##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission File Number 1-10581
 Bentley Pharmaceuticals, Inc.
  DELAWARE
    
    No. 59-1513162(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 Bentley Park, 2 Holland Way, Exeter, New Hampshire 03833
 (603) 658-6100
 þ o
  o þ o
 o þ




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##### 



Bentley Pharmaceuticals, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended March 31, 2007
 Index
 PagePart I. Unaudited Financial InformationItem 1. Condensed Consolidated Financial Statements:Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Consolidated Income Statements for the three months ended March 31, 2007 and 2006
    
    
    4Consolidated Statement of Changes in Stockholders Equity for the three months ended March 31, 2007
    
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II. Other InformationItem 6. Exhibits
    
    
    28EX-3.1 Restated Certification of Incorporation dated, October 29, 1999EX-3.2 Certificate of Designation of Series A Junior Participating Preferred StockEX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
  2




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Bentley Pharmaceuticals, Inc. and Subsidiaries
 Consolidated Balance Sheets
 (in thousands, except per share data)

    
    March 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    20,081
    
    
    $
    12,424Marketable securities
    
    
    524
    
    
    
    3,177Receivables, net
    
    
    33,496
    
    
    
    32,963Inventories
    
    
    16,650
    
    
    
    16,279Deferred taxes
    
    
    1,095
    
    
    
    1,049Prepaid expenses and other
    
    
    2,101
    
    
    
    1,798Total current assets
    
    
    73,947
    
    
    
    67,690Non-current assets:Fixed assets, net
    
    
    49,916
    
    
    
    48,556Drug licenses and related costs, net
    
    
    16,260
    
    
    
    16,026Restricted cash
    
    
    1,000
    
    
    
    1,000Deferred taxes
    
    
    167
    
    
    
    240Other
    
    
    922
    
    
    
    844Total non-current assets
    
    
    68,265
    
    
    
    66,666$
    142,212
    
    
    $
    134,356Liabilities
and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    15,724
    
    
    $
    14,566Accrued expenses
    
    
    11,655
    
    
    
    9,704Short-term borrowings
    
    
    
    
    
    
    247Current portion of long-term debt
    
    
    
    
    
    
    307Deferred income
    
    
    1,014
    
    
    
    1,045Other current liabilities
    
    
    1,987
    
    
    
    1,518Total current liabilities
    
    
    30,380
    
    
    
    27,387Non-current liabilities:Deferred income
    
    
    4,100
    
    
    
    3,899Other
    
    
    3,677
    
    
    
    2,739Total non-current liabilities
    
    
    7,777
    
    
    
    6,638Commitments and contingenciesStockholders equity:Preferred stock, $1.00 par value, authorized 2,000 shares,
issued and outstanding, none
    
    
    
    
    
    
    Common stock, $0.02 par value, authorized 100,000 shares,
issued and outstanding, 22,271 and 22,262 shares
    
    
    445
    
    
    
    445Additional paid-in capital
    
    
    140,589
    
    
    
    140,030Accumulated deficit
    
    
    (47,061
    )
    
    
    (49,016
    )Accumulated other comprehensive income
    
    
    10,082
    
    
    
    8,872Total stockholders equity
    
    
    104,055
    
    
    
    100,331$
    142,212
    
    
    $
    134,356
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 Consolidated Income Statements
 (in thousands, except per share data)

    
    For the Three Months EndedMarch 31,2007
    
    
    2006Revenues:Net product sales
    
    $
    29,114
    
    
    $
    26,570Licensing and collaboration revenues
    
    
    2,277
    
    
    
    1,708Total revenues
    
    
    31,391
    
    
    
    28,278Cost of net product sales
    
    
    15,897
    
    
    
    12,933Gross profit
    
    
    15,494
    
    
    
    15,345Operating expenses:Selling and marketing
    
    
    4,445
    
    
    
    4,139General and administrative
    
    
    3,646
    
    
    
    3,904Research and development
    
    
    2,675
    
    
    
    2,908Litigation settlement
    
    
    
    
    
    
    604Depreciation and amortization
    
    
    508
    
    
    
    436Total operating expenses
    
    
    11,274
    
    
    
    11,991Income from operations
    
    
    4,220
    
    
    
    3,354Other income (expenses):Interest income
    
    
    182
    
    
    
