**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C.**





**FORM
      10-K**





x
      ANNUAL REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT
      OF
      1934


**For
      the fiscal year ended December 31, 2006**





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 1-10352**





**COLUMBIA
      LABORATORIES, INC.**


(Exact
      name of Registrant as specified in its charter)




**Delaware**
              (State or other jurisdiction of
              incorporation or organization)
            **59-2758596**
              (I.R.S.
                Employer
              Identification No.)**354 Eisenhower Parkway**
              **Livingston, New Jersey**
              (Address of principal executive
                offices)
            **07039**
              (Zip Code)Registrant's
                telephone number, including area code:**(973)
                994-3999**
              
              Securities
                registered pursuant to Section 12(b) of the Act: None
              
              Securities
                registered pursuant to Section 12(g) of the Act:





**Common Stock, $.01 par value**
              (Title of each class)
            **NASDAQ Global Market**
              (Name of exchange on which
              registered)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x.





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x.





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 Noo.





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









Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large accelerated filer o
            Accelerated filer x
            Non-accelerated filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).





o Yes x
      No





The
      aggregate market value of Common Stock held by non-affiliates of the registrant
      on June 30, 2006, the last business day of the registrant’s most recently
      completed second fiscal quarter, based on the closing price on that date of
      $3.50, was $123.8 million.





Number
      of
      shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding
      as
      of March 5, 2007 are 50,140,810.





**Documents
      Incorporated By Reference**




Portions
      of the Columbia Laboratories, Inc. (“Columbia” or the “Company”) Proxy Statement
      for the 2007 Annual Meeting of Shareholders (the “Proxy Statement”) are
      incorporated by reference into Part III of this Form 10-K. We expect to file
      our
      Proxy Statement with the Unites States Securities and Exchange Commission
      (“SEC”) and mail it to shareholders on or before April 9, 2007.





2





**Index
      to Annual Report on Form 10-K**


**Fiscal
      Year Ended December 31, 2006**


**Part
                  I**
              
              **Page**Item
                  1
              Business
              **4**Item
                  1A
              Risk
                  Factors
              **18**Item
                  1B
              Unresolved
                  Staff Comments
              **26**Item
                  2
              Properties
              **26**Item
                  3
              Legal
                  Proceedings
              **26**Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              **26****Part
                  II**Item
                  5
              Market
                  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              **30**Item
                  6
              Selected
                  Financial Data
              **33**Item
                  7
              Management’s
                  Discussion and Analysis of Financial Condition and Results of Operations
              **33**Item
                  7A
              Quantitative
                  and Qualitative Disclosures about Market Risks
              **46**Item
                  8
              Financial
                  Statements and Supplementary Data
              **46**Item9
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosures
              **46**Item
                  9A
              Controls
                  and Procedures
              **47**Item
                  9B
              Other
                  Information
              **50****Part
                  III**Item
                  10
              Directors
                  and Executive Officers of the Registrant*
              **51**Item
                  11
              Executive
                  Compensation*
              **51**Item
                  12
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters*
              **51**Item
                  13
              Certain
                  Relationships and Related Transactions*
              **51**Item
                  14
              Principal
                  Accountant Fees and Services
              **51****Part
                  IV**Item
                  15
              Exhibits
                  and Financial Statement Schedules
              **52**




*
      Items
      11, 12, 13, 14 and portions of Item 10 are incorporated by reference to the
      Company’s 2007 Proxy Statement.




The
      “Company,” “Columbia,” “we,” “our” and “us” as used in this Annual Report on
      Form 10-K refer to Columbia Laboratories, Inc, a Delaware corporation, and
      its subsidiaries.




“CRINONE ® ,”
      “PROCHIEVE ® ”
and
      “STRIANT ® ”
are
      registered trademarks of Columbia Pharmaceuticals Inc. RepHresh ® ,
      Replens ® and
      Advantage-S ® are
      registered trademarks of Lil’ Drug Store Products, Inc. Other brands, names and
      trademarks contained in this Annual Report are the property of their respective
      owners.




3




**PART
      I**





**Item
      1. Business**





**General**





We
      are in
      the business of developing, manufacturing and marketing drugs that treat women’s
      healthcare and endocrine-related disorders. The Company has developed and is
      developing products for vaginal delivery of hormones, analgesics and other
      drugs, and for buccal delivery of hormones and peptides. The vaginal products
      adhere to the vaginal epithelium and the buccal products adhere to the mucosal
      membrane of the gum and cheek. Both forms provide sustained and controlled
      delivery of active drug ingredients. This delivery system is particularly useful
      for active drug ingredients that cannot be ingested.





All
      of
      our products and product candidates utilize our Bioadhesive Delivery System
      (“BDS”), which consists principally of a polymer (polycarbophil) and an active
      ingredient. The BDS is based upon the principle of bioadhesion, a process by
      which the polymer adheres to epithelial surfaces or mucosa. The polymer remains
      attached to epithelial surfaces or mucosa and is discharged upon normal cell
      turnover, a physiological process that, depending upon the area of the body,
      occurs every 12 to 72 hours, or longer. This extended period of attachment
      permits the BDS to be utilized in products when extended duration of
      effectiveness is desirable or required.





We
      have
      focused on women's healthcare because of the significant number of women whose
      health and hygiene needs have not been met by available products, and because
      the Company has found vaginal delivery to be a particularly effective way to
      deliver active ingredients to the female reproductive organs. We have found
      buccal delivery to be advantageous for products for both men and women. The
      Company intends to continue to develop products that improve the delivery of
      previously approved and marketed drugs with low oral bioavailability, or
      where
      systemic levels of the active ingredient must be curtailed .





**OUR
      STRATEGY**





Our
      goal
      is to become a leading player in the women’s healthcare market, providing
      patient-friendly solutions for infertility, obstetric, gynecologic and other
      medical conditions. The key elements of our strategy are:





*Focus
      on building revenues from our infertility business.* Our
      CRINONE ® and
      PROCHIEVE ® 8%
      progesterone gels form the core of a meaningful infertility business. We aim
      to
      build progesterone gel prescriptions by building relationships with reproductive
      endocrinologists; leveraging those relationships to influence prescribing habits
      of obstetricians and gynecologists who prescribe clomiphene citrate to treat
      infertility; proactively addressing obstetricians and gynecologists who
      regularly prescribed CRINONE before 2001; using an interim analysis of a
      pregnancy study being conducted by the Brigham and Women’s Hospital to support
      the use of CRINONE to assist the infertility cycle and for pregnancy support;
      and utilizing, direct to consumer marketing.




*Continue
      existing and establish new collaborations to commercialize selected drugs.* Collaborations
      with pharmaceutical companies have played an important role in helping us
      commercialize our products. These collaborations enable us to address markets,
      and commercialize products, that fall outside our core focus. We plan to
      continue to rely on collaborators to commercialize certain of our drugs and
      drug
      candidates, either outside the U.S. or in U.S. markets in which we are not
      currently concentrating our resources.





*License
      and acquire products to leverage our sales force.* In
      addition to collaborations, we also seek opportunistically to license and
      acquire under-promoted FDA-approved pharmaceuticals that complement our current
      women’s healthcare product offering to ** generate
      additional near-term revenues from our commercial infrastructure.




4




*Focus
      research and development resources on vaginally-administered lidocaine.* We
      are
      investing in the clinical development of vaginally-administered lidocaine to
      prevent and treat dysmenorrhea, a common gynecologic condition that is currently
      underserved. We have designed and are executing a comprehensive clinical
      development program designed to bring a bioadhesive, vaginally-administered
      lidocaine product to market quickly and cost-effectively.





*Continue
      existing and establish new collaborations to develop selected drug candidates.* Collaborations
      with pharmaceutical companies and third-party researchers have played an
      important role in helping us advance the development of certain investigational
      drug candidates. We plan to continue to seek strategic partners for certain
      investigational projects to cost-effectively advance our clinical projects
      while
      retaining U.S. marketing rights for Columbia. We also seek opportunities to
      apply our technology to compounds of strategic partners for therapeutic areas
      outside our focus.





*Appropriately
      manage our capital resources in order to execute our strategy.* We are focused on maintaining a financial profile that will enable us to execute
      our business strategy. In 2006, we increased our cash and cash equivalents
      and
      acquired the US rights to CRINONE ® to more
      efficiently drive market penetration in the franchise. Our objective is to
      build
      a business and opportunistically leverage operations through pipeline and
      business development.





**Segments**





The
      Company is currently engaged solely in one business segment -- the development,
      licensing and sale of pharmaceutical products. In certain foreign countries
      these products may be classified as medical devices or cosmetics by those
      countries’ regulatory agencies. See footnote 9 to the consolidated financial
      statements for information on foreign operations.





**Operations**





We
      develop products for sale throughout the world. We  contract
      our manufacturing activities to third parties in the United Kingdom, Switzerland
      and Italy. Our own sales and marketing organization operates solely in the
      United States, and is specifically focused on a select group of obstetricians,
      gynecologists, reproductive endocrinologists, general endocrinologists,
      urologists and primary care physicians. We have entered into partnerships to
      commercialize our products outside of the United States and within certain
      markets in the United States, and seek to enter into additional partnerships
      to
      commercialize our products in new countries and with additional audiences in
      the
      United States that we do not currently address.





**Products**





**CRINONE/** **PROCHIEVE** ® **(progesterone gel).** CRINONE
      and PROCHIEVE
      are two brand names of the same sustained
      release, vaginally-delivered, natural progesterone product.
      Progesterone is a
      hormone manufactured by a woman’s ovaries in the second half of the menstrual
      cycle. Progesterone is responsible for preparing the uterus for pregnancy and,
      if pregnancy occurs, maintaining it until birth, or, if pregnancy does not
      occur, inducing menstruation. The
      Company sells CRINONE and PROCHIEVE brand
      progesterone gels in the United States. The Company promotes these products to
      reproductive endocrinologists, obstetricians, gynecologists and primary care
      physicians . CRINONE brand
      progesterone gel is sold outside the U. S. by Merck Serono S.A. (“Merck Serono”)
      under a worldwide (excluding the U.S.) license from the Company.




CRINONE/ PROCHIEVE utilizes
      the Company’s patented BDS, which enables the progesterone to achieve a “First
      Uterine Pass EffectTM”. The product is available in two strengths, an 8%
      progesterone gel and a 4% progesterone gel. It
      is the
      first product designed to deliver progesterone directly to the uterus, thereby
      providing a therapeutic benefit and avoiding high blood levels of progestogens
      seen with orally-delivered synthetic progestins.





CRINONE /PROCHIEVE
      in the 8% progesterone gel is approved in the U.S. for progesterone
      supplementation or replacement as part of an Assisted Reproductive Technology
      (“ART”) treatment for infertile women with progesterone deficiency. CRINONE ® /PROCHIEVE ® in both
      the 8% and 4% progesterone gels is approved in the U.S. for the treatment of
      secondary amenorrhea (loss of menstrual period). CRINONE was
      first marketed in the U.S. in 1997. In
      2002, Merck
      Serono discontinued marketing CRINONE 4%
      worldwide. PROCHIEVE 8% and PROCHIEVE 4% were first marketed in the U.S. in
      September 2002 and March 2003, respectively.




5




Outside
      the U.S., CRINONE has been
      approved for marketing for one or more medical indications in 56 countries.
      The
      medical indications include: progesterone supplementation or replacement as
      part
      of an ART treatment for infertile women; the treatment of secondary amenorrhea;
      the prevention of hyperplasia in post-menopausal women receiving hormone
      replacement therapy (“HRT”); the reduction of symptoms of premenstrual syndrome
      (“PMS”); menstrual irregularities; dysmenorrhea; and, dysfunctional uterine
      bleeding. PROCHIEVE is not marketed outside the U.S.





The
      most
      common side effects of CRINONE /PROCHIEVE
      8% are breast enlargement, constipation, somnolence, nausea, headache, and
      perineal pain. The most common side effects of PROCHIEVE 4% when used in
      combination with estrogen include cramps, fatigue, depression, emotional
      lability, sleep disorder, and headache. CRINONE /PROCHIEVE
      is contraindicated in the U.S. in patients with active thrombophlebitis or
      thromboembolic disorders, or a history of hormone-associated thrombophlebitis
      or
      thromboembolic disorders, missed abortion, undiagnosed vaginal bleeding, liver
      dysfunction or disease, and known or suspected malignancy of the breast or
      genital organs.





**STRIANT** **®** **(testosterone buccal system)** .
      STRIANT
      is approved in the U.S., the U.K., Germany, and other European countries for
      hypogonadism. Hypogonadism is characterized by a deficiency or absence of
      endogenous testosterone production. Hypogonadism can be caused by conditions
      associated with the testes, pituitary gland or hypothalamus gland, or by a
      genetic disorder. Signs and symptoms of hypogonadism can include decreased
      libido (sexual desire), erectile dysfunction (ED), fatigue, depression, reduced
      muscle mass, and osteoporosis. Testosterone replacement therapy helps to provide
      and maintain normal levels of testosterone. It is estimated that hypogonadism
      affects 38.7% of men aged 45 years or older in the United States, approximately
      one million of whom currently receive treatment. Historically, patients have
      been treated with transdermal patches, topical gels or injectable formulations
      of testosterone.





In
      October 2002, the Company and Ardana plc (then Ardana Biosciences, Ltd.,
“Ardana”) entered into a license and supply agreement under which Ardana has
      licensed and, after obtaining necessary governmental product and pricing
      approvals, will sell STRIANT in 18 European countries (excluding Italy). See
      “ Licensing
      and Development Agreements”.





In
      May
      2003, the Company and Mipharm S.p.A. (“Mipharm”) entered into a license and
      supply agreement under which Mipharm will market, distribute and sell STRIANT in
      Italy. S ee
      “ Licensing
      and Development Agreements”.





STRIANT
      utilizes the BDS to achieve controlled and sustained delivery of testosterone
      via the buccal cavity. The product, which has the appearance of a small
      monoconvex tablet, rapidly adheres to the buccal mucosa, the small depression
      in
      the mouth where the gum meets the upper lip above the incisor teeth. As it
      is
      exposed to saliva, the product softens into a gel-like form which remains
      comfortably in place over each 12-hour dosing period. STRIANT delivers
      testosterone through the buccal mucosa, where it is absorbed into the
      bloodstream and delivered directly into the superior vena cava (major blood
      vessel), bypassing the gastrointestinal system and liver. STRIANT is able to
      produce circulating testosterone concentrations in hypogonadal males that
      approximate physiologic levels seen in healthy young men. One dose twice a
      day,
      in the morning and in the evening, maintains consistent physiologic levels
      of
      testosterone. STRIANT is available in a single strength, and no dose titration
      is required.





The
      clinical data supporting the approval of STRIANT by the U.S. Food and Drug
      Administration (“FDA”) were generated from a 12-week U.S. multi-center,
      open-label, single arm trial that evaluated the efficacy, safety and
      tolerability of STRIANT in 98 hypogonadal men. The most frequent adverse events
      that occurred with STRIANT in that trial at an incidence of 1% or greater which
      were possibly, probably or definitely related to the use of STRIANT were: gum
      or
      mouth irritation (9.2%), bitter taste (4.1%), gum pain (3.1%), gum tenderness
      (3.1%), headache (3.1%), gum edema (2.0%), and taste perversion (2.0%). A total
      of 16 patients reported 19 gum-related adverse events. Of these, ten patients
      (10.2%) reported 12 events of mild intensity, four patients (4.1%) reported
      five
      events of moderate intensity, and two patients (2.0%) reported two events of
      severe intensity. Four patients (4.1%) discontinued treatment with
      STRIANT ® due to
      gum- or mouth-related adverse events, including two with severe gum irritation,
      one with mouth irritation and one with "bad taste in mouth." The majority of
      the
      gum-related adverse events were transient and resolved within one to 14 days.
      Patients on STRIANT should be advised to regularly inspect the gum region where
      they apply STRIANT and report any abnormality to their health care professional.




6




STRIANT
      is not indicated for women and must not be used in women. Testosterone
      supplements may cause fetal harm. STRIANT should not be used in patients with
      known hypersensitivity to any of its ingredients, including testosterone USP
      that is chemically synthesized from soy. Androgens are contraindicated in men
      with carcinoma of the breast or known carcinoma of the prostate. Edema with
      or
      without congestive heart failure may be a serious complication in patients
      with
      preexisting cardiac, renal or hepatic disease. In addition to discontinuation
      of
      the drug, diuretic therapy may be required. Gynecomastia frequently develops
      and
      occasionally persists in patients being treated with androgens for hypogonadism.
      The treatment of hypogonadal men with testosterone esters may potentiate sleep
      apnea in some patients, especially those with risk factors such as obesity
      or
      chronic lung diseases. Geriatric patients treated with androgens may be at
      an
      increased risk for the development of prostatic hyperplasia and prostatic
      carcinoma. In diabetic patients, the metabolic effects of androgens may decrease
      blood glucose and, therefore, insulin requirements.





**Replens** **®** **Vaginal Moisturizer** .
      Replens  replenishes
      vaginal moisture on a sustained basis and relieves the discomfort associated
      with vaginal dryness. Replens was the first product developed utilizing the
      BDS.
      In May 2000, the Company sold the U.S. rights for Replens to Lil’ Drug
      Store Products, Inc. (“Lil’ Drug Store”) ,
      pursuant to an agreement under which the Company received royalties of 10%
      of
      sales of Replens in the U.S until October 2005. On June 29, 2004, the Company
      sold the remaining worldwide marketing rights for Replens to Lil’ Drug
      Store and
      executed two related agreements with Lil’ Drug Store: a five year supply
      agreement, with minimum purchase requirements for three years, and a 21⁄2 year
      professional promotion agreement. See “Licensing and Development
      Agreements.”




**RepHresh** **®** **Vaginal Gel.** RepHresh
      Vaginal Gel is a feminine hygiene product that can eliminate vaginal odor.
      RepHresh works by maintaining vaginal pH in the normal physiologic range of
      4.5
      or below. Using the BDS, RepHresh adheres to the epithelial cells of the vaginal
      lining for three or more days. It is available in convenient, pre-filled,
      disposable applicators. On
      June
      29, 2004, the Company sold the worldwide marketing rights to the product to
      Lil’
Drug Store and executed two related agreements with Lil’ Drug Store: a five year
      supply agreement, with minimum purchase requirements for three years, and a
      21⁄2
year professional promotion agreement. See “Licensing and Development
      Agreements.”





**Other
      Products** .
      The
      Company marketed four additional products until April 2000: Advanced Formula
      Legatrin PM ® **** for
      the
      relief of occasional pain and sleeplessness associated with minor muscle aches
      such as night leg cramps; Legatrin â GCM
      Formula ’ ,
      a
      nutritional supplement to support healthy joint function; Vaporizer in a
      Bottle ® ,
      a
      portable cough suppressant for the temporary relief of a cough due to the common
      cold; and Diasorb ® ,
      a
      pediatric antidiarrheal product. These products do not utilize the BDS. In
      May
      2000, the Company licensed these products to Lil’ Drug Store. Under the terms of
      these agreements, the Company receives license fees equal to 20% of the
      licensee’s net sales. These agreements each have five-year terms with provisions
      for automatic renewal and contain options that allow for the acquisition of
      the
      products by the licensee. On December 29, 2000, Lil’ Drug Store purchased
      Vaporizer in a Bottle for $0.2 million. The production and sale of Legatrin
      GCM
      Formula and Diasorb were discontinued during the first half of 2003. The
      license for Advanced
      Formula Legatrin PM renewed automatically to May 2010. The Company marketed
      one
      additional product, Advantage-S â female
      contraceptive gel, until June 2004. On June 29, 2004, the Company sold worldwide
      marketing rights to Advantage-S  to
      Lil’
Drug Store. The production and sale of Advantage-S was discontinued during
      2006.




7


**Research
      and Development**





The
      Company spent $6.6 million in 2006, $5.8 million in 2005 and $5.4 million in
      2004 on research and development activities. The expenditures in 2006, 2005
      and
      2004 were primarily costs associated with
      the
      Company’s clinical study of PROCHIEVE ® 8%
      (progesterone gel) for the prevention of recurrent preterm birth ,
      discussed below. The
      expenditures in 2006 also included costs associated with the development of
      its
      vaginally-administered lidocaine candidate to prevent and relieve dysmenorrhea.
      The Company cannot predict whether it will be successful in the development
      of
      the products listed below or any other product candidates.





Generally
      the Company’s drug development activities take the following steps in the U.S.
      (and comparable steps in foreign countries): After the Company formulates an
      active drug ingredient into the BDS, it files an Investigational New Drug
      Application (“IND”) with the FDA to begin to test the product in humans. The IND
      becomes effective and the studies may begin if the FDA does not disapprove
      the
      IND within 30 days of its submission. The IND describes how, where, and by
      whom
      the studies will be conducted; information about the safety of the active drug
      ingredient; how it is thought to work in the body; any toxic effects it may
      have; and how it is manufactured. All clinical studies must also be reviewed
      and
      approved by an Institutional Review Board (“IRB”) that is responsible for the
      study site. Progress reports on clinical studies must be submitted at least
      annually to the FDA and the IRB.




Clinical
      studies are divided into three phases. **** Phase
      I
      studies typically involve small numbers of normal, healthy volunteers. Phase
      I
      studies are intended to assess a drug’s safety profile, including the safe
      dosage range. Phase I studies also determine how the drug is absorbed,
      distributed, metabolized, and excreted, as well as the duration of its
      action. **** Phase
      II
      studies involve volunteer patients (people with the disease intended to be
      treated) to assess the drug’s effectiveness. **** Phase
      III
      studies usually involve larger numbers of patients in clinics and hospitals
      to
      confirm the product’s efficacy and identify possible adverse events. ****




Following
      the completion of all three phases of clinical trials, the Company analyzes
      all
      of the data and files a New Drug Application (“NDA”) with the FDA if the data
      successfully demonstrate both safety and effectiveness. The NDA contains all
      of
      the scientific information that the Company has gathered. NDAs typically run
      thousands of pages. If the FDA approves the NDA, the new product becomes
      available for physicians to prescribe. The Company must continue to submit
      periodic reports to the FDA, including any cases of adverse reactions and
      appropriate quality-control records. For some medicines, the FDA requires
      additional studies after approval (Phase IV studies) to evaluate long-term
      effects of the drug.




**PROCHIEVE** **8% in Preventing Preterm Birth** .
      In
      November 2003, the Company announced the Phase III multi-center, randomized,
      double-blind, placebo-controlled, clinical trial designed to assess the
      efficacy, safety and tolerability of PROCHIEVE 8% in preventing preterm birth
      in
      pregnant women with a previous preterm birth before 35 weeks gestation, or
      who
      have a cervical length of 2.5 cm or less, as measured by transvaginal
      ultrasound, with the current pregnancy. The Company completed enrollment in
      July
      2006 and completed the treatment phase of this study in December 2006. On
      February 5, 2007, the Company reported that the study did not achieve a
      statistically significant reduction in the incidence of preterm birth at week
      32, the primary endpoint, or at weeks 28, 35 and 37, secondary endpoints of
      the
      study.





Of
      the
      611 evaluable patients, 302 received placebo and 309 received PROCHIEVE
      8%.  The mean gestational age at delivery was approximately 37 weeks in
      both the active and placebo groups following treatment, an improvement from
      a
      mean of 30 weeks in the previous preterm birth for both groups.  Over 60%
      of evaluable patients had a previous preterm birth at or below 32 weeks
      gestation; prior studies of progestins to prevent preterm birth were comprised
      mainly of patients with prior preterm births at 34 weeks or
      greater.





The
      incidence and profile of adverse events in patients receiving PROCHIEVE 8%
      was
      similar to placebo, which was as expected given the product’s documented safety
      history.





Based
      on
      the study results, the Company has discontinued the development of PROCHIEVE
      8%
      for the prevention of preterm birth in pregnant women with a previous preterm
      birth before 35 weeks gestation. PROCHIEVE ® 8%
      remains, however, a key product in the Company’s core infertility business and
      for pregnancy support in the first trimester.




8




**PROCHIEVE
      4% for the Prevention of Endometrial Hyperplasia** .
      In 2004
      a third party, five year study was initiated to evaluate the long-term effects
      of Hormone Replacement Therapy in menopausal women. The study investigators
      selected PROCHIEVE 4% as the active progesterone to be administered to all
      menopausal women with an intact uterus who receive estrogen to prevent their
      developing endometrial hyperplasia.





**Vaginally
      administered lidocaine.** The
      Company is developing a vaginally-administered lidocaine to prevent and treat
      dysmenorrhea, a common gynecologic disorder **** characterized
      by recurrent uterine cramping and pain before and during menses. Dysmenorrhea
      affects approximately 50% of menstruating women, 10% of whom have cramps severe
      enough to incapacitate them from one to three days each month. Current
      treatments address the pain but not the underlying problem. Our hypothesis
      is
      that by administering lidocaine vaginally using our BDS technology we can
      minimize or prevent the severe cramping that results in the debilitating pain
      of
      dysmenorrhea. Results from a European clinical trial, which the Company
      announced on February 5, 2004, showed that vaginally-administered lidocaine
      reduced the frequency of uterine contractions, as well as the intensity and
      frequency of uterine pain. Subjects were evaluated following vasopressin-induced
      cramping in the late luteal phase of the menstrual cycle, near menses. On
      September 8, 2005, we announced the successful completion of a pharmacokinetics
      study for our vaginally administered lidocaine. The study evaluated both the
      blood levels obtained by, as well as the relative safety from, three doses
      of
      lidocaine formulated with the Company’s patented bioadhesive vaginal gel. Based
      on those results, the Company initiated a multi-dose pharmacokinetic study
      in
      December 2006 and plans to initiate a Phase II cross-over study in the second
      quarter of 2007. The Company believes this product may offer a novel approach
      to
      treating women who suffer from these common and painful conditions.





**Terbutaline
      Vaginal Gel.** In
      December 2002, the Company entered into a development and license agreement
      with
      Ardana to develop the Company’s terbutaline vaginal gel product candidate for
      the treatment of infertility, dysmenorrhea and endometriosis. The Company
      received a payment of $0.3 million upon signing of the agreement and will
      receive an additional $0.3 million upon completion of a successful Phase II
      clinical trial by Ardana. Under the terms of the agreement, if the Phase II
      trial is successful the Company can elect to continue to work with Ardana to
      progress the product through further clinical trials and subsequent applications
      for regulatory approvals. In that case, the Company would have the right to
      market the product in North America and Ardana would have rights focused in
      Europe. The parties would share equally in proceeds from licensing and
      distribution of the product in the rest of the world. If the Company elects
      not
      to continue working on the product at the end of the Phase II trial, Ardana
      can
      continue to develop the product.





**Testosterone
      Vaginal Gel and Testosterone Progressive Hydration Vaginal Tablet.** In
      October 2000, the Company completed a Phase I trial of its testosterone
      progressive hydration vaginal tablet for women. The study demonstrated that
      testosterone could be delivered vaginally over a period of days. Vaginal gel
      and
      vaginal tablet forms have been developed. A preliminary clinical plan, with
      a
      focus on reducing the size of systemic uterine fibroids is under
      review.





**Peptide
      Delivery System.** The
      Company has completed a program that demonstrates that the BDS can deliver
      therapeutic doses of desmopressin, a peptide, for extended periods of time
      using
      the Company’s progressive hydration buccal technology. Based on these positive
      results, the Company has initiated partnering discussions related to a
      desmopressin buccal tablet.





**Licensing
      and Development Agreements**




***Merck
      Serono S.A.***




In
      May
      1995, the Company entered into a license and supply agreement with American
      Home
      Products Corporation, now Wyeth, (“Wyeth”) for its Wyeth-Ayerst Laboratories
      division to market CRINONE ® worldwide. The Company agreed to supply CRINONE at a price equal to 30% of
      Wyeth’s net selling price. In July 1999, Wyeth assigned the license and supply
      agreement to Serono (now “Merck Serono”). In June 2002, the license and supply
      agreement was amended and restated and a marketing sublicense was granted to
      the
      Company. Under
      the terms of the license and sublicense, Merck Serono marketed CRINONE ® in the
      U.S. to a defined list of fertility specialists and the Company was free to
      market PROCHIEVE ® to all
      other physicians in the U.S., including obstetricians, gynecologists and primary
      care physicians.




9


Under
      the
      marketing sublicense, the Company paid Merck Serono a royalty equal to 30%
      of
      net sales on
      all
      PROCHIEVE sales and an
      additional 40% royalty on
      all
      PROCHIEVE sales dispensed to patients of physicians on Serono’s target list of
      fertility specialists. Conversely, Merck Serono paid the Company an additional royalty of 40% of
      CRINONE net sales on
      all CRINONE sales
      dispensed to patients of physicians outside its target list of fertility
      specialists in the
      U.S. In December 2006, the Company and Merck Serono agreed to terminate Merck
      Serono’s U.S. marketing rights for CRINONE and terminate the Company’s marketing
      sublicense to PROCHIEVE. As a result, the Company holds the U.S. marketing
      rights to both CRINONE and PROCHIEVE brand progesterone vaginal gel, and Merck
      Serono retains the marketing rights to CRINONE for the rest of the world.




***Mipharm
      S.p.A.***




In
      March
      1999, the Company entered into a license and supply agreement with Mipharm
      under
      which Mipharm is the exclusive marketer of the Company’s women’s healthcare
      products (other than CRINONE) in Italy, Portugal, Greece and Ireland with a
      right of first refusal for Spain. Mipharm currently sells Replens ® in Italy
      and sells RepHresh ® in Italy
      under the name MipHil.




