##### 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 June 30, 2007
 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
  o þ o
 o þ




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##### 



Bentley Pharmaceuticals, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended June 30, 2007
 Index
 PagePart I. Unaudited Financial InformationItem 1. Condensed Consolidated Financial Statements:Consolidated Balance Sheets as of June 30, 2007
and December 31, 2006
    
    
    3Consolidated Income Statements for the three months
ended June 30, 2007 and 2006, and the six months
ended June 30, 2007 and 2006
    
    
    4Consolidated Statement of Changes in Stockholders
Equity for the six months ended June 30, 2007
    
    
    5Consolidated Statements of Cash Flows for the
six months ended June 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36Part II. Other InformationItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 6. Exhibits
    
    
    37Ex-10.1 Loan Agreement dated June 29, 2007Ex-10.2 Letter of guarantee dated June 29, 2007Ex-10.3 Form of Restricted Stock Unit CertificateEx-31.1 Certification of CEOEx-31.2 Certification of CFOEx-32.1 Certification of CEOEx-32.2 Certification of CFO
  2




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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 (in thousands, except per share data)
    
    June 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    35,661
    
    
    $
    12,424Marketable securities
    
    
    529
    
    
    
    3,177Receivables, net
    
    
    34,222
    
    
    
    32,963Inventories, net
    
    
    15,801
    
    
    
    16,279Deferred taxes
    
    
    1,257
    
    
    
    1,049Prepaid expenses and other
    
    
    2,116
    
    
    
    1,798Total current assets
    
    
    89,586
    
    
    
    67,690Non-current assets:Fixed assets, net
    
    
    51,404
    
    
    
    48,556Drug licenses and related costs, net
    
    
    16,425
    
    
    
    16,026Restricted cash
    
    
    1,000
    
    
    
    1,000Deferred taxes
    
    
    148
    
    
    
    240Other
    
    
    1,009
    
    
    
    844Total non-current assets
    
    
    69,986
    
    
    
    66,666$
    159,572
    
    
    $
    134,356Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    16,224
    
    
    $
    14,566Accrued expenses
    
    
    12,180
    
    
    
    9,704Short-term borrowings
    
    
    
    
    
    
    247Current portion of long-term debt
    
    
    
    
    
    
    307Deferred income
    
    
    853
    
    
    
    1,045Other current liabilities
    
    
    1,253
    
    
    
    1,518Total current liabilities
    
    
    30,510
    
    
    
    27,387Non-current liabilities:Long-term debt
    
    
    14,807
    
    
    
    Deferred income
    
    
    4,305
    
    
    
    3,899Other
    
    
    3,772
    
    
    
    2,739Total non-current liabilities
    
    
    22,884
    
    
    
    6,638Commitments 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, 22,297 and 22,262 shares
    
    
    445
    
    
    
    445Additional paid-in capital
    
    
    141,194
    
    
    
    140,030Accumulated deficit
    
    
    (46,351
    )
    
    
    (49,016
    )Accumulated other comprehensive income
    
    
    10,890
    
    
    
    8,872Total stockholders equity
    
    
    106,178
    
    
    
    100,331$
    159,572
    
    
    $
    134,356
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Consolidated Income Statements
 For the Three Months Ended
    
    
    For the Six Months Ended(in thousands, except per share data)

    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Net product sales
    
    $
    28,353
    
    
    $
    26,457
    
    
    $
    57,467
    
    
    $
    53,027Licensing and collaboration revenues
    
    
    2,826
    
    
    
    2,526
    
    
    
    5,103
    
    
    
    4,234Total revenues
    
    
    31,179
    
    
    
    28,983
    
    
    
    62,570
    
    
    
    57,261Cost of net product sales
    
    
    15,790
    
    
    
    12,471
    
    
    
    31,687
    
    
    
    25,404Gross profit
    
    
    15,389
    
    
    
    16,512
    
    
    
    30,883
    
    
    
    31,857Operating expenses:Selling and marketing
    
    
    4,813
    
    
    
    4,242
    
    
    
    9,258
    
    
    
    8,381General and administrative
    
    
    4,579
    
    
    
    3,665
    
    
    
    8,225
    
    
    
    7,569Research and development
    
    
    3,502
    
    
    
    2,495
    
    
    
    6,177
    
    
    
    5,403Litigation settlement
    
    
    
    
    
    
    733
    
    
    
    
    
    
    
    1,337Depreciation and amortization
    
    
    546
    
    
    
    445
    
    
    
    1,054
    
    
    
    881Total operating expenses
    
    
    13,440
    
    
    
    11,580
    
    
    
    24,714
    
    
    
    23,571Income from operations
    
    
    1,949
    
    
    
    4,932
    
    
    
    6,169
    
    
    
    8,286Other income (expenses):Interest income
    
    
    185
    
    
    
    185
    
    
    
    367
    
    
    
    438Interest expense
    
    
    (51
    )
    
    
    (34
    )
    
    
    (101
    )
    
    
    (94
    )Other, net
    
    
    144
    
    
    
    36
    
    
    
    233
    
    
    
    36Income before income taxes
    
    
    2,227
    
    
    
    5,119
    
    
    
    6,668
    
    
    
    8,666Provision for income taxes
    
    
    1,517
    
    
    
    2,484
    
    
    
    3,598
    
    
    
    4,877Net income
    
    $
    710
    
    
    $
    2,635
    
    
    $
    3,070
    
    
    $
    3,789Net income per common share:Basic
    
    $
    0.03
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.17Diluted
    
    $
    0.03
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.16Weighted average common
shares outstanding:Basic
    
    
    22,318
    
    
    
    22,170
    
    
    
    22,305
    
    
    
    22,063Diluted
    
    
    22,892
    
    
    
    22,876
    
    
    
    22,695
    
    
    
    23,380
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Consolidated Statement of Changes in Stockholders Equity
 Accumulated$0.02 Par Value
    
    
    Additional
    
    
    
    
    
    
    Other(in thousands)

    
    Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance at December 31, 2006
    
    
    22,262
    
    
    $
    445
    
    
    $
    140,030
    
    
    $
    (49,016
    )
    
    $
    8,872
    
    
    $
    100,331Cumulative effect change in accounting
from the implementation of FIN No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    
    
    
    
    (405
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,070
    
    
    
    
    
    
    
    3,070Other comprehensive loss:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,018
    
    
    
    2,018Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,088Exercise of stock options
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Purchase of treasury shares
    
    
    (4
    )
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Stock-based compensation
    
    
    14
    
    
    
    
    
    
    
    1,191
    
    
    
    
    