    253Interest expense
    
    
    (50
    )
    
    
    (60
    )Other, net
    
    
    89
    
    
    
    Income before income taxes
    
    
    4,441
    
    
    
    3,547Provision for income taxes
    
    
    2,081
    
    
    
    2,393Net income
    
    $
    2,360
    
    
    $
    1,154Net income per common share:Basic
    
    $
    0.11
    
    
    $
    0.05Diluted
    
    $
    0.10
    
    
    $
    0.05Weighted average common shares outstanding:Basic
    
    
    22,293
    
    
    
    21,954Diluted
    
    
    22,534
    
    
    
    23,807
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 Consolidated Statement of Changes in Stockholders Equity
 Accumulated$0.02 Par Value
    
    
    Additional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive(in thousands, except per share data)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance at January 1, 2007
    
    
    22,262
    
    
    $
    445
    
    
    $
    140,030
    
    
    $
    (49,016
    )
    
    $
    8,872
    
    
    $
    100,331Cumulative effect change in accounting from the implementation of FIN No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    
    
    
    
    (405
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,360
    
    
    
    
    
    
    
    2,360Other comprehensive income:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,210
    
    
    
    1,210Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,570Stock-based compensation
    
    
    9
    
    
    
    
    
    
    
    559
    
    
    
    
    
    
    
    
    
    
    
    559Balance at March 31, 2007
    
    
    22,271
    
    
    $
    445
    
    
    $
    140,589
    
    
    $
    (47,061
    )
    
    $
    10,082
    
    
    $
    104,055
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
 For the Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    2,360
    
    
    $
    1,154Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,548
    
    
    
    1,280Non-cash charge for inventory write-down
    
    
    302
    
    
    
    Foreign currency gains
    
    
    (74
    )
    
    
    Equity-based compensation expense
    
    
    559
    
    
    
    544Change in fair value of derivative instrument
    
    
    9
    
    
    
    Loss on disposal of assets
    
    
    110
    
    
    
    29Other non-cash items
    
    
    3
    
    
    
    1(Increase) decrease in assets and
increase (decrease) in liabilities:Receivables
    
    
    (88
    )
    
    
    (6,440
    )Inventories
    
    
    (447
    )
    
    
    (2,378
    )Deferred income taxes
    
    
    46
    
    
    
    (290
    )Prepaid expenses and other current assets
    
    
    (288
    )
    
    
    217Other assets
    
    
    (24
    )
    
    
    (33
    )Accounts payable and accrued expenses
    
    
    2,756
    
    
    
    6,551Deferred income
    
    
    98
    
    
    
    979Other liabilities
    
    
    998
    
    
    
    Net cash provided by operating activities
    
    
    7,868
    
    
    
    1,614Cash flows from investing activities:Additions to fixed assets
    
    
    (1,954
    )
    
    
    (3,282
    )Additions to drug licenses and related costs
    
    
    (515
    )
    
    
    (521
    )Proceeds from maturity of investments
    
    
    2,661
    
    
    
    Net cash provided by (used in) investing activities
    
    
    192
    
    
    
    (3,803
    )
  The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of
these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows (Concluded)
 For the Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Cash flows from financing activities:Proceeds from the exercise of stock options
    
    $
    
    
    
    $
    113Remittance of employee tax liabilities in exchange for
common stock tendered to the Company
    
    
    
    
    
    
    (1,713
    )Proceeds from borrowings
    
    
    
    
    
    
    536Repayment of borrowings
    
    
    (554
    )
    
    
    (789
    )Net cash used in financing activities
    
    
    (554
    )
    
    
    (1,853
    )Effect of exchange rate changes on cash
    
    
    151
    
    
    
    174Net increase (decrease) in cash and cash equivalents
    
    
    7,657
    
    
    
    (3,868
    )Cash and cash equivalents at beginning of period
    
    
    12,424
    
    
    
    32,384Cash and cash equivalents at end of period
    
    $
    20,081
    
    
    $
    28,516Supplemental Disclosures of Cash Flow InformationThe Company paid cash during the period for:Interest
    
    $
    
    
    
    $
    51Foreign income taxes
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash Financing and Investing
ActivitiesThe Company has issued Common Stock as equity-based compensation
in lieu of cash during the period as follows:Shares
    
    
    9
    
    
    