In
      May
      2003, the Company and Mipharm entered into an agreement under which Mipharm
      will
      market, distribute and sell STRIANT ® in
      Italy. In exchange for these rights, Mipharm is obligated to pay the Company
      an
      aggregate of $1.4 million upon achievement of certain milestone events,
      including $0.4 million that was paid in 2003. We received a payment of $0.1
      million, less VAT withholding, in 2004 on account of the UK approval of STRIANT
      and a
      payment
      of $0.2 million, less VAT withholding, in 2007 on marketing authorization
      received by Mipharm in Italy in late 2006. Mipharm will provide additional
      performance payments upon the achievement of certain levels of sales in Italy,
      and the Company will receive a percentage markup on the cost of goods for each
      unit sold. Mipharm is a manufacturer of STRIANT under a
      May 2002 agreement.




***Ardana
      plc***




In
      October 2002, the Company and Ardana entered into a license and supply agreement
      under which Ardana will market, distribute and sell STRIANT in 18 European
      countries (excluding Italy) as necessary governmental product and pricing
      approvals are obtained. In exchange for the license, the Company may receive
      total potential payments of $8 million. To date the Company has received $6.0
      million under this agreement, including $4 million in signature and milestone
      fees received in 2002, $0.8 million received in 2004 upon marketing approval
      in
      the U.K and $0.4 million received in 2005 upon marketing approval in Germany.
      Additional milestone payments totaling $0.8 million were received in 2006 for
      approval in France and Spain. In addition, a performance payment of $2 million
      is due upon achievement of a certain level of sales. Ardana will purchase its
      requirements of product from the Company during the term of the agreement.
      The
      agreement will continue in each country in the territory until the date of
      expiration or lapse of the last patent covering the product in such country.





In
      December 2002, the Company and Ardana executed a development and license
      agreement (described above) to develop the Company’s terbutaline vaginal gel
      product.




***Lil’
      Drug Store Products, Inc.***




In
      June
      2004, the Company and Lil’
Drug
      Store entered into an asset purchase agreement, a five year supply agreement,
      and a 21⁄2 year professional services agreement. Under the agreements, Lil’ Drug
      Store acquired the Company’s over-the-counter women’s healthcare products,
      RepHresh  Vaginal
      Gel and Advantage-S ® Bioadhesive Contraceptive Gel, and foreign marketing rights for Replens Vaginal
      Moisturizer. The Company sold the U.S. marketing rights for Replens to Lil’ Drug
      Store in May 2000. Under the **** terms
      of
      the asset purchase agreement, Lil’ Drug Store also purchased the U.S. inventory
      of RepHresh and Advantage-S from the Company. The production and sale of
      Advantage-S ® was
      discontinued during 2006. The Company supplies RepHresh ® and
      ex-U.S. requirements for Replens ® under
      the supply agreement. The professional services agreement expired at the end
      of
      2006.




10




**Financing
      Agreements**





On
      July
      31, 2002, PharmaBio Development (“PharmaBio”), an affiliate of Quintiles
      Transnational Corp. (“Quintiles”), agreed to pay $4.5 million in four equal
      quarterly installments commencing third quarter 2002 for the right to receive
      a
      5% royalty on net sales of the Company’s women’s healthcare products in the
      United States for five years, beginning in the first quarter of 2003. The
      royalty payments are subject to aggregate minimum ($8 million) and maximum
      ($12
      million) amounts. Because the minimum amount exceeds $4.5 million, the Company
      has recorded the amounts received as liabilities. The excess of the minimum
      ($8
      million) to be paid by the Company over the $4.5 million received by the Company
      is being recognized as interest expense over the five-year term of the
      agreement, assuming an interest rate of 12.51%. As of December 31 st 2006,
      the Company has paid $3.6 million in royalties to PharmaBio under this
      agreement.





On
      March
      5, 2003, the
      Company and PharmaBio
      entered into a second agreement under which PharmaBio paid $15 million to the
      Company over a 15-month period that commenced with the signing of the agreement.
      In return, PharmaBio will receive a 9% royalty on net sales of STRIANT ® in the
      United States up to agreed annual sales levels, and a 4.5% royalty of net sales
      above those levels. The royalty term is seven years. Royalty payments commenced
      in the third quarter of 2004 and are subject to the aggregate minimum ($30
      million) and maximum ($55 million) amounts. A true-up payment under the STRIANT
      agreement due in November of 2006 was prepaid by the Company in April 2006
      in
      the amount of $11.6 million, representing the present value of the true up
      payment at a discount value of 6%. Although
      the Company paid and will record approximately $0.4 million less in interest
      expense during 2006 due to this early payment, for accounting purposes, the
      payment resulted in a non cash loss of approximately $0.3 million during the
      second quarter of 2006.  Because
      the minimum amount exceeds the $15 million, the Company has recorded the amounts
      received as liabilities. The excess of the minimum ($30 million) to be paid
      by
      the Company over the $15 million to be received by the Company is being
      recognized as interest expense over the seven-year term of the agreement,
      assuming an interest rate of 10.67%. To date, the Company has paid $13 million
      in royalties (including the true-up payment) to PharmaBio under this
      agreement.





**Patents,
      Trademarks and Proprietary Information**




We
      actively seek protection for our products and technology by means of United
      States and foreign patents, trademarks, and copyrights, as
      appropriate.  The
      following table sets forth United States patents granted to the Company since
      2002.




**Year
                  Granted**
              **Nature
                  of Patent**2006
              Bioadhesive
                  progressive hydration tablets using desmopressin or prostaglandin
                  E2 as
                  the active2004
              Compositions
                  and methods for safely preventing or treating premature labor using
                  a
                  beta-adrenergic agonist, such as terbutaline.2004
              Methods
                  of safely treating endometriosis or infertility, and for improving
                  fertility, using a beta-adrenergic agonist.2003
              Use
                  of progestin therapy for maintaining amenorrhea.2003
              Bioadhesive
                  progressive hydration tablet.2002
              Use
                  of certain polycarboxylic acid polymers for vaginal pH buffering
                  to
                  prevent miscarriage and premature labor associated with bacterial
                  vaginosis.




11




The
      Company continues to develop the core BDS and has filed additional patent
      applications in the United States and other countries around the world. We
      believe our patents are important to our business and we intend to continue
      to
      protect them, including through legal action, when appropriate. While
      patent applications do not ensure the ultimate issuance of a patent,
      and having
      patent protection cannot ensure that competitors will not emerge, this is a
      fundamental step in protecting the Company’s technologies.





The
      following table sets forth the expiration dates of the principal United States
      patents for the Company’s marketed products and current development
      projects.


**Subject
                  of patent**
              **Year
                  of Expiration**
              **Product
                  or Project**Progressive
                  hydration tablets
              2019
              STRIANT®
                --
                testosterone
                  progressive hydration vaginal tablet
                --
                peptide
                  delivery systemFirst
                  Uterine Pass EffectTM
              2018
              vaginally
                  administered lidocaine
                --
                terbutaline
                  vaginal gel
                --
                testosterone
                  vaginal gelProgesterone
                  delivery
              2013
              CRINONE®/PROCHIEVE®




The
      Company owns or is seeking registration of “CRINONE”, “ PROCHIEVE ”
      “ STRIANT ”,
      and
“ STRIANT SR ® ”
as
      trademarks in countries throughout the world. Applications for the registration
      of trademarks do not ensure the ultimate registration of these marks; however,
      the Company believes marks with pending applications will be registered. In
      addition, there can be no assurance that such trademarks will afford the Company
      adequate protection or that the Company will have the financial resources to
      enforce its rights under such trademarks. In 2004, the Company sold the
      trademarks " Replens ® ",
      “Advantage 24 ® ”,
      “ Advantage-S ® ”,
      “Advantage-LA ® ”,
      “ RepHresh ® ”,
      and
“ RepHresh Vaginal
      Gel ® ”
to
      Lil’
Drug Store. See “Licensing and Development Agreements.”





The
      Company also relies on confidentiality and nondisclosure agreements to protect
      its intellectual property. There can be no assurance that other companies will
      not acquire information that the Company considers to be proprietary. Moreover,
      there can be no assurance that other companies will not independently develop
      know-how comparable, or superior, to that of the Company.





**Sales
      of Products**





From
      1997
      until 2002, we out-licensed almost all marketing rights to our products. In
      June
      2002, we obtained a sublicense from Merck Serono to market our 8% and 4%
      progesterone gel products in the United States under the brand name PROCHIEVE.
      In July 2002, we entered into an agreement with Innovex LP (“Innovex”), an
      affiliate of Quintiles, thereby establishing our first sales force in the United
      States. Under the terms of this agreement, Innovex provided a dedicated team
      of
      55 sales representatives on a three-year, fee-for-service basis to commercialize
      the Company’s women’s healthcare products, PROCHIEVE 8%, PROCHIEVE 4%,
      Advantage-S, and RepHresh, in the U.S. The sales force was recruited and trained
      in August and September 2002, and began in October 2002 to call on a targeted
      list of approximately 8,000 obstetricians and gynecologists to encourage
      prescriptions and product recommendations for PROCHIEVE 8%, Advantage-S, and
      RepHresh. The sales force began sales efforts for PROCHIEVE 4% in April 2003.





In
      March
      2003, we entered into a second agreement with Innovex to commercialize
      STRIANT  in
      the
      United States. Under the terms of the agreement, Innovex provided a dedicated
      team of 67 additional sales representatives for a two-and-a-half year term.
      The
      new sales representatives were recruited in June 2003 and were trained on our
      women’s healthcare products and began calling on obstetricians and gynecologists
      in July 2003. The entire sales force of 122 sales representatives and 13
      managers was trained on STRIANT ® in
      September 2003 and subsequently added endocrinologists, urologists and certain
      primary healthcare doctors to their call lists.




12




In
      January 2004, the Company and Innovex restructured the sales force. The
      restructured sales force was comprised of ten district managers employed by
      the
      Company and 80 sales representatives, divided evenly between the Company and
      Innovex. Under the terms of the restructuring, Innovex transferred
      responsibility for management of the sales force to the Company, but continued
      to provide half of the sales representatives.





On
      February 2, 2005, in order to better align expenses with projected revenues,
      we
      further reduced the size of the sales force to five managers and 23 sales
      representatives, of whom 12 were Innovex employees and 11 were Company
      employees. Columbia hired the remaining Innovex sales representatives as
      Columbia employees on November 1, 2005.





On
      December 22, 2006, the Company acquired the U.S. marketing rights to
      CRINONE ® and
      added reproductive endocrinologists to its infertility physician targets. In
      addition to these specialists, who typically handle the more sophisticated
      infertility treatments, the Company’s 28-person sales force calls on
      obstetricians and gynecologists ,
      general
      endocrinologists, urologists and certain primary healthcare physicians. The
      sales force is predominantly focused on women’s reproductive healthcare
      providers with the aim of building the
      Company’s existing
      infertility business.





We
      receive revenues both from selling our products to licensees, which we refer
      to
      as our “Partnered Products”, and selling our products that we promote through
      our own sales force to wholesalers and other distributors, which we refer to
      as
      our “Promoted Products.” As of December 31, 2006:




Promoted
      Products in the U.S. are:


·
            CRINONE8%progesterone
                gel


·
            PROCHIEVE®8%
                progesterone gel


·
            PROCHIEVE4%
                progesterone gel


·
            STRIANT
                testosterone buccal system





Partnered
      Products are:


·
            CRINONE
                8% sold to Merck Serono for sale ex-U.S.
                ;


·
            STRIANT
                sold to our ex-U.S. marketing partners;


·
            Replens®Vaginal Moisturizer sold to Lil’ Drug Store
                ex-U.S.;


·
            RepHresh®Vaginal Gel sold to Lil’ Drug Store on a worldwide basis;
                and


·
            Royalty
                and licensing revenues.





**Success
      of Marketing Efforts**





Our
      business is dependent on market acceptance of our products by physicians,
      healthcare payors, patients, and the medical community. Medical doctors’
willingness to prescribe our products depends on many factors, including:


§
            Perceived
                efficacy of our products; §
            Convenience
                and ease of administration; §
            Prevalence
                and severity of adverse side effects in both clinical trials and
                commercial use; §
            Availability
                of alternative treatments; §
            Cost
                effectiveness; §
            The
                pricing of our products; and §
            Our
                ability to obtain third-party coverage or reimbursement for our products.




13




Even
      though we have received regulatory approval for CRINONE ® , PROCHIEVE ® and
      STRIANT ® ,
      and
      even if we receive regulatory approval and satisfy the above criteria for any
      of
      our other investigational indications and product candidates, physicians may
      not
      prescribe our products. We
      promote CRINONE, PROCHIEVE
      and STRIANT on our own behalf in the U.S. We have entered into agreements with
      other companies for the distribution and marketing of RepHresh ® and
      Replens ® in the
      U.S. and foreign countries, and of CRINONE ,
      and
      STRIANT in foreign countries. Factors
      that could affect our success in marketing our products include:




§
            The
                effectiveness of our production, distribution and marketing capabilities;


§
            The
                successful marketing of our products byour
                distribution and marketing
                partners;


§
            The
                success of competing products; and,


§
            The
                availability and extent of reimbursement from third-party payors.





If
      any of
      our products or product candidates fail to achieve market acceptance, we or
      our
      marketing partners may be unable to sell the products successfully, which would
      limit our ability to generate revenue and could harm our business.





As
      previously disclosed, in July 2002 and March 2003 we entered into agreements
      with PharmaBio, under which we received upfront money in exchange for royalty
      payments on our women’s healthcare products and STRIANT, respectively. We owe
      royalty payments to PharmaBio for a fixed period of time. These royalty payments
      are subject to minimum and maximum amounts, and the minimum amounts are in
      excess of the amounts we received from PharmaBio. Our failure to successfully
      market our products could have a material adverse effect on our ability to
      pay
      the minimum amounts to PharmaBio.





**Competition**





We
      and
      our marketing partners compete against established pharmaceutical and consumer
      product companies which market products addressing similar needs. Further,
      numerous companies are developing, or may develop, enhanced delivery systems
      and
      products that compete with our present and proposed products. It is possible
      that we may not have the resources to withstand these and other competitive
      forces. Some of these competitors possess greater financial, research and
      technical resources than our Company or our partners. Moreover, these companies
      may possess greater marketing capabilities than our Company or our partners,
      including the resources to implement extensive advertising
      campaigns.





The
      pharmaceutical industry is subject to change as new delivery technologies are
      developed, new products enter the market, generic versions of available drugs
      become available and treatment paradigms evolve to reflect these and other
      medical research discoveries. We face significant competition in all areas
      of
      our business. The rapid pace of change in the pharmaceutical industry
      continually creates new opportunities for existing competitors and start-ups
      and
      can quickly render existing products less valuable. Customer requirements and
      physician and patient preferences continually change as new treatment options
      emerge, are more or less heavily promoted and become less expensive. As a
      result, we may not gain, and may lose, market share.





CRINONE/PROCHIEVE,
      a natural progesterone product, competes in markets with other progestins,
      both
      synthetic and natural, that may be delivered by pharmacy-compounded injections
      or by pharmacy-compounded vaginal suppositories, and with Prometrium ® (oral
      micronized progesterone) marketed by Solvay S.A. CRINONE/PROCHIEVE is the only progestin product approved by FDA for use in
      infertility or for use in pregnant women.





STRIANT
      competes against other testosterone products that can be delivered by injection,
      transdermal patch and transdermal gel. Some of the more successful testosterone
      products include AndroGel ® (testosterone gel) marketed by Unimed Pharmaceuticals, Inc., Testim ® (testosterone gel) marketed by Auxilium Pharmaceuticals Inc., and
      Androderm ® (testosterone transdermal system) marketed by Watson Pharma, Inc. Competition
      is
      based primarily on delivery method. Transdermal testosterone gels currently
      have
      the largest market share and transdermal testosterone patches have the next
      largest market share, followed by injectable products. STRIANT is priced
      comparably to the gels and patches.




14




**Customers**





Our
      customers include trade customers, such as drug wholesalers and chain drug
      stores, and our marketing partners. We make calls on the Company’s trade
      customers and doctors to promote CRINONE ® , PROCHIEVE ® and STRIANT ® .
      Our
      practice, in the case of our trade customers, is to ship our products promptly
      upon receipt of purchase orders from customers; consequently, backlog orders
      are
      not significant.  In
      the
      case of our marketing partners, firm purchase orders are received by the Company
      ninety days in advance of the expected shipping date.





**Revenue
      by Product**





The
      following table sets forth the percentage of the Company's consolidated
      revenues, consisting of sales, licensing fees, sales force promotional fees,
      and
      royalty revenues, by revenue source for each product accounting for 3% or more
      of consolidated revenues in any of the three years ended December
      31:


2006
              
              
              2005
              
              
              2004CRINONE
              
              
              39
              %
              
              37
              %
              
              40
              %PROCHIEVE
              
              
              16
              %
              
              15
              %
              
              10
              %Replens®
              
              
              16
              %
              
              11
              %
              
              15
              %Royalty
                  income
              
              
              12
              %
              
              11
              %
              
              6
              %STRIANT
              
              
              5
              %
              
              6
              %
              
              18
              %RepHresh®
              
              
              4
              %
              
              12
              %
              
              4
              %Sales
                  force promotional fees
              
              
              4
              %
              
              3
              %
              
              3
              %Licensing
                  fees
              
              
              4
              %
              
              3
              %
              
              3
              %Other
                  products
              
              
              0
              %
              
              2
              %
              
              1
              %100
              %
              
              100
              %
              
              100
              %





The
      following table presents information about Columbia’s revenues, including
      royalty and license revenue, by customer for each of
      the three years ended December 31:


2006
              
              2005
              
              2004Merck-Serono
                  (formerly Serono)
              
              $
              8,234,198
              
              $
              9,765,387
              
              $
              8,512,147Lil'
                  Drug Store Products, Inc.
              
              
              4,637,928
              
              
              6,906,358
              
              
              3,565,760Cardinal
                  Healthcare
              
              
              2,060,152
              
              
              1,773,811
              
              
              1,419,962McKesson
              
              
              1,892,728
              
              
              1,620,188
              
              
              1,218,438All
                  others (none over 5%)
              
              
              568,075
              
              
              1,975,098
              
              
              3,144,097$
              17,393,081
              
              $
              22,040,842
              
              $
              17,860,404




15




**Sales
      by Geographic Area**





The
      following table sets forth the percentage of the Company's consolidated revenue,
      based on sales by geographic area, for each area accounting for 5% or more
      of
      consolidated revenues in any of the three years ended December 31:




2006
              
              2005
              
              2004Europe
              
              $
              9,442,346
              
              $
              11,070,796
              
              $
              6,624,074United
                  States
              
              $
              7,950,735
              
              $
              10,970,046
              
              $
              11,236,330$
              17,393,081
              
              $
              22,040,842
              
              $
              17,860,404





**Recent
      Developments**





On
      February 5, 2007, the Company reported that a Phase III study of
      PROCHIEVE ® 8%
      (progesterone gel) for the prevention of preterm birth in women with a previous
      preterm birth earlier than 35 weeks gestation did not achieve statistical
      significance for the reduction of the incidence of preterm birth at week 32,
      the
      primary endpoint, or at weeks 28, 35 and 37, secondary endpoints of the study.
      Of the 611 evaluable patients, 302 received placebo and 309 received PROCHIEVE
      8%.  The mean gestational age at delivery was approximately 37 weeks in
      both the active and placebo groups following treatment, an improvement from
      a
      mean of 30 weeks in the previous preterm birth for both groups.  Over 60%
      of evaluable patients had a previous preterm birth at or below 32 weeks
      gestation; prior studies of progestins to prevent preterm birth were comprised
      mainly of patients with prior preterm births at 34 weeks or greater. The
      incidence and profile of adverse events in patients receiving PROCHIEVE 8%
      was
      similar to placebo, which was as expected given the product’s documented safety
      history. Based on the study results, the Company has discontinued the
      development of PROCHIEVE 8% for the prevention of preterm birth in pregnant
      women with a previous preterm birth before 35 weeks gestation. Prochieve 8%
      remains, however, a key product in the Company’s core infertility business
      and for pregnancy support in the first trimester.





The
      Company continues to explore a range of strategic options to enhance shareholder
      value, including a variety of strategic partnership relationships ranging from
      development projects for third parties, the out-license or sale of one or more
      of the Company’s products, or the acquisition of complimentary women’s
      healthcare products. No formal decisions have been made, and no agreements
      have
      been reached. There can be no assurance given that any particular alternative
      will be pursued or that any transaction will occur or on what
      terms.





**Employees**





As
      of
      March 5, 2007, the Company had 47 employees: 3 in management, 5 in production,
      27 in sales and marketing, and 12 in support functions. Our success is highly
      dependent on our ability to attract and retain qualified employees. Competition
      for employees is intense in the pharmaceutical industry. We believe we have
      been
      successful in our efforts to recruit qualified employees, but we cannot
      guarantee that we will continue to be as successful in the future. None of
      the
      Company's employees are represented by a labor union or are subject to
      collective bargaining agreements. We believe that our relationship with our
      employees is good.





The
      Company has employment agreements with three employees, Mr. Mills, president
      and
      chief executive officer, Mr. McGrane, senior vice president, general counsel
      and
      secretary, and Mr. Meer, senior vice president, chief financial officer and
      treasurer. The Board of Directors of the Company has adopted an Indemnification
      Agreement for Officers and Directors and an Executive Change of Control
      Severance Agreement for Officers.





**Available
      Information**





The
      Company's Internet address is *www.columbialabs.com* .
      Through
      a link on the “Investor” section of this website, which is also accessible at *www.cbrxir.com* ,
      we make
      available, free of charge, our annual report on Form 10-K, quarterly reports
      on
      Form 10-Q, current reports on Form 8-K, and any amendments to those reports,
      as
      soon as reasonably practicable after we electronically file such material with
      or furnish it to the SEC. In addition, we will provide electronic or paper
      copies of our filings free of charge upon request. Information contained on
      our
      corporate website or any other website is not incorporated into this Annual
      Report and does not constitute a part of this Annual Report.




16




In
      addition, the public may read and copy any materials filed by the Company with
      the SEC at the SEC’s Reference Room, which is located at 100 F Street NE,
      Washington, D.C., 20549. Interested parties may call (800) SEC-0330 for further
      information on the Reference Room. The SEC also maintains a website containing
      reports, proxy materials and information statements, among other information,
      at
      http://www.sec.gov.





**Corporate
      Information**





Columbia
      was incorporated as a Delaware corporation in 1986. Our principal executive
      offices are located at 354 Eisenhower Parkway, Livingston, New Jersey 07039,
      and
      our telephone number is (973) 994-3999. The Company's wholly-owned subsidiaries
      are Columbia Laboratories (Bermuda) Ltd. ("Columbia Bermuda"), Columbia
      Laboratories (France) SA ("Columbia France") and Columbia Laboratories (UK)
      Limited ("Columbia UK”).




17


**Item
      1A. Risk Factors**





**We
      have a history of losses and we may continue to incur
      losses.**




We
      have
      had a history of losses since our founding. For the fiscal year ended December
      31, 2006, we had a net loss of $12.6 million. If we and our partners are
      unable to successfully market our products, and otherwise increase sales of
      our
      products, and contain our operating expenses, we may not have sufficient funds
      to continue operations unless we are able to raise additional funds from sales
      of securities or otherwise. Additional financing may not be available to us
      on
      acceptable terms, if at all.




**Our
      business is heavily dependent on the continued sale of
      CRINONE** **®** **,** **** **Replens** **®** **,
      RepHresh** **®** **and** **STRIANT** **®** **by
      our marketing partners** **.
      If revenues from these partnered products fail to increase as anticipated,
      or
      materially decline, our financial condition and results of operations will
      be
      materially harmed.**




Our
      operating results are heavily dependent on the revenues and royalties derived
      from the sale of CRINONE to Merck
      Serono for sale outside the U.S., the sale of STRIANT to Ardana and Mipharm
      for
      sale in Europe, and the sale of Replens  and
      RepHresh to
      Lil’
Drug Store. Revenues from sales of these partnered products in 2006, which
      included sales of CRINONE to Merck
      Serono for the U.S. market, comprised approximately 65% of our total revenues.
      We do not control the amount and timing of marketing resources that our partners
      devote to our products. If Merck Serono fails to effectively market CRINONE  in
      its
      ex-U.S. territories,  Ardana
      and Mipharm fail to effectively market STRIANT in their respective territories,
      or Lil’ Drug Store fails to effectively market Replens  and
      RepHresh ,
      this
      could have a material adverse effect on our business, financial condition and
      results of operations.





**We
      acquired marketing rights to** **CRINONE** **in
      the United States in December 2006, and we may never realize the anticipated
      benefits of the acquisition.**





On
      December 22, 2006, we purchased the marketing rights in the United States to
      CRINONE from Merck Serono. Merck Serono marketed CRINONE in the United States
      principally to reproductive endocrinologists, a medical specialty in infertility
      that we have not previously called upon. Merck Serono is one of the leading
      companies in that market, having offered, in addition to CRINONE, all three
      gonadotropin hormones generally used for the treatment of infertility. Key
      reproductive endocrinology opinion leaders are generally not aware of, and
      are
      unfamiliar with, Columbia. Our initial goal is to maintain the current
      prescribing practices for CRINONE while building relationships with these
      specialists. We believe the reproductive endocrinologists are particularly
      important because of their influence on prescribing practices of obstetricians
      and gynecologists who also treat infertility. Our efforts to maintain and grow
      the CRINONE business may not be successful and we may fail
      to realize the anticipated benefits of the acquisition.





**Healthcare
      insurers and other payors may not pay for our products or may impose limits
      on
      reimbursement.**




Our
      ability to commercialize our prescription products will depend, in part, on
      the
      extent to which reimbursement for our products is available from third-party
      payors, such as health maintenance organizations, health insurers and other
      public and private payors. If we succeed in bringing new prescription products
      to market, we cannot be assured that third-party payors will pay for such
      products, or establish and maintain price levels sufficient for realization
      of
      an appropriate return on our investment in product development.




Many
      health maintenance organizations and other third-party payors use formularies,
      or lists of drugs for which coverage is provided under a healthcare benefit
      plan, to control the costs of prescription drugs. Each payor that maintains
      a
      drug formulary makes its own determination as to whether a new drug will be
      added to the formulary and whether particular drugs in a therapeutic class
      will
      have preferred status over other drugs in the same class. This determination
      often involves an assessment of the clinical appropriateness of the drug and,
      in
      some cases, the cost of the drug in comparison to alternative products. Our
      current or our future products may not be added to payors’ formularies, our
      products may not have preferred status to alternative therapies, and formulary
      decisions may not be conducted in a timely manner. Once reimbursement at an
      agreed level is approved by a third-party payor, we may lose that reimbursement
      entirely or we may lose the similar or better reimbursement we receive compared
      to competitive products. As reimbursement is often approved for a period of
      time, this risk is greater at the end of the time period, if any, for which
      the
      reimbursement was approved. We may also decide to enter into discount or
      formulary fee arrangements with payors, which could result in us receiving
      lower
      or discounted prices for CRINONE ® ,
      PROCHIEVE ® and
      STRIANT ® or
      future products.




18


**We
      face significant competition from pharmaceutical and consumer product companies,
      which may adversely impact our market share.**




We
      and
      our marketing partners compete against established pharmaceutical and consumer
      product companies that market products addressing similar needs. Further,
      numerous companies are developing, or may develop, enhanced delivery systems
      and
      products that compete with our present and proposed products. It is possible
      that we may not have the resources to withstand these and other competitive
      forces. Some of these competitors may possess greater financial, research and
      technical resources than our company or our partners. Moreover, these companies
      may possess greater marketing capabilities than our company or our partners,
      including the resources to implement extensive advertising
      campaigns.





The
      pharmaceutical industry is subject to change as new delivery technologies are
      developed, new products enter the market, generic versions of available drugs
      become available, and treatment paradigms evolve to reflect these and other
      medical research discoveries. We face significant competition in all areas
      of
      our business. The rapid pace of change in the pharmaceutical industry
      continually creates new opportunities for existing competitors and start-ups,
      and can quickly render existing products less valuable. Customer requirements
      and physician and patient preferences continually change as new treatment
      options emerge, are more or less heavily promoted, and become less expensive.
      As
      a result, we may not gain, and may lose, market share.





CRINONE/PROCHIEVE,
      a natural progesterone product, competes in markets with other progestins,
      both
      synthetic and natural, that may be delivered by pharmacy-compounded
      injections or by pharmacy-compounded vaginal suppositories, and with
      Prometrium ® (oral
      micronized progesterone) marketed by Solvay S.A.





STRIANT
      competes against other testosterone products that can be delivered by injection,
      transdermal patch and transdermal gel. Some of the more successful testosterone
      products include AndroGel ® (testosterone gel) marketed by Unimed Pharmaceuticals, Inc., Testim ® (testosterone gel) marketed by Auxilium Pharmaceuticals Inc., and
      Androderm ® (testosterone transdermal system) marketed by Watson Pharma, Inc. Competition
      is
      based primarily on delivery method. Transdermal testosterone gels currently
      have
      the largest market share and transdermal testosterone patches have the next
      largest market share, followed by injectable products. STRIANT is priced
      comparably to the gels and patches.