    
    
    
    
    
    
    1,191Balance at June 30, 2007
    
    
    22,297
    
    
    $
    445
    
    
    $
    141,194
    
    
    $
    (46,351
    )
    
    $
    10,890
    
    
    $
    106,178
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 For the Six Months Ended(in thousands)

    
    June 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    3,070
    
    
    $
    3,789Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    3,259
    
    
    
    2,630Non-cash charge for inventory write-down and reserves
    
    
    422
    
    
    
    Foreign currency gains
    
    
    (56
    )Equity-based compensation expense
    
    
    1,191
    
    
    
    958Change in fair value of derivative instrument
    
    
    31Loss on disposal of assets
    
    
    353
    
    
    
    52Other non-cash items
    
    
    6
    
    
    
    6(Increase) decrease in assets and
increase (decrease) in liabilities:Receivables
    
    
    (503
    )
    
    
    (4,117
    )Inventories
    
    
    429
    
    
    
    (2,073
    )Deferred income taxes
    
    
    (82
    )
    
    
    (112
    )Prepaid expenses and other current assets
    
    
    (287
    )
    
    
    208Other assets
    
    
    (131
    )
    
    
    (187
    )Accounts payable and accrued expenses
    
    
    3,535
    
    
    
    2,828Deferred income
    
    
    89
    
    
    
    863Other liabilities
    
    
    270
    
    
    
    Net cash provided by operating activities
    
    
    11,596
    
    
    
    4,845Cash flows from investing activities:Additions to fixed assets
    
    
    (4,258
    )
    
    
    (7,316
    )Additions to drug licenses and related costs
    
    
    (1,205
    )
    
    
    (871
    )Purchase of investments
    
    
    
    
    
    
    (2,377
    )Proceeds from investments
    
    
    2,661
    
    
    
    Net cash used in investing activities
    
    
    (2,802
    )
    
    
    (10,564
    )
  The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Concluded)
 For the Six Months Ended(in thousands)

    
    June 30,2007
    
    
    2006Cash flows from financing activities:Proceeds from the exercise of stock options
    
    $
    25
    
    
    $
    115Remittance of employee tax liabilities in exchange
for common stock tendered to the Company
    
    
    (52
    )
    
    
    (1,713
    )Proceeds from borrowings
    
    
    14,807
    
    
    
    1,404Repayment of borrowings
    
    
    (554
    )
    
    
    (2,870
    )Net cash provided by (used) in financing activities
    
    
    14,226
    
    
    
    (3,064
    )Effect of exchange rate changes on cash
    
    
    217
    
    
    
    360Net increase (decrease) in cash and cash equivalents
    
    
    23,237
    
    
    
    (8,423
    )Cash and cash equivalents at beginning of period
    
    
    12,424
    
    
    
    32,384Cash and cash equivalents at end of period
    
    $
    35,661
    
    
    $
    23,961Supplemental Disclosures of Cash Flow InformationThe Company paid cash during the period for:Interest
    
    $
    11
    
    
    $
    90Foreign income taxes
    
    $
    1,541
    
    
    $
    2,152Supplemental Disclosures of Non-Cash Financing and Investing
ActivitiesThe Company has issued Common Stock as equity-based
compensation in lieu of cash during the period as follows:Shares
    
    
    15
    
    
    
    9Amount
    
    $
    139
    
    
    $
    127Amounts included in accounts payable at end of
period for fixed asset and drug license purchases
    
    $
    1,326
    
    
    $
    2,096
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Notes to 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.
  ® ® TM
 Basis of Condensed Consolidated Financial Statements
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Cash and cash equivalents
 marketable securities
 cash and cash equivalents
 Receivables
  June 30, 2007
    
    
    December 31, 2006Trade receivables (of which $0 and
$2,595, respectively,
collateralize short-term
borrowings with Spanish financial
institutions)
    
    $
    27,207
    
    
    $
    27,880VAT receivable
    
    
    4,783
    
    
    
    3,151Royalties receivable
    
    
    2,675
    
    
    
    2,261Other
    
    
    90
    
    
    
    8234,755
    
    
    
    33,374Less-allowance for doubtful accounts
    
    
    (533
    )
    
    
    (411
    )$
    34,222
    
    
    $
    32,963
 Inventories
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June 30, 2007
    
    
    December 31, 2006Raw materials
    
    $
    10,382
    
    
    $
    8,669Finished goods
    
    
    6,196
    
    
    
    7,62116,578
    
    
    
    16,290Less allowance for slow moving
inventory
    
    
    (777
    )
    
    
    (11
    )$
    15,801
    
    
    $
    16,279
 cost of sales
 other current liabilities
 Fixed assets
 
 June 30, 2007
    
    
    December 31, 2006Land
    
    $
    2,926
    
    
    $
    2,875Buildings and improvements
    
    
    23,822
    
    
    
    17,538Equipment
    
    
    23,831
    
    
    
    20,591Furniture and fixtures
    
    
    2,108
    
    
    
    2,138Other
    
    
    284
    
    
    
    39452,971
    
    
    
    43,536Capital in-progress
    
    
    16,264
    
    
    
    20,21369,235
    
    
    
    63,749Less accumulated depreciation
    
    
    (17,831
    )
    
    
    (15,193
    )$
    51,404
    
    
    $
    48,556
 depreciation and amortization expense cost of net product sales
 Long-term debt
  June 30, 2007
    
    
    December 31, 2006Loans payable
    
    $
    14,807
    
    
    $
    307Less-current portion of long-term debt
    
    
    
    
    
    
    (307
    )$
    14,807
    
    
    $
    
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2007
    
    $
    --2008
    
    
    5552009
    
    
    2,2212010
    
    
    2,2212011
    
    
    2,2212012 and 2013
    
    
    7,589Total
    
    $
    14,807
   Stockholders equity
  U.S. Dollars per Euro
    
    June 30, 2007
    
    December 31, 2006YTD weighted average exchange rate
    
    
    1.33
    
    
    
    1.26Exchange rate
    
    
    1.35
    
    
    
    1.31
 accumulated other comprehensive
income
 Supplemental disclosures related to Consolidated Statements of Cash Flows
 additional paid in capital
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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 Uncertainty in Income Taxes Accounting for Income Taxes
 12




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Basic and diluted net income per common share
    Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet Income
    
    $
    710
    
    
    $
    
    
    
    $
    710Weighted Average
Common Shares
Outstanding
    
    
    22,318
    
    
    
    574
    
    
    
    22,892Net Income Per
Common Share
    
    $
    0.03
    
    
    $
    
    
    