    4Amount
    
    $
    75
    
    
    $
    74Amounts included in accounts payable and accrued expenses
at end of period for fixed asset and drug license purchases
    
    $
    1,267
    
    
    $
    1,508
 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of
these financial statements.
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Bentley Pharmaceuticals, Inc. and Subsidiaries
 
 Notes to Condensed Consolidated Financial Statements
 History and Operations
  
    
    Specialty Generics: development, licensing and sales of generic and branded generic
pharmaceutical products and active pharmaceutical ingredients (API) and the manufacturing
of pharmaceuticals for others; and
    
    Drug Delivery: research, development and licensing/commercialization of advanced drug
delivery technologies and pharmaceutical products.
  ® ® TM
 Basis of Condensed Consolidated Financial Statements
  8




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Cash and cash equivalents
 marketable securities
 cash and cash equivalents
 Receivables
  March 31, 2007
    
    
    December 31, 2006Trade receivables (of which $0 and
$247, respectively, collateralize short-term
borrowings with Spanish financial
institutions)
    
    $
    27,698
    
    
    $
    27,880VAT receivable
    
    
    3,977
    
    
    
    3,151Royalties receivable
    
    
    2,181
    
    
    
    2,261Other
    
    
    106
    
    
    
    8233,962
    
    
    
    33,374Less-allowance for doubtful accounts
    
    
    (466
    )
    
    
    (411
    )$
    33,496
    
    
    $
    32,963
 Inventories
   March 31, 2007
    
    
    December 31, 2006Raw materials
    
    $
    9,946
    
    
    $
    8,669Finished goods
    
    
    6,715
    
    
    
    7,62116,661
    
    
    
    16,290Less allowance for slow moving
inventory
    
    
    (11
    )
    
    
    (11
    )$
    16,650
    
    
    $
    16,279
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cost of sales
 other current liabilities
 Fixed assets
  March 31, 2007
    
    
    December 31, 2006Land
    
    $
    2,905
    
    
    $
    2,875Buildings and improvements
    
    
    23,010
    
    
    
    17,538Equipment
    
    
    23,291
    
    
    
    20,591Furniture and fixtures
    
    
    2,033
    
    
    
    2,138Other
    
    
    343
    
    
    
    39451,582
    
    
    
    43,536Capital in-progress
    
    
    14,773
    
    
    
    20,21366,355
    
    
    
    63,749Less accumulated depreciation
    
    
    (16,439
    )
    
    
    (15,193
    )$
    49,916
    
    
    $
    48,556
  depreciation and amortization expense cost of net product sales
 Stockholders equity
  U.S. Dollars per Euro
    
    March 31, 2007
    
    December 31, 2006YTD weighted average exchange rate
    
    
    1.31
    
    
    
    1.26Exchange rate
    
    
    1.33
    
    
    
    1.31
 accumulated other comprehensive income
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Supplemental disclosures related to Consolidated Statements of Cash Flows
 common stock additional paid in capital
 Revenue recognition
 Revenue Recognition When Right of Return Exists,
 Accounting for Revenue Arrangements with Multiple Deliverables
  Provision for income taxes
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes,
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Basic and diluted net income per common share
    Effect ofDilutive
    
    DilutedBasic EPS
    
    Securities
    
    EPSNet Income
    
    $
    2,360
    
    
    $
    
    
    
    $
    2,360Weighted Average
Common Shares
Outstanding
    
    
    22,293
    
    
    
    241
    
    
    
    22,534Net Income Per
Common Share
    
    $
    0.11
    
    
    $
    
    
    
    $
    0.10
 12




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Effect ofDilutive
    
    DilutedBasic EPS
    
    Securities
    
    EPSNet Income
    
    $
    1,154
    
    
    $
    
    
    
    $
    1,154Weighted Average
Common Shares
Outstanding
    
    
    21,954
    
    
    
    1,853
    
    
    
    23,807Net Income Per
Common Share
    
    $
    0.05
    
    
    $
    
    
    
    $
    0.05
  Share-based compensation
    For the Three MonthsEnded March 31,2007
    
    
    2006Cost of net product sales
    
    $
    8
    
    
    $
    10Selling and marketing expenses
    
    
    5
    
    
    
    5General and administrative expenses
    
    
    310
    
    
    
    304Research and development expenses
    
    
    174
    
    
    