**Our
      products could demonstrate hormone replacement risks.**




In
      the
      past, certain studies of female hormone replacement therapy products, such
      as
      estrogen, have reported an increase in health risks. Progesterone is a natural
      female hormone, present at normal levels in most women through their lifetimes.
      However, some women require progesterone supplementation due to a natural or
      chemical-related progesterone deficiency. It is possible that data suggesting
      risks or problems may come to light in the future which could demonstrate a
      health risk associated with progesterone or progestin supplementation or our
      8%
      and 4% progesterone gels. It is also possible that future study results for
      hormone replacement therapy could be negative and could result in negative
      publicity about the risks and benefits of hormone replacement therapy. As a
      result, physicians and patients may not wish to prescribe or use progestins,
      including our progesterone gels.




Similarly,
      while testosterone is a natural male hormone, present at normal levels in most
      men through their lifetimes, some men require testosterone replacement therapy,
      or TRT, to normalize their testosterone levels. It is possible that data
      suggesting risks or problems may come to light in the future which could
      demonstrate a health risk associated with TRT or STRIANT. It is also possible
      that future study results for hormone replacement therapy could be negative
      and
      could result in negative publicity about the risks and benefits of TRT. As
      a
      result, physicians and patients may not wish to prescribe or use TRT products,
      including STRIANT ® .




19




In
      addition investors may become concerned about these issues and decide to sell
      our Common Stock. These factors could adversely affect our business and the
      price of our Common Stock.




**We
      may be exposed to product liability claims.**




We
      could
      be exposed to future product liability claims by consumers. Although we
      presently maintain product liability insurance coverage at what we believe
      is a
      commercially reasonable level, such insurance may not be sufficient to cover
      all
      possible liabilities. An award against us in an amount greater than our
      insurance coverage could have a material adverse effect on our operations.
      Some
      customers require us to have a minimum level of product liability insurance
      coverage before they will purchase or accept our products for distribution.
      If
      we fail to satisfy insurance requirements, our ability to achieve broad
      distribution of our products could be limited. This could have a material
      adverse effect upon our business and financial condition.




**Steps
      taken by us to protect our proprietary rights might not be adequate, in which
      case competitors may infringe on our rights or develop similar products.** **The
      United States and foreign patents upon which our original** **Bioadhesive
      Delivery System** **was based have expired.**




Our
      success and competitive position are partially dependent on our ability to
      protect our proprietary position for our technology, products and product
      candidates. We rely primarily on a combination of patents, trademarks,
      copyrights, trade secret laws, third-party confidentiality and nondisclosure
      agreements, and other methods to protect our proprietary rights. The steps
      we
      take to protect our proprietary rights, however, may not be adequate. Third
      parties may infringe or misappropriate our patents, copyrights, trademarks,
      and
      similar proprietary rights. Moreover, we may not be able or willing, for
      financial, legal or other reasons, to enforce our rights. To date, we have
      never
      been a party to a proprietary rights action.




Bio-Mimetics,
      Inc. held the patent upon which our original Bioadhesive
      Delivery System, or BDS, was
      based and granted us a license under that patent. Bio-Mimetics’ patent contained
      broad claims covering controlled release products that include a bioadhesive.
      However, this United States patent and its corresponding foreign patents expired
      in November 2003. Based upon the expiration of the original Bio-Mimetics patent,
      other parties will be permitted to make, use or sell products covered by the
      claims of the Bio-Mimetics patent,
      subject to other patents, including those which we hold. We have obtained numerous
      patents with claims covering improved methods of formulating and delivering
      therapeutic compounds using the BDS. We
      cannot
      assure you that any of these patents will enable us to prevent infringement,
      or
      that our competitors will not develop alternative methods of delivering
      compounds, potentially resulting in competitive products outside the protection
      that may be afforded by our patents. O ther
      companies may independently develop or obtain patent or similar rights to
      equivalent or superior technologies or processes. Additionally, although we
      believe that our patented technology has been independently developed and does
      not infringe on the proprietary rights of others, we cannot assure you that
      our
      products do not and will not infringe on the proprietary rights of others.
      In
      the event of infringement, we may be required to modify our technology or
      products, obtain licenses or pay license fees. We may not be able to do so
      in a
      timely manner or upon acceptable terms and conditions. This may have a material
      adverse effect on our operations.




The
      standards that the U.S. Patent and Trademark Office and its foreign counterparts
      use to grant patents are not always applied predictably or uniformly and can
      change. Limitations on patent protection in some countries outside the U.S.,
      and
      the differences in what constitutes patentable subject matter in these
      countries, may limit the protection we seek outside of the U.S. For example,
      methods of treating humans are not patentable subject matter in many countries
      outside of the U.S. In addition, laws of foreign countries may not protect
      our
      intellectual property to the same extent as would laws of the U.S. In
      determining whether or not to seek a patent or to license any patent in a
      particular foreign country, we weigh the relevant costs and benefits, and
      consider, among other things, the market potential of our product candidates
      in
      the jurisdiction and the scope and enforceability of patent protection afforded
      by the law of the jurisdiction.




20




We
      own or
      are seeking registration of the following as trademarks in countries throughout
      the world: CRINONE ® ,
      PROCHIEVE ® ,
      STRIANT ® ,
      and
      STRIANT SR ® .
      These
      trademarks, however, may not afford us adequate protection or we may not have
      the financial resources to enforce our rights under these
      trademarks.




**We
      are subject to government regulation, which could affect our ability to sell
      products.**




Nearly
      every aspect of the development, manufacture and commercialization of our
      approved pharmaceutical products is subject to time-consuming and costly
      regulation by various governmental entities, including the Food and Drug
      Administration, or FDA, the Drug Enforcement Administration and state agencies,
      as well as regulatory agencies in those foreign countries in which our products
      are manufactured or distributed. The FDA has the power to seize adulterated
      or
      misbranded products and unapproved new drugs, to require their recall from
      the
      market, to enjoin further manufacture or sale, and to publicize certain facts
      concerning a product.




We
      employ
      various quality control measures in our efforts to ensure that our products
      conform to their intended specifications and meet the standards proscribed
      by
      applicable governmental regulations, including FDA’s current Good Manufacturing
      Practices regulations. Notwithstanding our efforts, our products or the
      ingredients we purchase from our suppliers for inclusion in our products may
      contain undetected defects or non-conformities with specifications. Such defects
      or non-conformities could compel us to recall the affected product, make changes
      to or restrict distribution of the product, or take other remedial actions.
      The
      occurrence of such events may harm our relations with or result in the loss
      of
      customers, injure our reputation, impair market acceptance of our products,
      harm
      our financial results, and, in certain circumstances, expose us to product
      liability or other claims.




**The
      development of our pharmaceutical products is uncertain and subject to a number
      of significant risks.**




Some
      of
      our pharmaceutical products are in various stages of development. In the United
      States and most foreign countries, we must complete extensive human clinical
      trials that demonstrate the safety and efficacy of a product in order to apply
      for regulatory approval to market the product.




The
      process of developing product candidates involves a degree of risk and may
      take
      several years. Product candidates that appear promising in the early phases
      of
      development may fail to reach the market for several reasons,
      including:




·
            Clinical
                trials may show our product candidates to be ineffective for the
                indications studied or to have harmful side
                effects;


·
            Product
                candidates may fail to receive regulatory approvals required to bring
                the
                products to market;


·
            Manufacturing
                costs or other factors may make our product candidates uneconomical;
                and


·
            The
                proprietary rights of others and their competing products and technologies
                may prevent our product candidates from being effectively
                commercialized.





Success
      in early clinical trials does not ensure that large-scale clinical trials will
      be successful. Clinical results are frequently susceptible to varying
      interpretations that may delay, limit or prevent regulatory
      approvals.




The
      length of time necessary to complete clinical trials and to submit an
      application for marketing approval for a final decision by a regulatory
      authority varies significantly and may be difficult to predict. The speed with
      which we can complete clinical trials and applications for marketing approval
      will depend on several factors, including the following:


·
            The
                rate of patient enrollment, which is a function of factors including
                the
                size of the patient population, the proximity of patients to clinical
                sites, the eligibility criteria for the study, and the nature of
                the study
                protocol; ·
            Institutional
                review board, or IRB, approval of the study protocol and the informed
                consent form; ·
            Prior
                regulatory agency review and
                approval;




21




·
            Analysis
                of data obtained from clinical activities, which are susceptible
                to
                varying interpretations and which interpretations could delay, limit
                or
                prevent regulatory approval;


·
            Changes
                in the policies of regulatory authorities for drug approval during
                the
                period of product development; and


·
            The
                availability of skilled and experienced staff to conduct and monitor
                clinical studies and to prepare the appropriate regulatory
                applications.





In
      addition, developing product candidates is very expensive and will continue
      to
      have a significant impact on our ability to generate profits. Factors affecting
      our product development expenses include:




·
            Our
                ability to raise any additional funds that we need to complete our
                trials;


·
            The
                number and outcome of clinical trials conducted by us and/or our
                collaborators;


·
            The
                number of products we may have in clinical
                development;


·
            In-licensing
                or other partnership activities, including the timing and amount
                of
                related development funding, license fees or milestone payments;
                and


·
            Future
                levels of our revenue.





Clinical
      trials are expensive and can take years to complete, and there is no guarantee
      that the clinical trials will demonstrate sufficient safety and/or efficacy
      of
      the products to meet FDA requirements, or those of foreign regulatory
      authorities.




**We
      may experience adverse events in clinical trials, which could delay or halt
      our
      product development.**




Our
      product candidates may produce serious adverse events. These adverse events
      could interrupt, delay or halt clinical trials of our product candidates and
      could result in FDA or other regulatory authorities denying approval of our
      product candidates for any or all targeted indications. An IRB or independent
      data safety monitoring board, the FDA, other regulatory authorities, or we
      ourselves may suspend or terminate clinical trials at any time. Our product
      candidates may prove not to be safe for human use.




**Delays
      or failures in obtaining regulatory approvals may delay or prevent marketing
      of
      the products that we are developing.**




Other
      than PROCHIEVE ® 4%
      (progesterone gel), which is being evaluated for the prevention of endometrial
      hyperplasia in women with an intact uterus undergoing estrogen replacement
      therapy, all of our product candidates are in clinical development and have
      not
      received regulatory approval from the FDA or any foreign regulatory authority.
      The regulatory approval process typically is extremely expensive, takes many
      years, and the timing or likelihood of any approval cannot be accurately
      predicted. Delays in obtaining regulatory approval can be extremely costly
      in
      terms of lost sales opportunities and increased clinical trial costs. If we
      fail
      to obtain regulatory approval for our current or future product candidates
      or
      expanded indications for currently marketed products, we will be unable to
      market and sell such products and indications and therefore may never be
      profitable.




As
      part
      of the regulatory approval process, we must conduct clinical trials for each
      product candidate to demonstrate safety and efficacy. The number of clinical
      trials that will be required varies depending on the product candidate, the
      indication being evaluated, the trial results, and the regulations applicable
      to
      any particular product candidate.




The
      results of initial clinical trials of our product candidates do not necessarily
      predict the results of later-stage clinical trials. Product candidates in later
      stages of clinical trials may fail to show the desired safety and efficacy
      despite having progressed through initial clinical trials. The data collected
      from the clinical trials of our product candidates may not be sufficient to
      support FDA or other regulatory approval. In addition, the continuation of
      a
      particular study after review by an IRB or independent data safety monitoring
      board does not necessarily indicate that our product candidate will achieve
      the
      clinical endpoint.




22




The
      FDA
      and other regulatory agencies can delay, limit or deny approval for many
      reasons, including:




·
            A
                product candidate may not be deemed to be safe or
                effective;


·
            The
                manufacturing processes or facilities we have selected may not meet
                the
                applicable requirements; and


·
            Changes
                in their approval policies or adoption of new regulations may require
                additional clinical trials or other
                data.





Any
      delay
      in, or failure to receive, approval for any of our product candidates could
      prevent us from growing our revenues or achieving profitability.




**We
      are dependent on a principal supplier, the loss of which could impair our
      ability to manufacture and sell our products.**




Medical
      grade, cross-linked polycarbophil, the polymer used in our BDS-based products
      is
      currently available from only one supplier, Noveon, Inc., or Noveon. We believe
      that Noveon will supply as much of the material as we require because our
      products rank among the highest value-added uses of the polymer. In the event
      that Noveon cannot or will not supply enough of the product to satisfy our
      needs, we will be required to seek alternative sources of polycarbophil. An
      alternative source of polycarbophil may not be available on satisfactory terms
      or at all, which would impair our ability to manufacture and sell our
      products.




**We
      are dependent upon third-party developers and manufacturers, the loss of which
      could result in a loss of revenues.**




We
      rely
      on third parties to develop and manufacture our products. These third parties
      may not be able to satisfy our needs in the future, and we may not be able
      to
      find or obtain FDA approval of alternate developers and manufacturers. Delays
      in
      the development and manufacture of our products could have a material adverse
      effect on our business. This reliance on third parties could have an adverse
      effect on our profit margins. Any interruption in the manufacture of our
      products would impair our ability to deliver our products to customers on a
      timely and competitive basis, and could result in the loss of
      revenues.




**The
      loss of our key executives could have a significant impact on our
      company.**




Our
      success depends in large part upon the abilities and continued service of our
      executive officers and other key employees. Our employment agreements with
      our
      executive officers are terminable by them on short notice. The loss of key
      employees may result in a significant loss in the knowledge and experience
      that
      we, as an organization, possess, and could cause significant delays in, or
      outright failure of, the development and commercialization of our products
      and
      product candidates. If we are unable to attract and retain qualified and
      talented senior management personnel, our business may suffer.




**We
      may be limited in our use of our net operating loss
      carryforwards.**




As
      of
      December 31, 2006, we had certain net operating loss carryforwards of
      approximately $131 million that may be used to reduce our future U.S.
      federal income tax liabilities. Our ability to use these loss carryforwards
      to
      reduce our future U.S. federal income tax liabilities could be lost if we were
      to experience more than a 50% change in ownership within the meaning of Section
      382(g) of the Internal Revenue Code. If we were to lose the benefits of these
      loss carryforwards, our future earnings and cash resources would be materially
      and adversely affected.





**The
      price of our Common Stock has been and may continue to be
      volatile.**





Historically,
      the market price of our Common Stock has fluctuated over a wide range. In fiscal
      year 2005, our Common Stock traded in a range from $1.52 to $4.91 per share.
      In
      fiscal year 2006, our Common Stock traded in a range from $2.53 to $5.98 per
      share. It is likely that the price of our Common Stock will fluctuate in the
      future. The market prices of securities of small specialty pharmaceutical
      companies, including ours, from time to time experience significant price and
      volume fluctuations unrelated to the operating performance of these companies.
      In particular, the market price of our Common Stock may fluctuate significantly
      due to a variety of factors, including: the results of clinical trials for
      our
      product candidates; FDA’s determination with respect to new drug applications
      for new products and new indications; and our ability to develop additional
      products. In addition, the occurrence of any of the risks described in these
      “Risk Factors” could have a material and adverse impact on the market price of
      our Common Stock.




23




**Sales
      of large amounts of** **Common
      Stock may adversely affect our market price.** **The
      issuance of preferred stock and convertible subordinated notes may adversely
      affect rights of common stockholders** **.**




As
      of
      March 5, 2007, we had 50,140,810 shares of Common Stock outstanding, of
      which 43,340,877 shares were freely tradable. As of that date,
      approximately 6,799,933 shares of our Common Stock were restricted
      securities, but 6,640,458 of those shares may be sold pursuant to an effective
      registration statement under the Securities Act. We also have the following
      securities outstanding: series B convertible preferred stock, series C
      convertible preferred stock, series E convertible preferred stock, convertible
      subordinated notes, warrants, and options. If all of these securities are
      exercised or converted, an additional 22,768,031 shares of Common Stock
      will be outstanding, all of which will have been registered for resale under
      the
      Securities Act. When issued, these registered shares will be freely tradable
      by
      persons who are not our affiliates and restricted shares will be saleable under
      Rule 144 in the future. The exercise and conversion of these securities is
      likely to dilute the book value per share of our Common Stock. In addition,
      the
      existence of these securities may adversely affect the terms on which we can
      obtain additional equity financing.





In
      March
      2002, our Board of Directors authorized shares of series D junior participating
      preferred stock in connection with its adoption of a stockholder rights plan,
      under which we issued rights to purchase series D convertible preferred stock
      to
      holders of our Common Stock. Upon certain triggering events, such rights become
      exercisable to purchase shares of Common Stock (or, in the discretion of our
      Board of Directors, series D convertible preferred stock) at a price
      substantially discounted from the then current market price of our Common
      Stock.





Under
      our
      certificate of incorporation, our Board of Directors has the authority to issue
      up to 1.0 million shares of preferred stock and to determine the price, rights,
      preferences and privileges of those shares without any further vote or action
      by
      our stockholders. The rights of the holders of Common Stock are subject to,
      and
      may be adversely affected by, the rights of the holders of any shares of
      preferred stock that may be issued in the future. While we have no present
      intention to authorize any additional series of preferred stock, such preferred
      stock, if authorized, may have other rights, including economic rights senior
      to
      the Common Stock, and, as a result, their issuance could have a material adverse
      effect on the market value of our Common Stock.





**We
      have a substantial amount of debt.**




As
      of
      December 31, 2006, we had outstanding approximately $40 million principal
      amount of our convertible debt. In addition, as of December 31, 2006 we had
      remaining future minimum payments due to PharmaBio pursuant to certain financing
      agreements of approximately $21.5 million. Our annual interest expense is more
      than $8 million of which approximately $3 million is a cash payment to be
      made in 2007, and for the following four years. Unless we generate substantial
      additional sales from our products or raise substantial additional capital,
      we
      may not be able to pay the interest on our debt or repay our debt at maturity.





**Our
      corporate compliance program cannot guarantee that we are in compliance with
      all
      potentially applicable regulations.**





We
      are a
      relatively small company and we rely heavily on third parties to conduct many
      important functions. As a pharmaceutical company, we are subject to a large
      body
      of legal and regulatory requirements. In addition, as a publicly traded company
      we are subject to significant regulations, including the Sarbanes-Oxley Act
      of
      2002, some of which have either only recently been adopted or are currently
      proposals subject to change. We cannot assure you that we are or will be in
      compliance with all potentially applicable laws and regulations. Failure to
      comply with all potentially applicable laws and regulations could lead to the
      imposition of fines, cause the value of our common stock to decline, impede
      our
      ability to raise capital or lead to the de-listing of our stock.




24


**We
      could be negatively impacted by future interpretation or implementation of
      federal and state fraud and abuse laws, including anti-kickback laws, false
      claims laws and federal and state anti-referral laws.**




We
      are
      subject to various federal and state laws pertaining to health care fraud and
      abuse, including anti-kickback laws, false claims laws and physician
      self-referral laws. Violations of these laws are punishable by criminal and/or
      civil sanctions, including, in some instances, imprisonment and exclusion from
      participation in federal and state health care programs, including Medicare,
      Medicaid, and veterans’ health programs. We have not been challenged by a
      governmental authority under any of these laws and believe that our operations
      are in compliance with such laws.





However,
      because of the far-reaching nature of these laws, we may be required to alter
      one or more of our practices to be in compliance with these laws. Health care
      fraud and abuse regulations are complex, and even minor, inadvertent
      irregularities can potentially give rise to claims that the law has been
      violated. Any violations of these laws could result in a material adverse effect
      on our business, financial condition and results of operations. If there is
      a
      change in law, regulation or administrative or judicial interpretations, we
      may
      have to change our business practices or our existing business practices could
      be challenged as unlawful, which could have a material adverse effect on our
      business, financial condition and results of operations.





We
      could
      become subject to false claims litigation under federal or state statutes,
      which
      can lead to civil money penalties, criminal fines and imprisonment, and/or
      exclusion from participation in federal health care programs. These false claims
      statutes include the federal False Claims Act, which allows any person to bring
      suit alleging the false or fraudulent submission of claims for payment under
      federal programs or other violations of the statute and to share in any amounts
      paid by the entity to the government in fines or settlement. Such suits, known
      as qui tam actions, have increased significantly in recent years and have
      increased the risk that companies like us may have to defend a false claim
      action. We could also become subject to similar false claims litigation under
      state statutes. If we are unsuccessful in defending any such action, such action
      may have a material adverse effect on our business, financial condition and
      results of operations.





**Changes
      in, or interpretations of, accounting principles could result in unfavorable
      accounting charges.**





We
      prepare our consolidated financial statements in conformity with U.S. generally
      accepted accounting principles (GAAP). These principles are subject to
      interpretation by the SEC and various bodies formed to interpret and create
      appropriate accounting principles. A change in these principles can have a
      significant effect on our reported results and may even retroactively affect
      previously reported transactions. Our accounting principles that recently have
      been or may be affected by changes in the accounting principles are as follows:





·
            Revenue
                recognition;


·
            Accounting
                for share-based payments;


·
            Accounting
                for income taxes; and


·
            Accounting
                for business combinations and related goodwill.




**** **We
      do not intend to pay cash dividends on our Common Stock. As a result, you will
      not receive any periodic income from an investment in our Common
      Stock.**




We
      have
      never paid a cash dividend on our Common Stock and we do not anticipate paying
      cash dividends in the foreseeable future. We intend to retain any earnings
      for
      use in the development and expansion of our business. In addition, applicable
      provisions of Delaware law and our debt instruments may affect our ability
      to
      declare and pay dividends on our Common Stock and our preferred stock.
      Accordingly, you should not expect to receive any periodic income from owning
      our Common Stock. Any economic gain on your investment will be solely from
      an
      appreciation, if any, in the price of the stock.




25




**Anti-takeover
      provisions could impede or discourage a third-party acquisition of our company.
      This could prevent stockholders from receiving a premium over market price
      for
      their stock.**




We
      are a
      Delaware corporation. Anti-takeover provisions of Delaware law impose various
      obstacles to the ability of a third party to acquire control of our company,
      even if a change in control would be beneficial to our existing stockholders.
      In
      addition, our Board of Directors has adopted a stockholder rights plan and
      has
      designated a series of preferred stock that could be used defensively if a
      takeover is threatened. Our incorporation under Delaware law, our stockholder
      rights plan, and our ability to issue additional series of preferred stock,
      could impede a merger, takeover or other business combination involving our
      company or discourage a potential acquiror from making a tender offer for our
      Common Stock. This could reduce the market value of our Common Stock if
      investors view these factors as preventing stockholders from receiving a premium
      for their shares.




**We
      are exposed to market risk from foreign currency exchange
      rates.**




With
      two
      operating subsidiaries and third party manufacturers in Europe, economic and
      political developments in the European Union can have a significant impact
      on
      our business. All of our products are currently manufactured in Europe. We
      are
      exposed to currency fluctuations related to payment for the manufacture of
      our
      products in Euros and other currencies and selling them in U.S. dollars and
      other currencies.




**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Properties**





As
      of
      December 31, 2006, the Company leased the following properties:




Location
            Use
            Square
                feet
            Expiration
            Annual
                RentLivingston,
                NJ
            Corporate
                office
            12,780
            July
                2007
            $192,000Paris,
                France
            European
                logistics office
            150
            3
                months notice




**Item
      3. Legal Proceedings**





Claims
      and lawsuits have been filed against the Company and its subsidiaries from
      time
      to time. Although
      the results of pending claims are always uncertain, the Company does not believe
      the results of any such actions, individually or in the aggregate, will have
      a
      material adverse effect on our financial position or results of operation.
      Additionally, the Company believes that it has reserves or insurance coverage
      in
      respect of these claims, but no assurance can be given as to the sufficiency
      of
      such reserves or insurance in the event of any unfavorable outcome resulting
      from these actions.





**Item
      4. Submission of Matters to a Vote of Security Holders**





No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year ended December 31, 2006.




26


**Executive
      Officers and Directors of the Registrant**





Our
      executive officers and Directors as of March 5, 2007, were as follows:





Name
            
            Age
            
            Position
                with the CompanyRobert
                S. Mills
            
            
            54
            
            
            President
                and Chief Executive Officer, DirectorMichael
                McGrane
            
            
            57
            
            
            SeniorVice
                President, General Counsel and SecretaryJames
                A. Meer
            
            
            60
            
            
            SeniorVice
                President, Chief Financial Officer and TreasurerStephen
                G. Kasnet
            
            
            60
            
            
            Chairman
                of the BoardEdward
                A. Blechschmidt
            
            
            54
            
            
            Vice
                Chairman of the BoardValerie
                L. Andrews
            
            
            47
            
            
            DirectorJames
                S. Crofton
            
            
            54
            
            
            DirectorDenis
                M. O’Donnell, M.D.
            
            
            53
            
            
            DirectorSelwyn
                P. Oskowitz, M.D.
            
            
            61
            
            
            Director





Officers
      serve at the discretion of the Board of Directors. There is no family
      relationship between any of the executive officers or between any of the
      executive officers and the Company’s directors. There is no arrangement or
      understanding between any executive officer and any other person pursuant to
      which the executive officer was selected, except with respect to Messrs. Mills’,
      McGrane’s and Meer’s employment agreements. See “Executive
      Compensation--Employment Agreements.”





Mr.
      Mills
      was promoted to President and Chief Executive Officer on March 6, 2006. On
      January 5, 2006, Mr. Mills was elected President and Chief Operating Officer
      and
      was elected to the Company’s Board of Directors. Mr.
      Mills
      joined Columbia in May 2001 as Senior Vice President, Operations and was named
      Chief Operating Officer in September 2003. Prior to joining the Company, Mr.
      Mills served five years as Senior Vice President, Manufacturing Operations,
      at
      Watson Pharmaceuticals, Inc. from 1996 to 2001. During his 30-year career in
      the
      pharmaceutical industry he also served as Vice President, Operations, at
      Alpharma, Inc. from 1993 to 1996 and held various positions with Aventis SA,
      including Director-Plant Operations. Mr. Mills holds a B.S. degree from Grove
      City College.





Mr.
      McGrane has
      served as Senior Vice President, since January 2006, and our General Counsel
      and
      Secretary since January 2002. He joined the Company from The Liposome Company,
      Inc., a biotechnology company, where he served as Vice President, General
      Counsel and Secretary from
      1999
      to 2001, prior to
      which he was Vice President, General Counsel and Secretary to Novartis Consumer
      Health, Inc. from
      1997
      to 1998. Previously, Mr. McGrane held various positions, including Associate General
      Counsel, with Novartis Pharmaceuticals Corporation from
      1984 to 1996, and
      was
      Regulatory Counsel to the U.S. Food and Drug Administration from
      1975
      to 1984. Mr.
      McGrane received his J.D. degree from Georgetown University and his B.A. degree
      from Cornell College. He is a member of the New Jersey bar.





Mr.
      Meer
      has served as Senior Vice President, Chief Financial Officer and Treasurer
      since
      December 2006. He has over 35 years of financial experience in both
      privately-held and publicly-traded companies, of which 15 years are in the
      life
      sciences industry. He most recently served as Senior Vice President, Chief
      Financial Officer, Secretary and Treasurer of Pharmos Corporation, a
      biotechnology company, prior to which he was a consultant to pharmaceutical
      and
      biotech companies providing strategic and financial advice. Mr. Meer previously
      served eight years as Vice President and Treasurer of Schein Pharmaceutical,
      Inc., where he was responsible for capital formation, including a successful
      IPO, strategic planning and investor relations. He also held senior financial
      positions with public companies including EnviroSource, Inc., John Labatt Ltd.
      and General Host Corporation. Mr. Meer holds an M.B.A. degree from Pace
      University and a B.A. degree on economics from Rutgers College.





Mr. Kasnet
      has been a director of the Company since August 2004 and Chairman of the Board
      since November 2004. He was President and Chief Executive Officer of Harbor
      Global Company, Ltd., from June 2000 through 2006. He previously held senior
      management positions with various financial organizations, including Pioneer
      Group, Inc.; First Winthrop Corporation and Winthrop Financial Associates;
      and
      Cabot and Forbes. He serves as Chairman of the Board of Rubicon Ltd. (forestry)
      and is a director of Tenon Ltd. (wood products). He was Chairman of Warren
      Bank
      from 1990 to 2003. He is also a trustee and vice president of the board of
      The
      Governor’s Academy, Byfield, MA.




27




Mr. Blechschmidt
      has been a director of Columbia since August 2004 and Vice Chairman of the
      Board
      since November 2004. He was Chairman, Chief Executive Officer and President
      of
      Gentiva Health Services from March 2000 until his retirement in July 2002.
      He
      previously served as Chief Executive Officer of Olsten Corporation (“Olsten”),
      the conglomerate from which Gentiva Health Services was split off and taken
      public. Before joining Olsten, Mr. Blechschmidt was President and Chief
      Executive Officer of both Siemens' Nixdorf Americas and Siemens' Pyramid
      Technology, prior to which he served more than 20 years with Unisys Corporation,
      ultimately as Chief Financial Officer. He is currently a director of HEALTHSOUTH
      Corp., Lionbridge Technologies, Inc. (business services), Novelis, and Option
      Care, Inc. (health care).





Ms.
      Andrews has been a director of Columbia since October 2005 and is Vice
      President and Deputy General Counsel of
      Vertex
      Pharmaceuticals Inc. Before joining Vertex in 2002, Ms. Andrews was Executive
      Director of Licensing for Massachusetts General and The Brigham and Women’s
      Hospitals, and prior to that a partner in the law firm of Hill & Barlow. She
      served as a law clerk to Chief Judge Levin H. Campbell of the United States
      Court of Appeals for the First Circuit from 1988 to 1989, and earlier rose
      to
      the rank of Captain in the United States Air Force.





Mr.
      Crofton has been a director of Columbia since October 2005. He has been Senior
      Vice President and Chief Financial Officer of Sarnoff Corporation (technology)
      since 1999. Previously, Mr. Crofton was Chief Financial Officer of EA
      Industries, Inc. (electronics manufacturing), and prior to that served in
      various positions, including Vice President of Finance, with Unisys Corporation
      (IT). He is currently a Director of American Mold Guard, Inc.