    $
    0.03
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Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet Income
    
    $
    2,635
    
    
    $
    
    
    
    $
    2,635Weighted Average
Common Shares
Outstanding
    
    
    22,170
    
    
    
    706
    
    
    
    22,876Net Income Per
Common Share
    
    $
    0.12
    
    
    $
    
    
    
    $
    0.12
  Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet Income
    
    $
    3,070
    
    
    $
    
    
    
    $
    3,070Weighted Average
Common Shares
Outstanding
    
    
    22,305
    
    
    
    390
    
    
    
    22,695Net Income Per
Common Share
    
    $
    0.14
    
    
    $
    
    
    
    $
    0.14
  Effect of DilutiveBasic EPS
    
    Securities
    
    Diluted EPSNet Income
    
    $
    3,789
    
    
    $
    
    
    
    $
    3,789Weighted Average
Common Shares
Outstanding
    
    
    22,063
    
    
    
    1,317
    
    
    
    23,380Net Income Per
Common Share
    
    $
    0.17
    
    
    $
    (0.01
    )
    
    $
    0.16
   Share-based compensation
   14




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For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of net product sales
    
    $
    7
    
    
    $
    5
    
    
    $
    15
    
    
    $
    15Selling and marketing expenses
    
    
    4
    
    
    
    3
    
    
    
    9
    
    
    
    8General and administrative expenses
    
    
    309
    
    
    
    217
    
    
    
    619
    
    
    
    521Research and development expenses
    
    
    188
    
    
    
    138
    
    
    
    362
    
    
    
    282$
    508
    
    
    $
    363
    
    
    $
    1,005
    
    
    $
    826
  General and administrative expenses Research and development expenses
 Business segment information
 Disclosures About Segments of an Enterprise and Related Information,
   15




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Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    28,161
    
    
    $
    192
    
    
    $
    
    
    
    $
    
    
    
    
    28,353Licensing and collaboration revenues
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    2,655
    
    
    
    2,826Total revenue
    
    
    28,332
    
    
    
    192
    
    
    
    
    
    
    
    2,655
    
    
    
    31,179Cost of net product sales
    
    
    15,447
    
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    15,790Gross Profit
    
    
    12,885
    
    
    
    (151
    )
    
    
    
    
    
    
    2,655
    
    
    
    15,389Selling and marketing expense
    
    
    4,813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,813General and administrative expense
    
    
    2,393
    
    
    
    (8
    )
    
    
    
    
    
    
    2,194
    
    
    
    4,579Research and development expense
    
    
    519
    
    
    
    
    
    
    
    1,491
    
    
    
    1,492
    
    
    
    3,502Depreciation and amortization
expense
    
    
    284
    
    
    
    39
    
    
    
    
    
    
    
    223
    
    
    
    546Income from operations
    
    
    4,876
    
    
    
    (182
    )
    
    
    (1,491
    )
    
    
    (1,254
    )
    
    
    1,949Interest income
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    185Interest expense
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (51
    )Other income (expense), net
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Income before income taxes
    
    
    5,042
    
    
    
    (182
    )
    
    
    (1,491
    )
    
    
    (1,142
    )
    
    
    2,227Provision for income taxes
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517Net income (loss)
    
    
    3,525
    
    
    
    (182
    )
    
    
    (1,491
    )
    
    
    (1,142
    )
    
    
    710Expenditures for fixed assets
    
    
    2,296
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    2,304Expenditures for drug licenses
    
    
    565
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    690
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    26,457
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,457Licensing and collaboration revenues
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    2,361
    
    
    
    2,526Total revenues
    
    
    26,622
    
    
    
    
    
    
    
    
    
    
    
    2,361
    
    
    
    28,983Cost of net product sales
    
    
    12,471
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,471Gross profit
    
    
    14,151
    
    
    
    
    
    
    
    
    
    
    
    2,361
    
    
    
    16,512Selling and marketing expense
    
    
    4,242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,242General and administrative expense
    
    
    1,710
    
    
    
    
    
    
    
    19
    
    
    
    1,936
    
    
    
    3,665Research and development expense
    
    
    459
    
    
    
    
    
    
    
    1,018
    
    
    
    1,018
    
    
    
    2,495Litigation settlement
    
    
    227
    
    
    
    506
    
    
    
    
    
    
    
    
    
    
    
    733Depreciation and amortization
expense
    
    
    260
    
    
    
    21
    
    
    
    
    
    
    
    164
    
    
    
    445Income from operations
    
    
    7,253
    
    
    
    (527
    )
    
    
    (1,037
    )
    
    
    (757
    )
    
    
    4,932Interest income
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    185Interest expense
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )Other income (expense), net
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Income before income taxes
    
    
    7,264
    
    
    
    (527
    )
    
    
    (1,037
    )
    
    
    (581
    )
    
    
    5,119Provision for income taxes
    
    
    2,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,484Net income (loss)
    
    
    4,780
    
    
    
    (527
    )
    
    
    (1,037
    )
    
    
    (581
    )
    
    
    2,635Expenditures for fixed assets
    
    
    3,937
    
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    4,034Expenditures for drug licenses
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    350
 16




---



##### Table of Contents



Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    57,067
    
    
    $
    400
    
    
    $
    
    
    
    $
    
    
    
    
    57,467Licensing and collaboration
revenues
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    4,818
    
    
    
    5,103Total revenues
    
    
    57,352
    
    
    
    400
    
    
    
    
    
    
    
    4,818
    
    
    
    62,570Cost of net product sales
    
    
    30,843
    
    
    
    844
    
    
    
    
    
    
    
    
    
    
    
    31,687Gross profit
    
    
    26,509
    
    
    
    (444
    )
    
    
    
    
    
    
    4,818
    
    
    
    30,883Selling and marketing expense
    
    
    9,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,258General and administrative expense
    
    
    4,667
    
    
    
    (28
    )
    
    
    
    
    
    
    3,586
    
    
    
    8,225Research and development expense
    
    
    1,000
    
    
    
    
    
    
    
    2,588
    
    
    
    2,589
    
    
    
    6,177Litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
expense
    
    
    558
    
    
    
    78
    
    
    
    
    
    
    
    418
    
    
    
    1,054Income from operations
    
    
    11,026
    
    
    
    (494
    )
    
    
    (2,588
    )
    
    
    (1,775
    )
    
    
    6,169Interest income
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    367Interest expense
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (101
    )Other income (expense), net
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    233Income before income taxes
    
    
    11,304
    
    
    
    (494
    )
    
    
    (2,588
    )
    
    
    (1,554
    )
    