    144$
    497
    
    
    $
    463
  General and administrative expenses Research and development expenses
 13




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Business segment information
 Disclosures About Segments of an Enterprise and Related Information,
     Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    28,906
    
    
    $
    208
    
    
    $
    
    
    
    $
    
    
    
    $
    29,114Licensing and collaboration revenues
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    2,163
    
    
    
    2,277Total revenues
    
    
    29,020
    
    
    
    208
    
    
    
    
    
    
    
    2,163
    
    
    
    31,391Cost of net product sales
    
    
    15,396
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    15,897Gross profit
    
    
    13,624
    
    
    
    (293
    )
    
    
    
    
    
    
    2,163
    
    
    
    15,494Selling and marketing expense
    
    
    4,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,445General and administrative expense
    
    
    2,275
    
    
    
    
    
    
    
    
    
    
    
    1,371
    
    
    
    3,646Research and development expense
    
    
    481
    
    
    
    
    
    
    
    1,097
    
    
    
    1,097
    
    
    
    2,675Depreciation and amortization expense
    
    
    274
    
    
    
    39
    
    
    
    
    
    
    
    195
    
    
    
    508Litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from operations
    
    
    6,149
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (500
    )
    
    
    4,220Interest income
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    182Interest expense
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (50
    )Other income (expense), net
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    89Income before income taxes
    
    
    6,261
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (391
    )
    
    
    4,441Provision for income taxes
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,081Net income (loss)
    
    
    4,180
    
    
    
    (332
    )
    
    
    (1,097
    )
    
    
    (391
    )
    
    
    2,360Expenditures for fixed assets
    
    
    1,934
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    1,954Expenditures for drug licenses
    
    
    336
    
    
    
    32
    
    
    
    
    
    
    
    147
    
    
    
    515
 14




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Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedNet product sales
    
    $
    26,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,570Licensing and collaboration revenues
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    1,635
    
    
    
    1,708Total revenues
    
    
    26,643
    
    
    
    
    
    
    
    
    
    
    
    1,635
    
    
    
    28,278Cost of net product sales
    
    
    12,933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,933Gross profit
    
    
    13,710
    
    
    
    
    
    
    
    
    
    
    
    1,635
    
    
    
    15,345Selling and marketing expense
    
    
    4,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,139General and administrative expense
    
    
    1,850
    
    
    
    
    
    
    
    49
    
    
    
    2,005
    
    
    
    3,904Research and development expense
    
    
    494
    
    
    
    
    
    
    
    1,207
    
    
    
    1,207
    
    
    
    2,908Depreciation and amortization expense
    
    
    254
    
    
    
    21
    
    
    
    
    
    
    
    161
    
    
    
    436Litigation settlement
    
    
    88
    
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    604Income from operations
    
    
    6,885
    
    
    
    (537
    )
    
    
    (1,256
    )
    
    
    (1,738
    )
    
    
    3,354Interest income
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    253Interest expense
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60
    )Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    6,871
    
    
    
    (537
    )
    
    
    (1,256
    )
    
    
    (1,531
    )
    
    
    3,547Provision for income taxes
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,393Net income (loss)
    
    
    4,478
    
    
    
    (537
    )
    
    
    (1,256
    )
    
    
    (1,531
    )
    
    
    1,154Expenditures for fixed assets
    
    
    3,200
    
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    3,282Expenditures for drug licenses
    
    
    346
    
    
    
    5
    
    
    
    
    
    
    
    170
    
    
    
    521
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    31,192
    
    
    $
    
    
    
    $
    
    
    
    $
    2,304
    
    
    $
    33,496Other current assets
    
    
    28,680
    
    
    
    874
    
    
    
    
    
    
    
    10,897
    
    
    
    40,451Fixed assets
    
    
    47,138
    
    
    
    
    
    
    
    
    
    
    
    2,778
    
    
    
    49,916Drug licenses and related costs
    
    
    10,925
    
    
    
    1,827
    
    
    
    
    
    
    
    3,508
    
    
    
    16,260Other non-current assets
    
    
    893
    
    
    
    
    
    
    
    
    
    
    
    1,196
    
    
    
    2,089Total assets
    
    
    118,828
    
    
    
    2,701
    
    
    
    
    
    
    
    20,683
    
    
    
    142,212Current liabilities
    
    
    27,061
    
    
    
    918
    
    
    
    
    
    
    
    2,401
    
    
    
    30,380Non-current liabilities
    
    
    7,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,777Total liabilities
    
    
    34,838
    
    
    
    918
    
    
    
    
    
    
    
    2,401
    
    
    
    38,157
  Specialty Generics
    
    Drug DeliveryEurope
    
    U.S.
    