Dr.
      O’Donnell has been a director of the Company since January 1999, and is Managing
      Director of Seaside Capital, LLC. From 2004 to 2005, he also served as Chief
      Executive Officer of Molecular Diagnostics, Inc. (medical diagnostics and
      screening). Dr. O’Donnell served as Chairman of the Board of Directors of
      Novavax, Inc. (pharmaceuticals) from 2000 to 2005, President from 1995 to 1997,
      and Vice President from 1991 to 1995. He remains a Directors of Novavax, Inc.
      and serves on both the Board of Directors and audit committee of ELXSI, Inc.
      (restaurant and water inspection services).





Dr.
      Oskowitz has been a director of the Company since January 1999. An assistant
      professor of obstetrics, gynecology and reproductive biology at Harvard Medical
      School since 1993, Dr. Oskowitz is a reproductive endocrinologist at, and
      Director of, Boston IVF, a fertility clinic with which he has been associated
      since 1986. Dr. Oskowitz is a past President of the Boston Fertility
      Society.




28


**Code
      of Ethics**





The
      Board
      of Directors of the Company has adopted a Code of Business Conduct and Ethics
      applicable to all Board members, executive officers and all employees. The
      Code
      of Business Conduct and Ethics is available on the Company’s website, under the
      investor relations tab. We
      will
      provide an electronic or paper copy of this document free of charge upon
      request. If substantial amendments to the Code of Business Conduct and Ethics
      are executed, or if waivers are granted, the Company will post and disclose
      the
      nature of such amendments or waivers on the Company’s website or in a report on
      Form 8-K.




29


**PART
      II**





**Item
      5. Market for the Registrant's Common Equity and Related Stockholder Matters
      and**


**Issuer
      Purchases of Equity Securities**





The
      Company's Common Stock, par value $.01 per share ("Common Stock"), is traded
      on
      the NASDAQ Global Market under the symbol CBRX. The following table sets forth
      for the periods indicated the high and low sales prices of the Common Stock
      on
      the NASDAQ Common Stock.




High
              
              LowFiscal
                  Year Ended December 31, 2005First
                  Quarter
              
              $
              3.08
              
              $
              1.52Second
                  Quarter
              
              
              3.18
              
              
              1.70Third
                  Quarter
              
              
              3.82
              
              
              2.42Fourth
                  Quarter
              
              
              4.91
              
              
              3.19Fiscal
                  Year Ended December 31, 2006First
                  Quarter
              
              $
              5.20
              
              $
              4.01Second
                  Quarter
              
              
              5.26
              
              
              2.90Third
                  Quarter
              
              
              4.03
              
              
              2.53Fourth
                  Quarter
              
              
              5.98
              
              
              3.21




At
      March
      5, 2007, there were approximately 300 shareholders of record of the Company's
      Common Stock, one shareholder of record of the Company's Series B convertible
      preferred stock (“Series B Preferred Stock”), 10 shareholders of record of the
      Company’s Series C convertible preferred stock (“Series C Preferred Stock”) and
      12 shareholders of record of the Company’s Series E convertible preferred stock
      (“Series E Preferred Stock”). The Company estimates that there were
      approximately 7,500 beneficial owners of its Common Stock on such
      date.





The
      Series C Preferred Stock was issued and sold by the Company in January 1999
      to
      24 accredited investors, through which the Company raised approximately $6.4
      million, net of expenses. The Series C Preferred Stock has a stated value of
      $1,000 per share, and is convertible into Common Stock at the lower of: (i)
      $3.50 per share of Common Stock, and (ii) 100% of the average of the closing
      prices during the three trading days immediately preceding the conversion
      notice. The Series C Preferred Stock pays a 5% dividend, payable quarterly
      in
      arrears on the last day of the quarter.





Effective
      as of February 6, 2001, the Company entered into the Amended and Restated Common
      Stock Purchase Agreement (the “Purchase Agreement”) with Acqua
      Wellington North
      American Equities Fund, Ltd., (“ Acqua
      Wellington”) to sell up to $16.5 million of Common Stock under the Registration
      Statement, the Prospectus, and the related Prospectus Supplement dated February
      6, 2001 and amended on April 13, 2001. Pursuant to the Purchase Agreement,
      the
      Company was able to issue and sell to Acqua Wellington up to $16.5 million
      of
      Common Stock and grant Acqua Wellington a call option to purchase additional
      shares of Common Stock, subject to the overall limit of $16.5
      million.  The
      Company and Acqua Wellington agreed to extend the term of the Purchase Agreement
      until February 6, 2005, at which time it expired. The Company sold Acqua
      Wellington $9.84 million of Common Stock during the term of the Purchase
      Agreement.




During
      2004, the Company issued 2,000,000 shares of its Common Stock to SJ Strategic
      Investments LLC, a family investment vehicle owned and managed by John M.
      Gregory, the founder and former Chairman and CEO of King Pharmaceuticals, which
      resulted in the Company receiving $6,380,000 after expenses. Proceeds were
      used
      for general corporate purposes.





During 2005,
      the Company raised $6.9 million from the issuance and sale of 69,000 shares
      of
      Series E Preferred Stock. The Series E Preferred Stock has a stated value of
      $100 per share. Each share of the Series E Preferred Stock may be converted
      by
      the holder into 50 shares of Common Stock, subject to adjustment, and will
      automatically be converted into Common Stock at that rate upon the date that
      the
      average of the daily market prices of the Company’s Common Stock for the 20
      consecutive trading days preceding such date exceeds $6.00 per share. The Series
      E Preferred Stock pays no dividends and contains voting rights equal to the
      number of shares of Common Stock into which each share of Series E Preferred
      Stock is convertible. Upon liquidation of the Company, the holders of the Series
      E Preferred Stock are entitled to $100 per share.




30




On
      March
      10, 2006, the Company raised $30 million in gross proceeds to the Company from
      the issuance and sale of 7,428,220 shares of its Common Stock at a price of
      $4.04 per share and warrants to purchase 1,857,041 shares of Common Stock with
      an exercise price of $5.39 per share. The warrants became exercisable on
      September 9, 2006, and expire on March 13, 2011, unless earlier exercised or
      terminated . Proceeds
      were used for general corporate purposes.





On
      December 22, 2006, the Company raised approximately $40 million in gross
      proceeds to the Company from the issuance and sale of convertible subordinated
      notes. The
      notes
      bear interest at a rate of 8% per annum and mature on December 31, 2011. They
      are convertible into shares of Common Stock at a conversion price of $5.25.
      Investors also received warrants to purchase 2,285,714 shares of Common Stock
      at
      an exercise price of $5.50 per share. The warrants become exercisable on June
      20, 2007, and expire on December 22, 2011, unless earlier exercised or
      terminated.  The
      Company used the proceeds of this offering to acquire from Merck Serono the
      U.S.
      marketing rights to CRINONE ® for
      $33
      million, purchase Serono’s current inventory of that product, and pay other
      costs related to the transaction. The balance of approximately $4.7 Million
      will
      be used for general corporate purposes.





During
      2006, outstanding options were exercised resulting in the issuance of 335,049
      shares of Common Stock and the receipt of $1 million by the Company. Proceeds
      were used for general corporate purposes. In addition, 50 shares of Series
      C
      Preferred Stock were converted into 14,825 shares of Common Stock.





**Equity
      Compensation Plan Information**





The
      following table sets forth aggregate information for the fiscal year ended
      December 31, 2006, regarding the Company's compensation plans, including
      individual compensation agreements, under which equity securities of the Company
      are authorized for issuance:





Plan
                Category
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            Weighted
                average exercise price of outstanding options, warrants and
                rights
            Number
                of securities remaining available for future issuance(a)
            (b)
            (c)Equity
                compensation plans approved by security holders
            4,686,552
            $8.25
            2,310,549Equity
                compensation plans not approved by security holders
            725,000
            $6.94
            0Total
            5,411,552
            $8.07
            2,310,549





The
      Company has two shareholder-approved equity compensation plans, under which
      securities may be issued upon exercise. The first is the Columbia Laboratories,
      Inc. 1988 Stock Option Plan, as amended (the "1988 Plan"). All employees,
      officers, directors, and consultants of the Company or any subsidiary were
      eligible to participate in the 1988 Plan. Under the 1988 Plan, a total of
      5,000,000 shares of Common Stock were authorized for issuance upon exercise
      of
      the options. As of October 1996, no further options were granted pursuant to
      the
      1988 Plan and the remaining options expired in October of 2006. The second
      shareholder-approved equity compensation plan is the 1996 Long-term Performance
      Plan (the “1996 Plan”), adopted in October 1996, which provides for the grant of
      stock options, stock appreciation rights and restricted stock to certain
      designated employees of the Company, non-employee directors of the Company
      and
      certain other persons performing significant services for the Company as
      designated by the Compensation Committee of the Board of Directors. Pursuant
      to
      the 1996 Plan, an aggregate of 8,000,000 shares of Common Stock have been
      reserved for issuance.




31




On
      March
      12, 2002, the Company adopted a Stockholder Rights Plan ( the
      “Rights Plan”) designed to protect company stockholders in the event of takeover
      activity that would deny them the full value of their investment. The Rights
      Plan was not adopted in response to any specific takeover threat. In adopting
      the Rights Plan, the Board declared a dividend distribution of one preferred
      stock purchase right for each outstanding share of Common Stock of the Company,
      payable to stockholders of record at the close of business on March 22, 2002.
      The rights will become exercisable only in the event, with certain exceptions,
      a
      person or group of affiliated or associated persons acquires 15% or more of
      the
      Company’s voting stock, or a person or group of affiliated or associated persons
      commences a tender or exchange offer which, if successfully consummated, would
      result in such person or group owning 15% or more of the Company’s voting stock.
      The rights will expire on March 12, 2012. Each right, once exercisable, will
      entitle the holder (other than rights owned by an acquiring person or group)
      to
      buy one one-thousandth of a share of a series of the Company’s Series D Junior
      Participating Preferred Stock at a price of $30 per one-thousandth of a share,
      subject to adjustments. In addition, upon the occurrence of certain events,
      holders of the rights (other than rights owned by an acquiring person or group)
      would be entitled to purchase either the Company’s preferred stock or shares in
      an “acquiring entity” at approximately half of market value. Further, at any
      time after a person or group acquires 15% or more (but less than 50%) of the
      Company’s outstanding voting stock, subject to certain exceptions, the Board of
      Directors may, at its option, exchange part or all of the rights (other than
      rights held by an acquiring person or group) for shares of the Company's Common
      Stock having a fair market value on the date of such acquisition equal to the
      excess of (i) the fair market value of preferred stock issuable upon exercise
      of
      the rights over (ii) the exercise price of the rights. The Company generally
      will be entitled to redeem the rights at $0.01 per right at any time prior
      to
      the close of business on the tenth day after there has been a public
      announcement of the beneficial ownership by any person or group of 15% or more
      of the Company’s voting stock, subject to certain exceptions.





On
      March
      12, 2001, the Company granted to James Apostolakis, a director and former
      executive officer of the Company, warrants to purchase up to an aggregate of
      100,000 shares of Common Stock at an exercise price of $5.85 per share. On
      March
      12, 2001, the Company granted to Fred Wilkinson, pursuant to an employment
      agreement, warrants to purchase up to an aggregate of 350,000 shares of Common
      Stock at an exercise price of $8.35 per share.





**Dividend
      Policy**





The
      Company has never paid a cash dividend on its Common Stock and does not
      anticipate the payment of cash dividends in the foreseeable future. The Company
      intends to retain any earnings for use in the development and expansion of
      its
      business. The Company is required to pay a 5% dividend on its Series C Preferred
      Stock on the last day of each quarter.





Applicable
      provisions of the Delaware General Corporation Law may affect the ability of
      the
      Company to declare and pay dividends on its Common Stock as well as on its
      Series C Preferred Stock. In particular, pursuant to the Delaware General
      Corporation Law, a company may pay dividends out of its surplus, as defined,
      or
      out of its net profits, for the fiscal year in which the dividend is declared
      and/or the preceding year. Surplus is defined in the Delaware General
      Corporation Law to be the excess of net assets of the company over capital.
      Capital is defined to be the aggregate par value of shares issued unless
      otherwise established by the Board of Directors.





32


**Item
      6. Selected Financial Data**





The
      following selected financial data (not covered by the auditor’s report) are
      derived from the Company’s audited financial statements and are qualified in
      their entirety by reference to, and should be read in conjunction with, such
      consolidated financial statements and Item 7, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” of this Annual
      Report. The historical results are not necessarily indicative of the results
      we
      expect for future periods.





**Financial
      Highlights**




2006
              
              2005
              
              2004
              
              2003
              
              2002**Statement
                  of Operations Data:**
                (000's
                  except per share data)Revenues
              
              $
              17,393
              
              $
              22,041
              
              $
              17,860
              
              $
              22,415
              
              $
              9,419Gross
                  Profit
              
              
              9,573
              
              
              13,929
              
              
              10,072
              
              
              12,632
              
              
              4,190Operating
                  Expenses
              
              
              20,733
              
              
              21,160
              
              
              32,044
              
              
              32,214
              
              
              20,050Interest
                  Expense
              
              
              2,516
              
              
              2,694
              
              
              2,991
              
              
              1,846
              
              
              853Net
                  Loss
              
              
              (12,612
              )
              
              (9,307
              )
              
              (25,130
              )
              
              (21,151
              )
              
              (16,850
              )Loss
                  per common share
              
              
              (0.27
              )
              
              (0.23
              )
              
              (0.62
              )
              
              (0.57
              )
              
              (0.50
              )Weighted
                  average number
                of
                  common shares outstanding-diluted
              
              
              48,089
              
              
              41,752
              
              
              40,984
              
              
              37,440
              
              
              34,392




**Balance
                Sheet Data at December 31 (000's)**Working
                capital (deficiency)
            
            $
            23,410
            
            $
            (3,471
            )
            $
            9,303
            
            $
            33,690
            
            $
            4,717Total
                Assets
            
            
            65,839
            
            
            14,732
            
            
            29,268
            
            
            42,755
            
            
            12,902Note
                payable
            
            
            25,299
            
            
            -
            
            
            -
            
            
            10,000
            
            
            10,000Long-term
                portion of financing agreements
            
            
            11,230
            
            
            8,748
            
            
            18,923
            
            
            15,747
            
            
            1,350Stockholders'
                equity (deficiency)
            
            
            17,863
            
            
            (15,150
            )
            
            (12,531
            )
            
            6,087
            
            
            (8,395
            )





**Item
      7. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





**Overview**





The
      following Management’s Discussion and Analysis of Financial Condition and
      Results of Operations (“MD&A”) is intended to help the reader understand the
      Company’s financial condition and results of operations. The MD&A is
      provided as a supplement to, and should be read in conjunction with, our
      financial statements and the accompanying notes (“Notes”).





We
      are in
      the business of developing, manufacturing and selling pharmaceuticals that
      utilize our proprietary bioadhesive drug delivery technologies. We
      are predominantly
      focused on the women’s
      healthcare market. Our
      bioadhesive vaginal gel products provide patient-friendly solutions for
      infertility, pregnancy support, amenorrhea, and other obstetric, gynecologic
      and
      medical conditions.





Our
      U.S.
      sales organization currently promotes
      three natural progesterone gel products, CRINONE ® 8%,
      PROCHIEVE ® 8% and
      PROCHIEVE 4%. We acquired the U.S. marketing rights to CRINONE in December
      2006,
      and can now address the full range of reproductive endocrinologists,
      obstetricians and gynecologists who treat infertility in 2007. We also promote
      STRIANT ® testosterone buccal tablet for the treatment of hypogonadism in men, however, our
      focus
      in fiscal 2007 is to increase prescriptions
      of our infertility products.




33




We
      derive
      additional revenues from our established marketing partnerships, through which
      our products are commercialized in global territories outside the U.S. and
      U.S.
      markets on which we are not currently focused.





We
      also
      seek opportunities to develop new products using our drug delivery technology,
      both proprietary projects and for strategic partners; to expand our product
      base
      and thereby leverage our sales force; and, to partner or divest products that
      fall outside our core women’s healthcare focus.







Our
      net
      loss for 2006 was $ 12.6 million, or $0.27 per basic and diluted common share.
      We expect to continue to incur operating losses in the near future because
      of
      the significant non-cash items related to the CRINONE ® acquisition that our future financial statements will reflect. We expect to
      have
      positive cash flow from operations in 2008. Our sales and distribution expenses
      will be higher in 2007 to fund market research and medical education programs
      critical to our growth strategy. In 2007, we expect that our research and
      development expenses will be lower than those in 2006 as we focus on the
      streamlined clinical development of vaginally-administered lidocaine for
      dysmenorrhea and look to potentially advance another drug candidate into the
      clinic.




34




**Results
      of Operations**





**Summary**




**(In
                  thousands, except percentages)**
              **2006**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2005**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior year**
              
              **2004**Revenues
              **$17,393**
              
              (21.1)%
              
              $22,041
              
              23.4%
              
              $17,860




Revenues
      decreased 21% in 2006 to 17.4 million as compared to $22.0 million in 2005
      and
      $17.9 million in 2004. We receive revenues both from selling our products to
      licensees, which we refer to as our “Partnered Products”, and selling our
      products that we promote through our own sales force to wholesalers and other
      distributors, which we refer to as our “Promoted Products.”





The
      table
      below illustrates the components of these two categories before and after
      December 2006.





**Fiscal
                2006 and prior**
            **Fiscal
                2007 and forward****Partnered
                Products**
            CRINONE®sold to Merck Serono (worldwide)1
            CRINONE
                sold to Merck Serono (ex-U.S.)2STRIANT®sold to Ardana (14 European countries)
            STRIANTsold
                to Ardana (14 European countries)STRIANT
                sold to Mipharm (Italy)Replens®Vaginal Moisturizer sold to Lil’ Drug Store (ex-U.S.)
            Replens
                Vaginal Moisturizer sold to Lil’ Drug Store (ex-U.S.)RepHresh®Vaginal Gel sold to Lil’ Drug Store (worldwide)
            RepHresh
                Vaginal Gel sold to Lil’ Drug Store (worldwide)Advantage-S®Bioadhesive Contraceptive Gel sold to Lil’ Drug Store
                (worldwide)3
            ---Royalty
                and licensing revenues
            Royalty
                and licensing revenues**Promoted
                Products**
            PROCHIEVE®8%
                (U.S.)
            PROCHIEVE
                8% (U.S.)PROCHIEVE4%
                (U.S.)
            PROCHIEVE4%
                (U.S.)40%
                royalty on CRINONE prescriptions in the U.S. from our OB/GYN audience,
                paid by Serono
            CRINONE(U.S.)STRIANT(U.S.)
            STRIANT(U.S.)Professional
                promotion fees for presenting Replens Vaginal Moisturizer, RepHresh
                Vaginal Gel, and Advantage-S Bioadhesive Contraceptive Gel to OB/GYNs,
                paid by Lil’ Drug Store4
            ---





1 Prior
      to
      the acquisition of U.S. marketing rights to CRINONE on December 22,
      2006.


2 Subsequent to the acquisition of U.S. marketing rights to CRINONE on December
      22, 2006.


3 The
      production and sale of Advantage-S â was
      discontinued during the second half of 2006.


4 The
      professional promotion agreement expired on December 31, 2006 pursuant to its
      terms.




Revenues
      from sales of CRINONE to Merck Serono were $6.7 million in 2006, compared to
      $8.1 million in 2005 and $7.2 million in 2004. Revenues from the PROCHIEVE ® line of
      products were $3.0 million in 2006, compared to $3.2 million in 2005 and $1.7
      million in 2004. 2004 revenues reflect a provision for product returns of $3.0
      million. In the 2004 fourth quarter, primarily two customers returned $1.4
      million of PROCHIEVE that was
      to expire in 2005. The Company re-evaluated its estimate for product returns,
      taking into consideration such factors as
      historical trends, distributor inventory levels and product prescription data and
      booked additional provisions of $1.0 million in 2004 and $0.5 million in 2005.




35




Revenues
      from STRIANT ® were
      $0.8 million in 2006, compared to $1.5 million in 2005 and $3.3 million in
      2004.
      In 2006, the Company reduced inventory in the trade by approximately $0.8
      million which impacted sales. 2005 results reflect a
      provision for product returns of $1.8 million of which $1.3 million occurred
      when we re-evaluated our estimate for product returns to take into consideration
      additional factors related to inventory and return practices of our primary
      trade customers. 2005
      and
      2004 results include the sale of approximately $0.2 million of STRIANT to
      Ardana our licensee in 18 countries in Europe.





Revenues
      from the sales of RepHresh ® were
      $0.7 million in 2006, compared to $2.8 million in 2005 and $0.6 million in
      2004.
      In 2004, we sold the worldwide marketing rights to Lil’ Drug Store, who placed
      orders in 2005 with us for their launch of the product in the United
      States.




Revenues
      from sales of Replens ® were
      $2.7 million in 2006, compared to approximately $2.5 million in 2005 and $2.7
      million in 2004. After
      the
      first quarter of 2004, Lil’ Drug Store no longer purchased batches of Replens
      for sale in the U.S. under our 2000 agreement selling U.S. rights to the
      product. That resulted in decreased revenues in 2005 and 2004 .
      In June
      2004, we sold the
      foreign marketing rights for Replens to Lil’ Drug Store.




Gross
      profit as a percentage of sales was 55% in 2006 compared to 63% in 2005 and
      56%
      in 2004. The decrease in the 2006 gross profit percentage was caused by  reduced
      sales of CRINONE ® in the
      U.S. due to the Company’s acquisition of U.S. marketing rights to this product
      in December 2006, which caused a shift in the mix of product sales between
      lower
      margin OTC products versus higher margin prescription products, and the purchase
      of CRINONE inventory from Merck Serono. The increase in the 2005 gross profit
      percentage was caused by an overall reduction in the provision in product
      returns and a reduction in the royalty paid to Merck Serono caused by product
      returned in 2005. Cost of goods sold for PROCHIEVE ® through
      December 22, 2006 includes a 30% royalty on net sales paid to Merck
      Serono.





The
      net
      loss for 2006 was $12.6 million, or $0.27 per share, as compared to a net loss
      of $9.3 million, or $0.23 per share, in 2005 and a net loss of $25.1 million,
      or
      $0.62 per share, in 2004 as a result of the following components:




36


**Selling
      and Distribution**




**(In
                  thousands, except percentages)**
              **2006**
              **Percentage**
                **inc./
                  (dec.) from prior year**
              
              **2005**
              **Percentage**
                **inc./
                  (dec.) from prior year**
              
              **2004**Selling
                  and distribution
              **$6,600**
              **(23.1)%**
              
              $8,578
              (54.9)%
              
              $19,007As
                  a percentage of revenue
              **37.9%**
              **(1.0)pp**
              
              38.9%
              (67.5)
                  pp
              
              106.4%


*Note:
      PP - percentage points*




Selling
      and distribution expenses include payroll, employee benefits, equity
      compensation and other personnel-related costs associated with sales and
      marketing personnel, and advertising, promotions, tradeshows, seminars, and
      other marketing-related programs.  Selling
      and distribution expenses were approximately $6.6 million, $8.6 million and
      $19.0 million in 2006, 2005 and 2004, respectively. Selling and distribution
      expenses decreased by approximately 23% in 2006 compared to 2005 and by
      approximately 55% in 2005 compared to 2004. The decrease in 2006 from 2005
      reflects the full year effect of the restructured sales force as well as reduced
      overall expenses. The decrease in 2005 from 2004 reflects the restructuring
      of
      the sales force in February 2005, as previously discussed.





Included
      in the 2006 expenses were sales force costs of approximately $2.6 million,
      product marketing expenses of approximately $1.3 million and salary and travel
      costs of approximately $1.2 million. Expenses in 2005 included approximately
      $4.8 million in sales force costs, approximately $1.5 million in product
      marketing expenses and approximately $1.3 million in salary costs. Expenses
      in
      2004 included approximately $10.9 million in sales force costs, approximately
      $4.8 million in product marketing expenses and approximately $1.2 million in
      salary costs.





**General
      and Administrative**


**(In
                  thousands, except percentages)**
              **2006**
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior year**
              
              **2005**
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior year**
              
              **2004**General
                  and administrative
              **$7,402**
              8.5%
              
              $6,825
              (10.1)%
              
              $7,588As
                  a percentage of revenue
              **42.6%**
              11.6
                  pp
              
              31.0%
              (11.5)
                  pp
              
              42.5%




General
      and administrative costs include payroll, employee benefits, equity
      compensation, and other personnel -related
      costs associated with finance, legal, regulatory affairs, information
      technology, facilities and certain human resources, and other administrative personnel ,
      as well
      as legal costs and other administrative fees. General and Administrative
      expenses increased by approximately $0.6 million, or 8.5%, to approximately
      $7.4
      million in 2006 from approximately $6.8 million in 2005. The increase resulted
      primarily from the impact of 123R stock compensation recognition of $0.7 million
      and severance expenses. General and administrative expenses decreased by
      approximately $0.8 million, or 10%, to approximately $6.8 million in 2005 from
      approximately $7.6 million in 2004. The decrease resulted primarily from lower
      insurance costs ($0.7 million).




37




**Research
      and Development**




**(In
                  thousands, except percentages)**
              **2006**
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior year**
              
              **2005**
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior year**
              
              **2004**Research
                  and development
              **$6,596**
              14.6%
              
              $5,757
              5.7%
              
              $5,449As
                  a percentage of revenue
              **37.9%**
              11.8
                  pp
              
              26.1%
              (4.4)
                  pp
              
              30.5%





Research
      and development expenses include payroll, employee benefits, equity compensation
      and other personnel -related
      costs associated with product development, as well as the cost of conducting
      and
      administering clinical studies and the cost of regulatory filings for our
      products.  Research
      and development expenses increased to approximately $6.6 million in 2006 from
      approximately $5.8 million in 2005 and approximately $5.4 million in 2004.
      These
      increases primarily reflect costs associated with
      the
      Company’s Phase III clinical trial of PROCHIEVE ® 8% in
      preventing preterm birth. Study-related costs increased by approximately $1.2
      million in 2006 and approximately $1.8 million in 2005 over prior year levels.
      2006 costs also included development costs related to the Company’s
      vaginally-administered lidocaine drug candidate. The 2005 increase was partially
      offset by the reduction in payments
      related to the Mutual Recognition Process (“MRP”) for obtaining regulatory
      approval of STRIANT ® in
      European countries, a one-time event which culminated in October 2004 with
      the
      approval of STRIANT in 14 European countries ($0.4
      million) and a reduction of costs associated with the continuation studies
      associated with STRIANT ($0.4
      million).





**Other
      Income (Expense)**





Interest
      expense was $2.5 million, $2.7 million and $3.0 million in 2006, 2005 and 2004,
      respectively. On April 14, 2006, the Company paid a scheduled true-up payment
      to
      PharmaBio of $11.6 million early and saved approximately $0.4 million in
      interest expense. For accounting purposes, the payment resulted in a non-cash
      charge of approximately $0.3 million as an early extinguishment of debt penalty
      for a net savings of $0.1 million. This saving was mostly offset as the Company
      took a charge $0.1 million of interest expense related to the $40 million
      convertible subordinated notes issued in December.





2006,
      2005 and 2004 interest expense included approximately $2.4 million, $2.5 million
      and $2.2 million, respectively, as the result of amortizing, as interest expense
      over the term of the agreements, the difference between the minimum amounts
      to
      be paid to PharmaBio and the amounts received. Additionally, interest expense
      related to a $10 million convertible subordinated note totaled $0.2 million
      in
      2005 and $0.7 million in 2004. This note was paid in full on March 15, 2005.





Other
      income in 2006 reflects interest income of $0.9 million, and the receipt of
      approximately $0.5 million from the sale of New Jersey state net operating
      losses. In 2004, the Company recorded a loss of $0.6 million on sale of
      intangible assets associated with sale of the over-the-counter products to
      Lil’
Drug Store. See “Business - Licensing
      and Development Agreements”.





**Contractual
      Obligations**





As
      previously disclosed, in July 2002 and March 2003, the Company entered into
      agreements with PharmaBio, under which we received upfront money in exchange
      for
      royalty payments on our women’s healthcare products and STRIANT, respectively.
      We owe royalty payments to PharmaBio for a fixed period of time. These royalty
      payments are subject to minimum and maximum amounts. In addition, the Company
      enters into operating leases for many of our facility and equipment needs.
      These
      leases allow us to conserve cash by paying a monthly lease rental fee for the
      use of, rather than purchasing, facilities and equipment. At the end of the
      lease, we have no further obligation to the lessor.




38




On
      December 22, 2006, the Company issued (i) subordinated convertible notes in
      aggregate principal amount of $40 million (the “Notes”) and
      (ii) warrants to purchase 2,285,714 shares of Common Stock (the “Warrants”)
      with an exercise price of $5.50 per share. A portion of the proceeds were used
      to acquire the U.S. marketing rights to CRINONE ® and the
      balance was used to pay related expenses and for working capital. The Notes
      bear
      interest at the rate of 8% per annum, payable quarterly in arrears commencing
      April 1, 2007. The Notes are convertible into shares of Common Stock at a
      conversion price of $5.25 per share. The conversion price is subject to
      adjustment if the Company subdivides or combines the outstanding Common Stock
      and under certain other circumstances. The maturity date of the Notes is
      December 31, 2011. The holders will have the right to require the Company
      to redeem all or any portion of their Notes for cash upon a Change of Control
      (as defined in the Notes), and, under certain circumstances, the right to a
      Make-Whole Premium (as defined in the Notes). The Notes contain customary events
      of default. The Notes are subordinated to the Company’s obligations to
      PharmaBio. The Warrants are exercisable beginning on June 20, 2007, and ending
      on December 22, 2011, at an exercise price of $5.50 per share, subject to
      adjustment in certain circumstances. The Company will be required to make
      certain cash payments to the holders of the Notes and Warrants if it does not
      meet its registration obligations under the agreement relating to the
      transaction.