    
    6,668Provision for income taxes
    
    
    3,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,598Net income (loss)
    
    
    7,706
    
    
    
    (494
    )
    
    
    (2,588
    )
    
    
    (1,554
    )
    
    
    3,070Expenditures for fixed assets
    
    
    4,230
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    4,258Expenditures for drug licenses
    
    
    901
    
    
    
    32
    
    
    
    
    
    
    
    272
    
    
    
    1,205
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    53,027
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    53,027Licensing and collaboration
revenues
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    3,995
    
    
    
    4,234Total revenues
    
    
    53,266
    
    
    
    
    
    
    
    
    
    
    
    3,995
    
    
    
    57,261Cost of net product sales
    
    
    25,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,404Gross profit
    
    
    27,862
    
    
    
    
    
    
    
    
    
    
    
    3,995
    
    
    
    31,857Selling and marketing expense
    
    
    8,381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,381General and administrative expense
    
    
    3,486
    
    
    
    
    
    
    
    68
    
    
    
    4,015
    
    
    
    7,569Research and development expense
    
    
    953
    
    
    
    
    
    
    
    2,225
    
    
    
    2,225
    
    
    
    5,403Litigation settlement
    
    
    389
    
    
    
    948
    
    
    
    
    
    
    
    
    
    
    
    1,337Depreciation and amortization
expense
    
    
    514
    
    
    
    42
    
    
    
    
    
    
    
    325
    
    
    
    881Income from operations
    
    
    14,139
    
    
    
    (990
    )
    
    
    (2,293
    )
    
    
    (2,570
    )
    
    
    8,286Interest income
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    438Interest expense
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Other income (expense), net
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Income before income taxes
    
    
    14,136
    
    
    
    (990
    )
    
    
    (2,293
    )
    
    
    (2,187
    )
    
    
    8,666Provision for income taxes
    
    
    4,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,877Net income (loss)
    
    
    9,259
    
    
    
    (990
    )
    
    
    (2,293
    )
    
    
    (2,187
    )
    
    
    3,789Expenditures for fixed assets
    
    
    7,137
    
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    7,316Expenditures for drug licenses
    
    
    556
    
    
    
    
    
    
    
    
    
    
    
    315
    
    
    
    871
 17




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##### Table of Contents



Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    31,438
    
    
    $
    
    
    
    $
    
    
    
    $
    2,784
    
    
    
    34,222Other current assets
    
    
    44,676
    
    
    
    248
    
    
    
    
    
    
    
    10,440
    
    
    
    55,364Fixed assets
    
    
    48,718
    
    
    
    
    
    
    
    
    
    
    
    2,686
    
    
    
    51,404Drug licenses and related costs
    
    
    11,312
    
    
    
    1,783
    
    
    
    
    
    
    
    3,330
    
    
    
    16,425Other non-current assets
    
    
    917
    
    
    
    
    
    
    
    
    
    
    
    1,240
    
    
    
    2,157Total assets
    
    
    137,061
    
    
    
    2,031
    
    
    
    
    
    
    
    20,480
    
    
    
    159,572Current liabilities
    
    
    27,108
    
    
    
    250
    
    
    
    
    
    
    
    3,152
    
    
    
    30,510Long term debt
    
    
    14,807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,807Other non-current liabilities
    
    
    8,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,077Total liabilities
    
    
    49,992
    
    
    
    250
    
    
    
    
    
    
    
    3,152
    
    
    
    53,394
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    30,558
    
    
    $
    39
    
    
    $
    
    
    
    $
    2,366
    
    
    $
    32,963Other current assets
    
    
    21,758
    
    
    
    1,338
    
    
    
    
    
    
    
    11,631
    
    
    
    34,727Fixed assets
    
    
    45,738
    
    
    
    
    
    
    
    
    
    
    
    2,818
    
    
    
    48,556Drug licenses and related costs
    
    
    10,697
    
    
    
    1,833
    
    
    
    
    
    
    
    3,496
    
    
    
    16,026Other non-current assets
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    1,199
    
    
    
    2,084Total assets
    
    
    109,636
    
    
    
    3,120
    
    
    
    
    
    
    
    21,510
    
    
    
    134,356Current liabilities
    
    
    24,651
    
    
    
    
    
    
    
    
    
    
    
    2,736
    
    
    
    27,387Non-current liabilities
    
    
    6,638
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,638Total liabilities
    
    
    31,289
    
    
    
    
    
    
    
    
    
    
    
    2,736
    
    
    
    34,025
 Recently issued accounting pronouncements
 Fair Value Measurements
 The
Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115
 Reclassifications
 general and administrative expenses general and administrative
expenses litigation settlement
 18




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
  
    
    Specialty Generics: development, licensing and sales of generic and branded generic
pharmaceutical products and active pharmaceutical ingredients and the manufacturing of
pharmaceuticals for ourselves and others in Spain, other parts of Europe and international
markets, including the U.S. market; and
    
    Drug Delivery: research, development and licensing/commercialization of advanced
proprietary drug delivery technologies for new and existing pharmaceutical products.
 Generic Pharmaceuticals
 cost of
sales
  19




---



##### Table of Contents



Drug Delivery Technologies and Products
 TM
 Research and Development Focus
 TM Diabetes Technology & Therapeutics th
 Effect of Foreign Currency Fluctuations
  20




---



##### Table of Contents



RESULTS OF OPERATIONS:
 Three Months Ended June 30, 2007 versus Three Months Ended June 30, 2006
 Revenues by Segment
 For the Three Months Ended June 30,
    
    Change(in thousands)
    
    2007
    
    %
    
    2006
    
    %
    
    $
    
    %Specialty GenericsNet product sales
    
    $
    28,353
    
    
    
    91
    %
    
    $
    26,457
    
    
    
    91
    %
    
    $
    1,896
    
    
    
    7
    %Licensing and collaboration
revenues
    
    
    171
    
    
    
    *
    
    
    
    166
    
    
    
    1
    %
    
    
    5
    
    
    
    3
    %28,524
    
    
    
    91
    %
    
    
    26,623
    
    
    
    92
    %
    
    
    1,901
    
    
    
    7
    %Drug DeliveryLicensing and collaboration revenues
    
    
    2,655
    
    
    
    9
    %
    
    
    2,360
    
    
    
    8
    %
    
    
    295
    
    
    
    13
    %Total revenues
    
    $
    31,179
    
    
    
    100
    %
    
    $
    28,983
    
    
    
    100
    %
    
    $
    2,196
    
    
    
    8
    %
 
 *
    
    Less than 1%   21




---



##### Table of Contents



(in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    410
    
    
    $
    3,955
    
    
    $
    
    
    
