UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

 X      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001
                               ------------------

                                       OR

___     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________to_____________________

                         Commission File Number 1-10581


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


           DELAWARE                             No. 59-1513162
(State or other jurisdiction of                 (I.R.S. Employer
incorporation or organization)                  Identification No.)


              65 Lafayette Road, 3rd Floor, North Hampton, NH 03862
                (Current Address of Principal Executive Offices)


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

YES  X               NO
    ----                ----

The number of shares of the registrant's common stock outstanding as of November
1, 2001 was 14,584,360.

<PAGE>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES

               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                      INDEX


Part I.    FINANCIAL INFORMATION                                            PAGE
           ---------------------                                            ----

           Item 1.  Consolidated Financial Statements:

                    Consolidated Balance Sheets as of September 30, 2001
                    (unaudited) and December 31, 2000                         3

                    Consolidated Statements of Operations and of
                    Comprehensive Income (Loss) (unaudited) for the
                    three months ended September 30, 2001 and 2000,
                    and the nine months ended September 30, 2001 and
                    2000                                                      4

                    Consolidated Statement of Changes in Stockholders'
                    Equity (unaudited) for the nine months ended
                    September 30, 2001                                        5

                    Consolidated Statements of Cash Flows (unaudited)
                    for the nine months ended September 30, 2001 and
                    2000                                                      6

                    Notes to Consolidated Financial Statements
                    (unaudited)                                               8


           Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                      14


           Item 3.  Quantitative and Qualitative Disclosures About
                    Market Risk                                              24


Part II.   OTHER INFORMATION
           -----------------

           Item 1.  Legal Proceedings                                        26


           Item 6.  Exhibits and Reports on Form 8-K                         26

<PAGE>
<TABLE>
<CAPTION>

                                           BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS

                                                                                     (UNAUDITED)
(IN THOUSANDS)                                                                       SEPTEMBER 30,           DECEMBER 31,
                                                                                        2001                     2000
                                                                                        ----                     ----
ASSETS
------

<S>                                                                                     <C>                       <C>
Current assets:
 Cash and cash equivalents                                                              $4,689                    $4,816
 Receivables, net                                                                        5,882                     5,135
 Inventories, net                                                                        2,504                     1,827
 Deferred taxes                                                                              -                       851
 Prepaid expenses and other                                                                685                       475
                                                                                        ------                    ------
  Total current assets                                                                  13,760                    13,104
                                                                                        ------                    ------
 Non-current assets:
  Fixed assets, net                                                                      4,969                     4,139
  Drug licenses and related costs, net                                                  10,526                    10,979
  Receivables from related parties                                                         484                       463
  Other non-current assets, net                                                            145                       192
                                                                                        ------                    ------
   Total non-current assets                                                             16,124                    15,773
                                                                                        ------                    ------
                                                                                       $29,884                   $28,877
                                                                                       =======                   =======

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------


Current liabilities:
  Accounts payable                                                                      $3,105                    $2,645
  Accrued expenses                                                                       1,471                       968
  Short-term borrowings                                                                  2,047                     2,447
  Current portion of long-term debt                                                          -                       738
  Deferred income                                                                           50                     2,564
                                                                                        ------                    ------
    Total current liabilities                                                            6,673                     9,362
                                                                                        ------                    ------
Non-current liabilities:
   Taxes payable                                                                         1,821                       908
   Long-term debt                                                                            -                       623
   Other non-current liabilities                                                            98                       168
                                                                                        ------                    ------
     Total non-current liabilities                                                       1,919                     1,699
                                                                                        ------                    ------
Commitments and contingencies
Stockholders' equity:
 Preferred stock, $1.00 par value, authorized 2,000
    shares, issued and outstanding, zero shares                                              -                         -
 Common stock, $.02 par value, authorized 35,000 shares, issued
    and outstanding, 14,584 and 13,914 shares                                              292                       278
 Stock purchase warrants (to purchase 3,424 and 4,038
    shares of common stock)                                                                433                       632
 Additional paid-in capital                                                             97,465                    95,227
 Accumulated deficit                                                                   (73,769)                  (75,693)
 Accumulated other comprehensive loss                                                   (3,129)                   (2,628)
                                                                                        ------                    ------
 Total stockholders' equity                                                             21,292                    17,816
                                                                                        ------                    ------
                                                                                       $29,884                   $28,877
                                                                                       =======                   =======

      The accompanying unaudited Notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
                                                                  3
<PAGE>
<TABLE>
<CAPTION>
                                           BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF OPERATIONS AND OF COMPREHENSIVE INCOME (LOSS)
                                                             (unaudited)



(in thousands, except per share data)                         For the Three Months              For the Nine Months
                                                              Ended September 30,               Ended September 30,
                                                              --------------------              --------------------
                                                              2001             2000             2001              2000
                                                              ----             ----             ----              ----
<S>                                                           <C>            <C>             <C>               <C>
Net sales                                                     $6,316         $3,626          $18,255           $13,305
Cost of sales                                                  2,708          1,483            7,844             5,177
                                                             -------        -------          -------           -------

 Gross profit                                                  3,608          2,143           10,411             8,128
                                                             -------        -------          -------           -------

Operating expenses:
 Selling, general and administrative                           2,910          2,243            9,215             7,209
 Research and development                                        468            233            1,352               608
 Depreciation and amortization                                   223            143              670               420
                                                             -------        -------          -------           -------
  Total operating expenses                                     3,601          2,619           11,237             8,237
                                                             -------        -------          -------           -------

Gain on sale of drug licenses                                    113              -            5,090                 -
                                                             -------        -------          -------           -------

Income (loss) from operations                                    120           (476)           4,264              (109)
                                                             -------        -------          -------           -------

Other income (expenses):
 Interest income                                                  30             85              121               269
 Interest expense                                                (61)           (46)            (184)             (342)
 Other income (expense), net                                       7              -               21                 -
                                                             -------        -------          -------           -------
Income (loss) before income taxes                                 96           (437)           4,222              (182)

Provision (benefit) for foreign income taxes                     245            (18)           2,298               378
                                                             -------        -------          -------           -------

Net income (loss)                                              ($149)         ($419)          $1,924             ($560)
                                                             =======        =======          =======           =======

Net income (loss) per common share:
  Basic                                                       ($0.01)        ($0.03)           $0.14            ($0.04)
                                                             =======        =======          =======           =======
  Diluted                                                     ($0.01)        ($0.03)           $0.12            ($0.04)
                                                             =======        =======          =======           =======

Weighted average common shares outstanding:
  Basic                                                       14,308         13,662           14,064            12,672
                                                             =======        =======          =======           =======
  Diluted                                                     14,308         13,662           15,594            12,672
                                                             =======        =======          =======           =======

Net income (loss)                                              ($149)         ($419)          $1,924             ($560)

Other comprehensive income (loss):
  Foreign currency translation gains (losses)                    978           (599)            (501)             (960)
                                                             -------        -------          -------           -------

Comprehensive income (loss)                                     $829        ($1,018)          $1,423           ($1,520)
                                                             =======        =======          =======           =======


     The accompanying unaudited Notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
                                                                 4
<PAGE>
<TABLE>
<CAPTION>
                                           BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                             (unaudited)

(in thousands)

                                               $.02 Par Value
                                                Common Stock        Additional      Accumu-     Accumulated      Other
                                             ------------------      Paid-In        lated      Other Compre-     Equity
                                             Shares      Amount      Capital        Deficit    hensive Loss    Transactions   Total
                                             ------      ------      -------        -------    ------------    ------------   -----

<S>                                         <C>           <C>        <C>          <C>            <C>              <C>      <C>
Balance at December 31, 2000                 13,914        $278       $95,227      ($75,693)      ($2,628)         $632     $17,816
Exercise of stock options/warrants              171           4           443             -             -             -         447
Exercise of underwriter's warrants              460           9         1,570             -             -          (199)      1,380
Common Stock issued as compensation              39           1           225             -             -             -         226
Foreign currency translation adjustments, net     -           -             -             -          (501)            -        (501)
Net income                                        -           -             -         1,924             -             -       1,924
                                             ------      ------       -------      --------       -------        ------     -------