Our
      future contractual obligations include the following:




For
                  the Fiscal Years Ended December 31,Total
              
              2007
              
              2008
              
              2009
              
              2010
              
              Beyond(in
                  thousands)$40
                  Million Convertible Notes
              
              $
              40,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              40,000PharmaBio
                  women's healthcarefinance
                  agreement
              
              
              4,367
              
              
              394
              
              
              3,973
              
              
              -
              
              
              
              
              
              -PharmaBio
                  Striant®finance
                  agreement
              
              
              17,000
              
              
              160
              
              
              166
              
              
              166
              
              
              16,508
              
              
              -Operating
                  lease obligations
              
              
              179
              
              
              142
              
              
              13
              
              
              13
              
              
              10
              
              
              1Total
              
              $
              61,546
              
              $
              696
              
              $
              4,152
              
              $
              179
              
              $
              16,518
              
              $
              40,001





**Recent
      Accounting Pronouncements**





In
      July
2006,
      the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No.
      48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
      Statement No. 109 (“FIN 48”), which provides criteria for the recognition,
      measurement, presentation and disclosure of uncertain tax positions. A tax
      benefit from an uncertain position may be recognized only if it is “more likely
      than not” that the position is sustainable based on its technical merits. The
      provisions of FIN 48 are effective for fiscal years beginning after December
      15,
      2006. We do not expect FIN 48 will have a material effect on our consolidated
      financial condition or results of operations.





In
      September 2006, the Securities and Exchange Commission (‘SEC”) issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 requires registrants to use both a balance
      sheet approach and an income statement approach when evaluating and quantifying
      the materiality of a misstatement. SAB 108 provides guidance on correcting
      errors under the dual approach as well as providing transition guidance for
      correcting errors. The Company adopted the provisions of SAB 108 as of December
      31, 2006. The adoption of SAB 108 will have an effect on our results of
      financial operations or financial position - see Note 5 to the Consolidated
      financial statements regarding the effect of the adoption of the SAB on our
      financial position.




39




In
      December 2006, FASB issued a FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting *for
      Registration Payment Arrangements”* (“FSP
      00-19-2”). This FSP addresses an issuer’s accounting for registration payment
      arrangements. This FSP specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5 “ *Accounting
      for Contingencies.”* The
      guidance in this FSP amends FASB Statements No. 133, “ *Accounting
      for Derivative Instruments and Hedging Activities,”* and No.
      150, “Accounting *for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity,”* as well
      as FASB Interpretation No. 45, “Guarantor’s *Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others”* to
      include scope exceptions for registration payment arrangements. This FSP is
      effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to the date of issuance of this FSP. For registration payment
      arrangements and financial instruments subject to those arrangements that were
      entered into prior to the issuance of this FSP, this is effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. We are currently evaluating the
      impact that the implementation of FSP EITF 00-19-2 may have in our consolidated
      results of operations and financial position.





The
      Company does not believe that any other recently issued, but not yet effective,
      accounting standards would have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.




40


**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements that have, or are reasonably likely
      to
      have, a current or future material effect on our financial condition, changes
      in
      financial condition, revenue or expenses, results of operations, liquidity,
      capital expenditures or capital resources.





**Impact
      of Inflation**





Sales
      revenues, manufacturing costs, selling and distribution expenses, general and
      administrative expenses, and research and development costs tend to reflect
      the
      general inflationary trends.





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents were $25 million, $7 million, and $20 million, at December
      31,
      2006, December 31, 2005, and December 31, 2004, respectively.




Cash
      provided by (used in) operating, investing, and financing activities is
      summarized as follows:


2006
              
              2005
              
              2004Cash
                  flows:Operating
                  activities
              
              $
              (6,025,376
              )
              $
              (6,615,042
              )
              $
              (19,864,759
              )Investing
                  activities
              
              
              (33,015,757
              )
              
              (83,367
              )
              
              (282,367
              )Financing
                  activities
              
              
              57,152,754
              
              
              (5,881,730
              )
              
              8,912,774




Operating
      Activities:




The
      Net
      loss in 2006 of $12.6 million is reduced by non cash items totaling $6.9 million
      leaving cash operating losses of $5.7 million. Working capital decreased by
      $1.0
      million less the increase in other assets of $1.4 million for deferred financing
      charges plus deferred revenues of $0.1 million leaving cash flow from operating
      activities as a use of funds at $6.0 million. Working capital changes reflect
      a
      reduction in the sales return levels from 2005 levels by both a reduction in
      receivables $1.5 million and heavy sales returns in the fourth quarters.
      Inventories increased $0.9 million. Other assets, ($1.4 million) represent
      the
      capitalization of the $40 million subordinated debt issue expenses. Similarly,
      the increase in account payable of $1.7 million represents the sum of the issue
      expenses ($1.3 million) and clinical trial expenses ($0.3 million). Accrued
      expenses grew by $1.0 million half of which is due to the increase in sales
      returns by $0.5 million and professional fees for $0.3 million.




The
      Net
      loss in 2005 was $9.3 million which included $6.5 million in non cash charges
      leaving cash operating losses of $2.8 million. Working capital grew by $3.6
      million, a decrease in accrued expenses of approximately $3.2 million
      (principally related to customer usage of sales return credits), and a decrease
      in accounts payable $0.9 million during the year amounting to most of the
      increase in working capital. These were partially offset by a reduction in
      prepaid expenses and other current assets of approximately $0.5 million, as
      a
      result of paying insurance payments in installments instead of in one up-front
      payment.




The
      Net
      loss in 2004 of $25.1 million included $7.6 million of non cash charges leaving
      net cash operating losses of $17.5 million. Working capital decreased by $3.7
      million. Accrued expenses decreased by approximately $3.2 million (principally
      related to customer usage of approximately $1.5 million in sales return credits,
      and approximately $1.4 million decrease in the accrual for costs associated
      with
      the sales and marketing of STRIANT ® ).
      Inventory increased approximately $1.3 million (primarily related to STRIANT).
      These were partially offset by a decrease in prepaid expenses and other current
      assets of approximately $1.1 (primarily as a result of a significant reduction
      in insurance premiums), a decrease in the 2004 year-end balance in accounts
      receivable of approximately $0.7 million caused by a difference in the timing
      of
      sales within the fourth quarters of 2004 and 2003, and the receipt of $0.8
      million in milestone fees from one of the Company’s licensees in
      2004.




41


Investing
      Activities:




In
      December of 2006, the Company purchased the US licensing rights to
      CRINONE ® for the
      US market at a cost of $33 million.




Net
      cash
      used in investing activities in 2005 was primarily attributable to the purchase
      of office equipment.




Net
      cash
      used in investing activities in 2004 was primarily attributable to the purchase
      of manufacturing equipment associated with STRIANT ® and to
      the purchase of office equipment. Additionally, in 2004, the Company received
      $0.3 million from the sale of intangible assets associated with the sale of
      our
      over-the-counter products to Lil’ Drug Store Products, Inc





Financing
      Activities :





Financing
      activities in 2006 produced net funds to the Company of $57.2 million. The
      Company had two major fund raises, one in March and the other in December.
      The
      March capital raise of $28.8 million was through the sale of 7,428,220 shares
      of
      common stock and the issue of 1,857,041 warrants. In December, the Company
      raised $40 million through the sale of subordinated convertible notes discussed
      below. Stock option exercises generated $1.0 million of proceeds. Offsetting
      these receipts were the payment of $12.4 million to PharmaBio and $0.2 million
      dividends to the holders of the Preferred C shareholders.




On
      December 22, 2006, the Company raised approximately $40 million in gross
      proceeds to the Company from the sale of convertible subordinated notes to
      a
      group of existing institutional investors. The
      notes
      bear interest at a rate of 8% per annum and mature on December 31, 2011. They
      are convertible into shares of Common Stock at a conversion price of $5.25.
      Investors also received warrants to purchase 2,285,714 shares of Common Stock
      at
      an exercise price of $5.50 per share. The warrants become exercisable on June
      20, 2007, and expire on December 22, 2011, unless earlier exercised or
      terminated.  The
      Company used the proceeds of this offering to acquire from Merck Serono S.A.
      the
      U.S. marketing rights to CRINONE  ($33
      million), purchase Serono’s current inventory of that product, and pay other
      costs related to the transaction. The balance of the proceeds will be used
      for
      general corporate purposes.





We
      recorded original issue discounts of $6.3 million to the notes based upon the
      fair value of warrants granted. In addition, a beneficial conversion features
      totaling $8.5 million have been recorded as a discount to the notes. These
      discounts are being amortized over the five year term of the related notes.
      For
      the year ended December 31, 2006, $53,793 of amortization related to these
      discounts is classified as interest expense in our consolidated statements
      of
      operations. Unamortized discounts of $14.7 million have been reflected as a
      reduction to the face value of convertible notes
      in
      our consolidated balance sheet as of December 31, 2006.





Net
      cash
      used in 2005 was attributable to the payoff of a $10 million subordinated
      convertible note on March 15, 2005, $2,627,483 paid to PharmaBio Development
      under the Company’s two product financing agreements (including a $1,891,944
      true-up payment under the women’s healthcare products financing agreement), and
      $162,500 in dividends paid to the owners of the Company’s Series C Convertible
      Preferred Stock. Offsetting these payments was the receipt of $6,900,000 by
      the
      Company from the issuance of Series E Convertible Preferred Stock and $8,253
      received from the exercise of options and warrants.




Net
      cash
      provided by financing activities in 2004 resulted from the receipt of $6,380,000
      from the issuance of Common Stock, $3,000,000 pursuant to the Striant financing
      agreement, and $229,686 from the exercise of options and warrants. Offsetting
      these receipts were $534,412 paid to PharmaBio Development under the Company’s
      two product financing agreements, and $162,500 in dividends paid to the owners
      of the Company’s Series C Convertible Preferred Stock.





As
      previously discussed, on July 31, 2002, we entered into an investment and
      royalty agreement with PharmaBio under which we received $4.5 million in return
      for a 5% royalty to PharmaBio on net sales of the Company’s women’s healthcare
      products in the United States for five years, beginning in the first quarter
      of
      2003. The royalty payments are subject to aggregate minimum ($8 million) and
      maximum ($12 million) amounts, including a true-up payment due February 28,
      2005
      for the difference between royalties paid to that date and $2.75 million. We
      made the required true-up payment of approximately $1.9 million on February
      28,
      2005, and have paid $3.63 million to date.




42




Also,
      as
      previously discussed, on March 5, 2003, we
      entered into a second investment
      and royalty agreement with
      PharmaBio under which we received $15 million in return for a 9% royalty to
      PharmaBio on net sales of STRIANT ® in the
      United States up to agreed annual sales revenues, and a 4.5% royalty of net
      sales above those levels. The royalty term is seven years. Royalty payments
      commenced in the 2003 third quarter and are subject to aggregate minimum ($30
      million) and maximum ($55 million) amounts, including a true-up payment due on November 14, 2006 for the difference between
      royalties paid to that period and $13 million . On
      April
      14, 2006, the Company made an advance payment of $11.6 million on a
      contractually required true-up payment to PharmaBio Development.  This
      amount represented the present value of a $12 million true-up payment due
      November 14, 2006, calculated using a six percent annual discount factor.
      Additionally, the Company made a follow-up $.2 Million true-up payment at the
      end of the year. The Company has paid $13.0 million to date.





T he
      Company has an effective registration statement that we filed with the
      Securities and Exchange Commission (the “SEC”) using a shelf registration
      process. Under the shelf registration process, we may offer from time to time
      shares of our Common Stock up to an aggregate amount of $75 million. To date
      the
      Company has sold approximately $56.4 million in Common Stock under the
      registration statement. We cannot be certain that additional funding will be
      available on acceptable terms, or at all. To the extent that we raise additional
      funds by issuing equity securities, our stockholders may experience significant
      dilution. Any debt financing, if available, may involve restrictive covenants
      that impact our ability to conduct our business. If we are unable to raise
      additional capital when required or on acceptable terms, we may have to
      significantly delay, scale back or discontinue the marketing of one or more
      of
      our products and the development and/or commercialization
      of one or more of our product candidates.





In
      connection with the 1989 purchase of the assets of Bio-Mimetics, which assets
      consisted of the patents underlying the Company's BDS, other patent applications
      and related technology, the Company pays Bio-Mimetics a royalty equal to two
      percent of the net sales of products based on the BDS up to an aggregate of
      $7.5
      million or until the last of the relevant patents expires. The Company is
      required to prepay 25% of the remaining royalty obligation, in cash or stock
      at
      the option of the Company, if the closing price of the Company’s Common Stock is
      $20 or more on March 2, or within 30 days after that date, of any year. To
      date,
      the Company has paid approximately $3.3 million in royalty payments. Royalty
      payments on STRIANT,
      PROCHIEVE ® ,
      and
      CRINONE ® expired
      in September of 2006, but continue on Replens ® and
      RepHresh ® .





The
      Company anticipates it will spend approximately $ 150,000
      o n
      equipment in 2007.





As
      of
      December 31, 2006, the Company had available net operating loss carryforwards
      of
      approximately $131 million to offset its potential future U.S. taxable income.
      There can be no assurance that the Company will have sufficient income to
      utilize the net operating loss carryforwards or that the net operating loss
      carryforwards will be available at that time.





In
      accordance with Statement of Financial Accounting Standards No. 109, as of
      December 31, 2006 and 2005, other assets in the accompanying consolidated
      balance sheet include deferred tax assets of approximately $48 million and
      $45
      million respectively, (comprised primarily of a net operating loss carryforward)
      for which a valuation allowance has been recorded since the probability of
      realizing the deferred tax assets are not determinable.





**Critical
      Accounting Policies and Estimates**





Our
      financial statements and accompanying notes are prepared in accordance with
      U.S.
      Generally Accepted Accounting Principles (“GAAP”). The preparation of financial
      statements requires management to make estimates and assumptions that affect
      the
      reported amount of assets and liabilities, disclosure of contingent assets
      and
      liabilities at the date of the financial statements, and the reported amounts
      of
      revenues and expenses during the reporting period. There can be no assurance
      that actual results will not differ from those estimates. These estimates and
      assumptions are affected by management’s application of accounting policies.
      Critical accounting policies for us include revenue recognition, impairment
      of
      intangible assets, and accounting for the agreements with PharmaBio. For a
      detailed discussion on the application of these and other accounting policies,
      see Note 1 of the consolidated financial statements included in Item 15 of
      this
      Annual Report on Form 10-K.




43


*Revenue
      recognition.* The
      Company’s revenue recognition is significant because revenue is a key component
      of our results of operations. In addition, revenue recognition determines the
      timing of certain expenses, such as commissions and royalties. Revenue results
      are difficult to predict, and any shortfall in revenue or delay in recognizing
      revenue could cause operating results to vary significantly from quarter to
      quarter. Revenues on sales of products by Columbia are discussed in detail
      below. Royalties and additional monies owed to the Company based on sales by
      our
      licensees are recorded as revenue as those sales are made by the licensees.
      License fees not based on sales are recognized as revenues over the term of
      the
      license.





*Sales
      returns.* Revenues from the sale of products are recorded at the time goods
      are shipped to customers. The Company believes that it has not made any
      shipments in excess of its customers' ordinary course of business inventory
      levels. Our return policy allows product to be returned for a period beginning
      three months prior to the product expiration date and ending twelve months
      after
      the product expiration date. Provisions for returns on sales to wholesalers,
      distributors and retail chain stores are estimated based on a percentage of
      sales, using such factors as historical sales information, distributor inventory
      levels and product prescription data, and are recorded as a reduction to sales
      in the same period as the related sales are recognized. We also continually
      analyze the reserve for future sales returns and increase such reserve if deemed
      appropriate. The greatest potential for uncertainty in estimating returns is
      the
      estimation of future prescriptions. Prescriptions are wholly dependent on the
      Company’s ability to sell and market the products. If prescriptions are lower in
      future periods then the current reserve will be inadequate. The Company
      purchases prescription data on all its products from IMS Health, a leading
      provider of market intelligence to the pharmaceutical and healthcare industries.
      The Company also purchases certain information regarding inventory levels from
      its largest wholesale customer. This information includes for each of the
      Company’ products, the quantity on hand, the number of days of inventory on
      hand, and a 28 day forecast of sales by units. Using this information and
      historical information, the Company estimates potential returns by taking the
      number of product units sold by the Company by expiration date and then
      subtracting actual units and potential units that may be sold to end users
      (consumers) based on prescription data up to five months prior to the product’s
      expiration date. The Company assumes that our customers are using the first-in,
      first-out method in filling orders so that the oldest salable product is used
      first. The Company also assumes that our customers will not ship product that
      has an expiration date less than six months to a retail pharmacy, but that
      retail pharmacies will continue to dispense product they have on hand until
      two
      months prior to the product’s expiration date. The Company’s products are used
      by the consumer immediately so no shelf life is needed. Retail pharmacies tend
      not to maintain a large supply of our products in their inventory, so they
      order
      on an ‘as needed’ basis. The Company also subtracts units that have already been
      returned or, based on notifications received from customers, will be returned.
      The Company then records a provision for returns on a quarterly basis using
      an
      estimated rate and adjusts the provision if the above analysis indicates that
      the potential for product non-salability exists.





*Accounting
      For PharmaBio Agreements.* In
      July
      2002 and March 2003, the Company entered into agreements with PharmaBio under
      which the Company received upfront money paid in quarterly installments in
      exchange for royalty payments on certain of the Company’s products to be paid to
      PharmaBio for a fixed period of time. The
      royalty payments are subject to minimum and maximum amounts. Because the minimum
      amounts exceed the amount received by the Company, the Company has recorded
      the
      monies received as liabilities. We are recording the excess of the minimum
      to be
      paid by the Company over the amount received by the Company as interest expense
      over the terms of the agreements.




44





*Adjustments
      for Stock-Based Compensation on Prior Year Financial Statements* .
      As of
      January 1, 2006, the Company adopted FAS 123R, using the modified prospective
      transition method. FAS 123R requires the measurement and recognition of
      compensation expense for all stock-based awards made to the Company’s employees
      and directors including stock options and other stock-based awards based on
      estimated fair values. Prior to January 1, 2006, the Company accounted for
      share-based compensation granted under its stock option plans using the
      recognition and measurement provisions of APB 25. Under APB 25, a company was
      not required to recognize compensation expense for stock options issued to
      employees if the exercise price of the stock options was at least equal to
      the
      quoted market price of the Company’s common stock on the “measurement date.” APB
      25 defined the measurement date as the first date on which both the number
      of
      shares that an individual employee was entitled to receive and the option price,
      if any, were known.





As
      disclosed in the Company’s September 30, 2006 10-Q filing, the Company’s Audit
      Committee initiated a review in the second half of 2006 of the Company’s stock
      option granting practices from October 1996 to the present. The review was
      initiated independently by the Committee in light of the recent heightened
      scrutiny regarding this topic. The review did not reveal any pattern or practice
      of inappropriately identifying grant dates with hindsight in order to provide
      “discounted” or “in-the-money” options. However, with respect to fiscal years
      1996-2001, the review identified certain instances where the granting of options
      was not consistent with the Company’s practice of establishing the exercise
      price at the closing price on the day before the date of grant. Instead, in
      some
      cases the exercise price was established as the closing price on the date of
      grant. The review also identified that, during this period, certain grants
      of
      stock options were approved by the Compensation Committee by means of unanimous
      written consents in lieu of a meeting, in which the date the unanimous written
      consent was finalized (which becomes the measurement date for accounting
      purposes) is subject to uncertainties. In such cases, the Company has
      determined, where possible, the measurement date for the unanimous consent
      options as the date on which the Company’s records best indicate the unanimous
      consent to be executed. If such date cannot be determined, then the Company
      used
      the date of mailing of an executed option contract, if the option contract
      was
      dated “as of” the option grant date, or the date upon which the option contract
      was actually executed.




In
      January 2002 the Company changed its practice for determining the exercise
      price
      of options to the average of the high and low reported sales prices of the
      Company’s common stock on the date of grant and consistently applied that
      practice from that time to the present.  We
      have
      concluded that, since January 2002, all option grants have been in accordance with
      the
      terms of the Company’s 1996 Long-term Performance Plan and
      have
      been appropriately accounted for in the Company’s financial statements.





Upon
      completion of its review, the Company concluded that an additional stock-based
      compensation in the aggregate of $998,000 should be recorded to reflect
      additional stock-based compensation expense under APB 25, the accounting method
      in effect at the time, relating to the company’s historical stock option
      practices. The majority of such amount is attributable to options granted in
      1997, with related compensation expense allocable to the years ended December
      31, 1997 and 1998.




In
      determining the appropriate method to account for the understatement of
      compensation expense, the Company had considered SEC Staff Accounting Bulletin
      (SAB) No. 99, *Materiality* and does
      not believe the understatement of compensation expense meets the quantitative
      or
      qualitative considerations of materiality under SAB No. 99 for the following
      reasons:


(1)
            The
                compensation expense principally affected the financial statements
                for the
                years 1997 through 2001, which are not presented. Because the Company
                had
                significant cumulative operating losses during that period, the
                understatement of compensation expense did not mask a change in earnings
                or other trends. (2)
            The
                understatement of compensation expense during the period did not
                have a
                material effect on earnings per share, affecting solely 1997, by
                $0.02,
                and 1998, by $0.01. (3)
            The
                understatement of compensation expense did not affect whether the
                Company
                would have reported income or loss during any
                period.




45






(4)
            The
                understatement of compensation expense did not affect a segment or
                other
                portion of the Company’s business that has been identified as playing a
                significant role in the Company’s
                operations.


(5)
            The
                understatement of compensation expense did not affect compliance
                with loan
                covenants or other contractual requirements during the
                period.


(6)
            The
                understatement of compensation expense had the affect of increasing
                management’s compensation under the Company’s Incentive Compensation Plan
                by an estimate of $19,000 in 1997, which the Company considers
                insignificant.


(7)
            The
                understatement of compensation expense was inadvertent and did not
                involve
                a concealment of an unlawful
                transaction.





The
      Company has, in accordance with the transition provisions of Staff Accounting
      Bulletin (SAB) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ,
      recorded a reclassification within the equity section of the consolidated
      balance sheet as an increase in additional paid-in capital and an increase
      in
      accumulated deficit for the year ended December 31, 2006, of $998,000, excluding
      any related tax effect.  Since the Company substantially reported losses
      during this period, the impact to income taxes was not considered material.
      This
      reclassification represents the effect of the adjustment resulting from the
      non-cash charges discussed above, all of which relate to prior fiscal
      years .





**Forward-Looking
      Statements**





This
      Annual Report on Form 10-K contains statements that are forward-looking. These
      statements are made pursuant to the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995. Such statements include, without
      limitation, the Company’s expectations regarding sales, earnings or other future
      financial performance and liquidity, completion of clinical studies, product
      introductions, entry into new geographic regions, and general optimism about
      future operations or operating results. Some of these statements can be
      identified by the use of forward-looking terminology such as "prospects,"
      "outlook," "believes," "estimates," "intends," "may," "will," "should,"
      "anticipates," "expects, or "plans," or the negative or other variation of
      these
      or similar words, or by discussion of trends and conditions, strategy or risks
      and uncertainties.





These
      forward looking expectations are based on current assumptions within the bounds
      of management’s knowledge of our business and operations and which management
      believes are reasonable. These assumptions are subject to risks and
      uncertainties, and actual results could differ materially from expectations
      because of issues and uncertainties such as those listed in “Risk Factors” and
      elsewhere in this Annual Report, which, among others, should be considered
      in
      evaluating our future financial performance.  All
      subsequent written and oral forward-looking statements attributable to the
      Company or persons acting on behalf of the Company are expressly qualified
      in
      their entirety by the cautionary statements in this Annual Report. Readers
      are
      advised to consult any furthe r disclosures
      the Company may make on related subjects in subsequent reports filed with the
      SEC.





**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risks**





The
      Company does not believe that it has material exposure to market rate risk.
      The
      Company may, however, require additional financing to fund future obligations
      and no assurance can be given that the terms of future sources of financing
      will
      not expose the Company to material market risk.





**Item
      8. Financial Statements and Supplementary Data**





The
      financial statements and supplementary data required by this item are set forth
      at the pages indicated in Item 15, set forth in this annual report.





**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None




46




**Item
      9 A. Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**





The Company
      maintains disclosure controls and procedures designed to ensure that the
      information the Company must disclose in its filings with the SEC is recorded,
      processed, summarized and reported on a timely basis. The Company ’s
      management, under the supervision and with the participation of the Chief
      Executive Officer and the Chief Financial Officer, evaluated the effectiveness
      of the Company’s disclosure controls and procedures (as defined in Rules
      13a-15(e) and
      15d-15(e) under
      the
      Securities Exchange Act of 1934, as amended) as of December 31, 2006. Based on
      this evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded that, as of December 31, 2006, the Company’s disclosure controls and
      procedures were effective.




47




**Management’s
      Annual Report on** **Internal Control** **over** **Financial Reporting**




The
      Company’s management is responsible for establishing and maintaining an adequate
      system of internal control over financial reporting. Internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles. A company’s internal control over financial reporting
      includes those policies and procedures that (i) pertain to the maintenance
      of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of the assets of the company; (ii) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (iii) provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of the
      company’s assets that could have a material effect on the financial statements.




Because
      of its inherent limitations, a system of internal control over financial
      reporting can provide only reasonable assurance and may not prevent or detect
      misstatements. Therefore, even those systems determined to be effective can
      provide only reasonable assurance with respect to financial statement
      preparation and presentation. Further, because of changes in conditions,
      effectiveness of internal control over financial reporting may vary over time.





Management
      of the
      Company conducted an evaluation of the effectiveness,
      as of December
      31, 2006, of
      the
      Company’s internal control over financial reporting based on the Internal
      Control-Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (the “COSO Framework”). Based on its evaluation under
      the COSO Framework, management has concluded that the
      Company’s internal control over financial reporting  was
      effective as of December 31, 2006.





Goldstein
      Golub Kessler LLP, an independent registered public accounting firm, has issued
      an attestation report on management’s assessment of the effectiveness of the
      Company’s internal control over financial reporting (see Report of Independent
      Registered Public Accounting Firm).




48




**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


Columbia
      Laboratories, Inc.:





We
      have
      audited management's assessment, included in the accompanying Management's
      Report on Internal Control over Financial Reporting, that Columbia Laboratories,
      Inc. maintained effective internal control over financial reporting as of
      December 31, 2006, based on criteria established in Internal Control—Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO). Columbia Laboratories, Inc.'s management is responsible
      for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting.
      Our responsibility is to express an opinion on management's assessment and
      an
      opinion on the effectiveness of the company's internal control over financial
      reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company's internal control
      over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company's assets that could have a material effect on the
      financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management's assessment that Columbia Laboratories, Inc. maintained
      effective internal control over financial reporting as of December 31, 2006,
      is
      fairly stated, in all material respects, based on criteria established in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Also, in our opinion, Columbia
      Laboratories, Inc. maintained, in all material respects, effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO).





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the December 31, 2006 consolidated financial
      statements of Columbia Laboratories, Inc. and our report dated March 15, 2007,
      expressed an unqualified opinion on those financial statements.





**GOLDSTEIN
      GOLUB KESSLER LLP**


New
      York,
      New York


March
      15,
      2007




49


**Item
      9 B. Other Information**





In
      the
      fourth quarter of 2006 the Company reported all required disclosures on Form
      8-K.





OnFebruary
      5, 2007, the Company reported that its Phase III clinical trial of
      PROCHIEVE®8% for
      the prevention of preterm birth did not achieve a statistically significant
      reduction in the incidence of preterm birth at week 32, the primary endpoint,
      or
      at weeks 28, 35 and 37, secondary endpoints of the study.




Of
      the
      611 evaluable patients, 302 received placebo and 309 received PROCHIEVE
      8%.  The mean gestational age at delivery was approximately 37 weeks in
      both the active and placebo groups following treatment, an improvement from
      a
      mean of 30 weeks in the previous preterm birth for both groups.  Over 60%
      of evaluable patients had a previous preterm birth at or below 32 weeks
      gestation; prior studies of progestins to prevent preterm birth were comprised
      mainly of patients with prior preterm births at 34 weeks or
      greater.




The
      incidence and profile of adverse events in patients receiving PROCHIEVE 8%
      was
      similar to placebo, which was as expected given the product’s documented safety
      history.




The
      Company is conducting detailed analyses of the study data, and intends to report
      the results of this trial in more detail at appropriate scientific venues.
      Based
      on the study results, the Company has discontinued the development of PROCHIEVE
      8% for the prevention of preterm birth in pregnant women with a previous preterm
      birth before 35 weeks gestation. Prochieve 8% remains, however, a key product
      in
      the Company’s core infertility business and for pregnancy support in the first
      trimester.





50


**PART
      III**





**Item
      10. Directors and Executive Officers of the Company**





The
      information concerning directors and all audit committee financial experts
      required by Item 10 is incorporated herein by reference to Columbia’s Proxy
      Statement for its 2007 Annual Meeting of Shareholders. The information
      concerning compliance with Section 16(a) of the Exchange Act is incorporated
      herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of
      Shareholders. The information concerning executive officers required by Item
      10
      is contained in the discussion entitled Executive Officers of the Registrant
      in
      Part I hereof.