    Europe
    
    U.S.
    
    ConsolidatedReceivables, net
    
    $
    30,558
    
    
    $
    39
    
    
    $
    
    
    
    $
    2,366
    
    
    $
    32,963Other current assets
    
    
    21,758
    
    
    
    1,338
    
    
    
    
    
    
    
    11,631
    
    
    
    34,727Fixed assets
    
    
    45,738
    
    
    
    
    
    
    
    
    
    
    
    2,818
    
    
    
    48,556Drug licenses and related costs
    
    
    10,697
    
    
    
    1,833
    
    
    
    
    
    
    
    3,496
    
    
    
    16,026Other non-current assets
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    1,199
    
    
    
    2,084Total assets
    
    
    109,636
    
    
    
    3,210
    
    
    
    
    
    
    
    21,510
    
    
    
    134,356Current liabilities
    
    
    24,651
    
    
    
    
    
    
    
    
    
    
    
    2,736
    
    
    
    27,387Non-current liabilities
    
    
    6,638
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,638Total liabilities
    
    
    31,289
    
    
    
    
    
    
    
    
    
    
    
    2,736
    
    
    
    34,025
 15




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##### Table of Contents



Recently issued accounting pronouncements
 Fair Value Measurements
 The
Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115
 Reclassifications
 general and administrative expenses general and administrative
expenses litigation settlement
 16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  
    
    Specialty Generics: development, licensing and sales of generic and branded generic
pharmaceutical products and active pharmaceutical ingredients and the manufacturing of
pharmaceuticals for ourselves and others in Spain, other parts of Europe and international
markets, including the U.S. market; and
    
    Drug Delivery: research, development and licensing/commercialization of advanced
proprietary drug delivery technologies for new and existing pharmaceutical products.
 Generic Pharmaceuticals
   17




---



##### Table of Contents



Drug Delivery Technologies and Products
 TM
 Research and Development Focus
 TM Diabetes Technology & Therapeutics th
 Effect of Foreign Currency Fluctuations
  18




---



##### Table of Contents



RESULTS OF OPERATIONS:
 Three Months Ended March 31, 2007 versus Three Months Ended March 31, 2006
 Revenues
 (in thousands)
    
    For the Three Months Ended March 31,
    
    Change2007
    
    %
    
    2006
    
    %
    
    $
    
    %Specialty GenericsNet product sales
    
    $
    29,114
    
    
    
    93
    %
    
    $
    26,570
    
    
    
    94
    %
    
    $
    2,544
    
    
    
    10
    %Licensing and
collaboration
revenues
    
    
    114
    
    
    
    *
    
    
    
    73
    
    
    
    *
    
    
    
    41
    
    
    
    56
    %29,228
    
    
    
    93
    %
    
    
    26,643
    
    
    
    94
    %
    
    
    2,585
    
    
    
    10
    %Drug Delivery
Licensing and
collaboration
revenuesLicensing and
collaboration
revenues
    
    
    2,163
    
    
    
    7
    %
    
    
    1,635
    
    
    
    6
    %
    
    
    528
    
    
    
    32
    %Total revenues
    
    $
    31,391
    
    
    
    100
    %
    
    $
    28,278
    
    
    
    100
    %
    
    $
    3,113
    
    
    
    11
    %
 
 *
    
    Less than 1%     (in thousands)

    
    Revenues Within Spain
    
    Revenues
    
    
    
    
    
    % ofBranded
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    551
    
    
    $
    3,870
    
    
    $
    
    
    
    $
    
    
    
    $
    4,421
    
    
    
    14
    %Simvastatin
    
    
    366
    
    
    
    1,339
    
    
    
    
    
    
    
    
    
    
    
    1,705
    
    
    
    6
    %Enalapril
    
    
    1,314
    
    
    
    391
    
    
    
    
    
    
    
    
    
    
    
    1,705
    
    
    
    6
    %Paroxetine
    
    
    449
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    1,346
    
    
    