Balance at September 30, 2001                14,584        $292       $97,465      ($73,769)      ($3,129)         $433     $21,292
                                             ======      ======       =======      ========       =======        ======     =======




      The accompanying unaudited Notes to Consolidated Financial Statements are an integral part of these financial statements.
                                                                  5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                             (unaudited)

                                                                                                    For the Nine Months
                                                                                                    Ended September 30,
                                                                                                    -------------------
(in thousands)                                                                                       2001          2000
                                                                                                     ----          ----
<S>                                                                                                  <C>          <C>
Cash flows from operating activities:
 Net income (loss)                                                                                   $1,924       ($560)
 Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating activities:
    Depreciation and amortization                                                                       670         420
    Equity-based compensation expense                                                                   226           -
    Other non-cash items                                                                                  7          42
    Deferred income and taxes                                                                          (820)          -
      (Increase) decrease in assets and increase (decrease) in liabilities:
        Receivables                                                                                    (831)       (277)
        Inventories                                                                                    (741)       (676)
        Prepaid expenses and other current assets                                                      (227)       (343)
        Other assets                                                                                    (10)       (126)
        Accounts payable and accrued expenses                                                         1,140        (483)
        Other liabilities                                                                               (71)          6
                                                                                                    -------      ------
          Net cash provided by (used in) operating activities                                         1,267      (1,997)
                                                                                                    -------      ------

Cash flows from investing activities:
 Additions to fixed assets                                                                           (1,196)       (680)
 Additions to drug licenses and related costs                                                          (416)     (5,375)
 Deferred income                                                                                         50           -
 Proceeds from sale of investments                                                                   23,295      10,843
 Purchase of investments                                                                            (23,226)     (8,858)
 VAT receivable                                                                                           -        (716)
 Receivables from related parties                                                                         -        (440)
                                                                                                    -------      ------
          Net cash used in investing activities                                                      (1,493)     (5,226)
                                                                                                    -------      ------

                                                    (Continued on following page)


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

                                                         6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                           BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
                                                             (unaudited)

                                                                                                    For the Nine Months
                                                                                                    Ended September 30,
                                                                                                    -------------------
(in thousands)                                                                                      2001          2000
                                                                                                    ----          ----
<S>                                                                                                  <C>          <C>

Cash flows from financing activities:
 Proceeds from exercise of stock options/warrants                                                   $1,827       $2,169
 Proceeds from borrowings                                                                            1,784        6,751
 Repayments of borrowings                                                                           (3,447)      (1,727)
 Payments on capital leases                                                                              -           (4)
                                                                                                    ------       ------

         Net cash provided by financing activities                                                     164        7,189
                                                                                                    ------       ------

Effect of exchange rate changes on cash                                                                (65)         (39)
                                                                                                    ------       ------

Net decrease in cash and cash equivalents                                                             (127)         (73)

Cash and cash equivalents at beginning of period                                                     4,816        4,422
                                                                                                    ------       ------

Cash and cash equivalents at end of period                                                          $4,689       $4,349
                                                                                                    ======       ======



SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid cash during the period for (in thousands):

 Interest                                                                                             $185         $299
                                                                                                    ======       ======
 Income taxes                                                                                          $88         $346
                                                                                                    ======       ======



SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES

The Company has issued or is obligated to issue Common Stock in exchange for
services as follows (in thousands):

 Number of shares                                                                                       39            8
                                                                                                    ======       ======
 Amount                                                                                               $226          $67
                                                                                                    ======       ======


During the nine months ended September 30, 2000, 7,254 debentures with principal
amount of $7,254,000, net of discount of $1,585,000 (and applicable unamortized
debt issuance costs totaling $929,000) were converted into approximately
2,901,000 shares of Common Stock.




     The accompanying unaudited Notes to Consolidated Financial Statements are an integral part of these financial statements.
                                                                  7
</TABLE>
<PAGE>

                 BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

HISTORY AND OPERATIONS:

Bentley  Pharmaceuticals,  Inc.  and  its  Subsidiaries  (the  "Company")  is  a
U.S.-based  international  pharmaceutical and drug delivery company specializing
in the  development  of products  based upon  innovative  and  proprietary  drug
delivery systems. The Company also has a commercial presence in Europe, where it
manufactures,   markets  and  distributes  branded  and  generic  pharmaceutical
products.  The Company owns rights to certain U.S. and international patents and
related technology covering methods to enhance the absorption of drugs delivered
through  biological  tissues.  The Company is developing  this technology and is
targeting  U.S.,  European and other  international  markets for the new product
applications.   The  Company  is  in  negotiations  with  larger  pharmaceutical
companies with the objective of entering into collaborations for the development
and marketing of various product applications,  including:  for the treatment of
onychomycosis,  delivery of insulin, hormone replacement therapies, vaccines and
peptides. In Spain, the Company develops and registers late stage products,  and
manufactures,  packages  and  distributes  both  its  own and  other  companies'
pharmaceutical products.

The  strategic  focus of the Company has shifted in response to the evolution of
the global health care environment.  The Company emphasizes product distribution
in Spain, strategic alliances and product acquisitions. Its overall strategy has
been expanded due to the 1999 acquisition of permeation enhancement  technology,
with the objective of entering into strategic partnerships and/or alliances that
are anticipated to lead to milestone payments and royalty arrangements, with the
strategic  partners  bearing  the  majority  of  development  costs.  Since this
technology  is  based  on a  series  of  GRAS  (Generally  Recognized  As  Safe)
compounds,  products may be developed in a quicker and less costly fashion.  The
technology facilitates the permeation of drugs administered through skin, across
mucosa or through the cornea in a variety of independent pharmaceutical formats.
The  excipient  most advanced in  facilitating  absorption is referred to by the
Company as CPE-215(R),  although  there are a number of other related  compounds
under the same patents that also have enhancing characteristics.

The  Company  began  taking  measures  over three years ago to enter the Spanish
generic drug market. The Company created a wholly-owned  subsidiary to register,
market  and  distribute  generic  pharmaceutical  products  in Spain  and  began
aligning its business model to be  competitive in this arena.  In July 2000, the
Company  also  entered  into  a  strategic  alliance  with  Teva  Pharmaceutical
Industries,  Ltd.,  whereby the Company will initially  receive licenses to more
than 75 of Teva's products for  registration  and marketing in Spain.  Teva will
supply the  pharmaceutical  products to the Company  and the  Company's  Spanish
subsidiaries,  Laboratorios  Belmac  and  Laboratorios  Davur,  will  market the
products  in Spain.  Teva was also  granted a right of first  refusal to acquire
Laboratorios  Davur in the  event  that  the  Company  decides  to  divest  that
subsidiary.


                                       8
<PAGE>

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS:

The consolidated  financial statements of the Company, at September 30, 2001 and
2000 included herein, have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance  with  Accounting  Principles  Generally  Accepted in the
United  States of  America  have been  condensed  or  omitted  in so far as such
information was disclosed in the Company's consolidated financial statements for
the year ended December 31, 2000. These consolidated financial statements should
be read in conjunction with the summary of significant  accounting  policies and
the audited consolidated  financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.

In the opinion of management,  the accompanying unaudited consolidated financial
statements  for the period ended  September 30, 2001 and 2000 are presented on a
basis consistent with the audited consolidated financial statements for the year
ended December 31, 2000 and contain all  adjustments,  consisting only of normal
recurring  adjustments,  necessary  to present  fairly the  Company's  financial
position as of September 30, 2001 and the results of its operations and its cash
flows for the nine months  ended  September  30,  2001 and 2000.  The results of
operations for the nine months ended  September 30, 2001 should not  necessarily
be considered indicative of the results to be expected for the year.

CASH AND CASH EQUIVALENTS:

Included in cash and cash  equivalents  at  September  30, 2001 and December 31,
2000 are approximately  $3,610,000 and $4,126,000,  respectively,  of short-term
investments considered to be cash equivalents, as the original maturity dates of
such investments were three months or less when purchased.