**Item
      11. Executive Compensation**





The
      information required by Item 11 is incorporated herein by reference to
      Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the
      heading “ Executive
      Compensation ”.





**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      information required by Item 12 is incorporated herein by reference to
      Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the
      heading “ Ownership
      of the Company ”.





**Item
      13. Certain Relationships and Related Transactions**





The
      information required by Item 13 is incorporated herein by reference to
      Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the
      heading “Certain Relationships and Related Transactions”.





**Item
      14. Principal Accountant Fees and Services**





The
      information required by Item 14 is incorporated herein by reference to
      Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the
      heading “Relationship with Independent Auditors”.





51


**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules**





**(a)(1)(2)
      Financial Statements and Financial Statement Schedules**





Indexes
      to financial statements and financial statement schedules appear on F-1 and
      F-26, respectively.





**(b)
      Exhibits**




3.1
            --
            Restated
                Certificate of Incorporation of the Company, as amended33/3.2
            --
            Amended
                and Restated By-laws of Company10/4.1
            --
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock of the Company, dated as of January 7, 199910/4.2
            --
            Securities
                Purchase Agreement, dated as of January 7, 1999, between the Company
                and
                each of the purchasers named on the signature pages thereto10/4.3
            --
            Securities
                Purchase Agreement, dated as of January 19, 1999, among the Company,
                David
                M. Knott and Knott Partners, L.P.10/4.4
            --
            Securities
                Purchase Agreement, dated as of February 1, 1999, between the Company
                and
                Windsor Partners, L.P.10/4.5
            --
            Registration
                Rights Agreement, dated as of January 7, 1999, between the Company
                and
                each of the purchasers named on the signature pages thereto10/4.6
            --
            Form
                of Warrant to Purchase Common Stock10/4.7
            --
            Warrant
                to Purchase Common Stock granted to James J. Apostolakis on September
                23,
                19994.8
            --
            Certificate
                of Designations of Series E Convertible Preferred Stock, filed May
                10,
                2005 with the Delaware Secretary of State30/10.1
            --
            Employment
                Agreement dated as of January 1, 1996, between the Company and Norman
                M.
                Meier6/*10.2
            --
            Employment
                Agreement dated as of January 1, 1996, between the Company and William
                J.
                Bologna6/*10.3
            --
            1988
                Stock Option Plan, as amended, of the Company4/10.4
            --
            1996
                Long-term Performance Plan, as amended, of the Company7/10.5
            --
            License
                and Supply Agreement between Warner-Lambert Company and the Company
                dated
                December 5, 19913/10.6
            --
            Asset
                Purchase, License and Option Agreement, dated November 22,
                19891/10.7
            --
            Employment
                Agreement dated as of April 15, 1997, between the Company and Nicholas
                A.
                Buoniconti8/*10.8
            --
            License
                and Supply Agreement for CRINONE®between Columbia Laboratories, Inc. (Bermuda) Ltd. and American Home
                Products dated as of May 21, 19955/10.9
            --
            Addendum
                to Employment Agreement dated as of September 1, 1997, between the
                Company
                and Norman M. Meier8/*10.10
            --
            Addendum
                to Employment Agreement dated as of September 1, 1997, between the
                Company
                and William J. Bologna8/*10.11
            --
            Addendum
                to Employment Agreement dated as of September 1, 1997, between the
                Company
                and Nicholas A. Buoniconti8/*10.12
            --
            Convertible
                Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due
                March
                15, 2005 and Registration Rights Agreement all dated as of March
                16, 1998
                between the Company and SBC Warburg Dillon Read Inc.9/10.13
            --
            Termination
                Agreement dated as of April 1, 1998 between the Company and the
                Warner-Lambert Company9/10.14
            --
            Addendum
                to Employment Agreement dated as of October 8, 1998, between the
                Company
                and Nicholas A. Buoniconti.10/*




52


10.15
                  --
                  Agreement
                      dated as of December 14, 1998, by and among Columbia Laboratories,
                      Inc.,
                      William J. Bologna, Norman M. Meier, James J. Apostolakis,
                      David Ray,
                      Bernard Marden, Anthony R. Campbell, David M. Knott and Knott
                      Partners,
                      L.P.10/
 10.16A
                  --
                  License
                      and Supply Agreement by an between the Company and Mipharm
                      S.p.A. dated
                      March 5, 199911/
 10.16B
                  --
                  License
                      and Supply Agreement forCRINONE®between Columbia Laboratories (Bermuda) Limited and Ares Trading
                      S.A.
                      dated as of May 20, 199912/
 10.17
                  --
                  Addendum
                      to Employment Agreement dated as of January 1, 2000 between
                      the Company
                      and Norman M. Meier12/*
 10.18
                  --
                  Addendum
                      to Employment Agreement dated as of January 1, 2000 between
                      the Company
                      and William J. Bologna12/*
 10.19
                  --
                  Employment
                      Agreement dated as of January 1, 2000 between the Company and
                      James J.
                      Apostolakis12/*
 10.20
                  --
                  Employment
                      Agreement dated December 30, 1999 between the Company and Dominique
                      de
                      Ziegler12/*
 10.21
                  --
                  Settlement
                      Agreement and Release dated as of March 16, 2000 between Columbia
                      Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.12/
 10.22
                  --
                  Replens®Purchase and License Agreement dated April 18, 2000, between
                      the Company
                      and Lil’ Drug Store Products, Inc.13/
 10.23
                  --
                  License
                      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                      Products, Inc.13/
 10.24
                  --
                  Distribution
                      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                      Products, Inc.13/
 10.25
                  --
                  Stock
                      Purchase Agreement, dated January 31, 2001, between the Company
                      and
                      Ridgeway Investment Limited14/
 10.26
                  --
                  Amended
                      and Restated Common Stock Purchase Agreement by and between
                      the Company
                      and Acqua Wellington North American Equities Fund, Ltd., effective
                      as of
                      February 6, 2001.15/
 10.27
                  --
                  Employment
                      Agreement dated March 16, 2001 between the Company and G. Frederick
                      Wilkinson16/*
 10.28
                  --
                  Stock
                      Purchase Agreement, dated May 10, 2001, between the Company
                      and Ridgeway
                      Investment Limited17/
 10.29
                  --
                  Stock
                      Purchase Agreement, dated July 23, 2001, between the Company
                      and Ridgeway
                      Investment Limited18/
 10.30
                  --
                  Rights
                      Agreement dated as of March 13, 2002, by and between Columbia
                      Laboratories, Inc. and First Union National Bank, as Rights
                      Agent19/ 10.31†
                  --
                  Semi-Exclusive Supply Agreement dated May
                    7, 2002
                    between the Company and Mipharm S.p.A.20/ 10.32†
                  --
                  Amended and Restated License and Supply Agreement
                    dated June 4, 2002 between the Company and Ares Trading S.A.20/ 10.33†
                  --
                  Marketing License Agreement dated June 4,
                    2002 between
                    the Company and Ares Trading S.A. and Serono, Inc.20/ 10.34†
                  --
                  Master
                      Services Agreement dated July 31, 2002 between the
                      Company and Innovex LP20/ 10.35†
                  --
                  Stock Purchase Agreement dated July 31, 2002
                    By and
                    Between Columbia Laboratories, Inc. and PharmaBio Development
                    Inc.20/ 10.36†
                  --
                  Investment and Royalty Agreement dated July
                    31, 2002
                    between the Company and PharmaBio Development Inc.20/ 10.37†
                  --
                  License and Supply Agreement dated October
                    16, 2002
                    between the Company and Ardana Bioscience Limited21/ 10.38†
                  --
                  Development and License Agreement dated December
                    26, 2002
                    between the Company and Ardana Bioscience Limited21/ 10.39
                  --
                  Amendment No. 1 to the Amended and Restated
                    Common Stock
                    Purchase Agreement by and between the Company and Acqua Wellington
                    North
                    American Equities Fund, Ltd., effective as of January 31, 200321/
 
 53
  10.40†
                    --
                    Investment
                        and Royalty Agreement dated March 5, 2003 between the Company
                        and
                        PharmaBio Development Inc.21/10.41†
                    --
                    Sales
                        Force Work Order #8872 pursuant to the Master Services Agreement
                        having an
                        Effective Date of July 31, 2002, between the Company and
                        Innovex
                        LP21/10.42
                    --
                    Separation
                        and Consulting Agreement dated April 15, 2003 between the
                        Company and
                        William J. Bologna22/10.43†
                    --
                    License
                        and Supply Agreement Dated May 27, 2003 between the Company
                        and Mipharm
                        S.p.A.23/10.44
                    --
                    Standstill
                        Agreement dated December 1, 2003 between the Company and
                        Perry
                        Corp.24/10.45†
                    --
                    Amended
                        and Restated Sales Force Work Order #8795 And Termination
                        of Work Order
                        #8872 pursuant to the Master Services Agreement having an
                        effective date
                        of January 26, 2004 between the Company and Innovex25/10.46
                    --
                    Form
                        of Indemnification Agreement for Officers and Directors25/10.47
                    --
                    Form
                        of Executive Change of Control Severance Agreement25/10.48
                    --
                    Employment
                        Agreement dated as of March 16, 2004 between the Company
                        and G. Frederick
                        Wilkinson26/*10.49†
                    --
                    Asset
                        Purchase Agreement Dated June 29, 2004, between the Company
                        and Lil’ Drug
                        Store Products, Inc.27/10.50†
                    --
                    Supply
                        Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
                        Products, Inc.27/10.51†
                    --
                    Professional
                        Promotion Agreement dated June 29, 2004, between the Company
                        and Lil’ Drug
                        Store Products, Inc.27/10.52
                    --
                    Letter
                        Agreement and General Release of Claims, effective as of
                        December 31,
                        2004, between Columbia Laboratories, Inc. and James J.
                        Apostolakis28/10.53
                    --
                    Employment
                        Agreement dated as of February 25, 2005 between the Company
                        and Robert S.
                        Mills29/*10.54
                    --
                    Columbia
                        Laboratories Inc. Incentive Plan, 200429/*10.55
                    --
                    Description
                        of the Registrant’s compensation and reimbursement practices for
                        non-employee directors31/10.56
                    --
                    Preferred
                        Stock Purchase Agreement, dated as of May 10, 2005, among
                        Columbia
                        Laboratories, Inc., Perry Partners L.P. and Perry Partners
                        International,
                        Inc.30/10.57
                    --
                    Columbia
                        Laboratories Inc. Incentive Plan32/*10.58
                    --
                    2005
                        base salaries and incentive bonus targets for the Registrant’s executive
                        officers32/*10.59
                    --
                    Securities
                        Purchase Agreement,****dated
                        March 10, 2006, by and between Columbia Laboratories, Inc.
                        and
                        the****Purchasers
                        listed on Exhibit A thereto34/10.60
                    --
                    Employment
                        Agreement by and between Columbia Laboratories, Inc. and
                        Robert S. Mills
                        dated March 30, 200635/*10.61
                    --
                    Employment
                        Agreement by and between Columbia Laboratories, Inc. and
                        Michael McGrane
                        dated March 30, 200635/*10.62A
                    --
                    Letter
                        Agreement Supplement to STRIANT®Investment and Royalty Agreement dated April 14, 200636/10.62B
                    --
                    Form
                        of Restricted Stock Agreement37/10.63
                    --
                    Form
                        of Option Agreement37/10.64
                    --
                    Description
                        of the registrant’s compensation and reimbursement practices for
                        non-employee directors37/10.65
                    --
                    None10.66
                    --
                    Employment
                        Agreement by and between Columbia Laboratories, Inc. and
                        James Meer dated
                        December 6, 200638/*10.67
                    --
                    Separation
                        Agreement by and between Columbia Laboratories, Inc. and
                        David L. Weinberg
                        effective as of December 12, 200639/10.68†
                    --
                    Agreement,
                        dated December 21, 2006, by and among Ares Trading S.A., Serono,
                        Inc., the Company and its wholly-owned subsidiary, Columbia
                        Laboratories
                        (Bermuda), Ltd40/
  54




10.69
            --
            Amendment
                No. 1 to the Amended and Restated License and Supply Agreement,
                entered into December 21, 2006, by and between Ares Trading S.A and
                Columbia Laboratories (Bermuda), Ltd.40/


10.70
            --
            Securities
                Purchase Agreement, dated December 21, 2006, by and between Columbia
                Laboratories, Inc. and the Purchasers listed on Exhibit A
                thereto40/


14
            --
            Code
                of Ethics of the Company25/


21
            --
            Subsidiaries
                of the Company41/


23
            --
            Consent
                of Goldstein Golub Kessler LLP41/ 31(i).1
            --
            Certification of Chief Executive Officer of the
              Company41/ 31(i).2
            --
            Certification of Chief Financial Officer of the
              Company41/ 32.1
            --
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.41/ 32.2
            --
            Certification of Chief Financial Officer pursuant
              to 18
              U.S.C. Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.41/




*
            
            Management
                contract or compensatory plan or arrangement required to be filed
                as an
                exhibit to this form pursuant to item 601 of Regulation
                S-K.





†  Confidential
      treatment has been requested with respect to certain portions of this exhibit.
      Omitted portions have been filed separately with the SEC.





1/
            
            Incorporated
                by reference to the Registrant's Registration Statement on Form S-1
                (File
                No. 33-31962) declared effective on May 14,
                1990.





2/
            
            Incorporated
                by reference to the Registrant's Annual Report on Form 10-K for the
                year
                ended December 31, 1990.





3/
            
            Incorporated
                by reference to the Registrant's Current Report on Form 8-K, filed
                on
                January 2, 1992.





4/
            
            Incorporated
                by reference to the Registrant's Annual Report on Form 10-K for the
                year
                ended December 31, 1993.  5/
            
            Incorporated by reference to the Registrant's
              Registration Statement on Form S-1 (File No. 33-60123) declared effective
              August 28, 1995.




6/
            
            Incorporated
                by reference to the Registrant's Annual Report on Form 10-K for the
                year
                ended December 31, 1995.





7/
            
            Incorporated
                by reference to the Registrant's Proxy Statement dated May 10,
                2000.





8/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 1997.





9/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1998.





10/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 1998.





11/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1999.




55




12/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 1999





13/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended June 30, 2000.





14/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated January
                31, 2001.  15/
            
            Incorporated by reference to the Registrant’s
              Registration Statement on Form S-3 (File No. 333-38230) declared effective
              May 7, 2001.  16/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated March
                16, 2001.  17/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated May 10, 2001.  18/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated July 23, 2001.  19/
            
            Incorporated
              by reference to the Registrant’s Current Report on Form 8-K, dated March
              12, 2002.  20/
            
            Incorporated by reference to the registrant’s Quarterly
              Report on Form 10-Q dated August 14,
              2002.





21/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 2002





22/
            
            Incorporated
                by reference to the registrant’s Quarterly Report on Form 10-Q dated May
                14, 2003.





23/
            
            Incorporated
                by reference to the registrant’s Quarterly Report on Form 10-Q dated
                August 14, 2003.





24/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 1, 2003.





25/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 2003  26/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated May
                10, 2004.  27/
            
            Incorporated by reference to the Registrant’s
              Quarterly Report on Form 10-Q dated August 4,
              2004.  28/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated January 3, 2005.  29/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated March 1, 2005.  30/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated May 12, 2005.  31/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated April 11, 2005.  32/
            
            Incorporated by reference to the Registrant’s Current
              Report on Form 8-K, dated May 20, 2005.  33/
            
            Incorporated by reference to the Registrant’s Annual
              Report on Form 10-K for the year ended December 31, 2005.


56


34/
                
                Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated March
                  16, 2006.  35/
                
                Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated April
                  3, 2006.  36/
                
                Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated April
                  17, 2006.  37/
                
                Incorporated by reference to the Registrant’s Current
                  Report on Form 8-K, dated May 17, 2006.  38/
                
                Incorporated by reference to the Registrant’s Current
                  Report on Form 8-K, dated December 7, 2006.  39/
                
                Incorporated by reference to the Registrant’s Current
                  Report on Form 8-K, dated December 15, 2006.  40/
                
                Incorporated by reference to the Registrant’s Current
                  Report on Form 8-K, dated December 26, 2006.  41/
                
                Filed herewith  57


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





COLUMBIA
              LABORATORIES, INC.Date:
              March 16, 2007
            By:
            /s/ James
              A.
              MeerJames
              A. Meer,
              Senior Vice President


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.




/s/
                  Robert Mills
              President
                  and Chief Executive Officer
              March
                  16, 2007Robert
                  Mills
              (Principal
                  Executive Officer)/s/
                  James A. Meer
              Senior
                  Vice President, Chief
              March
                  16, 2007James
                  A. Meer
              Financial
                  Officer and Treasurer
                  (Principal
                    Financial and Accounting
                    Officer)/s/
                  Valerie Andrews
              Director
              March
                  16, 2007Valerie
                  Andrews/s/
                  Edward A. Blechschmidt
              Vice
                  Chairman of the Board of Directors
              March
                  16, 2007Edward
                  A. Blechschmidt/s/
                  Stephen G. Kasnet
              Chairman
                  of the Board of Directors
              March
                  16, 2007Stephen
                  G. Kasnet/s/
                  Selwyn P. Oskowitz
              Director
              March
                  16, 2007Selwyn
                  P. Oskowitz






58


COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
  INDEX
        TO FINANCIAL STATEMENTS
 
 PageReport
                  of Independent Registered Accounting Firm
              F-2Consolidated
                  Balance Sheets as of December 31, 2006 and 2005
              F-3Consolidated
                  Statements of Operations for the Three Years Ended December 31,
                  2006
              F-5Consolidated
                  Statements of Comprehensive Operations for the Three Years Ended
                  December
                  31, 2006
              F-6Consolidated
                  Statements of Stockholders' Equity (Deficiency) for the Three Years
                  Ended
                  December 31, 2006
              F-7Consolidated
                  Statements of Cash Flows for the Three Years Ended December 31,
                  2006
              F-9Notes
                  to Consolidated Financial Statements
              F-11
 
 F-1
 REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
        the
        Board of Directors and Stockholders
 of
        Columbia Laboratories, Inc.:
  We
        have
        audited the accompanying consolidated balance sheets of Columbia Laboratories,
        Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2006 and
        2005,
        and the related consolidated statements of operations, comprehensive operations,
        stockholders' equity (deficiency) and cash flows for each of the three years
        in
        the period ended December 31, 2006. These financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Columbia Laboratories, Inc.
        and
        Subsidiaries as of December 31, 2006 and 2005, and the results of their
        operations and their cash flows for each of the three years in the period
        ended
        December 31, 2006 in conformity with United States generally accepted accounting
        principles.
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company’s internal
        control over financial reporting as of December 31, 2006, based on the criteria
        established in Internal Control—Integrated Framework issued by the Committee of
        Sponsoring Organizations of the Treadway Commission (COSO), and our report
        dated
March
        15, 2007 expressed an unqualified opinion on management’s assessment of
        the effectiveness of the Company’s internal control over financial reporting and
        an unqualified opinion on the effectiveness of the Company’s internal control
        over financial reporting.
 
 As
        disclosed in Note 5, the Company changed its method of accounting for
        stock-based compensation effective January 1, 2006.
  GOLDSTEIN
        GOLUB KESSLER LLP
 New
        York,
        New York
 March
        15,
        2007
 
 F-2
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 
 AS
        OF
        DECEMBER 31, 2006 AND 2005
 
 ASSETS
 
 2006
              
              2005CURRENT
                  ASSETS:Cash
                  and cash equivalents of which $25,147,244 is
              
              $
              25,270,377
              
              $
              7,136,854interest
                  bearing as of December 31, 2006Accounts
                  receivable, net of allowances for
              
              
              2,445,318
              
              
              4,020,019doubtful
                  accounts of $100,000 and $50,000 in 2006
                  and 2005 respectivelyInventories
              
              
              2,105,038
              
              
              1,821,433Prepaid
                  expenses and other current assets
              
              
              853,504
              
              
              625,908Total
                  current assets
              
              $
              30,674,237
              
              $
              13,604,214PROPERTY
                  AND EQUIPMENTMachinery
                  and equipment
              
              
              2,653,285
              
              
              2,680,099Computer
                  software
              
              
              444,332
              
              
              442,785Office
                  Equipment and furniture and fixtures
              
              
              645,039
              
              
              660,4373,742,656
              
              
              3,783,321Less-accumulated
                  depreciation and amortization
              
              
              (2,978,820
              )
              
              (2,780,741
              )763,836
              
              
              1,002,580INTANGIBLE
                  ASSETS- NET
              
              
              32,865,556
              
              
              -OTHER
                  ASSETS
              
              
              1,535,115
              
              
              124,756TOTAL
                  ASSETS
              
              $
              65,838,744
              
              $
              14,731,550
  (Continued)
  F-3
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
  AS
        OF
        DECEMBER 31, 2006 AND 2005
 
 LIABILITIES
        AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
 
 2006
              
              2005CURRENT
                  LIABILITIES:Current
                  portion of financing agreements
              
              
              553,947
              
              
              12,840,161Accounts
                  payable
              
              
              3,586,770
              
              
              1,905,381Accrued
                  expenses
              
              
              3,123,092
              
              
              2,329,475Total
                  Current Liabilities
              
              
              7,263,809
              
              
              17,075,017NOTES
                  PAYABLE - (Note 3)
              
              
              25,299,135
              
              
              -DEFERRED
                  REVENUE
              
              
              4,182,648
              
              
              4,058,327LONG-TERM
                  PORTION OF FINANCING AGREEMENTS
              
              
              11,229,777
              
              
              8,747,743TOTAL
                  LIABILITIES
              
              
              47,975,369
              
              
              29,881,087COMMITMENTS
                  AND CONTIGENCIES (Note 6)SHAREHOLDERS'
                  EQUITY (DEFICIENCY):Preferred
                  stock, $.01 par value; 1,000,000 shares authorizedSeries
                  B Convertible Preferred Stock, 130 shares issuedand
                  outstanding in 2006 and 2005(liquidation
                  preference of $13,000 at December 31, 2006)
              
              
              1
              
              
              1Series
                  C Convertible Preferred Stock, 3,200 and 3,250 sharesissued
                  and outstanding in 2006 and 2005
                (liquidation
                  preference of $3,200,000 and $3,250,000 in2006
                  and 2005 respectively)
              
              
              32
              
              
              32Series
                  E Convertible Preferred Stock 69,000 sharesissued
                  and outstanding in 2006 and 2005
              
              
              690
              
              
              690(liquidation
                  preference of $6,900,000)Common
                  Stock $.01 par value; 100,000,000 sharesauthorized;
                  49,694,213 and 41,754,784 shares issuedin
                  2006 and 2005 respectively
              
              
              496,942
              
              
              417,548Capital
                  in excess of par value
              
              
              221,887,945
              
              
              175,340,023Less
                  cost of 6,000 treasury shares
              
              
              (26,880
              )
              
              -Accumulated
                  deficit
              
              
              (204,694,399
              )
              
              (191,084,974
              )Accumulated
                  other comprehensive income
              
              
              199,044
              
              
              177,143Stockholders'
                  equity (deficiency)
              
              
              17,863,375
              
              
              (15,149,537
              )TOTAL
                  LIABILITIES AND EQUITY
              
              $
              65,838,744
              
              $
              14,731,550
  The
        accompanying notes to consolidated financial statements
 are
        an
        integral part of these statements
 
 F-4
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 
 FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
 
 2006
              
              2005
              
              2004REVENUES
              
              $
              17,393,081
              
              $
              22,040,842
              
              $
              17,860,404COST
                  OF GOODS SOLD
              
              
              7,819,843
              
              
              8,111,497
              
              
              7,788,601Gross
                  profit
              
              
              9,573,238
              
              
              13,929,345
              
              
              10,071,803OPERATING
                  EXPENSES:Selling
                  and distribution
              
              
              6,600,371
              
              
              8,578,022
              
              
              19,006,585General
                  and administrative
              
              
              7,402,188
              
              
              6,825,148
              
              
              7,588,437Research
                  and development
              
              
              6,596,339
              
              
              5,756,856
              
              
              5,448,685Amortization
                  of licensing right
              
              
              134,444
              
              
              -
              
              
              -Total
                  operating expenses
              
              
              20,733,342
              
              
              21,160,026
              
              
              32,043,707Loss
                  from operations
              
              
              (11,160,104
              )
              
              (7,230,681
              )
              
              (21,971,904
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              862,068
              
              
              165,886
              
              
              241,342Interest
                  expense
              
              
              (2,516,113
              )
              
              (2,694,041
              )
              
              (2,991,136
              )Loss
                  on sale of intangible assets
              
              
              -
              
              
              -
              
              
              (577,917
              )Loss
                  on early debt extinguishment
              
              
              (280,000
              )
              
              -
              
              
              -Other,
                  net
              
              
              482,428
              
              
              451,700
              
              
              169,991(1,451,617
              )
              
              (2,076,455
              )
              
              (3,157,720
              )Net
                  loss
              
              $
              (12,611,721
              )
              $
              (9,307,136
              )
              $
              (25,129,624
              )LOSS
                  PER COMMON SHARE - BASIC AND DILUTED
              
              $
              (0.27
              )
              $
              (0.23
              )
              $
              (0.62
              )WEIGHTED-AVERAGE
                  NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED
              
              
              48,088,516
              
              
              41,752,422
              
              
              40,984,083
  The
        accompanying notes to consolidated financial statements
 are
        an
        integral part of these statements.
 
 F-5
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE OPERATIONS
 
 FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
 
 
 2006
              
              2005
              
              2004NET
                  LOSS
              
              $
              (12,611,721
              )
              $
              (9,307,136
              )
              $
              (25,129,624
              )Other
                  comprehensive income (loss):
                Foreign
                  curency translation, net of tax
              
              
              21,901
              
              
              (64,684
              )
              
              50,458Comprehensive
                  loss
              
              $
              (12,589,820
              )
              $
              (9,371,820
              )
              $
              (25,079,166
              )
  The
        accompanying notes to consolidated financial statements
 are
        an
        integral part of these statements.
 
