




---



##### Table of Contents



Generic Pharmaceutical Products
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2008
    
    %
    
    2007
    
    %
    
    $
    
    %Generic Product Sales:Omeprazole
    
    $
    5,331
    
    
    
    43
    %
    
    $
    3,870
    
    
    
    36
    %
    
    $
    1,461
    
    
    
    38
    %Simvastatin
    
    
    1,506
    
    
    
    12
    %
    
    
    1,339
    
    
    
    13
    %
    
    
    167
    
    
    
    12
    %Paroxetine
    
    
    816
    
    
    
    7
    %
    
    
    897
    
    
    
    8
    %
    
    
    (81
    )
    
    
    -9
    %Trimetazidine
    
    
    633
    
    
    
    5
    %
    
    
    729
    
    
    
    7
    %
    
    
    (96
    )
    
    
    -13
    %Pentoxifylline
    
    
    598
    
    
    
    5
    %
    
    
    704
    
    
    
    7
    %
    
    
    (106
    )
    
    
    -15
    %All other generic products
    
    
    3,431
    
    
    
    28
    %
    
    
    3,140
    
    
    
    29
    %
    
    
    291
    
    
    
    9
    %Total generic sales
    
    $
    12,315
    
    
    
    100
    %
    
    $
    10,679
    
    
    
    100
    %
    
    $
    1,636
    
    
    
    15
    %
  Sales to Licensees and Others
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2008
    
    2007
    
    $
    
    %Specialty generics
    
    $
    15,867
    
    
    $
    10,207
    
    
    $
    5,660
    
    
    
    55
    %
 net product
sales
  Licensing and Collaboration Revenues
 For the Three Months Ended March 31,
    
    
    Change(in thousands)
    
    2008
    
    
    2007
    
    
    $
    
    
    %|
    
    
    |
    
    
    
    |
    
    
    |Specialty generics
    
    $
    199
    
    
    $
    114
    
    
    $
    85
    
    
    
    75
    %Drug delivery
    
    
    3,450
    
    
    
    2,163
    
    
    
    1,287
    
    
    
    60
    %Total
    
    $
    3,649
    
    
    $
    2,277
    
    
    $
    1,372
    
    
    
    60
    %
  27




---



##### Table of Contents



Gross Profit
 For the Three Months Ended March 31,
    
    
    Change(in thousands)
    
    2008
    
    
    2007
    
    
    $
    
    
    %|
    
    
    |
    
    
    
    |
    
    
    |Specialty generics
    
    $
    16,616
    
    
    $
    13,331
    
    
    $
    3,285
    
    
    
    25
    %Drug delivery
    
    
    3,450
    
    
    
    2,163
    
    
    
    1,287
    
    
    
    60
    %Total
    
    $
    20,066
    
    
    $
    15,494
    
    
    $
    4,572
    
    
    
    30
    %
  Selling and Marketing Expenses
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2008
    
    2007
    
    $
    
    %|
    
    
    |
    
    
    
    |
    
    
    |Specialty generics
    
    $
    5,763
    
    
    $
    4,445
    
    
    $
    1,318
    
    
    
    30
    %
  General and Administrative Expenses
 For the Three Months Ended March 31,
    
    
    Change(in thousands)
    
    2008
    
    
    2007
    
    
    $
    
    
    %|
    
    
    |
    
    
    
    |
    
    
    |Specialty generics
    
    $
    2,686
    
    
    $
    2,275
    
    
    $
    411
    
    
    
    18
    %Drug delivery
    
    
    1,527
    
    
    
    1,302
    
    
    
    225
    
    
    
    17
    %Total
    
    $
    4,213
    
    
    $
    3,577
    
    
    $
    636
    
    
    
    18
    %
  28




---



##### Table of Contents



Research and Development Expenses
 For the Three Months Ended March 31,
    
    
    Change(in thousands)
    
    2008
    
    
    2007
    
    
    $
    
    
    %Specialty generics
    
    $
    692
    
    
    $
    481
    
    
    $
    211
    
    
    
    44
    %Drug delivery
    
    
    2,112
    
    
    
    2,194
    
    
    
    (82
    )
    
    
    -4
    %Total
    
    $
    2,804
    
    
    $
    2,675
    
    
    $
    129
    
    
    
    5
    %
  Separation Costs
 Change(in thousands)
    
    2008
    
    
    2007
    
    
    $
    
    
    %Specialty generics
    
    $
    1,960
    
    
    $
    
    
    
    $
    1,960
    
    
    
    *Drug Delivery
    
    $
    1,874
    
    
    
    69
    
    
    
    1,805
    
    
    
    *Total
    
    $
    3,834
    
    
    $
    69
    
    
    $
    3,765
    
    
    
    *
 
 *
    
    Not meaningful  Provision for Income Taxes
 For the Three Months Ended March 31,2008
    
    2007(in thousands)
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.Income (loss) before income taxes
Specialty generics
    
    $
    6,139
    
    
    $
    (6
    )
    
    $
    (1,037
    )
    
    $
    5,096
    
    
    $
    6,468
    
    
    $
    (1,098
    )
    
    $
    (390
    )
    
    $
    4,980Drug delivery
    
    
    