INVENTORIES:

Inventories are stated at the lower of cost or market,  cost being determined on
the first in, first out ("FIFO") method,  and are comprised of the following (in
thousands):

                                          September 30, 2001   December 31, 2000
                                          ------------------   -----------------
Raw materials                                    $1,382              $692
Finished goods                                    1,178             1,196
                                                  -----             -----
                                                  2,560             1,888
Less allowance for slow moving inventory            (56)              (61)
                                                 ------            ------
                                                 $2,504            $1,827
                                                 ======            ======



                                       9
<PAGE>

SALE OF CONTROLVAS(R):

Laboratorios  Belmac,  S.A., a subsidiary  of the Company,  sold the  trademark,
registration  rights  and  dossier  for  its  branded  pharmaceutical   product,
Controlvas(R),  for  approximately  $5,148,000  during  the  nine  months  ended
September 30, 2001. The Company entered into an agreement to sell  Controlvas(R)
and  received a 50%  deposit  from the  purchaser  in November  2000,  which was
reflected as Deferred  income in the  Consolidated  Balance Sheet as of December
31, 2000. The resulting gain of approximately  $4,977,000 has been recognized in
the Consolidated Statement of Operations for the nine months ended September 30,
2001.

SALE OF AMANTADINE(R):

In June 2001,  Laboratorios Belmac, S.A., a subsidiary of the Company, agreed to
sell the  trademark,  registration  rights and  dossier  for its  pharmaceutical
product,  Amantadine(R),  to a  third  party  for  30  million  Spanish  pesetas
(approximately  $153,000).  The Company received a deposit of 11 million Spanish
pesetas  (approximately  $56,000)  from the  purchaser  in June 2001,  which was
reflected as Deferred  income in the  Consolidated  Balance Sheet as of June 30,
2001. The Company  received a second payment of 11 million  Spanish pesetas upon
approval of the transfer of the rights to the purchaser by the Spanish  Ministry
of Health, which occurred during the quarter ended September 30, 2001, resulting
in a recognized gain of approximately  $113,000. The remaining 8 million Spanish
pesetas (approximately $41,000) is payable over the next five years, in the form
of a royalty arrangement.

LICENSING ACTIVITIES:

During the second  quarter of 2001,  the Company  entered into  agreements  with
Auxilium A2, Inc.  regarding a new non-oral  delivery  formulation of a narcotic
for pain management and a new topical product for hormone  replacement  therapy,
both in  combination  with the  Company's  CPE-215(R)  technology.  The  Company
received $50,000 upon entering into such agreements, which has been reflected as
Deferred income in the Consolidated Balance Sheets as of September 30, 2001. The
Company expects to receive additional payments based upon completion of specific
milestones and scaled royalties on net sales.

STOCKHOLDERS' EQUITY:

As a result of the continuing uncertainties in the stock markets and unfavorable
capital market  conditions,  on March 30, 2001 the Company's  board of directors
extended  the  expiration  date  of all of the  Company's  outstanding  Class  B
Warrants  from  August 14,  2001 to  December  31,  2002.  Two Class B Warrants,
together, entitle the holder to purchase one share of the Company's Common Stock
at a price of $5.00  per  share.  The Class B  Warrants  are  redeemable  by the
Company for $.05 each upon 30 day's written  notice,  after the closing price of
the  Company's  Common Stock equals or exceeds  $6.50 for the  preceding  twenty
consecutive trading days. These Class B Warrants were included as a component of
a Unit  offering  in  February  1996.  This  extension  was  considered  to be a
modification of the terms of the 1996 offering;  however,  because such warrants
are investor  warrants and could only be settled in cash, there was no impact on
the Company's consolidated financial statements as a result of the modification.



                                       10
<PAGE>

PROVISION FOR INCOME TAXES:

The Company recorded a provision for foreign income taxes totaling  $245,000 and
$2,298,000 for the three and nine months ended September 30, 2001, respectively,
as a result of reporting taxable income for tax purposes in Spain, including the
capital gains tax arising from the sale of Controlvas(R) and Amantadine(R). This
amount differs from the amount computed by applying the U.S.  federal income tax
rate  of 34% to  pretax  income  primarily  as a  result  of the  change  in the
valuation   allowance  to  offset  domestic  deferred  tax  assets  and  certain
nondeductible expenses in Spain.

BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:

Basic and diluted net income  (loss) per common share is presented in accordance
with SFAS No. 128, "Earnings per Share".

Basic and diluted net income  (loss) per common  share is based on the  weighted
average  number of shares of common stock  outstanding  during each period.  The
effect of the Company's  outstanding  stock options and stock purchase  warrants
were considered in the diluted income per share  calculation for the nine months
ended  September  30, 2001.  The effect of  outstanding  stock options and stock
purchase  warrants were not considered for the three months ended  September 30,
2001 and 2000, and the nine months ended  September 30, 2000 because the results
would have been anti-dilutive.

The  following  is a  reconciliation  between  basic and  diluted net income per
common share for the nine months ended September 30, 2001.  Dilutive  securities
issuable for the nine months  ended  September  30, 2001  include  approximately
439,000  shares  issuable  as a result  of Class B  Warrants  and  approximately
1,091,000  shares  issuable as a result of various  stock  options and  warrants
outstanding.

                     (in thousands, except per share data)

For the Nine Months Ended September 30, 2001:

                                               Effect of
                                     Basic     Dilutive     Diluted
                                     EPS      Securities      EPS  .
                                   -------    ----------  ----------
Net Income                          $1,924           ---      $1,924
Number of Common Shares             14,064         1,530      15,594
Net Income Per Common Share         $  .14        ($ .02)     $  .12




                                       11
<PAGE>

COMMITMENTS AND CONTINGENCIES:

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

The Company was awarded a judgment of approximately  $2,130,000  during the year
ended  December 31, 1998,  relating to the  Company's  claims of civil theft and
breach of  employment  agreement  filed  against its former  President and Chief
Executive Officer, Michael M. Harshbarger, in 1993. The judgment included treble
damages  totaling  $418,000  related  to its civil  theft  claim and  $1,712,000
related to its breach of employment agreement claim. In addition to establishing
a receivable  on its books,  the Company has  established a reserve equal to the
receivable.  Harshbarger  filed a Motion for Relief From  Judgment in  September
1999,  alleging among other things that he was not provided notice of the August
24,  1998 jury  trial.  Discovery  is  ongoing  and a  hearing  has been set for
November  27,  2001 to  determine  the merits of  Harshbarger's  claims.  In the
opinion of  management,  the  outcome is  expected  to have no adverse  material
effect on the consolidated financial statements of the Company.

RECLASSIFICATIONS:

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

NEW ACCOUNTING PRONOUNCEMENTS:

Statement of  Financial  Accounting  Standards  (SFAS) No. 133  "Accounting  for
Derivative  Instruments  and  Hedging  Activities"  was  issued in June 1998 and
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred  to as  derivatives)  and  for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  in the balance sheet and measure these  instruments  at fair value.
The accounting for changes in the fair value of a derivative (that is, gains and
losses)   depends  upon  the  intended  use  of  the  derivative  and  resulting
designation if used as a hedge. The Company adopted SFAS No. 133, as amended, on
January 1,  2001.  The  adoption  of SFAS No. 133 did not have any impact on the
Company's consolidated financial statements.

On June 29,  2001,  SFAS No. 141,  "Business  Combinations"  was approved by the
Financial  Accounting  Standards  Board  (FASB).  SFAS No. 141 requires that the
purchase  method of accounting be used for all business  combinations  initiated
after June 30, 2001.  Goodwill and certain  intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be  tested  for  impairment,  and  write-downs  may be  necessary.  The  Company
implemented  SFAS No. 141 on July 1, 2001.  The adoption of SFAS No. 141 did not
have any impact on the Company's consolidated financial statements.