 F-6
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
  FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
 
 Series
                  B Convertible
              
              Series
                  C Convertible
              
              Series
                  E Convertible
              
              
              
              
              
              
              
              
              
              AccumulatedPreferred
                  Stock
              
              Preferred
                  Stock
              
              Preferred
                  Stock
              
              Common
                  Stock
              
              Capital
                  in
              
              
              
              
              
              OtherNumber
                  of
              
              
              
              Number
                  of
              
              
              
              Number
                  of
              
              
              
              Number
                  of
              
              
              
              Excess
                  of
              
              Treasury
              
              Accumulated
              
              ComprehensiveShares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Par
                  Value
              
              Stock
              
              Deficit
              
              Income
                  (Loss)
              
              TotalBalance,
                  January 1, 2004
              
              
              130
              
              $
              1
              
              
              3,250
              
              $
              32
              
              
              
              
              
              
              
              
              39,679,381
              
              $
              396,794
              
              $
              162,146,561
              
              $
              -
              
              $
              (156,648,214
              )
              $
              191,369
              
              $
              6,086,543Issuance
                  of common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              2,000,000
              
              
              20,000
              
              
              6,360,000
              
              
              
              
              
              -
              
              
              -
              
              
              6,380,000Warrants
                  exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              72,553
              
              
              725
              
              
              228,961
              
              
              
              
              
              
              
              
              
              
              
              229,686Fair
                  market value of optionsgranted
                  to non-employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              14,514
              
              
              
              
              
              -
              
              
              -
              
              
              14,514Dividends
                  on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              (162,500
              )
              
              
              
              
              -
              
              
              -
              
              
              (162,500
              )Translation
                  adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              50,458
              
              
              50,458Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              (25,129,624
              )
              
              -
              
              
              (25,129,624
              )Balance,
                  December 31, 2004
              
              
              130
              
              
              1
              
              
              3,250
              
              
              32
              
              
              
              
              
              
              
              
              41,751,934
              
              
              417,519
              
              
              168,587,536
              
              
              0
              
              
              (181,777,838
              )
              
              241,827
              
              
              (12,530,923
              )Issuance
                  of preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              69,000
              
              $
              690
              
              
              -
              
              
              -
              
              
              6,899,310
              
              
              
              
              
              -
              
              
              -
              
              
              6,900,000Options
                  exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              2,850
              
              
              29
              
              
              8,224
              
              
              
              
              
              -
              
              
              -
              
              
              8,253Fair
                  market value of options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -granted
                  to non-employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              7,453
              
              
              
              
              
              -
              
              
              -
              
              
              7,453Dividends
                  on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              (162,500
              )
              
              
              
              
              -
              
              
              -
              
              
              (162,500
              )Translation
                  adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              (64,684
              )
              
              (64,684
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              (9,307,136
              )
              
              -
              
              
              (9,307,136
              )Balance,
                  December 31, 2005
              
              
              130
              
              $
              1
              
              
              3,250
              
              $
              32
              
              
              69,000
              
              $
              690
              
              
              41,754,784
              
              $
              417,548
              
              $
              175,340,023
              
              $
              -
              
              $
              (191,084,974
              )
              $
              177,143
              
              $
              (15,149,537
              )
 
 (Continued)
 
 F-7
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
  Series
                  B Convertible
              
              Series
                  C Convertible
              
              Series
                  E Convertible
              
              
              
              
              
              
              
              
              
              AccumulatedPreferred
                  Stock
              
              Preferred
                  Stock
              
              Preferred
                  Stock
              
              Common
                  Stock
              
              Capital
                  in
              
              
              
              
              
              OtherNumber
                  of
              
              
              
              Number
                  of
              
              
              
              Number
                  of
              
              
              
              Number
                  of
              
              
              
              Excess
                  of
              
              Treasury
              
              Accumulated
              
              ComprehensiveShares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Par
                  Value
              
              Stock
              
              Deficit
              
              Income
                  (Loss)
              
              TotalBalance,
                  December 31, 2005
              
              
              130
              
              $
              1
              
              
              3,250
              
              $
              32
              
              
              69,000
              
              $
              690
              
              
              41,754,784
              
              $
              417,548
              
              $
              175,340,023
              
              $
              -
              
              $
              (191,084,974
              )
              $
              177,143
              
              $
              (15,149,537
              )Cumulative
                  effect adjustment on stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              997,705
              
              
              
              
              
              (997,705
              )
              
              -
              
              
              -Issuance
                  of common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,428,220
              
              
              74,282
              
              
              28,691,844
              
              
              
              
              
              
              
              
              
              
              
              28,766,126Options
                  exercised
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              335,049
              
              
              3,350
              
              
              1,018,409
              
              
              
              
              
              
              
              
              
              
              
              1,021,759Share
                  based compensation expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              161,875
              
              
              1,619
              
              
              1,246,830
              
              
              
              
              
              
              
              
              
              
              
              1,248,449Beneficial
                  conversion & warrant value forconvertible
                  notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,754,656
              
              
              
              
              
              
              
              
              
              
              
              14,754,656Conversion
                  of Series C Preferred
              
              
              
              
              
              
              
              
              (50
              )
              
              
              
              
              
              
              
              
              
              
              14,285
              
              
              143
              
              
              (143
              )
              
              
              
              
              
              
              
              
              
              
              -Purchase
                  of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (26,880
              )
              
              
              
              
              
              
              
              (26,880
              )Dividends
                  on preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (161,379
              )
              
              
              
              
              
              
              
              
              
              
              (161,379
              )Translation
                  adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,901
              
              
              21,901Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (12,611,720
              )
              
              
              
              
              (12,611,720
              )Balance,
                  December 31, 2006
              
              
              130
              
              $
              1
              
              
              3,200
              
              $
              32
              
              
              69,000
              
              $
              690
              
              
              49,694,213
              
              $
              496,942
              
              $
              221,887,945
              
              $
              (26,880
              )
              $
              (204,694,399
              )
              $
              199,044
              
              $
              17,863,375
  The
        accompanying notes to consolidated financial statements are an integral part
        of
        these statements.
  F-8
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 
 FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
  2006
              
              2005
              
              2004CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (12,611,721
              )
              $
              (9,307,136
              )
              $
              (25,129,624
              )Adjustments
                  to reconcile net loss to netcash
                  used in operating activities -Depreciation
                  and amortization
              
              
              395,003
              
              
              287,741
              
              
              379,855Amortization
                  of beneficial conversion features
              
              
              30,344
              
              
              -
              
              
              -Amortization
                  of warrants
              
              
              23,449
              
              
              -
              
              
              -Provision
                  for doubtful accounts
              
              
              105,855
              
              
              187,962
              
              
              48,917Provision
                  for sales returns
              
              
              1,802,868
              
              
              2,431,823
              
              
              3,336,339Write-down
                  of inventories
              
              
              612,094
              
              
              1,036,136
              
              
              1,018,677Share
                  based compensation
              
              
              1,248,447
              
              
              -
              
              
              -Interest
                  expense on financing agreements
              
              
              2,362,691
              
              
              2,538,461
              
              
              2,235,777Loss
                  on sale of intangible assets
              
              
              -
              
              
              -
              
              
              577,917Loss
                  on early extinguishment of financing agreement
              
              
              280,000
              
              
              -
              
              
              -Issuance
                  of options for services
              
              
              -
              
              
              7,453
              
              
              14,514Changes
                  in assets and liabilities -
                (Increase)
                  decrease in:
                Accounts
                  receivable
              
              
              1,468,846
              
              
              52,398
              
              
              746,625Inventories
              
              
              (895,699
              )
              
              (115,025
              )
              
              (1,291,997
              )Prepaid
                  expenses and other current assets
              
              
              (227,596
              )
              
              529,765
              
              
              1,085,247Other
                  assets
              
              
              (1,416,416
              )
              
              (3,615
              )
              
              19,514Increase
                  (decrease) in:Accounts
                  payable
              
              
              1,681,389
              
              
              (866,726
              )
              
              (34,129
              )Accrued
                  expenses
              
              
              (1,009,251
              )
              
              (3,213,546
              )
              
              (3,231,833
              )Deferred
                  revenue
              
              
              124,321
              
              
              (180,733
              )
              
              359,442Net
                  cash used in operating activities
              
              
              (6,025,376
              )
              
              (6,615,042
              )
              
              (19,864,759
              )
  (Continued)
  F-9
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 
 FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
 
 2006
              
              2005
              
              2004CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of property and equipment
              
              $
              (15,757
              )
              $
              (83,367
              )
              $
              (582,367
              )Acquisition
                  of intangibles
              
              
              (33,000,000
              )
              
              -
              
              
              300,000Net
                  cash used in investing activities
              
              
              (33,015,757
              )
              
              (83,367
              )
              
              (282,367
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Net
                  proceeds from issuance of preferred stock
              
              
              -
              
              
              6,900,000
              
              
              -Net
                  proceeds from issuance of common stock
              
              
              28,766,126
              
              
              -
              
              
              6,380,000Proceeds
                  from issuance of subordinated convertible notes
              
              
              39,999,998
              
              
              -
              
              
              -Payment
                  of note payable
              
              
              -
              
              
              (10,000,000
              )
              
              -Proceeds
                  from exercise of options
              
              
              1,021,759
              
              
              8,253
              
              
              229,686Proceeds
                  from financing agreements
              
              
              -
              
              
              -
              
              
              3,000,000Payment
                  for purchase of treasury stock
              
              
              (26,880
              )
              
              -
              
              
              -Payment
                  pursuant to financing agreements
              
              
              (12,446,870
              )
              
              (2,627,483
              )
              
              (534,412
              )Dividends
                  paid
              
              
              (161,379
              )
              
              (162,500
              )
              
              (162,500
              )Net
                  cash provided by financing activities
              
              
              57,152,754
              
              
              (5,881,730
              )
              
              8,912,774EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              21,901
              
              
              (64,598
              )
              
              50,426NET
                    INCREASE (DECREASE) IN CASH ANDCASH
                    EQUIVALENTS
              
              
              18,133,532
              
              
              (12,644,737
              )
              
              (11,183,926
              )CASH
                    AND CASH EQUIVALENTS,Beginning
                    of year
              
              
              7,136,854
              
              
              19,781,591
              
              
              30,965,517CASH
                    AND CASH EQUIVALENTS,End
                    of year
              
              $
              25,270,377
              
              $
              7,136,854
              
              $
              19,781,591SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATIONInterest
                  paid
              
              $
              -
              
              $
              356,250
              
              $
              712,500Taxes
                  paid
              
              $
              49,492
              
              $
              6,800
              
              $
              110,700Accrual
                  of financing costs
              
              $
              1,275,000
              
              $
              -
              
              $
              -
 
 The
        accompanying notes to consolidated financial statements
 are
        an
        integral part of these statements.
  F-10
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (1)
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES :
 
 Organization -
 
 Columbia
        Laboratories, Inc. (the "Company") was incorporated as a Delaware corporation
        in
        December 1986. The Company is primarily dedicated to research, development,
        and
        commercialization of women’s healthcare and endocrinology products, including
        those that treat and are intended to treat infertility, endometriosis,
        dysmenorrhea and hormonal deficiencies. The Company has also developed a
        buccal
        delivery system for peptides. The Company’s products primarily utilize its
        patented Bioadhesive Delivery System technology.
 
 Principles
        of Consolidation -
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries. All significant intercompany balances and transactions have
        been
        eliminated in consolidation.
 Reclassification
        of Prior year Amounts:
  Prior
        year financial statements have been reclassified to conform to the 2006
        presentation. In 2004, sales credits totaling $1,619,329 are now reflected
        as
        decreases to both accounts receivable and accrued expenses. In particular,
        the
        2004 Statement of Cash Flow reflects the following changes. The previously
        reported increase in accounts receivable of $872,704 has been changed to
        a
        decrease of $746,625 (a net decrease of $1,619,329) and the previously reported
        decrease in accrued expenses of $1,612,504 has been changed to a decrease
        of
        $3,231,833 (also a net decrease of $1,619,329). Net cash used in operating
        activities remains unchanged from the previously reported amount.
  
 Liquidity -
 
 As
        shown
        in the financial statements, the Company has had recurring losses from
        operations. Management believes the approximately $25.3 million of cash on
        hand
        at December 31, 2006 will allow the company to sustain its operations.
  Accounting
        Estimates -
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Significant estimates are used for, but are not limited to sales return
        allowances. Actual results could differ from those estimates in the near
        term.
 
 Foreign
        Currency -
 
 The
        assets and liabilities of the Company's foreign subsidiaries are translated
        into
        U.S. dollars at current exchange rates and revenue and expense items are
        translated at average rates of exchange prevailing during the period. Resulting
        translation adjustments are accumulated as a separate component of stockholders'
        equity. Transaction gains and losses are reflected in the Statements of
        Operations.
 
 Accounts
        Receivable-
 
 Accounts
        receivable are reported at their outstanding unpaid principal balances reduced
        by allowances for doubtful accounts. The Company estimates doubtful accounts
        based on historical bad debts, factors related to specific customers’ ability to
        pay and current economic trends. The Company writes off accounts receivable
        against the allowance when a balance is determined to be uncollectible.
 
 F-11
  Fair
        Value of Financial Instruments-
 
 The
        estimated fair value of the convertible subordinated notes payable, beneficial
        conversion feature, and detachable warrants amounted to approximately
        $54,754,656. This value is the aggregate of the estimated future cash flows
        associated with the settlement of the notes payable, the application of the
        Black Scholes method to the warrants and the intrinsic value of the beneficial
        conversion feature.
 
 Inventories -
 
 Inventories
        are stated at the lower of cost (first-in, first-out) or market. Components
        of
        inventory cost include materials, labor and manufacturing overhead. Inventories
        consist of the following:
 
  December
                  31,2006
              
              2005Finished
                  goods
              
              $
              1,305,872
              
              $
              1,165,413Raw
                  materials
              
              
              799,166
              
              
              656,020$
              2,105,038
              
              $
              1,821,433
 
 Shipping
        costs are included in selling and distribution expenses and amounted to
        approximately $39,000, $39,000 and $67,000 in 2006, 2005, and 2004,
        respectively.
 
 Property
        and Equipment -
 
 Property
        and equipment is stated at cost less accumulated depreciation. Leasehold
        improvements are amortized over the lesser of the useful life or the term
        of the
        respective leases. Depreciation is computed on the straight-line basis over
        the
        estimated useful lives of the respective assets, as follows:
  YearsSoftware
              3Machinery
                  and equipment
              5-10Furniture
                  and fixtures
              5
 
 Costs
        of
        major additions and improvements are capitalized and expenditures for
        maintenance and repairs that do not extend the term of the assets are expensed.
        Upon sale or disposition of property and equipment, the cost and related
        accumulated depreciation are eliminated from the accounts and any resultant
        gain
        or loss is credited or charged to operations.
 
 Depreciation
        expense amounted to approximately $250,000, $288,000 and $337,000 in 2006,
        2005,
        and 2004, respectively.
 
 Concentration
        of Risk-
 
 The
        Company sells its products to customers worldwide. The Company performs ongoing
        credit evaluations of its customers and generally does not require collateral.
        See Note 9 for customer concentrations.
 
 The
        Company depends on one supplier for a key ingredient used in its
        products.
 
 F-12
  Intangible
        Assets-
 
 On
        March
        16, 2000, the Company acquired the U.S. rights for the product
        Advantage-S ® .
        These
        U.S. rights were sold on June 29, 2004 at a loss of $577,917 on the sale.
        On
        December 22, 2006, the Company acquired the US rights of CRINONE ®. The
        cost
        of the acquisition was $33,000,000 in cash and is being amortized over a
        6.75-year period.
 
 Amortization
        expense amounted to $134,444, $0 and $42,500 in 2006, 2005 and 2004,
        respectively.
 
 Long-lived
        Assets -
 
 Following
        the acquisition of any long-lived assets, the Company continually evaluates
        whether later events and circumstances have occurred that indicate the remaining
        estimated useful life of the long-lived asset may warrant revision or that
        the
        remaining balance of the long-lived asset may not be recoverable. When factors
        indicate that a long-lived asset may be impaired, the Company uses an estimate
        of the underlying product's future cash flows, including amounts to be received
        over the remaining life of the long-lived asset from license fees, royalty
        income, and related revenue, in measuring whether the long-lived asset is
        recoverable. Unrecoverable amounts are charged to operations.
 
 Accrued
        Expenses -
 
 Accrued
        expenses consist of the following:
  2006
              
              2005Sales
                  returns
              
              $
              1,240,234
              
              $
              745,882Salaries
              
              
              752,022
              
              
              684,286Royalties
              
              
              216,411
              
              
              369,303Interest
              
              
              88,889
              
              
              -Professional
                  fees
              
              
              594,166
              
              
              284,914Other
              
              
              231,370
              
              
              245,090$
              3,123,092
              
              $
              2,329,475
 
 Income
        Taxes -
 
 The
        reconciliation of the effective income tax rate to the federal statutory
        rate is
        as follows:
 
 
 2006
              
              2005
              
              2004Federal
                  income tax rate
              
              
              (34.0
              )%
              
              (34.0
              )%
              
              (34.0
              )%Increase
                  in valuation allowance
              
              
              34.0
              
              
              34.0
              
              
              34.0Effective
                  income tax rate
              
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %
 
 As
        of
        December 31, 2006, the Company has U.S. tax net operating loss carryforwards
        of
        approximately $131 million which expire through 2025. The Company also has
        unused tax credits of approximately $1.9 million which expire at various
        dates
        through 2025. Utilization of net operating loss carry forward may be limited
        in
        any year due to limitations in the Internal Revenue Code. As of December
        31,
        2006 and 2005, other assets in the accompanying consolidated balance sheets
        include deferred tax assets of approximately $48 million and $45 million,
        respectively (comprised primarily of a net operating loss carryforward),
        for
        which a 100% valuation allowance has been recorded since the realizability
        of
        the deferred tax assets is not determinable.
  F-13
  Revenue
        Recognition -
 
 *Revenue
        recognition.* The
        Company’s revenue recognition is significant because revenue is a key component
        of our results of operations. In addition, revenue recognition determines
        the
        timing of certain expenses, such as commissions and royalties. Revenue results
        are difficult to predict, and any shortfall in revenue or delay in recognizing
        revenue could cause operating results to vary significantly from quarter
        to
        quarter. Revenues on sales of products by Columbia are discussed in detail
        below. Royalties and additional monies owed to the Company based on sales
        by our
        licensees are recorded as revenue as those sales are made by the licensees.
        License fees not based on sales are recognized as revenues over the term
        of the
        license.
 
 Sales
        Return Reserves-
 
 Revenues
        from the sale of products are recorded at the time goods are shipped to
        customers. The Company believes that it has not made any shipments in excess
        of
        its customers' ordinary course of business inventory levels. Our return policy
        allows product to be returned for a period beginning three months prior to
        the
        product expiration date and ending twelve months after the product expiration
        date. Provisions for returns on sales to wholesalers, distributors and retail
        chain stores are estimated based on a percentage of sales, using such factors
        as
        historical sales information, distributor inventory levels and product
        prescription data, and are recorded as a reduction to sales in the same period
        as the related sales are recognized. We also continually analyze the reserve
        for
        future sales returns and increase such reserve if deemed appropriate. The
        greatest potential for uncertainty in estimating returns is the estimation
        of
        future prescriptions. Prescriptions are wholly dependent on the Company’s
        ability to sell and market the products. If prescriptions are lower in future
        periods then the current reserve will be inadequate. The Company purchases
        prescription data on all its products from IMS Health, a leading provider
        of
        market intelligence to the pharmaceutical and healthcare industries. The
        Company
        also purchases certain information regarding inventory levels from its largest
        wholesale customer. This information includes for each of the Company’ products,
        the quantity on hand, the number of days of inventory on hand, and a 28 day
        forecast of sales by units. Using this information and historical information,
        the Company estimates potential returns by taking the number of product units
        sold by the Company by expiration date and then subtracting actual units
        and
        potential units that may be sold to end users (consumers) based on prescription
        data up to five months prior to the product’s expiration date. The Company
        assumes that our customers are using the first-in, first-out method in filling
        orders so that the oldest saleable product is used first. The Company also
        assumes that our customers will not ship product that has an expiration date
        less than six months to a retail pharmacy, but that retail pharmacies will
        continue to dispense product they have on hand until two months prior to
        the
        product’s expiration date. The Company’s products are used by the consumer
        immediately so no shelf life is needed. Retail pharmacies tend not to maintain
        a
        large supply of our products in their inventory, so they order on an ‘as needed’
basis. The Company also subtracts units that have already been returned or,
        based on notifications received from customers, will be returned. The Company
        then records a provision for returns on a quarterly basis using an estimated
        rate and adjusts the provision if the above analysis indicates that the
        potential for product non-saleability exists.
  F-14
  An
        analysis of the reserve for sales returns is as follows:
  2006
              
              2005
              
              2004Balance
                  at beginning of year
              
              $
              745,882
              
              $
              1,992,010
              
              $
              275,000Provision:Related
                  to current year sales
              
              
              210,276
              
              
              272,913
              
              
              216,195Related
                  to prior years’ sales
              
              
              1,592,592
              
              
              2,158,910
              
              
              3,120,1441,802,868
              
              
              2,431,823
              
              
              3,336,339Returns:Related
                  to current year sales
              
              
              (46,825
              )
              
              (67,928
              )
              
              -Related
                  to prior years’ sales
              
              
              (1,261,690
              )
              
              (3,610,023
              )
              
              (1,619,329
              )(1,308,515
              )
              
              (3,677,951
              )
              
              (1,619,329
              )Balance
                  at end of year
              
              $
              1,240,235
              
              $
              745,882
              
              $
              1,992,010
  The
        Company believes that the greatest potential for uncertainty in estimating
        sales
        returns is the estimation of future prescriptions. They are wholly dependent
        on
        the Company’s ability to sell and market the products. If prescriptions are
        lower in future periods, then the current reserve will be
        inadequate.
 
 In
        the
        2006 fourth quarter, Columbia Laboratories purchased the US rights to
        CRINONE ® for $33
        million. As part of the transaction, the Company repurchased inventory and
        reversed sales of $0.6 Million in the fourth quarter.
 
 Sales
        returns provisions for the year 2006 was $1.8 million including $1.1 million
        in
        the fourth quarter. One customer returned approximately $0.5 million of product
        due to short dating. In addition, the Company increased its reserve by $0.4
        million. The $1.8 million charge for 2006 is lower than 2005 and 2004 which
        were
        significantly affected by the launch activities and the uncertainty in
        estimating the returns with a launch. The Company carried out a plan in 2006
        to
        bring inventory levels in distribution channels to demand levels and expects
        overall return experience to drop.
 
 The
        second quarter 2005 change in estimate, amounting to approximately $1.6 million,
        occurred as a result of the adoption by a wholesale customer of a policy
        to stop
        selling our products to retail establishments six months prior to the expiration
        date on the packaging. This policy was adopted notwithstanding the fact that
        retail pharmacies tend not to maintain large supplies of our products in
        their
        inventory, order on an ‘as needed’ basis, and turn their inventory over rapidly.
        Also the Company’s products are normally used up by the patient within a 30-day
        period after a prescription is presented. As discussed above, we have revised
        our estimating procedure to include this shortened period of
        saleability.
  The
        fourth quarter 2004 change in estimate of approximately $3.0 million was
        principally related to the failure of a major customer to sell product on
        a
        first-in, first-out (“FIFO”) basis by lot expiration date. The Company’s
        estimate for its reserve for sales returns always assumed that our customers
        maintained their inventory on a FIFO basis. Based on discussions with this
        customer, we discovered that it had ordered product in 2004 and was selling
        product from these recent purchases rather than product it had purchased
        in
        prior years which was still salable. The older inventory had been taken out
        of
        current inventory and ‘morgued’ to be shipped back at customer expense when the
        product approached expiration. We now have ongoing conversations with this
        customer, as well as other customers, and receive assurances that they fill
        orders on a FIFO basis. The Company now also purchases information about
        inventory levels from this same customer.
  F-15
  License
        Fees -
 
 License
        revenue consists of up-front, milestone and similar payments under license
        agreements and is recognized when earned under the terms of the applicable
        agreements. Milestone payments represent payments for the occurrence of
        contract-specified events and coincide with the achievement of a substantive
        element in a multi-element arrangement (See Note 2). License revenue, including
        milestone payments, is deferred and recognized in revenues over the estimated
        product life cycle or the length of relevant patents, whichever is shorter.
 
 Advertising
        Expense -
 
 All
        costs
        associated with advertising and promoting products are expensed in the year
        incurred. Advertising and promotion expense was approximately $1,313,000
        in
        2006, $1,491,000 in 2005 and $4,576,000 in 2004, and is included in selling
        and
        distribution expense.
 
 Research
        and Development Costs-
 
 Company-sponsored
        research and development costs related to future products are expensed as
        incurred.
 
 Loss
        per Share -
 
 Basic
        loss per share is computed by dividing the net loss plus preferred dividends
        by
        the weighted-average number of shares of Common Stock outstanding during
        the
        period. Diluted earnings per share gives effect to dilutive options, warrants
        and other potential Common Stock outstanding during the year. Shares to be
        issued upon the exercise of the outstanding options and warrants or the
        conversion of the preferred stock are not included in the computation of
        diluted
        loss per share as their effect is anti-dilutive. Outstanding options and
        warrants excluded from the calculation amounted to 9,554,307, 6,678,725 and
        6,204,400 at December 31, 2006, 2005 and 2004, respectively.
 
 Statements
        of Cash Flows -
 
 For
        purposes of the statements of cash flows, the Company considers all investments
        purchased with an original maturity of three months or less to be cash
        equivalents.
 
 Share-based
        Compensation -
  On
        January 1, 2006, the Company adopted Statement of Financial Accounting
        Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”)
        which requires the measurement and recognition of compensation expense for
        all
        stock-based awards made to employees and directors including employee stock
        options based on estimated fair values. SFAS 123(R) supersedes previous
        accounting under Accounting Principles Board Opinion No. 25, “Accounting
        for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal year
        2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB
        107”) providing supplemental implementation guidance for SFAS 123(R). The
        Company has applied the provisions of SAB 107 at the same time it adopted
        SFAS
        123(R).
  SFAS
        123(R) requires companies to estimate the fair value of stock-based awards
        on
        the date of grant using an option pricing model. The value of the portion
        of the
        award that is ultimately expected to vest is recognized as expense over the
        requisite service periods in the Company’s Consolidated Statements of
        Operations. The Company adopted SFAS 123(R) using the modified prospective
        transition method which requires the recognition of expense relative to
        existing, unvested awards from January 1, 2006. The Company’s Consolidated
        Financial Statements, as of and for the year ended December 31, 2006,
        reflect the impact of SFAS 123(R). Employee stock-based compensation expense
        for
        the year ended December 31, 2006, was $1,065,383 which consisted primarily
        of
        stock-based compensation expense related to employee stock options recognized
        under SFAS 123(R).
  F-16
  Prior
        to
        the adoption of SFAS 123(R), the Company accounted for stock-based awards
        to employees and directors using the intrinsic value method in accordance
        with
        APB 25 (except as disclosed in Note 5) as allowed under Statement of
        Financial Accounting Standards No. 123, “Accounting for Stock-Based
        Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based
        compensation expense for employee stock options had been recognized in the
        Company’s Consolidated Statements of Operations, because the exercise price of
        the Company’s stock options granted to employees and directors equaled the fair
        market value of the underlying stock at the date of grant. In accordance
        with
        the modified prospective transition method the Company used in adopting SFAS
        123(R), the Company’s results of operations prior to fiscal year 2006 have not
        been restated to reflect, and do not include, the possible impact of SFAS
        123(R).
  Share-based
        compensation expense recognized during a period is based on the value of
        the
        portion of share-based awards that is ultimately expected to vest. Stock-based
        compensation expense recognized in the year ended December 31, 2006
        included compensation expense for share-based awards granted prior to, but
        not
        yet vested as of December 31, 2005, based on the fair value on the grant
        date estimated in accordance with the pro forma provisions of SFAS 123, and
        compensation expense for the stock-based awards granted or modified subsequent
        to December 31, 2005, based on the fair value on the grant date estimated
        in accordance with the provisions of SFAS 123(R). In conjunction with the
        adoption of SFAS 123(R), the Company is continuing to use the straight line
        single-option method of attributing the value of stock-based compensation
        expense. Compensation expense for all stock-based awards granted prior to
        January 1, 2006 will be recognized using the straight line single-option
        approach, and compensation expense for all stock-based awards granted subsequent
        to December 31, 2005, will also be recognized using the straight line
        single-option method. Because stock-based compensation expense to be recognized
        in the results for periods beginning after December 31, 2005, is based on
        awards
        ultimately expected to vest, the amounts will be reduced for estimated
        forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time
        of
        grant and revised, if necessary, in subsequent periods if actual forfeitures
        differ from those estimates. Prior to 2006, the Company accounted for
        forfeitures as they occurred for the purposes of pro forma information under
        SFAS 123, as disclosed in the Notes to Consolidated Financial Statements
        for the
        related periods.
 
 RECENT
        ACCOUNTING PRONOUNCEMENTS:
 
 In
        July
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
        interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for
        the recognition, measurement, presentation and disclosure of uncertain tax
        positions. A tax benefit from an uncertain position may be recognized only
        if it
        is “more likely than not” that the position is sustainable based on its
        technical merits. The provisions of FIN 48 are effective for fiscal years
        beginning after December 15, 2006. We do not expect FIN 48 will have a material
        effect on our consolidated financial condition or results of
        operations.
 
 In
        September 2006, the Securities and Exchange Commission (‘SEC”) issued Staff
        Accounting Bulletin No. 108, “Considering the Effects of Prior Year
        Misstatements when Quantifying Misstatements in Current Year Financial
        Statements” (“SAB 108”). SAB 108 requires registrants to use both a balance
        sheet approach and an income statement approach when evaluating and quantifying
        the materiality of a misstatement. SAB 108 provides guidance on correcting
        errors under the dual approach as well as providing transition guidance for
        correcting errors. The
        Company adopted the provisions of SAB 108 as of December 31, 2006 (see Note
        5
        for further disclosure).
 In
        December 2006, FASB issued a FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting *for
        Registration Payment Arrangements”* (“FSP
        00-19-2”). This FSP addresses an issuer’s accounting for registration payment
        arrangements. This FSP specifies that the contingent obligation to make future
        payments or otherwise transfer consideration under a registration payment
        arrangement, whether issued as a separate agreement or included as a provision
        of a financial instrument or other agreement, should be separately recognized
        and measured in accordance with FASB Statement No. 5 “ *Accounting
        for Contingencies.”* The
        guidance in this FSP amends FASB Statements No. 133, “ *Accounting
        for Derivative Instruments and Hedging Activities,”* and No.
        150, “Accounting *for
        Certain Financial Instruments with Characteristics of both Liabilities and
        Equity,”* as well
        as FASB Interpretation No. 45, “Guarantor’s *Accounting and Disclosure Requirements for Guarantees, Including Indirect
        Guarantees of Indebtedness of Others”* to
        include scope exceptions for registration payment arrangements. This FSP
        is
        effective immediately for registration payment arrangements and the financial
        instruments subject to those arrangements that are entered into or modified
        subsequent to the date of issuance of this FSP. For registration payment
        arrangements and financial instruments subject to those arrangements that
        were
        entered into prior to the issuance of this FSP, this is effective for financial
        statements issued for fiscal years beginning after December 15, 2006, and
        interim periods within those fiscal years. We are currently evaluating the
        impact that the implementation of FSP EITF 00-19-2 may have in our consolidated
        results of operations and financial position.
 
 F-17
  (2)
        STRATEGIC ALLIANCE AGREEMENTS :
 
 In
        May
        1995, the Company entered into a worldwide license and supply agreement,
        except
        for South Africa, with American Home Products Corporation (“Wyeth”) under which
        its Wyeth-Ayerst Laboratories division marketed CRINONE ® .
        The
        Company supplied CRINONE to Wyeth
        at a price equal to 30% of Wyeth’s net selling price. On July 2, 1999, Wyeth
        assigned the license and supply agreement to Ares-Serono (now “Merck Serono”).
        The Company supplies CRINONE to Merck
        Serono under the same terms as in the agreement with Wyeth. In June 2002
        the
        Company acquired
        the right to market a second brand of its 8% and 4% progesterone gel products
        under the trade name “PROCHIEVE ® ”
to
        obstetricians, gynecologists and all other physicians in the United States
        that
        were not on Merck
        Serono ’s
        target
        list of fertility specialists. Under this agreement the Company paid a 30%
        royalty to Merck Serono based on net sales of the product and an
        additional royalty of 40% of PROCHIEVE ’s
        net
        sales to the infertility specialist market. The
        Company paid approximately $1,365,000, $699,000 and $864,000 to Merck Serono
        in
        accordance with this agreement for the years 2006, 2005 and 2004, respectively.
        In December 2006, the Company acquired the U.S. marketing rights to CRINONE
        from Merck
        Serono . The
        Company continues to supply CRINONE to Merck
        Serono for all ex-U.S. requirements.
 