    4
    %Codeisan
    
    
    1,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,270
    
    
    
    4
    %All other products
    
    
    3,046
    
    
    
    4,182
    
    
    
    275
    
    
    
    957
    
    
    
    8,460
    
    
    
    27
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    3,670
    
    
    
    6,537
    
    
    
    10,207
    
    
    
    32
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    2,163
    
    
    
    2,277
    
    
    
    7
    %Total Revenues
    
    $
    6,996
    
    
    $
    10,679
    
    
    $
    4,059
    
    
    $
    9,657
    
    
    $
    31,391
    
    
    
    100
    %% of Q-1 2007 Revenues
    
    
    22
    %
    
    
    34
    %
    
    
    13
    %
    
    
    31
    %
    
    
    100
    %
 19




---



##### Table of Contents



(in thousands)
    
    Revenues Within SpainRevenuesBranded
    
    
    
    
    
    
    
    Outside of
    
    
    
    
    
    % of TotalProduct Line
    
    Generics
    
    Generics
    
    Other
    
    Spain
    
    Total
    
    RevenuesOmeprazole
    
    $
    629
    
    
    $
    4,383
    
    
    $
    
    
    
    $
    
    
    
    $
    5,012
    
    
    
    18
    %Simvastatin
    
    
    444
    
    
    
    1,471
    
    
    
    
    
    
    
    
    
    
    
    1,915
    
    
    
    7
    %Enalapril
    
    
    918
    
    
    
    723
    
    
    
    
    
    
    
    
    
    
    
    1,641
    
    
    
    6
    %Paroxetine
    
    
    377
    
    
    
    816
    
    
    
    
    
    
    
    
    
    
    
    1,193
    
    
    
    4
    %Codeisan
    
    
    852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    852
    
    
    
    3
    %All other products
    
    
    2,615
    
    
    
    3,224
    
    
    
    310
    
    
    
    357
    
    
    
    6,506
    
    
    
    23
    %Sales to licensees and others
    
    
    
    
    
    
    
    
    
    
    2,626
    
    
    
    6,825
    
    
    
    9,451
    
    
    
    33
    %Licensing and collaborations
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    1,635
    
    
    
    1,708
    
    
    
    6
    %Total Revenues
    
    $
    5,835
    
    
    $
    10,617
    
    
    $
    3,009
    
    
    $
    8,817
    
    
    $
    28,278
    
    
    
    100
    %% of Q-1 2006 Revenues
    
    
    21
    %
    
    
    37
    %
    
    
    11
    %
    
    
    31
    %
    
    
    100
    %
 Branded Generic Pharmaceutical Products
 (in thousands)
    
    For the Three Months Ended March 31,
    
    
    Change2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    $
    
    
    %Branded
Generic Product Sales:Enalapril
    
    $
    1,314
    
    
    
    19
    %
    
    $
    918
    
    
    
    16
    %
    
    $
    396
    
    
    
    43
    %Codeisan
    
    
    1,270
    
    
    
    18
    %
    
    
    852
    
    
    
    15
    %
    
    
    418
    
    
    
    49
    %Lansoprazole
    
    
    856
    
    
    
    12
    %
    
    
    660
    
    
    
    11
    %
    
    
    196
    
    
    
    30
    %Omeprazole
    
    
    551
    
    
    
    8
    %
    
    
    629
    
    
    
    11
    %
    
    
    (78
    )
    
    
    -12
    %Ibuprofen
    
    
    483
    
    
    
    7
    %
    
    
    376
    
    
    
    6
    %
    
    
    107
    
    
    
    28
    %All other branded generic products
    
    
    2,522
    
    
    
    36
    %
    
    
    2,400
    
    
    
    41
    %
    
    
    122
    
    
    
    5
    %Total branded generic sales
    
    $
    6,996
    
    
    
    100
    %
    
    $
    5,835
    
    
    
    100
    %
    
    $
    1,161
    
    
    
    20
    %
  Generic Pharmaceutical Products
 (in thousands)
    
    For the Three Months Ended March 31,
    
    
    Change2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    $
    
    
    %Generic Product Sales:Omeprazole
    
    $
    3,870
    
    
    
    36
    %
    
    $
    4,383
    
    
    
    41
    %
    
    $
    (513
    )
    