    $
    
    
    
    $
    4,365
    
    
    
    14
    %Enalapril
    
    
    1,237
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    1,610
    
    
    
    5
    %Simvastatin
    
    
    204
    
    
    
    1,251
    
    
    
    
    
    
    
    
    
    
    
    1,455
    
    
    
    5
    %Lansoprazole
    
    
    910
    
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    1,197
    
    
    
    4
    %Paroxetine
    
    
    366
    
    
    
    793
    
    
    
    
    
    
    
    
    
    
    
    1,159
    
    
    
    4
    %All other products
    
    
    2,880
    
    
    
    3,353
    
    
    
    92
    
    
    
    1,157
    
    
    
    7,482
    
    
    
    24
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    3,317
    
    
    
    7,768
    
    
    
    11,085
    
    
    
    35
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    171
    
    
    
    2,655
    
    
    
    2,826
    
    
    
    9
    %Total Revenues
    
    $
    6,007
    
    
    $
    10,012
    
    
    $
    3,580
    
    
    $
    11,580
    
    
    $
    31,179
    
    
    
    100
    %% of Q-2 2007 Revenues
    
    
    19
    %
    
    
    32
    %
    
    
    12
    %
    
    
    37
    %
    
    
    100
    %
  (in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    712
    
    
    $
    4,310
    
    
    $
    
    
    
    $
    
    
    
    $
    5,022
    
    
    
    17
    %Simvastatin
    
    
    482
    
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    1,974
    
    
    
    7
    %Enalapril
    
    
    1,379
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    1,786
    
    
    
    6
    %Lansoprazole
    
    
    665
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    876
    
    
    
    3
    %Paroxetine
    
    
    398
    
    
    
    799
    
    
    
    
    
    
    
    
    
    
    
    1,197
    
    
    
    4
    %All other products
    
    
    2,478
    
    
    
    2,609
    
    
    
    171
    
    
    
    270
    
    
    
    5,528
    
    
    
    19
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    4,285
    
    
    
    5,789
    
    
    
    10,074
    
    
    
    35
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    2,360
    
    
    
    2,526
    
    
    
    9
    %Total Revenues
    
    $
    6,114
    
    
    $
    9,828
    
    
    $
    4,622
    
    
    $
    8,419
    
    
    $
    28,983
    
    
    
    100
    %% of Q-2 2006 Revenues
    
    
    21
    %
    
    
    34
    %
    
    
    16
    %
    
    
    29
    %
    
    
    100
    %
 Branded Generic Pharmaceutical Products
 (in thousands)
    
    For the Three Months Ended June 30,
    
    Change2007
    
    %
    
    2006
    
    %
    
    $
    
    %Branded Generic Product Sales:Enalapril
    
    $
    1,237
    
    
    
    21
    %
    
    $
    1,379
    
    
    
    22
    %
    
    $
    (142
    )
    
    
    -10
    %Lansoprazole
    
    
    910
    
    
    
    15
    %
    
    
    665
    
    
    
    11
    %
    
    
    245
    
    
    
    37
    %Codeisan
    
    
    739
    
    
    
    12
    %
    
    
    611
    
    
    
    10
    %
    
    
    128
    
    
    
    21
    %Ibuprofen
    
    
    644
    
    
    
    11
    %
    
    
    367
    
    
    
    6
    %
    
    
    277
    
    
    
    75
    %Mio Relax
    
    
    448
    
    
    
    7
    %
    
    
    400
    
    
    
    7
    %
    
    
    48
    
    
    
    12
    %All other branded
generic products
    
    
    2,029
    
    
    
    34
    %
    
    
    2,692
    
    
    
    44
    %
    
    
    (663
    )
    
    
    - 25
    %Total branded generic sales
    
    $
    6,007
    
    
    
    100
    %
    
    $
    6,114
    
    
    
    100
    %
    
    $
    (107
    )
    
    
    - 2
    %
  22




---



##### Table of Contents



Generic Pharmaceutical Products
 (in thousands)

    
    For the Three Months Ended June 30,
    
    Change2007
    
    %
    
    2006
    
    %
    
    $
    
    %Generic Product Sales:Omeprazole
    
    $
    3,955
    
    
    
    40
    %
    
    $
    4,310
    
    
    
    44
    %
    
    $
    (355
    )
    
    
    -8
    %Simvastatin
    
    
    1,251
    
    
    
    12
    %
    
    
    1,492
    
    
    
    15
    %
    
    
    (241
    )
    
    
    -16
    %Trimetazidine
    
    
    816
    
    
    
    8
    %
    
    
    586
    
    
    
    6
    %
    
    
    230
    
    
    
    39
    %Paroxetine
    
    
    793
    
    
    
    8
    %
    
    
    799
    
    
    
    8
    %
    
    
    (6
    )
    
    
    -1
    %Pentoxifylline
    
    
    652
    
    
    
    7
    %
    
    
    676
    
    
    
    7
    %
    
    
    (24
    )
    
    
    -4
    %All other generic products
    
    
    2,545
    
    
    
    25
    %
    
    
    1,965
    
    
    
    20
    %
    
    
    580
    
    
    
    30
    %Total generic sales
    
    $
    10,012
    
    
    
    100
    %
    
    $
    9,828
    
    
    
    100
    %
    
    $
    184
    
    
    
    2
    %==
  Sales to Licensees and Others
 (in thousands)

    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $

    11,085
    
    
    $

    10,074
    
    
    $

    1,011
    
    
    
    10
    %
 net
product sales
 Licensing and Collaboration Revenues
 (in thousands)

    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    171
    
    
    $
    165
    
    
    $
    6
    
    
    
    4
    %Drug delivery
    
    
    2,655
    
    
    
    2,361
    
    
    
    294
    
    
    
    12
    %Total
    
    $
    2,826
    
    
    $
    2,526
    
    
    $
    300
    
    
    
    12
    %
  23




---



##### Table of Contents







Gross Profit


(in thousands)
    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    12,734
    
    
    $
    14,151
    
    
    $
    (1,417
    )
    
    
    -10
    %Drug delivery
    
    
    2,655
    
    
    
    2,361
    
    
    
    294
    
    
    
    12
    %Total
    
    $
    15,389
    
    
    $
    16,512
    
    
    $
    (1,123
    )
    
    
    -7
    %




Selling and Marketing Expenses


(in thousands)
    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    4,813
    
    
    $
    4,242
    
    
    $
    571
    
    
    
    13
    %Drug delivery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,813
    
    
    $
    4,242
    
    
    $
    571
    
    
    