    
    
    
    
    
    
    
    (2,090
    )
    
    
    (2,090
    )
    
    
    
    
    
    
    (206
    )
    
    
    (333
    )
    
    
    (539
    )Total Income (loss) before income
taxes
    
    
    6,139
    
    
    
    (6
    )
    
    
    (3,127
    )
    
    
    3,006
    
    
    
    6,468
    
    
    
    (1,304
    )
    
    
    (723
    )
    
    
    4,441Provision (benefit) for income taxes
    
    
    1,943
    
    
    
    (1
    )
    
    
    (862
    )
    
    
    1,080
    
    
    
    2,081
    
    
    
    (163
    )
    
    
    (160
    )
    
    
    1,758Valuation allowance
    
    
    
    
    
    
    
    
    
    
    862
    
    
    
    862
    
    
    
    
    
    
    
    163
    
    
    
    160
    
    
    
    323Net provision for income taxes
    
    
    1,943
    
    
    
    (1
    )
    
    
    
    
    
    
    1,942
    
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    2,081Net income (loss)
    
    $
    4,196
    
    
    $
    (5
    )
    
    $
    (3,127
    )
    
    $
    1,064
    
    
    $
    4,387
    
    
    $
    (1,304
    )
    
    $
    (723
    )
    
    $
    2,360Effective tax rate
    
    
    32
    %
    
    
    17
    %
    
    
    0
    %
    
    
    65
    %
    
    
    32
    %
    
    
    0
    %
    
    
    0
    %
    
    
    47
    %
  29




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##### Table of Contents



Net Income
 For the Three MonthsEnded March 31,
    
    
    Change(in thousands, except per share data)
    
    2008
    
    
    2007
    
    
    $
    
    
    %Specialty Generics
    
    $
    3,154
    
    
    $
    3,848
    
    
    $
    (694
    )
    
    
    -18
    %Drug Delivery
    
    
    (2,090
    )
    
    
    (1,488
    )
    
    
    (602
    )
    
    
    -40
    %Total net income
    
    $
    1,064
    
    
    $
    2,360
    
    
    $
    (1,296
    )
    
    
    -55
    %Net income per common share:Basic
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    (0.06
    )
    
    
    -55
    %Diluted
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    (0.05
    )
    
    
    -50
    %Weighted average common shares outstanding:Basic
    
    
    22,469
    
    
    
    22,293
    
    
    
    176
    
    
    
    1
    %Diluted
    
    
    23,588
    
    
    
    22,534
    
    
    
    1,054
    
    
    
    5
    %
  LIQUIDITY AND CAPITAL RESOURCES :
   30




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31




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##### Table of Contents



Seasonality.
 Effect of Inflation and Changing Prices.
 Liquidity.
  Critical Accounting Policies and Estimates
  32




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##### Table of Contents



Important Factors That May Affect Future Results
   
    
    Strategic plans;
    
    Sales growth;
    
    Anticipated sources of future revenues;
    
    Anticipated 2008 expenses, margins and operating performance;
    
    Plans for spinning-off the drug delivery business from the specialty generics
business;
    
    Prospects for selling the specialty generics business pursuant to an agreement
and plan of merger with Teva Pharmaceutical Industries Ltd.;
    
    Expected launch of new products;
    
    Anticipated expenses and spending;
    
    Planned and continuing clinical trials;
    
    Anticipated regulatory changes and approvals; and
    
    The sufficiency of capital resources to fund our operations.
  Important Information
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency.
 U.S. Dollars per Euro
    
    March 31, 2008
    
    December 31, 2007
    
    March 31, 2007YTD weighted average exchange rate
    
    
    1.50
    
    
    
    1.37
    
    
    
    1.31Exchange rate
    
    
    1.58
    
    
    
    1.47
    
    
    
    1.33
  Favorable (Unfavorable)Assuming a
    
    Assuming a10% Increase
    
    10% DecreaseFinancial instrument:
    
    in FX Rates
    
    in FX Rates
    
    Impact onForward contracts (Euro)
    
    $
    (265,912
    )
    
    $
    318,393
    
    
    Fair valueForeign currency denominated debt
    
    $
    (1,738,000
    )
    
    $
    1,738,000
    
    
    Fair value
  accumulated other comprehensive income
 34




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##### Table of Contents



Interest Rates.
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Remediation of Material Weakness
    
    
    Bentley provided additional training to finance and accounting personnel regarding
the identification, reconciliation and appropriate eliminations of intercompany
balances.
 35




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##### Table of Contents




    
    Bentley implemented a process that ensures the timely review and approval of
intercompany accounting transactions by qualified accounting personnel.
 Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 6. Exhibits
  36




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##### Table of Contents



SIGNATURES
  BENTLEY PHARMACEUTICALS, INC.

Registrant
 May 12, 2008
    By:
    /s/ James R. MurphyJames R. MurphyChairman of the Board of Directors

and Chief Executive Officer
(Principal Executive Officer)May 12, 2008
    By:
    /s/ Richard P. LindsayRichard P. LindsayVice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    
    
    Description of Exhibit31.1
    
    *
    
    Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    *
    
    Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    *
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    *
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.