                                       12
<PAGE>

On June 29,  2001,  SFAS No. 142,  "Goodwill  and Other  Intangible  Assets" was
approved by the FASB.  SFAS No. 142 changes the  accounting for goodwill from an
amortization  method to an impairment-only  approach.  Amortization of goodwill,
including  goodwill  recorded  in past  business  combinations,  will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January  1,  2002  and it has not  determined  the  impact,  if any,  that  this
statement will have on its consolidated financial statements.





                                       13
<PAGE>


                BENTLEY PHARMACEUTICALS, INC. AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:
----------------------

Three Months Ended September 30, 2001 versus Three Months Ended September 30,
------------------------------------------------------------------------------
2000
----

The Company  reported net sales of $6,316,000 and a net loss of $149,000 or $.01
per basic and diluted common share for the three months ended September 30, 2001
compared to net sales of $3,626,000 and a net loss of $419,000 or $.03 per basic
and diluted common share for the same period in the prior year.

The Company's Spanish  subsidiaries,  Laboratorios  Belmac S.A. and Laboratorios
Davur S.L.,  reported an increase in net sales of 79% in local  currency for the
three months ended  September  30, 2001 compared to the same period of the prior
year;  however, a 2% decline in the value of the Spanish Peseta and related Euro
negatively  impacted net sales by $92,000,  resulting in net sales  generated in
Spain of $6,316,000,  or an increase of 76% over the prior year,  when expressed
in U.S. dollars.  The Company  anticipated the  opportunities  that the emerging
generic drug market in Spain present and began taking  measures over three years
ago to  enter  the  Spanish  generic  drug  market.  The  Company,  through  its
wholly-owned  subsidiaries,  began to register,  market and  distribute  generic
pharmaceutical  products in Spain and began  aligning its  business  model to be
competitive in this arena,  including hiring and training a new generic products
sales force,  submission of generic-equivalent  products to the Spanish Ministry
of Health for approval and a marketing campaign designed to position the Company
as a leader in the Spanish  generic  drug  market.  The increase in net sales is
primarily  attributable  to this effort.  Sales of the  product,  Controlvas(R),
which accounted for approximately $513,000 of third quarter 2000 net sales, were
eliminated in the third quarter of 2001 as a result of the Company's divestiture
of the related drug license  during the first quarter of 2001. Net sales for the
three months ended  September 30, 2000 included  $40,000 related to research and
formulation activities performed in the United States.

Gross  margins for the three months ended  September  30, 2001  decreased to 57%
compared to gross margins of 59% in the same period of the prior year, primarily
as a result of the mix of products sold as well as higher  depreciation  charges
resulting  from  the  Company's  recent  renovations  and  improvements  at  its
manufacturing facility.  Approximately 35% of the Company's net sales during the
three  months  ended  September  30,  2001 were  generic  product  sales,  which
typically  have lower sales prices and gross margins than branded  products.  In
comparison,  the Company sold no generic drug products  during the third quarter
of the prior year.  As generic  product  sales  become more  significant  in the
future,  gross margins may continue to decrease.  The Ministry of Health and the
Pharma  Industry in Spain had entered into a two-year  agreement that expired in
December 1999 whereby pharmaceutical companies in Spain, including the Company's
Spanish subsidiaries, were taxed on their growth as a vehicle for funding rising
health care costs in Spain.  A new  agreement  was reached in March 2001,  which
also had the effect of reducing gross margins by approximately  $45,000,  or one
percentage point, for the three months ended September 30, 2001.



                                       14
<PAGE>

The  Company  entered  into  a  strategic  alliance  with  Teva   Pharmaceutical
Industries,  Ltd.  in July  2000,  whereby  the  Company,  through  its  Spanish
subsidiaries,  has  received the right to register and market in Spain more than
75 of Teva's  products.  The products are  comprised of both branded and generic
forms.  Sales  from the  products  are  expected  to begin  gradually,  but will
progress over the next two to three years.  An  investment  in additional  sales
representatives  will  be  required,   along  with  an  increase  in  regulatory
activities,  both of which may create a short  term  decrease  in the  Company's
earnings.  The Company,  through its  subsidiary  Laboratorios  Davur,  has also
submitted  registrations  to the Spanish Ministry of Health for generic versions
of various products, in response to growing interest in generic drug products in
Spain.  The Company  believes that resulting gross margins may be lower on sales
of such  products.  The Company's  decision to enter the generic drug market was
based on its objectives to remain competitive,  grow sales and market share, and
ultimately achieve profitability.

Selling,  general and  administrative  expenses increased by $667,000 or 30%, to
$2,910,000 for the three months ended  September 30, 2001 compared to $2,243,000
for the same  period of the prior  year.  Selling,  general  and  administrative
expenses, as a percentage of net sales, decreased from 62% of third quarter 2000
net sales to 46% of third quarter 2001 net sales. A significant  portion (70% or
$2,030,000)  of these third  quarter  2001  expenses  are selling and  marketing
expenses,  which are  necessary  for the Company to maintain  and grow sales and
market share in Spain. Selling and marketing expenses increased by $534,000,  or
36%,  over the same  period of the prior  year,  and as a percent  of net sales,
decreased  from 41% in the third  quarter of 2000 to 32% in the third quarter of
2001,  primarily  as a result  of  sales  and  marketing  programs  designed  to
introduce  the  Company's  new generic drug products and support the launches of
such products in an attempt to promote product  awareness and market share.  The
2% decline in the value of the Spanish  peseta and related  Euro, in relation to
the U.S.  dollar,  during the  period,  had the effect of  reducing  selling and
marketing  expenses by $30,000 for the three  months ended  September  30, 2001.
General and administrative  expenses increased by 18% from $747,000 in the third
quarter of 2000 to $880,000 in the third quarter of 2001, decreasing from 21% of
third  quarter  2000 net sales to 14% of third  quarter  2001 net sales.  The 2%
decline in the value of the Spanish  peseta and related Euro, in relation to the
U.S.  dollar,  during  the  period,  had the  effect  of  reducing  general  and
administrative  expenses by $7,000 for the quarter ended September 30, 2001. The
Company  intends  to  continue  its  efforts to  carefully  manage  general  and
administrative expenses.

The Company reported research and development expenses of $468,000 for the three
months  ended  September  30,  2001,  which are  slightly  more than  double the
research and  development  expenses of $233,000 for the same period of the prior
year.  The  increase in the  Company's  costs for research  and  development  is
primarily the result of costs  associated with ongoing Phase I Clinical  Studies
(treatment  of  nail  fungal  infections),  pre-clinical  programs  underway  in
collaboration with universities and with product formulation and testing efforts
being performed in the laboratory in the Company's U.S. headquarters, located in
New  Hampshire,  and at the  Company's  facility in  Zaragoza,  Spain.  The U.S.
laboratory  is  being  used  by  the  Company  to  develop   potential   product
applications   using  its  permeation   enhancement   technology.   The  limited
expenditures in research and development  reflect the Company's direction of its
resources  toward  projects that are necessary for expansion of its portfolio of
marketed  products and clinical trials  involving its drug delivery  technology,
the results of which should assist



                                       15
<PAGE>

potential  collaborators  in the  evaluation  process.  The  Company  intends to
continue to carefully manage its research and development  expenditures in order
to ensure that its  development  programs are efficient  and cost  effective and
seeks  funding of certain  of its  research  and  development  by  collaborative
partners,  however,  the Company  does expect that its future  expenditures  for
research and  development  activities  will  continue to increase as a result of
research and  development  programs that are necessary to advance its technology
in an effort to achieve commercial viability.

Depreciation  and  amortization  expenses totaled $223,000 for the quarter ended
September 30, 2001,  compared to $143,000 for the same period of the prior year.
The 56% increase was primarily due to higher  amortization  charges with respect
to recently acquired drug licenses and technologies,  including Codeisan(R), and
to a lesser  extent,  higher  depreciation  charges with respect to recent asset
additions,  partially  offset by the effect of fluctuations in foreign  currency
exchange rates.  Depreciation and amortization  charges are expected to continue
to be higher than in the prior year as a result of these acquisitions.