    13
    %




General and Administrative Expenses


(in thousands)
    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    2,385
    
    
    $
    1,710
    
    
    $
    675
    
    
    
    39
    %Drug delivery
    
    
    2,194
    
    
    
    1,955
    
    
    
    239
    
    
    
    12
    %Total
    
    $
    4,579
    
    
    $
    3,665
    
    
    $
    914
    
    
    
    25
    %


24




---



##### Table of Contents



Research and Development Expenses
 (in thousands)
    
    For the Three Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    519
    
    
    $
    459
    
    
    $
    60
    
    
    
    13
    %Drug delivery
    
    
    2,983
    
    
    
    2,036
    
    
    
    947
    
    
    
    47
    %Total
    
    $
    3,502
    
    
    $
    2,495
    
    
    $
    1,007
    
    
    
    40
    %
  Litigation Settlement Expenses
 (in thousands)
    
    For the Three Months Ended June 30,
    
    Change2007
    
    2006
    
    $
    
    %Specialty generics
    
    $
    
    
    
    $
    733
    
    
    $
    (733
    )
    
    
    *
 
 *
    
    Not meaningful general and administrative expenses
 Provision for Income Taxes
 (in thousands)
    
    For the Three Months Ended June 30,2007
    
    2006Spain
    
    Ireland
    
    U.S.
    
    Consol.
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.Income (loss) before income taxes
    
    $
    5,278
    
    
    $
    (1,727
    )
    
    $
    (1,324
    )
    
    $
    2,227
    
    
    $
    7,279
    
    
    $
    (1,052
    )
    
    $
    (1,108
    )
    
    $
    5,119Provision (benefit) for income taxes
    
    
    1,517
    
    
    
    (216
    )
    
    
    (422
    )
    
    
    879
    
    
    
    2,484
    
    
    
    (132
    )
    
    
    (415
    )
    
    
    1,937Valuation allowance
    
    
    
    
    
    
    216
    
    
    
    422
    
    
    
    638
    
    
    
    
    
    
    
    132
    
    
    
    415
    
    
    
    547Net provision for income taxes
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    1,517
    
    
    
    2,484
    
    
    
    
    
    
    
    
    
    
    
    2,484Net income (loss)
    
    $
    3,761
    
    
    $
    (1,727
    )
    
    $
    (1,324
    )
    
    $
    710
    
    
    $
    4,795
    
    
    $
    (1,052
    )
    
    $
    (1,108
    )
    
    $
    2,635Effective tax rate
    
    
    29
    %
    
    
    0
    %
    
    
    0
    %
    
    
    68
    %
    
    
    34
    %
    
    
    0
    %
    
    
    0
    %
    
    
    49
    %
 25




---



##### Table of Contents



Net Income
 For the Three Months(in thousands, except per share data)

    
    Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty Generics
    
    $
    3,343
    
    
    $
    4,253
    
    
    $
    (910
    )
    
    
    -21
    %Drug Delivery
    
    
    (2,633
    )
    
    
    (1,618
    )
    
    
    (1,015
    )
    
    
    -63
    %Total net income
    
    $
    710
    
    
    $
    2,635
    
    
    $
    (1,925
    )
    
    
    -73
    %Net income per common share:Basic
    
    $
    0.03
    
    
    $
    0.12
    
    
    $
    (0.09
    )
    
    
    -75
    %Diluted
    
    $
    0.03
    
    
    $
    0.12
    
    
    $
    (0.09
    )
    
    
    -75
    %Weighted average common shares outstanding:Basic
    
    
    22,318
    
    
    
    22,170
    
    
    
    148
    
    
    
    1
    %Diluted
    
    
    22,892
    
    
    
    22,876
    
    
    
    16
    
    
    
    0
    %
  26




---



##### Table of Contents



Six Months Ended June 30, 2007 versus Six Months Ended June 30, 2006
 Revenues by Segment
 For the Six Months Ended June 30,
    
    
    
    
    
    Change(in thousands)
    
    2007
    
    %
    
    2006
    
    %
    
    $
    
    %Specialty GenericsNet product sales
    
    $
    57,467
    
    
    
    92
    %
    
    $
    53,027
    
    
    
    93
    %
    
    $
    4,440
    
    
    
    8
    %Licensing and collaboration
revenues
    
    
    285
    
    
    
    *
    
    
    
    239
    
    
    
    *
    
    
    
    46
    
    
    
    19
    %57,752
    
    
    
    92
    %
    
    
    53,266
    
    
    
    93
    %
    
    
    4,486
    
    
    
    8
    %Drug DeliveryLicensing and collaboration revenues
    
    
    4,818
    
    
    
    8
    %
    
    
    3,995
    
    
    
    7
    %
    
    
    823
    
    
    
    21
    %Total revenues
    
    
    62,570
    
    
    
    100
    %
    
    $
    57,261
    
    
    
    100
    %
    
    $
    5,309
    
    
    
    9
    %
 
 *
    
    Less than 1% Revenues.
  (in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    961
    
    
    $
    7,825
    
    
    $
    
    
    
    $
    
    
    
    $
    8,786
    
    
    
    14
    %Enalapril
    
    
    2,551
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    3,315
    
    
    
    5
    %Simvastatin
    
    
    570
    
    
    
    2,590
    
    
    
    
    
    
    
    
    
    
    
    3,160
    
    
    
    5
    %Paroxetine
    
    
    815
    
    
    
    1,690
    
    
    
    
    
    
    
    
    
    
    
    2,505
    
    
    
    4
    %Lansoprazole
    
    
    1,766
    
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    4
    %All other products
    
    
    6,340
    
    
    
    7,221
    
    
    
    367
    
    
    
    2,114
    
    
    
    16,042
    
    
    
    26
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    6,987
    
    
    
    14,305
    
    
    
    21,292
    
    
    
    34
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    4,818
    
    
    
    5,103
    
    
    
    8
    %Total Revenues
    
    $
    13,003
    
    
    $
    20,691
    
    
    $
    7,639
    
    
    $
    21,237
    
    
    $

    62,570
    
    
    
    100
    %% of YTD 2007 Revenues
    
    
    21
    %
    
    
    33
    %
    
    
    12
    %
    
    
    34
    %
    
    
    100
    %
  (in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    
    Generics
    
    
    Other
    
    
    Spain
    
    
    Total
    
    
    RevenuesOmeprazole
    
    $
    1,341
    
    
    $
    8,693
    
    
    $
    
    
    
    $
    
    
    
    $
    10,034
    
    
    
    18
    %Enalapril
    
    
    2,297
    
    
    