    
    -12
    %Simvastatin
    
    
    1,339
    
    
    
    13
    %
    
    
    1,471
    
    
    
    14
    %
    
    
    (132
    )
    
    
    -9
    %Paroxetine
    
    
    897
    
    
    
    8
    %
    
    
    816
    
    
    
    8
    %
    
    
    81
    
    
    
    10
    %Trimetazidine
    
    
    729
    
    
    
    7
    %
    
    
    549
    
    
    
    5
    %
    
    
    180
    
    
    
    33
    %Pentoxifylline
    
    
    704
    
    
    
    7
    %
    
    
    603
    
    
    
    6
    %
    
    
    101
    
    
    
    17
    %All other generic products
    
    
    3,140
    
    
    
    29
    %
    
    
    2,795
    
    
    
    26
    %
    
    
    345
    
    
    
    12
    %Total generic sales
    
    $
    10,679
    
    
    
    100
    %
    
    $
    10,617
    
    
    
    100
    %
    
    $
    62
    
    
    
    1
    %
  20




---



##### Table of Contents



Sales to Licensees and Others
 For the Three Months Ended March 31,
    
    Change(in thousands)
    
    2007
    
    2006
    
    $
    
    %Specialty generics
    
    $
    10,207
    
    
    $
    9,451
    
    
    $
    756
    
    
    
    8
    %
 net product
sales
 Licensing and Collaboration Revenues
 (in thousands)
    

For the Three Months Ended March 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    114
    
    
    $
    73
    
    
    $
    41
    
    
    
    56
    %Drug delivery
    
    
    2,163
    
    
    
    1,635
    
    
    
    528
    
    
    
    32
    %Total
    
    $
    2,277
    
    
    $
    1,708
    
    
    $
    569
    
    
    
    33
    %
  Gross Profit
 (in thousands)
    

For the Three Months Ended March 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    13,331
    
    
    $
    13,710
    
    
    $
    (379
    )
    
    
    -3
    %Drug delivery
    
    
    2,163
    
    
    
    1,635
    
    
    
    528
    
    
    
    32
    %Total
    
    $
    15,494
    
    
    $
    15,345
    
    
    $
    149
    
    
    
    1
    %
  21




---



##### Table of Contents



Selling and Marketing Expenses
 (in thousands)
    

For the Three Months Ended March 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    4,445
    
    
    $
    4,139
    
    
    $
    306
    
    
    
    7
    %Drug delivery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,445
    
    
    $
    4,139
    
    
    $
    306
    
    
    
    7
    %
  General and Administrative Expenses
 (in thousands)
    

For the Three Months Ended March 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    2,275
    
    
    $
    1,850
    
    
    $
    425
    
    
    
    23
    %Drug delivery
    
    
    1,371
    
    
    
    2,054
    
    
    
    (683
    )
    
    
    -33
    %Total
    
    $
    3,646
    
    
    $
    3,904
    
    
    $
    (258
    )
    
    
    -7
    %
  Research and Development Expenses
 (in thousands)
    

For the Three Months Ended March 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Specialty generics
    
    $
    481
    
    
    $
    494
    
    
    $
    (13
    )
    
    
    -3
    %Drug delivery
    
    
    2,194
    
    
    
    2,414
    
    
    
    (220
    )
    
    
    -9
    %Total
    
    $
    2,675
    
    
    $
    2,908
    
    
    $
    (233
    )
    
    
    -8
    %
   22




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##### Table of Contents



Litigation Settlement Expenses
 (in thousands)
    
    For the Three Months Ended March 31,
    
    Change2007
    
    2006
    
    $
    
    %Specialty generics
    
    $
    
    
    
    $
    604
    
    
    $
    604
    
    
    
    *
 
 *
    
    Not meaningful general and administrative expenses
 Provision for Income Taxes
 For the Three Months Ended March 31,2007
    
    2006(in thousands)
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.
    
    Spain
    
    Ireland
    
    U.S.
    