Laboratorios Belmac S.A., a subsidiary of the Company, completed the sale of the
trademark,  registration  rights  and  dossier  for its  branded  pharmaceutical
product,  Amantadine(R), to a third party during the quarter ended September 30,
2001,  for 30 million  Spanish  pesetas  (approximately  $153,000).  The Company
received a deposit of 11 million  Spanish pesetas  (approximately  $56,000) from
the  purchaser  in June 2001,  which was  reflected  as  Deferred  income in the
Consolidated  Balance Sheets as of June 30, 2001. The Company  received a second
payment of 11 million  Spanish  pesetas  upon  approval  of the  transfer of the
rights to the purchaser by the Spanish Ministry of Health, which occurred during
the quarter  ended  September  30, 2001.  The  resulting  gain of  approximately
$113,000 has been recognized in the Consolidated Statement of Operations for the
quarter  ended  September  30, 2001.  The  remaining 8 million  Spanish  pesetas
(approximately  $41,000) is payable  over the next five years,  in the form of a
royalty arrangement.

Interest  income totaled  $30,000 for the three months ended  September 30, 2001
compared to $85,000 for the same period of the prior year  primarily as a result
of lower  short-term  interest  bearing  investment  balances and lower interest
rates on the  investment  balances  during the three months ended  September 30,
2001 compared to the same period of 2000.

Interest  expense  totaled $61,000 for the three months ended September 30, 2001
compared  to $46,000 for the same  period of the prior  year.  Interest  expense
incurred  during  the  third  quarter  of  2001  resulted   primarily  from  the
outstanding balances on lines of credit used for operating purposes and lines of
credit and  borrowings  used to finance the purchase of the product  Codeisan(R)
and capital equipment and improvements, in Spain.

The Company recorded a provision for foreign income taxes totaling  $245,000 for
the three  months  ended  September  30, 2001 as a result of  reporting  taxable
income for tax  purposes in Spain,  compared  to the benefit for foreign  income
taxes of $18,000 as a result of  reporting  a loss for tax  purposes in Spain in
the same period of the prior year.  The provision for foreign income taxes would
have been $3,000 higher than reported, absent the 2% decline in the value of the
Spanish  peseta and  related  Euro in  relation  to the U.S.  dollar  during the
period.  The  Company  generated  additional  U.S.  federal net



                                       16
<PAGE>

operating  loss  carry-forwards  during the quarter  ended  September  30, 2001.
However,  since the Company has not yet achieved profitable domestic operations,
it has recorded a valuation allowance for any future benefit of such losses.

Including  the $113,000  gain on sale of the  Amantadine(R)  drug  license,  the
Company  reported  income from operations of $120,000 for the three months ended
September  30, 2001  compared to a loss from  operations of $476,000 in the same
period  of the  prior  year.  The  impact  of  income  from  operations  and the
non-operating  items,  primarily  the  provision  for income  taxes of $245,000,
resulted in a net loss of $149,000,  or $.01 per basic and diluted  common share
on 14,308,000  weighted  average common shares  outstanding for the three months
ended September 30, 2001, compared to a net loss in the same period of the prior
year of  $419,000,  or $.03 per basic and  diluted  common  share on  13,662,000
weighted average common shares outstanding.


Nine Months Ended September 30, 2001 versus Nine Months Ended September 30, 2000
--------------------------------------------------------------------------------

The Company reported net sales of $18,255,000 and recognized gains of $5,090,000
from  the sale of its  Controlvas(R)  and  Amantadine(R)  drug  licenses  which,
together,  resulted in net income of  $1,924,000  or $.14 per basic common share
($.12 per diluted  common  share) for the nine months ended  September  30, 2001
compared  to net sales of  $13,305,000  and a net loss of  $560,000  or $.04 per
basic and diluted common share for the same nine month period in the prior year.

The Company's Spanish  subsidiaries,  Laboratorios  Belmac S.A. and Laboratorios
Davur S.L.,  reported an increase in net sales of 46% in local  currency for the
nine months ended  September  30, 2001  compared to the same period of the prior
year;  however, a 5% decline in the value of the Spanish Peseta and related Euro
negatively  impacted net sales by $813,000,  resulting in net sales generated in
Spain of  $18,255,000,  or an increase of 38% over the same nine month period of
the prior year,  when expressed in U.S.  dollars.  The Company  anticipated  the
opportunities  that the emerging  generic drug market in Spain present and began
taking  measures over three years ago to enter the Spanish  generic drug market.
The Company, through its wholly-owned  subsidiaries,  began to register,  market
and distribute generic  pharmaceutical  products in Spain and began aligning its
business model to be competitive in this arena,  including hiring and training a
new generic products sales force,  submission of generic-equivalent  products to
the Spanish Ministry of Health for approval and a marketing campaign designed to
position  the  Company  as a leader in the  Spanish  generic  drug  market.  The
increase in net sales is partially  attributable  to this  effort.  Sales of the
product Controlvas(R), which accounted for approximately $1,708,000 of net sales
in the first nine months of 2000, were reduced to  approximately  $60,000 in the
first  nine  months  of 2001 as a result  of the  Company's  divestiture  of the
related drug license during the first quarter of 2001. Also negatively impacting
net sales was a decision  by the  Spanish  Ministry  of Health to  suspend  from
commercialization  a class of drugs that included Finedal,  a product previously
marketed by the  Company.  The  Company's  net sales for the nine  months  ended
September 30, 2000 included sales of Finedal  totaling  approximately  $200,000,
while net sales for the nine months ended  September  30, 2001 included no sales
of Finedal. The Company does not anticipate any future sales of this product nor
does it anticipate  incurring any future costs with respect to this product. Net
sales for the nine months ended  September 30, 2000 included  $65,000 related to



                                       17
<PAGE>

research and licensing agreements and fees from research and product formulation
activities performed in the United States.

Gross  margins for the nine months  ended  September  30, 2001  decreased to 57%
compared to gross margins of 61% in the same period of the prior year, primarily
as a result of the mix of products sold as well as higher  depreciation  charges
resulting  from  the  Company's  recent  renovations  and  improvements  at  its
manufacturing facility.  Approximately 27% of the Company's net sales during the
nine months ended September 30, 2001 were generic product sales, which typically
have lower sales prices and gross margins than branded products.  In comparison,
the Company sold no generic drug products during the first three quarters of the
prior year.  As generic  product  sales become more  significant  in the future,
gross  margins may continue to  decrease.  The Ministry of Health and the Pharma
Industry in Spain had entered into a two-year agreement that expired in December
1999 whereby pharmaceutical  companies in Spain, including the Company's Spanish
subsidiaries,  were taxed on their growth as a vehicle for funding rising health
care costs in Spain.  A new agreement was reached in March 2001,  which also had
the  effect  of  reducing  gross  margins  by  approximately  $166,000,  or  one
percentage point, for the nine months ended September 30, 2001.

The  Company  entered  into  a  strategic  alliance  with  Teva   Pharmaceutical
Industries,  Ltd.  in July  2000,  whereby  the  Company,  through  its  Spanish
subsidiaries,  has  received the right to register and market in Spain more than
75 of Teva's  products.  The products are  comprised of both branded and generic
forms.  Sales  from the  products  are  expected  to begin  gradually,  but will
progress over the next two to three years.  An  investment  in additional  sales
representatives  will  be  required,   along  with  an  increase  in  regulatory
activities,  both of which may create a short  term  decrease  in the  Company's
earnings.  The Company,  through its  subsidiary  Laboratorios  Davur,  has also
submitted  registrations  to the Spanish Ministry of Health for generic versions
of various products, in response to growing interest in generic drug products in
Spain.  The Company  believes that resulting gross margins may be lower on sales
of such  products.  The Company's  decision to enter the generic drug market was
based on its objectives to remain competitive,  grow sales and market share, and
ultimately achieve profitability.