    1,130
    
    
    
    
    
    
    
    
    
    
    
    3,427
    
    
    
    6
    %Simvastatin
    
    
    926
    
    
    
    2,963
    
    
    
    
    
    
    
    
    
    
    
    3,889
    
    
    
    7
    %Paroxetine
    
    
    775
    
    
    
    1,615
    
    
    
    
    
    
    
    
    
    
    
    2,390
    
    
    
    4
    %Lansoprazole
    
    
    1,325
    
    
    
    452
    
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    3
    %All other products
    
    
    5,285
    
    
    
    5,592
    
    
    
    481
    
    
    
    627
    
    
    
    11,985
    
    
    
    21
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    6,911
    
    
    
    12,614
    
    
    
    19,525
    
    
    
    34
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    3,995
    
    
    
    4,234
    
    
    
    7
    %Total Revenues
    
    $
    11,949
    
    
    $
    20,445
    
    
    $
    7,631
    
    
    $
    17,236
    
    
    $
    57,261
    
    
    
    100
    %% of YTD 2006 Revenues
    
    
    21
    %
    
    
    36
    %
    
    
    13
    %
    
    
    30
    %
    
    
    100
    %
 27




---



##### Table of Contents



Branded Generic Pharmaceutical Products
 (in thousands)
    
    For the Six Months Ended June 30,
    
    Change2007
    
    %
    
    2006
    
    %
    
    $
    
    %Branded Generic Product Sales:Enalapril
    
    $
    2,551
    
    
    
    20
    %
    
    $
    2,297
    
    
    
    19
    %
    
    $
    254
    
    
    
    11
    %Codeisan
    
    
    2,009
    
    
    
    15
    %
    
    
    1,463
    
    
    
    12
    %
    
    
    546
    
    
    
    37
    %Lansoprazole
    
    
    1,766
    
    
    
    14
    %
    
    
    1,325
    
    
    
    11
    %
    
    
    441
    
    
    
    33
    %Ibuprofen
    
    
    1,127
    
    
    
    9
    %
    
    
    743
    
    
    
    6
    %
    
    
    384
    
    
    
    52
    %Omeprazole
    
    
    961
    
    
    
    7
    %
    
    
    1,341
    
    
    
    11
    %
    
    
    (380
    )
    
    
    -28
    %All other branded generic
products
    
    
    4,589
    
    
    
    35
    %
    
    
    4,780
    
    
    
    41
    %
    
    
    (191
    )
    
    
    -4
    %Total branded generic sales
    
    $
    13,003
    
    
    
    100
    %
    
    $
    11,949
    
    
    
    100
    %
    
    $
    1,054
    
    
    
    9
    %==
  Generic Pharmaceutical Products
 
 (in thousands)
    
    For the Six Months Ended June 30,
    
    Change2007
    
    %
    
    2006
    
    %
    
    $
    
    %Generic Product Sales:Omeprazole
    
    $
    7,825
    
    
    
    38
    %
    
    $
    8,693
    
    
    
    43
    %
    
    $
    (868
    )
    
    
    -10
    %Simvastatin
    
    
    2,590
    
    
    
    13
    %
    
    
    2,963
    
    
    
    14
    %
    
    
    (373
    )
    
    
    -13
    %Paroxetine
    
    
    1,690
    
    
    
    8
    %
    
    
    1,615
    
    
    
    8
    %
    
    
    75
    
    
    
    5
    %Trimetazidine
    
    
    1,545
    
    
    
    7
    %
    
    
    1,136
    
    
    
    6
    %
    
    
    409
    
    
    
    36
    %Pentoxifylline
    
    
    1,356
    
    
    
    7
    %
    
    
    1,279
    
    
    
    6
    %
    
    
    77
    
    
    
    6
    %All other generic products
    
    
    5,685
    
    
    
    27
    %
    
    
    4,759
    
    
    
    23
    %
    
    
    926
    
    
    
    19
    %Total generic sales
    
    $
    20,691
    
    
    
    100
    %
    
    $
    20,445
    
    
    
    100
    %
    
    $
    246
    
    
    
    1
    %==
  28




---



##### Table of Contents



Sales to Licensees and Others
 (in thousands)
    
    For the Six Months Ended June 30,
    
    Change2007
    
    2006
    
    $
    
    %Specialty
generics
    
    $
    21,292
    
    
    $
    19,525
    
    
    $
    1,767
    
    
    
    9
    %
 Sales to Licensees and Others
 Licensing and Collaboration Revenues
 (in thousands)
    
    For the Six Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    285
    
    
    $
    239
    
    
    $
    46
    
    
    
    19
    %Drug delivery
    
    
    4,818
    
    
    
    3,995
    
    
    
    823
    
    
    
    21
    %Total
    
    $
    5,103
    
    
    $
    4,234
    
    
    $
    869
    
    
    
    21
    %
 Licensing
and Collaboration Revenues
 Gross Profit
 (in thousands)
    
    For the Six Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    26,065
    
    
    $
    27,862
    
    
    $
    (1,797
    )
    
    
    -6
    %Drug delivery
    
    
    4,818
    
    
    
    3,995
    
    
    
    823
    
    
    
    21
    %Total
    
    $
    30,883
    
    
    $
    31,857
    
    
    $
    (974
    )
    
    
    -3
    %
 Gross Profit
 Selling and Marketing Expenses
 (in thousands)
    
    For the Six Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    9,258
    
    
    $
    8,381
    
    
    $
    877
    
    
    
    10
    %Drug delivery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    9,258
    
    
    $
    8,381
    
    
    $
    877
    
    
    
    10
    %
  29




---



##### Table of Contents



General and Administrative Expenses
 (in thousands)

    
    For the Six Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    4,639
    
    
    $
    3,486
    
    
    $
    1,153
    
    
    
    33
    %Drug delivery
    
    
    3,586
    
    
    
    4,083
    
    
    
    (497
    )
    
    
    -12
    %Total
    
    $
    8,225
    
    
    $
    7,569
    
    
    $
    656
    
    
    
    9
    %
  Research and Development Expenses
 (in thousands)
    
    For the Six Months Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    1,000
    
    
    $
    953
    
    
    $
    47
    
    
    
    5
    %Drug delivery
    
    
    5,177
    
    
    
    4,450
    
    
    
    727
    
    
    
    16
    %Total
    
    $
    6,177
    
    
    $
    5,403
    
    
    $
    774
    
    
    
    14
    %
 Research and Development Expenses
 Litigation Settlement Expenses
 (in thousands)
    
    For the Six Months Ended June 30,
    
    Change2007
    
    2006
    
    $
    
    %Specialty generics
    
    $
    
    
    
    $
    1,337
    
    
    $
    (1,337
    )
    
    
    *
 
 *
    
    Not meaningful general and administrative expenses
 30




---



##### Table of Contents



Provision for Income Taxes
 For the Six Months Ended June 30,(in thousands)

    
    2007
    
    2006Spain
    
    Ireland
    
    U.S.
    