    Consol.Income (loss) before income taxes
    
    $
    6,468
    
    
    $
    (1,304
    )
    
    $
    (723
    )
    
    $
    4,441
    
    
    $
    6,898
    
    
    $
    (1,282
    )
    
    $
    (2,069
    )
    
    $
    3,547Provision (benefit) for income taxes
    
    
    2,081
    
    
    
    (163
    )
    
    
    (160
    )
    
    
    1,758
    
    
    
    2,393
    
    
    
    (160
    )
    
    
    (758
    )
    
    
    1,475Valuation allowance
    
    
    
    
    
    
    163
    
    
    
    160
    
    
    
    323
    
    
    
    
    
    
    
    160
    
    
    
    758
    
    
    
    918Net provision for income taxes
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    2,081
    
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    2,393Net income (loss)
    
    $
    4,387
    
    
    $
    (1,304
    )
    
    $
    (723
    )
    
    $
    2,360
    
    
    $
    4,505
    

    
    $
    (1,282
    )
    
    $
    (2,069
    )
    
    $
    1,154Effective tax rate
    
    
    32
    %
    
    
    0
    %
    
    
    0
    %
    
    
    47
    %
    
    
    35
    %
    
    
    0
    %
    
    
    0
    %
    
    
    67
    %
    23




---



##### Table of Contents



Net Income
 For the Three MonthsEnded March 31,
    
    
    Change(in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    $
    
    
    %Specialty Generics
    
    $
    3,848
    
    
    $
    3,941
    
    
    $
    (93
    )
    
    
    -2
    %Drug Delivery
    
    
    (1,488
    )
    
    
    (2,787
    )
    
    
    1,299
    
    
    
    47
    %Total net income
    
    $
    2,360
    
    
    $
    1,154
    
    
    $
    1,206
    
    
    
    105
    %Net income per common share:Basic
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    
    120
    %Diluted
    
    $
    0.10
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    
    100
    %Weighted average common shares outstanding:Basic
    
    
    22,293
    
    
    
    21,954
    
    
    
    339
    
    
    
    2
    %Diluted
    
    
    22,534
    
    
    
    23,807
    
    
    
    (1,273
    )
    
    
    -5
    %
  LIQUIDITY AND CAPITAL RESOURCES :
     24




---



##### Table of Contents



Seasonality.
 Effect of Inflation and Changing Prices.
 Liquidity.
 Critical Accounting Policies and Estimates
  25




---



##### Table of Contents



provision for
income taxes inventories
 Provision for income taxes
  Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Inventories
  Important Factors That May Affect Future Results
   
    
    Strategic plans;
    
    Sales growth;
    
    Anticipated sources of future revenues;
 26




---



##### Table of Contents




    
    Anticipated 2007 expenses, margins and operating performance;
    
    Expected launch of new products;
    
    Anticipated expenses and spending;
    
    Planned and continuing clinical trials;
    
    Anticipated regulatory changes and approvals; and
    
    The sufficiency of capital resources to fund our operations.
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency.
 U.S. Dollars per Euro
    
    March 31, 2007
    
    December 31, 2006YTD weighted average exchange rate
    
    
    1.31
    
    
    
    1.26Exchange rate
    
    
    1.33
    
    
    
    1.31
 accumulated other comprehensive income
  
 Item 4.
    
    Controls and Procedures
  27




---



##### Table of Contents



PART II.
    
    OTHER INFORMATION
 
 Item 6.
    
    Exhibits
  28




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    
    
    Description of Exhibit3.1
    
    *
    
    Restated Certificate of Incorporation of the Registrant filed with
the Secretary of State of Delaware on October 29, 1999.3.2
    
    *
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock filed with the Secretary of State of Delaware on
December 23, 1999.3.3
    
    
    
    Certificate of Amendment of Restated Certificate of Incorporation
of the Registration filed with the Secretary of State of Delaware
on July 3, 2003. (Reference is made to Exhibit 3.1 to the
Registrants Form 10-Q for the quarter ended June 30, 2003,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)3.4
    
    
    
    Certificate of Amendment of Restated Certificate of Incorporation
of the Registrant filed with the Secretary of State of Delaware on
July 23, 2004. (Reference is made to Exhibit 3.1 to the
Registrants Form 10-Q for the quarter ended June 30, 2004,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)3.5
    
    
    
    Bylaws of the Registrant, as amended and restated. (Reference is
made to Exhibit 3.1 to the Registrants Form 10-Q for the quarter
ended March 31, 2004, Commission File No. 1-10581, which exhibit
is incorporated herein by reference.)31.1
    
    *
    
    Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    *
    
    Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    *
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    *
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.




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##### Table of Contents



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