Selling,  general and administrative expenses increased by $2,006,000 or 28%, to
$9,215,000  for the nine months ended  September 30, 2001 compared to $7,209,000
for the same  period of the prior  year.  Selling,  general  and  administrative
expenses,  as a percentage of net sales,  decreased from 54% of net sales during
the first nine  months of 2000 to 50% of net sales  during the first nine months
of 2001. A  significant  portion (70% or  $6,472,000)  of these  expenses in the
first  three  quarters of 2001 are selling  and  marketing  expenses,  which are
necessary  for the Company to maintain and grow sales and market share in Spain.
Selling and marketing  expenses  increased by $1,838,000,  or 40%, over the same
period of the prior year,  and as a percent of net sales,  remained  constant at
35% in the first nine months of 2001  compared to the first nine months of 2000,
primarily as a result of sales and marketing  programs designed to introduce the
Company's new generic drug products and support the launches of such products in
an attempt to promote product  awareness and market share. The 5% decline in the
value of the Spanish  peseta and related Euro,  in relation to the U.S.  dollar,
during the period,  had the effect of reducing selling and marketing expenses by
$297,000  for  the  nine  months   ended   September   30,  2001.   General  and
administrative  expenses increased 7% to $2,743,000 during the first nine months
of 2001 compared to $2,575,000 during the first nine months of 2000,  decreasing
from 19% of net sales



                                       18
<PAGE>

during the first nine  months of 2000 to 15% of net sales  during the first nine
months of 2001.  The 5% decline in the value of the  Spanish  peseta and related
Euro,  in relation  to the U.S.  dollar,  during the  period,  had the effect of
reducing  general  and  administrative  expenses  by $58,000 for the nine months
ended  September  30,  2001.  The  Company  intends to  continue  its efforts to
carefully manage general and administrative expenses.

The Company  reported  research and  development  expenses of $1,352,000 for the
nine months ended  September 30, 2001,  which more than doubled when compared to
$608,000  for the same  period of the prior  year.  However,  prior  year  first
quarter research and development expenses of $238,000 were offset by $161,000 as
a result of a negotiated  reduction in an amount previously accrued for research
and development  expenses.  The increase in the Company's costs for research and
development  is primarily the result of costs  associated  with Phase I Clinical
Studies (treatment of nail fungal infections), pre-clinical programs underway in
collaboration with universities and with product formulation and testing efforts
being performed in the laboratory in the Company's U.S. headquarters, located in
New  Hampshire,  and at the  Company's  facility in  Zaragoza,  Spain.  The U.S.
laboratory  is  being  used  by  the  Company  to  develop   potential   product
applications   using  its  permeation   enhancement   technology.   The  limited
expenditures in research and development  reflect the Company's direction of its
resources  toward  projects that are necessary for expansion of its portfolio of
marketed  products and clinical trials  involving its drug delivery  technology,
the results of which should assist  potential  collaborators  in the  evaluation
process.  The Company  intends to continue to carefully  manage its research and
development  expenditures in order to ensure that its  development  programs are
efficient  and cost  effective  and seeks funding of certain of its research and
development by collaborative partners, however, the Company does expect that its
future  expenditures  for research and  development  activities will continue to
increase as a result of research and development  programs that are necessary to
advance its technology in an effort to achieve commercial viability.

Depreciation  and  amortization  expenses  totaled  $670,000 for the nine months
ended September 30, 2001,  compared to $420,000 for the same period of the prior
year.  The 60% increase was  primarily due to higher  amortization  charges with
respect  to  recently  acquired  drug  licenses  and   technologies,   including
Codeisan(R), and to a lesser extent, higher depreciation charges with respect to
recent  asset  additions,  partially  offset by the  effect of  fluctuations  in
foreign  currency  exchange rates.  Depreciation  and  amortization  charges are
expected  to  continue  to be higher than in the prior year as a result of these
acquisitions.

Laboratorios  Belmac,  S.A., a subsidiary  of the Company,  sold the  trademark,
registration  rights  and  dossier  for  its  branded  pharmaceutical   product,
Controlvas(R),  for  approximately  $5,148,000  during  the  nine  months  ended
September 30, 2001. The Company entered into an agreement to sell  Controlvas(R)
and  received a 50%  deposit  from the  purchaser  in November  2000,  which was
reflected as Deferred  income in the  Consolidated  Balance Sheet as of December
31, 2000. The resulting gain of approximately  $4,977,000 has been recognized in
the Consolidated Statement of Operations for the nine months ended September 30,
2001.

Laboratorios Belmac S.A., a subsidiary of the Company, completed the sale of the
trademark,  registration  rights  and  dossier  for its  branded  pharmaceutical
product,  Amantadine(R), to a third party



                                       19
<PAGE>

during the quarter ended  September  30, 2001,  for 30 million  Spanish  pesetas
(approximately  $153,000).  The Company received a deposit of 11 million Spanish
pesetas  (approximately  $56,000)  from the  purchaser  in June 2001,  which was
reflected as Deferred income in the  Consolidated  Balance Sheets as of June 30,
2001. The Company  received a second payment of 11 million  Spanish pesetas upon
approval of the transfer of the rights to the purchaser by the Spanish  Ministry
of Health,  which  occurred  during the quarter ended  September  30, 2001.  The
resulting gain of approximately $113,000 has been recognized in the Consolidated
Statement of  Operations  for the nine months  ended  September  30,  2001.  The
remaining 8 million Spanish pesetas (approximately  $41,000) is payable over the
next five years, in the form of a royalty arrangement.

Interest  income totaled  $121,000 for the nine months ended  September 30, 2001
compared to $269,000 for the same period of the prior year primarily as a result
of lower  short-term  interest  bearing  investment  balances and lower interest
rates on the investment balances during the nine months ended September 30, 2001
compared to the same period of 2000.

Interest  expense totaled  $184,000 for the nine months ended September 30, 2001
compared to $342,000 for the same period of the prior year. The Company incurred
first quarter 2000 interest  expense of  approximately  $233,000  related to its
Debentures,  which was eliminated beginning with the second quarter of 2000 as a
result of the  conversion of all  outstanding  Debentures  into shares of Common
Stock.  Interest  expense  incurred  during  the first  three  quarters  of 2001
resulted  primarily  from the  outstanding  balances on lines of credit used for
operating  purposes  and lines of credit  and  borrowings  used to  finance  the
purchase of the product  Codeisan(R) and capital equipment and improvements,  in
Spain.

The Company  recorded a provision for foreign income taxes  totaling  $2,298,000
for the nine months ended  September  30, 2001 as a result of reporting  taxable
income for tax purposes in Spain and for capital gains tax arising from the sale
of Controlvas(R) and Amantadine(R), compared to the provision for foreign income
taxes of $378,000  in the same period of the prior year,  as a result of taxable
income earned in Spain.  The provision for foreign  income taxes would have been
$113,000 higher than reported, absent the 5% decline in the value of the Spanish
peseta and related Euro in relation to the U.S.  dollar  during the period.  The
Company  generated  additional  U.S.  federal net operating loss  carry-forwards
during the nine months ended September 30, 2001. However,  since the Company has
not yet achieved  profitable  domestic  operations,  it has recorded a valuation
allowance for any future benefit of such losses.

Including the  $5,090,000  gain on sale of drug licenses,  the Company  reported
income from  operations  of $4,264,000  for the nine months ended  September 30,
2001  compared to a loss from  operations  of $109,000 in the same period of the
prior  year.  Excluding  the  $5,090,000  pre-tax  gain  from  the  sale  of the
Controlvas(R) and Amantadine(R) drug licenses,  the loss from operations for the
first nine months of 2001 would have totaled $826,000. The combination of income
from operations and the non-operating items,  primarily the provision for income
taxes of  $2,298,000,  resulted in net income of  $1,924,000,  or $.14 per basic
common share ($.12 per diluted  common  share) on  14,064,000  weighted  average
basic common shares  outstanding  (15,594,000  weighted  average  diluted common
shares  outstanding) for the nine months ended September 30, 2001, compared to a
net loss in the same period of the prior year of $560,000, or $.04 per basic and
diluted common share on 12,672,000 weighted average common shares outstanding.