    Consol.
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.Income (loss) before income taxes
    
    $
    11,746
    
    
    $
    (3,031
    )
    
    $
    (2,047
    )
    
    $
    6,668
    
    
    $
    14,176
    
    
    $
    (2,333
    )
    
    $
    (3,177
    )
    
    $
    8,666Provision (benefit) for income
taxes
    
    
    3,598
    
    
    
    (379
    )
    
    
    (582
    )
    
    
    2,637
    
    
    
    4,877
    
    
    
    (292
    )
    
    
    (1,173
    )
    
    
    3,412Valuation allowance
    
    
    
    
    
    
    379
    
    
    
    582
    
    
    
    961
    
    
    
    
    
    
    
    292
    
    
    
    1,173
    
    
    
    1,465Net provision for income taxes
    
    
    3,598
    
    
    
    
    
    
    
    
    
    
    
    3,598
    
    
    
    4,877
    
    
    
    
    
    
    
    
    
    
    
    4,877Net income (loss)
    
    $
    8,148
    
    
    $
    (3,031
    )
    
    $
    (2,047
    )
    
    $
    3,070
    
    
    $
    9,299
    
    
    $
    (2,333
    )
    
    $
    (3,177
    )
    
    $
    3,789Effective tax rate
    
    
    31
    %
    
    
    0
    %
    
    
    0
    %
    
    
    54
    %
    
    
    34
    %
    
    
    0
    %
    
    
    0
    %
    
    
    56
    %
   Net Income
 For the Six Months(in thousands, except per share data)
    
    Ended June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    7,212
    
    
    $
    8,269
    
    
    $
    (1,057
    )
    
    
    -13
    %Drug delivery
    
    
    (4,142
    )
    
    
    (4,480
    )
    
    
    338
    
    
    
    8
    %Total net income
    
    $
    3,070
    
    
    $
    3,789
    
    
    $
    (719
    )
    
    
    -19
    %Net income per common share:Basic
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    (0.03
    )
    
    
    -18
    %Diluted
    
    $
    0.14
    
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    
    -13
    %Weighted average common shares outstanding:Basic
    
    
    22,305
    
    
    
    22,063
    
    
    
    242
    
    
    
    1
    %Diluted
    
    
    23,695
    
    
    
    23,380
    
    
    
    315
    
    
    
    1
    %
  31




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LIQUIDITY AND CAPITAL RESOURCES :
         32




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##### Table of Contents



Contractual Obligations
  2007
    
    $
    3822008
    
    
    1,3112009
    
    
    2,9042010
    
    
    2,7902011
    
    
    2,6782012 and 2013
    
    
    8,164Total
    
    $
    18,229
  Seasonality.
 Effect of Inflation and Changing Prices.
 Liquidity.
 33




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Critical Accounting Policies and Estimates
 provision for income taxes inventories
 Provision for income taxes
  Accounting for Uncertainty in Income Taxes ( ) Accounting for Income Taxes
 Inventories
  34




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Important Factors That May Affect Future Results
   
    
    Strategic plans;
    
    Sales growth;
    
    Anticipated sources of future revenues;
    
    Anticipated 2007 expenses, margins and operating performance;
    
    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.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency.
 U.S. Dollars per Euro
    
    June 30, 2007
    
    December 31, 2006YTD weighted average exchange rate
    
    
    1.33
    
    
    
    1.26Exchange rate
    
    
    1.35
    
    
    
    1.31
 accumulated other comprehensive income
 35




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##### Table of Contents



Interest Rates.
 
 Item 4. Controls and Procedures
    36




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Maximum NumberTotal Number of
    
    (or approximateTotal
    
    
    
    
    
    Shares
    
    dollar value)Number
    
    
    
    
    
    (or Units)
    
    of Shares (orof Shares
    
    Average
    
    Purchased as
    
    Units) that(or Units)
    
    Price
    
    Part of Publicly
    
    may yet be PurchasedPurchased
    
    Paid per
    
    Announced Plans or
    
    under the Plans or(1)
    
    Share(2)
    
    Programs
    
    ProgramsApril 1, 2007 through April 30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    May 1, 2007 through May 31, 2007
    
    
    4,311
    
    
    $
    11.965
    
    
    
    
    
    
    
    June 1, 2007 through June 30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    4,311
    
    
    $
    11.965
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents shares withheld to satisfy minimum tax withholding liabilities of certain restricted stock unit holders.(2)
    
    Weighted average of the high and low prices on the New York Stock Exchange on the vesting date (the date the
restricted stock unit holders were entitled to receive the vested shares). 
 Item 4. Submission of Matters to a Vote of Security Holders
   TermNominee
    
    Expiring
    
    Votes For
    
    Votes WithheldF. Ross Johnson
    
    
    2010
    
    
    
    18,538,001
    
    
    
    2,388,651Edward J. Robinson
    
    
    2010
    
    
    
    18,554,111
    
    
    
    2,372,541
  Votes For
    
    
    
    Votes Against20,346,930
    
    
    
    
    248,339
 
 Item 6. Exhibits
  37




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Exhibit Index
 ExhibitNumber
    
    Description of Exhibit10.1
    
    *
    
    Loan Agreement dated June 29, 2007 by and between Banco Bilbao Vizcaya Argentaria, S.A. and
Laboratorios Belmac S.A.10.2
    
    *
    
    Letter of guarantee dated June 29, 2007 of Bentley Pharmaceuticals, Inc. in favor of Banco Bilbao
Vizcaya Argentaria, S.A.10.3
    
    *
    
    Form of Restricted Stock Unit Certificate (Non-employee Directors) under the Bentley
Pharmaceuticals, Inc. Amended and Restated 2005 Equity and Incentive Plan. (Reference is made to
Exhibit 10.1 to the Registrants Form 8-K filed on May 30, 2007, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.31.1
    
    *
    
    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.




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##### Table of Contents



SIGNATURES
  BENTLEY PHARMACEUTICALS, INC.
RegistrantAugust 9, 2007
    By:
    /s/ James R. MurphyJames R. MurphyChairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)August 9, 2007
    By:
    /s/ Richard P. LindsayRichard P. LindsayVice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)