                                       20
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------

Total assets  increased from  $28,877,000 at December 31, 2000 to $29,884,000 at
September 30, 2001,  while  Stockholders'  Equity  increased from $17,816,000 at
December  31,  2000 to  $21,292,000  at  September  30,  2001.  The  increase in
Stockholders'  Equity  reflects  primarily the net income of $1,924,000  for the
nine months  ended  September  30, 2001,  and net proceeds  from the exercise of
stock options and warrants totaling $1,827,000, partially offset by the negative
impact of the fluctuation of the Spanish peseta (and related Euro) exchange rate
of $500,000 for the nine months ended September 30, 2001.

The Company's  working capital increased from $3,742,000 at December 31, 2000 to
$7,087,000  at September  30, 2001,  primarily as a result of  collection of the
remainder  of  the  cash  due  upon  the  sale  of  the  product   Controlvas(R)
(approximately  $2,676,000),  most of which  was used to reduce  short-term  and
long-term  borrowings,  the  recognition  of  deferred  income of  approximately
$2,564,000 related to the sale of Controlvas(R),  and net proceeds received from
the exercise of stock options and warrants  totaling  $1,827,000 during the nine
months ended September 30, 2001.

Cash and cash  equivalents  decreased  from  $4,816,000  at December 31, 2000 to
$4,689,000 at September  30, 2001,  primarily as a result of using cash to repay
net  borrowings  (approximately  $3,447,000)  and  additions  to fixed assets of
approximately  $1,196,000 during the nine month period, partially offset by cash
generated by operating activities of $1,267,000,  which included the sale of the
Controlvas(R)  drug license and proceeds  from the exercise of stock options and
warrants  (approximately  $1,827,000).  Included in cash and cash equivalents at
September  30,  2001 are  approximately  $3,610,000  of  short-term  investments
considered to be cash equivalents.

Accounts receivable increased from $5,135,000 at December 31, 2000 to $5,882,000
at September 30, 2001 as a result of sales growth.  Trade receivables  increased
by  approximately  $901,000  in local  currency,  but  fluctuations  in  foreign
currency  exchange  rates  offset the  increase by  approximately  $75,000.  The
Company  has not  experienced  any  material  delinquent  accounts  on its trade
receivables.  Inventories  increased  from  $1,827,000  at December  31, 2000 to
$2,504,000  at  September  30,  2001  primarily  as a  result  of raw  materials
purchases in anticipation of demand for the Company's generic products.

The  combined  total of accounts  payable and accrued  expenses  increased  from
$3,613,000 at December 31, 2000 to  $4,576,000 at September 30, 2001,  primarily
due to accruals for social  security taxes payable,  salaries  payable and taxes
payable, as well as for inventory  purchases,  partially offset by the effect of
fluctuations in foreign currency exchange rates.

Short-term  borrowings  and current  portion of long-term  debt  decreased  from
$3,185,000 at December 31, 2000 to $2,047,000 at September 30, 2001, as a result
of utilizing  proceeds  from the sale of the



                                       21
<PAGE>

product, Controlvas(R), to reduce balances outstanding, combined with the effect
of  fluctuations  in  foreign  currency  exchange  rates,  partially  offset  by
additional  borrowings  during the quarter  ended  September 30, 2001 to finance
capital expenditures at the Company's manufacturing plant in Spain. The weighted
average interest rate on the Company's short-term borrowings is 5.8%.

Receivables  from related  parties  represent  loans  totaling  $440,000 made to
executive  officers of the Company in March 2000.  Proceeds  from the loans were
used to pay the  income  taxes  on  stock-based  compensation  provided  to such
officers in the prior year.  The loans,  in the form of  promissory  notes,  are
secured by an aggregate  of 50,000  shares of Common Stock owned by the officers
and bear interest at 6.59% annually.  Accrued  interest payable totaling $44,000
is included in the amounts receivable at September 30, 2001.

Long-term debt, which totaled $623,000 at December 31, 2000, was reduced to zero
at September 30, 2001, using proceeds from the sale of Controlvas(R).

Investing  activities,  primarily  the  proceeds  from the sale of  investments,
offset by additions to machinery and equipment and capital  improvements  to the
manufacturing  facility in Spain and the U.S.  and the  purchase of  investments
used net cash of  $1,493,000  during the nine months ended  September  30, 2001.
Financing  activities,  primarily proceeds from borrowings and from the exercise
of stock options and warrants,  offset by repayments of borrowings  provided net
cash of $164,000.  Operating  activities for the nine months ended September 30,
2001 provided net cash of $1,267,000.

Seasonality.  In the past, the Company has experienced  lower sales in the third
calendar  quarter  and  higher  sales  in the  fourth  calendar  quarter  due to
seasonality. As the Company markets more pharmaceutical products whose sales are
seasonal, seasonality of sales may become more significant.

Effect of Inflation and Changing Prices.  Neither  inflation nor changing prices
has  materially  impacted the Company's net sales or income from  operations for
the periods presented.

Given the Company's  current  liquidity and cash  balances and  considering  its
future strategic plans (including its budgeted capital  improvements and planned
equipment  purchases),  the Company  should have  sufficient  liquidity  to fund
operations for the next twelve months,  which should be a sufficient  time frame
for the Company to advance its  strategic  objectives  and  generate  sufficient
revenues and cash flow to support the Company's  operating  cash flow needs.  As
mentioned  above,  the Company has cash and cash  equivalents  of  approximately
$4,689,000 as of September 30, 2001.  These  resources,  combined with available
lines of  credit,  should be  adequate  to satisfy  the  Company's  capital  and
operating  requirements,  as stated above.  The Company also has stock  purchase
warrants,  including  its  publicly  traded  Class B  Warrants,  outstanding  at
September 30, 2001, to purchase approximately  3,424,000 shares of Common Stock.
There can be no assurance  that any of the warrants  will be exercised  prior to
expiration;  however,  if  all  warrants  that  are  currently  outstanding  are
exercised,  the Company would receive  aggregate cash proceeds of  approximately
$16,018,000.  The  expiration  date of the Class B Warrants has been extended to
December 31, 2002. Two Class B Redeemable Warrants,  together, entitle a holder,
until  December  31,  2002,  to purchase one share of



                                       22
<PAGE>

Common Stock at a price of $5.00 per share. There can be no assurance,  however,
that changes in the  Company's  research and  development  plans or other events
affecting  the Company's  revenues or operating  expenses will not result in the
earlier  depletion  of the  Company's  funds.  The Company  continues to explore
alternative  sources for  financing  its  business  activities.  In  appropriate
situations,  that  will  be  strategically  determined,  the  Company  may  seek
financial  assistance  from other sources,  including  contribution by others to
joint  ventures  and  other  collaborative  or  licensing  arrangements  for the
development, testing, manufacturing and marketing of products under development.


NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 133 "Accounting for Derivative  Instruments and Hedging Activities" was
issued in June 1998 and  establishes  accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts  (collectively  referred  to as  derivatives)  and for  hedging
activities.  It requires  that an entity  recognize  all  derivatives  as either
assets or liabilities in the balance sheet and measure these instruments at fair
value.  The accounting  for changes in the fair value of a derivative  (that is,
gains and losses)  depends upon the intended use of the derivative and resulting
designation if used as a hedge. The Company adopted SFAS No. 133, as amended, on
January 1,  2001.  The  adoption  of SFAS No. 133 did not have any impact on the
Company's consolidated financial statements.

On June 29,  2001,  SFAS No. 141,  "Business  Combinations"  was approved by the
Financial  Accounting  Standards  Board  (FASB).  SFAS No. 141 requires that the
purchase  method of accounting be used for all business  combinations  initiated
after June 30, 2001.  Goodwill and certain  intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be  tested  for  impairment,  and  write-downs  may be  necessary.  The  Company
implemented  SFAS No. 141 on July 1, 2001.  The adoption of SFAS No. 141 did not
have any impact on the Company's consolidated financial statements.

On June 29,  2001,  SFAS No. 142,  "Goodwill  and Other  Intangible  Assets" was
approved by the FASB.  SFAS No. 142 changes the  accounting for goodwill from an
amortization  method to an impairment-only  approach.  Amortization of goodwill,
including  goodwill  recorded  in past  business  combinations,  will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January  1,  2002  and it has not  determined  the  impact,  if any,  that  this
statement  will  have on its  consolidated  financial  position  or  results  of
operations.




                                       23
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

Foreign Currency. A substantial amount of the Company's business is conducted in
Europe and is therefore influenced by the extent to which there are fluctuations
in the dollar's value against other  currencies,  specifically  the euro and the
peseta.  On January 1, 1999,  the euro became the official  currency of European
Union (EU) member states with a fixed  conversion  rate against  their  national
currencies.  The value of the euro against the dollar and all other  currencies,
including the EU member states that are not participating in the euro zone, will
fluctuate according to market conditions. Although euro notes and coins will not
appear  until  January 1, 2002,  the new  currency  has been used by  consumers,
retailers,  companies and public  administrations  since January 1, 1999, in the
form of  "written  money,"  i.e.  by means of checks,  traveler's  checks,  bank
transfers,  credit card  transactions,  etc. The permanent  value of one euro in
Spain is fixed at 166.39  pesetas.  The exchange  rate at September 30, 2001 and
December 31, 2000 was 182.54 and 178.02 pesetas per U.S.  dollar,  respectively.
The weighted average exchange rate for the three months ended September 30, 2001
and 2000 was  186.84 and  184.16  pesetas  per U.S.  dollar,  respectively;  the
weighted  average exchange rate for the nine months ended September 30, 2001 and
2000 was 185.93 and 177.05 pesetas per U.S. dollar, respectively.  The effect of
foreign  currency  fluctuations  on long lived  assets for the nine months ended
September  30,  2001 was a decrease of $501,000  and the  cumulative  historical
effect was a decrease of $3,129,000,  as reflected in the Company's Consolidated
Balance Sheets in the "Liabilities and Stockholders'  Equity" section.  Although
exchange rates fluctuated significantly in recent years, and in particular,  the
weakening of the euro in relation to the U.S. dollar in 1999, 2000 and the first
six months of 2001,  the  Company  does not  believe  that the effect of foreign
currency  fluctuation is material to the Company's  results of operations as the
expenses related to much of the Company's  foreign currency  revenues are in the
same  currency  as such  revenues.  However,  the  carrying  value of assets and
reported values can be materially impacted by foreign currency  translation,  as
can the translated  amounts of revenues and expenses.  Nonetheless,  the Company
does not plan to modify its business practices. The Company has relied primarily
upon  financing  activities to fund the  operations of the Company in the United
States.  In the  event  that the  Company  is  required  to fund  United  States
operations  or  cash  needs  with  funds  generated  in  Spain,   currency  rate
fluctuations  in the future  could  have a  significant  impact on the  Company.
However,  at the present  time,  the Company  does not  anticipate  altering its
business plans and practices to compensate for future currency fluctuations.

Interest Rates. The weighted  average interest rate on the Company's  short-term
borrowings is 5.8% and the balance outstanding is $2,047,000 as of September 30,
2001.  The effect of an  increase  in the  interest  rate of one  hundred  basis
points,  to 6.8%,  would  have the  effect of  increasing  interest  expense  by
approximately $20,000 annually.

CAUTIONARY  STATEMENTS  FOR PURPOSES OF THE "SAFE  HARBOR"  PROVISIONS OF THE
------------------------------------------------------------------------------
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
------------------------------------------------

The statements  contained in this Quarterly  Report on Form 10-Q,  which are not
historical  facts contain  forward  looking  information  with respect to plans,
projections or future performance of Bentley Pharmaceuticals,  Inc. ("Bentley"),
the occurrence of which involve certain risks and uncertainties that could cause
Bentley's  actual results to differ  materially  from those expected by Bentley,
including  the risk that we could be required to cut back or stop  operations if
we are  unable  to raise or obtain  needed  funding;  that we have a history  of
losses and if we do not achieve profitability we may not be able to continue our
business in the future;  that we may be restricted  from using our net operating
loss carry forwards due to a change in equity  ownership and a change in our tax
year; that  successful  development of current and future products is uncertain;
that clinical trial results may result in failure to obtain regulatory  approval
and  inability  to sell  products;  that  we  will  rely  on  third  parties  to
commercialize  our  products in the United  States;  that our products are early
stage  and may not be



                                       24
<PAGE>

successful;   that  we  could  be  materially  harmed  if  our  agreements  were
terminated;  that our  failure to develop  additional  product  candidates  will
impair  our  ability to grow;  that our patent  position  is  uncertain  and our
success depends on our proprietary  rights;  that we may have to lower prices or
spend more money to effectively compete against companies with greater resources
than us,  which  could  result in lower  revenues  and/or  profits;  that  rapid
technological  change may result in our  products  becoming  obsolete  before we
recoup a significant  portion of related costs; that  pharmaceutical  pricing is
uncertain  and may result in a  negative  effect on our  profitability;  that we
depend on key personnel  and must continue to attract and retain key  employees;
that we face  product  liability  risks;  that we may be  affected by changes in
pharmaceutical pricing and reimbursement; that we face risks when doing business
outside of the United States;  that your  percentage of ownership,  voting power
and price of  Bentley  common  stock may  decrease  as a result of events  which
increase the number of shares of our outstanding common stock; that our stock is
volatile;  that  obligations in connection  with warrants and options may hinder
our ability to obtain  future  financing;  that your  interest in Bentley may be
diluted by the issuance of preferred  stock with greater  rights than the common
stock,  which we can sell or issue at any time;  that we have not paid dividends
on our  common  stock and do not  intend  to pay  dividends  in the  foreseeable
future; that certain laws and provisions in our certificate of incorporation and
by laws make it more  difficult or discourage  third parties from  attempting to
control Bentley, and other uncertainties  detailed in Bentley's Annual Report on
Form 10-K (SEC File No. 1-10581) for the year ended December 31, 2000.


                                       25

<PAGE>

PART II.    OTHER INFORMATION
            ------------------

ITEM 1.     LEGAL PROCEEDINGS
            -----------------

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

The Company was awarded a judgment of  approximately  $2,130,000  in the Circuit
Court of the Thirteenth Judicial Circuit, State of Florida,  Hillsborough County
Civil  Division  during  the year  ended  December  31,  1998,  relating  to the
Company's claims of civil theft and breach of employment agreement filed against
its former President and Chief Executive  Officer,  Michael M. Harshbarger.  The
judgment  included treble damages  totaling  $418,000 related to its civil theft
claim and  $1,712,000  related  to its  breach of  employment  agreement  claim.
Harshbarger originally filed suit against the Company in November 1993, alleging
wrongful  termination,  seeking  monetary  damages in excess of  $1,400,000.  In
addition to establishing a receivable on its books,  the Company has established
a  reserve  equal to the  receivable,  as the  Company  is of the  opinion  that
Harshbarger does not have the financial resources to satisfy the judgment.

Harshbarger filed a Motion for Relief From Judgment in September 1999,  alleging
among other things that he was not  provided  notice of the August 24, 1998 jury
trial.  Discovery is ongoing and a hearing has been set for November 27, 2001 to
determine the merits of Harshbarger's claims. In the opinion of management,  the
outcome  is  expected  to have no  material  effect on the  financial  position,
results of operations or cash flows of the Company.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

      (a) Exhibits:
               None.

      (b) Reports on Form 8-K filed during the quarter ended September 30, 2001:
               None.

The Company has not filed any reports on Form 8-K  subsequent  to September  30,
2001.

All  other  items  required  in Part II have  been  previously  filed or are not
applicable for the quarter ended September 30, 2001.


                                       26
<PAGE>

                                   SIGNATURES
                                   ----------


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.





                              BENTLEY PHARMACEUTICALS, INC.
                              -------------------------------------------
                              Registrant





November 1, 2001          By: /s/ James R. Murphy
                              -------------------------------------------
                              James R. Murphy
                              Chairman, President and Chief Executive Officer
                              (principal executive officer)




November 1, 2001          By: /s/ Michael D. Price
                              -------------------------------------------
                              Michael D. Price
                              Vice President, Chief Financial Officer,
                              Treasurer and Secretary (principal financial
                              and accounting officer)