 In
        March
        1999, the Company entered into a license and supply agreement with Mipharm
        SpA
        under which Mipharm SpA will be the exclusive marketer of the Company’s
        previously unlicensed women’s healthcare products in Italy, Portugal, Greece and
        Ireland with a right of first refusal for Spain. Under the terms of the
        agreement, the Company has received $540,000, net of expenses, and expects
        to
        receive future milestone payments as products are made available by the
        Company.
 
 Effective
        May 5, 2000, the Company sold various tangible and intangible assets related
        to
        the U.S. rights for Replens ® ,
        to Lil’
Drug Store for a total of $4.5 million cash. The purchaser agreed to pay
        future
        royalties of up to $2 million equal to 10% of future U.S. sales of Replens.
        The
        royalties were fully paid in October 2005. Additionally, effective May 5,
        2000,
        the Company licensed its Legatrin ® PM brand
        to the aforementioned purchaser. Under the terms of this agreement, the Company
        receives license fees equal to 20% of the licensee’s net sales of Legatrin PM.
        This agreement had a five-year term with provisions for renewal and contains
        an
        option that allows the licensee to acquire this brand from the Company;
        t he
        license for Advanced
        Formula Legatrin PM renewed automatically to May 2010.
 
 On
        July
        31, 2002, the Company and Quintiles Transnational Corp. (“Quintiles”) entered
        into an agreement to commercialize the Company’s portfolio of women’s healthcare
        products in the United States. Under the terms of this agreement, Quintiles’
commercialization unit, Innovex, provided a dedicated team of 55 sales
        representatives on a three-year, fee-for-service basis, to commercialize
        the
        Company’s women’s healthcare products. On March 5, 2003, the Company and
        Quintiles announced an agreement to commercialize STRIANT ® in the
        United States. Under the terms of this agreement, Innovex, provided a dedicated
        team of approximately 75 sales representatives for two-and-a-half years.
        In
        January 2004, the Company and Innovex restructured the sales force. The
        restructured sales force was comprised of nine Company district managers
        as well
        as 80 sales representatives divided evenly between the Company and Innovex.
        In
        February 2005, the Company and Innovex reduced the sales force to 28
        individuals, which included 23 sales representatives divided evenly between
        the
        Company and Innovex. The Company took responsibility for all sales force
        support. Columbia hired the remaining Innovex sales representatives as Columbia
        employees on November 1, 2005.
  On
        October 16, 2002, the Company and Ardana Bioscience, Ltd. (“Ardana”) entered
        into a license and supply agreement for STRIANT in 18 European countries
        (excluding Italy). Under the terms of the agreement, Ardana markets, distributes
        and sells STRIANT. In exchange for the license, the Company will receive
        total
        payments of approximately $8 million, including $4 million in signature and
        milestone fees received in the fourth quarter of 2002. Initial regulatory
        approval of the U.K. application, received in the first quarter of 2004,
        was the
        basis for mutual recognition applications filed in the rest of Europe.
        Additional milestone payments totaling $2 million (of which $800,000, $400,000
        and $800,000 was received in 2006, 2005 and 2004, respectively) are due upon
        marketing approvals in major European countries included in the agreement.
        Additionally, a performance payment of $2 million is due upon achievement
        of a
        certain level of sales. Ardana is obligated to purchase its requirements
        of
        product from the Company during the term of the agreement. The agreement
        shall
        continue for a period of the later of 10 years from the first commercial
        sale of
        the finished product by Ardana or the date of expiration or lapse of the
        last to
        expire or lapse Company’s patent rights in the territory, determined on a
        country by country basis. The Company is recognizing the license revenue
        on this
        agreement over a 132 month period and accordingly has recognized revenue
        of
        $636,285, $541,307 and $478,603 in 2006, 2005 and 2004, respectively. The
        remaining $3,891,984 is shown as deferred revenue in the accompanying
        consolidated balance sheets.
  F-18
  In
        May
        2003, the Company and Mipharm entered into an agreement under which Mipharm
        will
        market, distribute and sell STRIANT ® in
        Italy. In exchange for these rights, Mipharm is obligated to pay the Company
        an
        aggregate of $1.4 million upon achievement of certain milestone events,
        including $350,000 that was paid in 2003. We received a payment of $100,000,
        less VAT withholding, in 2004 on account of the UK approval of STRIANT
        and a
        payment
        of $150,000, less VAT withholding, in 2007 on marketing authorization in
        Italy
        in late 2006. Mipharm will provide additional performance payments upon the
        achievement of certain levels of sales in Italy, and the Company will receive
        a
        percentage markup on the cost of goods for each unit sold. Mipharm is a
        manufacturer of STRIANT under a
        May 2002 agreement. The Company is recognizing the license revenue on this
        agreement over a 132 month period and accordingly has recognized revenue
        of
        $41,574, $41,573 and $38,003 in 2006, 2005 and 2004, respectively. The remaining
        290,664 is shown as deferred revenue in the accompanying consolidated balance
        sheets.
 
 In
        June
        2004, the Company sold the worldwide rights to its over-the-counter products
        Advantage-S ® Contraceptive Gel and RepHresh ® Vaginal
        Gel and the foreign rights to Replens ® Vaginal
        Moisturizer to Lil’ Drug Store. The Company also sold its existing finished
        goods inventory of these products to Lil’ Drug Store. Additionally, the
        companies executed a five year supply agreement and a two and one-half year
        agreement for the Company’s sales force to promote these products to
        obstetricians and gynecologists in the United States. Upon closing, the Company
        received payments amounting to $832,000, which were paid in 2004, from the
        sale
        of the rights and inventory. In June 2004, the Company recorded a loss of
        $577,917 on the loss of the sale of the intangibles assets associated with
        the
        products. The professional services agreement expired in December 2006. The
        production and sale of Advantage-S was discontinued during 2006. The
        Company continues to receive revenues from the manufacture and sale of RepHresh
        and Replens to Lil’ Drug Store and royalties on sales of these products
        manufactured by third parties.
 
 (3)
        NOTE PAYABLE:
 
 On
        December 22, 2006, the Company raised approximately $40 million in gross
        proceeds to the Company from the sale of convertible subordinated notes to
        a
        group of existing institutional investors. The notes bear interest at a rate
        of
        8% per annum and are subordinated to the PharmaBio financing agreements (see
        Note 4) and mature on December 31, 2011. They are convertible into a total
        of
        approximately 7.6 million shares of Common Stock at a conversion price of
        $5.25.
        Investors also received warrants to purchase 2,285,714 shares of Common Stock
        at
        an exercise price of $5.50 per share. The warrants become exerci sable
        on
        June 20, 2007, and expire on December 22, 2011, unless earlier exercised
        or
        terminated.  The
        Company used the proceeds of this offering to acquire from Merck Serono the
        U.S.
        marketing rights to CRINONE ® for
        $33,000,000 and purchased Merck Serono’s existing inventory of that product. The
        balance of the proceeds will be used to pay other costs related to the
        transaction and for general corporate purposes.
 
 We
        recorded original issue discounts of $6,272,566 million to the notes based
        upon
        the fair value of warrants granted. In addition, beneficial conversion features
        totaling $8,482,090 million have been recorded as a discount to the notes.
        These
        discounts are being amortized at an imputed rate over the five year term
        of the
        related notes. For the year ended December 31, 2006, $53,793 of amortization
        related to these discounts is classified as interest expense in our consolidated
        statements of operations. Unamortized discounts of $14,700,863 have been
        reflected as a reduction to the face value of the convertible notes
        in
        our consolidated balance sheet as of December 31, 2006.
 
 On
        March
        16, 1998, the Company issued to an institutional investor a $10 million
        convertible subordinated note due March 15, 2005. The note was subordinate
        to
        other senior securities of the Company and bore interest at 7.125% which
        was
        payable semiannually on March 15 and September 15. The note was paid in full
        on
        March 15, 2005.
  F-19
  (4)
        FINANCING AGREEMENTS:
 
 In
        an
        agreement dated July 31, 2002, Quintiles’ strategic investment group, PharmaBio
        Development (“PharmaBio”), agreed to pay $4.5 million, to be paid in four equal
        quarterly installments commencing third quarter 2002, for the right to receive
        a
        5% royalty on the net sales of the Company’s women’s healthcare products in the
        United States for five years beginning in the first quarter of 2003. The
        royalty
        payments are subject to minimum ($8 million) and maximum ($12 million) amounts,
        and because the minimum amount exceeds $4.5 million, the Company has recorded
        the amounts received as liabilities. The excess of the minimum ($8 million)
        to
        be paid by the Company over the $4.5 million received by the Company is being
        recognized as interest expense over the five-year term of the agreement,
        assuming an interest rate of 12.51%. $791,529, $703,522 and $625,295 were
        recorded as interest expense for the years 2006, 2005 and 2004, respectively.
        The agreement called for a true-up payment, if by February 28, 2005, the
        Company
        had not made $2,750,000 in royalty payments to PharmaBio. The amounts paid
        to
        PharmaBio were $548,464 for 2006, $2,290,662 (which included the $1,891,944
        true-up) for 2005 and $423,137 for 2004.
 
 In
        an
        agreement dated March 5, 2003 (the “STRIANT ® Agreement”), PharmaBio agreed to pay the Company $15
        million in five quarterly installments commencing with the signing of the
        STRIANT Agreement. In return, PharmaBio will receive a 9% royalty on net
        sales
        of STRIANT in the United States up to agreed annual sales revenues, and a
        4.5%
        royalty of net sales above those levels. The royalty term is seven years.
        Royalty payments commenced in the 2003 third quarter and are subject to minimum
        ($30 million) and maximum ($55 million) amounts. Because
        the minimum amount exceeds the $15 million received by the Company, the Company
        has recorded the amounts received as liabilities. The excess of the minimum
        ($30
        million) to be paid by the Company over the $15 million received by the Company
        is being recognized as interest expense over the seven-year term of the STRIANT
        Agreement, assuming an interest rate of 10.67%. $1,571,162, $1,834,939, and
        $1,610,482 were recorded as interest expense in 2006, 2005, and 2004
        respectively.  The
        STRIANT Agreement called for a true-up payment on November 14, 2006 equal
        to the
        difference between royalties paid through and for the third quarter of 2006
        and
        $13,000,000. On April 14, 2006, the Company entered into a letter agreement
        (the
“Letter Agreement”) with PharmaBio pursuant to which the Company agreed to pay
        approximately $12 million of this true-up payment seven months early.
        Accordingly, on April 14, 2006, the Company paid PharmaBio $11,585,235 (the
        “Early Payment”), which was the present value of a November 14, 2006 $12 million
        true-up payment using a six percent (6%) annual discount factor. In
        consideration of such payment, PharmaBio agreed that PharmaBio will be deemed
        (solely for purposes of the STRIANT Agreement) to have received on account
        of
        that payment $12 million for purposes of the true-up payment. In the event
        that,
        as of the payment date for the true-up payment, the aggregate amount of
        royalties paid under the STRIANT Agreement, including the Early Payment,
        exceed
        $13 million, the Company will be entitled to have such excess reimbursed.
        Although the Company paid and recorded approximately $415,000 less in interest
        expense during 2006 due to this early payment, for accounting purposes, the
        payment resulted in a non cash loss of approximately $280,000 during the
        second
        quarter of 2006. Including the Early Payment, the
        Company has paid PharmaBio $13,000,000 through 2006.
 
 Liabilities
        from financing agreements consist of the following:
  December312006
              
              2005July
                  31, 2002 financing agreement
              
              $
              3,485,672
              
              $
              3,242,607March
                  5, 2003 financing agreement
              
              
              8,298,052
              
              
              18,345,29711,783,724
              
              
              21,587,904Less:
                  current portion
              
              
              553,947
              
              
              12,840,161$
              11,229,777
              
              $
              8,747,743
 
 Because
        of their terms, the fair value of the future value of the financial agreements
        cannot be determined.
  F-20
  (5)
        STOCKHOLDERS' EQUITY (DEFICIENCY) :
 
 Preferred
        Stock -
 
 In
        August
        1991, the Company completed a private placement of 150,000 shares of Series
        B
        Convertible Preferred Stock ("Series B Preferred Stock"). Each share of Series
        B
        Preferred Stock is convertible into 20.57 shares of Common Stock.
 
 Upon
        liquidation of the Company, the holders of the Series B Preferred Stock are
        entitled to $100 per share. The Series B Preferred Stock will be automatically
        converted into Common Stock upon the occurrence of certain events. Holders
        of
        the Series B Preferred Stock are entitled to one vote for each share of Common
        Stock into which the preferred stock is convertible.
 
 In
        June
        2003, 1,000 shares of the Series B Preferred Stock were converted into 20,570
        shares of the Common Stock.
 
 In
        January 1999, the Company raised approximately $6.4 million, net of expenses,
        from the issuance and sale of Series C Convertible Preferred Stock (“Series C
        Preferred Stock”). The Series C Preferred Stock, sold to 24 accredited
        investors, has a stated value of $1,000 per share. The Series C Preferred
        Stock
        is convertible into Common Stock at the lower of: (i) $3.50 per common share
        or
        (ii) 100% of the average of the closing prices during the three trading days
        immediately preceding the conversion notice. The Series C Preferred Stock
        pays a
        5% dividend, payable quarterly in arrears on the last day of the quarter.
        In
        2003, 500 shares of Series C Preferred Stock was converted into 142,857 Common
        Shares, and in 2006, 50 shares of Series C Preferred Stock was converted
        into
        14,285 Common Shares.
 
 On
        March
        12, 2002, the Company adopted a Stockholder Rights Plan (“Rights Plan”) designed
        to protect company stockholders in the event of takeover activity that would
        deny them the full value of their investment. The Rights Plan was not adopted
        in
        response to any specific takeover threat. In adopting the Rights Plan, the
        Board
        declared a dividend distribution of one preferred stock purchase right for
        each
        outstanding share of Common Stock of the Company, payable to stockholders
        of
        record at the close of business on March 22, 2002. The rights will become
        exercisable only in the event, with certain exceptions, a person or group
        of
        affiliated or associated persons acquires 15% or more of the Company’s voting
        stock, or a person or group of affiliated or associated persons commences
        a
        tender or exchange offer, which if successfully consummated, would result
        in
        such person or group owning 15% or more of the Company’s voting stock. The
        rights will expire on March 12, 2012. Each right, once exercisable, will
        entitle
        the holder (other than rights owned by an acquiring person or group) to buy
        one
        one-thousandth of a share of a series of the Company’s Series D Junior
        Participating Preferred Stock at a price of $30 per one-thousandth of a share,
        subject to adjustments. In addition, upon the occurrence of certain events,
        holders of the rights (other than rights owned by an acquiring person or
        group)
        would be entitled to purchase either the Company’s preferred stock or shares in
        an “acquiring entity” at approximately half of market value. Further, at any
        time after a person or group acquires 15% or more (but less than 50%) of
        the
        Company’s outstanding voting stock, subject to certain exceptions, the Board of
        Directors may, at its option, exchange part or all of the rights (other than
        rights held by an acquiring person or group) for shares of the Company's
        Common
        Stock having a fair market value on the date of such acquisition equal to
        the
        excess of (i) the fair market value of preferred stock issuable upon exercise
        of
        the rights over (ii) the exercise price of the rights. The Company generally
        will be entitled to redeem the rights at $0.01 per right at any time prior
        to
        the close of business on the tenth day after there has been a public
        announcement of the beneficial ownership by any person or group of 15% or
        more
        of the Company’s voting stock, subject to certain exceptions. These rights are
        deemed to have no value and accordingly have not been recorded in the
        accompanying financial statements.
 
 On
        May
        10, 2005, the Company raised $6.9 million from the issuance and sale of 69,000
        shares of Series E Convertible Preferred Stock ("Series E Preferred Stock").
        The
        Series E Preferred Stock has a stated value of $100 per share. Each share
        of the
        Series E Preferred Stock may be converted by the holder into 50 shares of
        Common
        Stock, subject to adjustment, and will automatically be converted into Common
        Stock at that rate upon the date that the average of the daily market prices
        of
        the Company’s Common Stock for the 20 consecutive trading days preceding such
        date exceeds $6.00 per share. The Series E Preferred Stock pays no dividends
        and
        contains voting rights equal to the number of shares of Common Stock into
        which
        each share of Series E Preferred Stock is convertible. Upon liquidation of
        the
        Company, the holders of the Series E Preferred Stock are entitled to $100
        per
        share.
 
 F-21
 Common
        Stock-
 
 During
        2004, the Company issued 2,000,000 shares of its Common Stock to an
        institutional investor, which resulted in the Company receiving $6,380,000
        after
        expenses. Also in 2004, outstanding warrants were exercised resulting in
        the
        issuance of 72,553 shares of Common Stock and the receipt of $229,688 by
        the
        Company.
 
 In
        March
        2006, the Company issued 7,428,220 shares of its Common Stock to a group
        of new
        and existing investors, which resulted in the Company receiving $28,766,126
        after expenses.
 
 Warrants -
 
 As
        of
        December 31, 2006, the Company had warrants outstanding for the purchase
        of
        4,867,755 shares of Common Stock. Information on outstanding warrants is
        as
        follows:
 
 Exercise
                  Price
              
              Warrants$4.81
              
              
              200,0005.39
              
              
              1,857,0415.50
              
              
              2,285,7145.85
              
              
              100,0007.50
              
              
              75,0008.35
              
              
              350,0004,867,755
 
 During
        2001, a warrant to purchase 350,000 shares of Common Stock at an exercise
        price
        of $8.35 was issued pursuant to an employment agreement with the Company’s then
        President and Chief Executive Officer. Also in 2001, a warrant to purchase
        100,000 shares of Common Stock at an exercise price of $5.85 per share were
        issued to an officer and director of the Company.
 
 During
        2006, warrants to purchase 1,857,041 shares of the Company’s Common Stock at an
        exercise price of $5.39 per share were issued to investors in the March 2006
        financing which by their terms expire March 11, 2011. Also in 2006, warrants
        to
        purchase 2,285,714
        shares of the
        Company’s Common
        Stock at an exercise price of $5.50 per share were issued to i nvestors
        in the December 2006 financing  and
        by
        their terms expire on December 22, 2011.
 
 No
        warrants were exercised in 2006.
 
 As
        of
        December 31, 2006, 2,582,041 warrants were exercisable. On June 20, 2007,
        2,285,714 warrants shall become exercisable by their holders.
 
 Stock-
        based Compensation
  On
        January 1, 2006, the Company adopted SFAS 123(R) using the modified
        prospective transition method. SFAS 123(R) requires the measurement and
        recognition of compensation expense for all stock-based awards made to the
        Company’s employees and directors including employee stock options and other
        stock-based awards based on estimated fair values.
  F-22
  The
        following table summarizes the impact of the adoption of SFAS 123(R) on
        stock-based compensation costs for employees on the Company’s Consolidated
        Statements of Operations for the three and twelve months ended December 31,
        2006
        and 2005:
  Twelve
                  Months EndedDecember
                  31,2006
              
              2005Employee
                  stock-based compensation in:Cost
                  of revenue
              
              $
              82,720
              
              $
              -Selling
                  and distribution
              
              
              87,032
              
              
              -General
                  and administrative
              
              
              733,695
              
              
              -Research
                  and development
              
              
              161,936
              
              
              -Total
                  employee stock-based compensationin
                  operating expenses
              
              
              982,663
              
              
              -Total
                  employee stock-based compensation
              
              $
              1,065,383
              
              $
              -
  No
        tax
        benefit has been recognized due to net losses during the periods presented.
        In
        2006, t he
        Company took a charge of $181,000 for extending the term of vested stock
        options
        for one of its former officers.
 
 The
        table
        below reflects net loss and net loss per share for the twelve months ended
        December 31, 2006, compared with the pro forma information for the twelve
        months
        ended December 31, 2005 and December 2004 reflecting the impact of stock-based
        compensation as if accounted for under SFAS 123(R):
  2006
              
              2005
                  (pro forma)
              
              2004
                  (pro forma)Net
                  loss, before stock-based compensationfor
                  employees, prior period
              
              $
              (12,611,721
              )
              $
              (9,307,136
              )
              $
              (25,129,624
              )Less:
                  Stock-based employee compensation includedin
                  the determination of net loss as reported
              
              
              1,065,383Add:
                  Stock-based compensation expense foremployees
                  determined under fair-value based method
              
              
              (1,065,383
              )
              
              (1,609,735
              )
              
              (2,101,241
              )Net
                  loss, after effect of stock-based compensationfor
                  employees
              
              $
              (12,611,721
              )
              $
              (10,916,871
              )
              $
              (27,230,865
              )Net
                  loss per share:Basic
                  and diluted - as reported in prior year
              
              $
              (0.27
              )
              $
              (0.23
              )
              $
              (0.62
              )Basic
                  and diluted - after effect of stock-basedcompensation
                  for employees
              
              $
              (0.27
              )
              $
              (0.27
              )
              $
              (0.67
              )
  As
        of
        December 31, 2006, total unamortized stock-based compensation cost related
        to
        non-vested stock options was $1,753,485 which is expected to be recognized
        over
        the remaining vesting period of the outstanding options, up to the next 44
        months. The Company selected the Black-Scholes option pricing model as the
        most
        appropriate model for determining the estimated fair value for stock-based
        awards. The use of the Black-Scholes model requires the use of extensive
        actual
        employee exercise behavior data and the use of a number of complex assumptions
        including expected volatility, risk-free interest rate, and expected dividends.
  F-23
  The
        assumptions used to value options granted are as follows:
  2006
              
              2005
              
              2004Risk
                  free interest rate
              
              
              4.87
              %
              
              4.03
              %
              
              3.01
              %Expected
                  term
              
              
              4.84
                  years
              
              
              6.67
                  years
              
              
              4.95
                  yearsDividend
                  yield
              
              
              0.0
              
              
              0.0
              
              
              0.0Expected
                  volatility
              
              
              72.42
              %
              
              81.90
              %
              
              86.37
              %
 
 The
        Company estimated the volatility of its stock based on expected volatility
        of
        the Company’s stock which includes consideration of historical volatility in
        accordance with guidance in SFAS 123(R) and SAB 107. The risk-free interest
        rate
        assumption is based upon observed interest rates appropriate for the term
        of the
        employee stock options. The dividend yield assumption is based on our history
        and expectation of dividend payouts.
 
 Generally,
        stock options granted under the Company’s 1996 Long-term Performance Plan (“1996
        Plan”) prior to January 1, 2006 have a contractual term of ten years from
        the date of grant, and stock options granted under the 1996 Plan on or
        after January 1, 2006 are expected to have a contractual term of seven
        years from the date of grant. Options generally vest over a four-year period,
        with 25% vesting on each of the first four anniversaries of the date of grant.
        The Company’s general policy is to issue new shares upon the exercise of stock
        options. Pursuant
        to the 1996 Plan, an aggregate of 8,000,000 shares of Common Stock have been
        reserved for issuance.
  The
        expected term of employee stock options represents the weighted-average period
        that employees are expected to hold the options before exercise. The Company
        derived the expected term assumption based on the Company’s historical
        settlement experience, while giving consideration to options that have life
        cycles less than the contractual terms and vesting schedules in accordance
        with
        guidance in SFAS 123(R) and SAB 107. Prior to the adoption of SFAS
        123(R), the Company used historical settlement experience to derive the expected
        term for the purposes of pro forma information under SFAS 123, as disclosed
        in
        the Notes to the Company’s Consolidated Financial Statements for the related
        periods.
 
 Stock
        Option Plans -
 
 All
        employees, officers, directors and consultants of the Company or any subsidiary
        were eligible to participate in the Columbia Laboratories, Inc. 1988 Stock
        Option Plan, as amended (the "Plan"). Under the Plan, a total of 5,000,000
        shares of Common Stock were authorized for issuance upon exercise of the
        options. As of October 1996, no further options were granted pursuant to
        this
        Plan and, in 2006, the remaining outstanding options expired.
 
 In
        October 1996, the Company adopted the 1996 Long-term Performance Plan
        (“Performance Plan”) which provides for the grant of stock options, stock
        appreciation rights and restricted stock to certain designated employees
        of the
        Company, non-employee directors of the Company and certain other persons
        performing significant services for the Company as designated by the
        Compensation/Stock Option Committee of the Board of Directors. The
        stock
        options have a maximum term of ten years after the date of grant and generally
        vest fully after four years. Pursuant
        to the Performance Plan, an aggregate of 8,000,000 shares of Common Stock
        have
        been reserved for issuance.
 
 F-24
  A
        summary
        of the status of the Company’s two stock option plans as of December 31, 2006,
        2005 and 2004 and changes during the years ending on those dates is presented
        below:
  2006
                
                2005
                
                2004Weighted-
                
                
                
                Weighted-
                
                
                
                Weighted-Average
                
                
                
                Average
                
                
                
                AverageExercise
                
                
                
                Exercise
                
                
                
                ExerciseShares
                
                Price
                
                Shares
                
                Price
                
                Shares
                
                PriceOutstanding
                    at beginning of year
                
                
                5,960,525
                
                $
                7.79
                
                
                5,479,400
                
                $
                8.73
                
                
                6,087,050
                
                $
                8.57Granted
                
                
                434,900
                
                
                4.29
                
                
                976,680
                
                
                2.56
                
                
                852,400
                
                
                4.51Exercised
                
                
                (335,049
                )
                
                3.05
                
                
                (2,850
                )
                
                2.90
                
                
                -
                
                
                -Forfeited
                
                
                (1,373,824
                )
                
                6.27
                
                
                (492,705
                )
                
                7.89
                
                
                (1,460,050
                )
                
                5.60Outstanding
                    at end of year
                
                
                4,686,552
                
                
                8.57
                
                
                5,960,525
                
                
                7.79
                
                
                5,479,400
                
                
                8.73Options
                    exercisable at year end
                
                
                3,782,060
                
                
                
                
                
                4,645,938
                
                
                
                
                
                4,141,314
   The
        weighted average grant date fair values of options granted in 2006, 2005
        and
        2004 was $4.29, $2.56 and $4.51 per share respectively
 
 The
        following table summarizes the range of exercise prices and the weighted
        average
        prices for options outstanding, options exercisable and unvested options
        at
        December 31, 2006:
  Options
                    Outstanding
                
                Options
                    ExercisableWeighted-Average
                
                Weighted-
                
                
                
                Weighted-Range
                    of
                
                Number
                
                Remaining
                
                Average
                
                Number
                
                AverageExercise
                
                Outstanding
                    at
                
                Contractual
                
                Exercise
                
                Exercisable
                    at
                
                ExercisePrices
                
                12/31/06
                
                Life
                    (Years)
                
                Price
                
                12/31/06
                
                Price$1.91
                    - $3.83
                
                
                1,101,002
                
                
                6.27
                
                $
                2.81
                
                
                729,584
                
                $
                2.96$4.05
                    - $7.90
                
                
                1,464,050
                
                
                5.95
                
                
                5.17
                
                
                938,476
                
                
                5.57$8.25
                    - $11.87
                
                
                1,031,500
                
                
                1.59
                
                
                11.08
                
                
                1,024,000
                
                
                11.09$14.00
                    - $18.66
                
                
                1,090,000
                
                
                -
                
                
                15.22
                
                
                1,090,000
                
                
                15.22$1.91
                    - $18.66
                
                
                4,686,552
                
                
                3.72
                
                
                8.25
                
                
                3,782,060
                
                
                9.34
  The
        aggregate intrinsic value of options outstanding and options exercisable
        at
        December 31, 2006 was $3,185,561 and $1,833,795, respectively.
  During
        2006, cash received from the exercise of options was $1,021,759.
  F-25
  A
        summary
        of the status of the Company’s unnvested stock options for the year 2006 is
        presented below:
  2006Number
                  of shares
              
              Weighted
                  average exercise price per shareUnvested
                  shares at beginning of period
              
              
              1,314,587
              
              $
              3.45Options
                  granted
              
              
              434,900
              
              $
              4.29Options
                  vested
              
              
              (445,036
              )
              $
              3.32Options
                  forfeited
              
              
              (397,959
              )
              $
              4.03Unvested
                  shares at December 31, 2006
              
              
              906,492
              
              $
              3.72
  Restricted
        stock grants consist of the Company’s Common Stock. The Board has set a two or
        four year vesting period for most of the issued restricted shares. The fair
        value of each restricted share grant is equal to the market price of the
        Company’s Common Stock at the date of grant. Expense relating to restricted
        shares is amortized ratably over the vesting period.
  A
        summary
        of the Company’s restricted stock activity and related information for 2006 is
        as follows:
  2006Shares
              
              Weighted-
                  Average Grant Date Fair ValueUnvested
                  at beginning of period
              
              
              -
              
              $
              -Granted
              
              
              167,875
              
              $
              4.48Vested
              
              
              (15,000
              )
              $
              4.34Forfeited
              
              
              (6,000
              )
              $
              4.34Unvested
                  at December 31, 2006
              
              
              146,875
              
              $
              4.49
  F-26
  LOSS
        PER COMMON AND POTENTIAL COMMON SHARE:
 
 The
        calculation of basic and diluted loss per common and potential common share
        is
        as follows:
  2006
              
              2005
              
              2004Net
                  loss
              
              $
              (12,611,721
              )
              $
              (9,307,136
              )
              $
              (25,129,624
              )Less:
                  Preferred stock dividends
              
              
              (161,379
              )
              
              (162,500
              )
              
              (162,500
              )Net
                  loss applicable to common stock
              
              $
              (12,773,100
              )
              $
              (9,469,636
              )
              $
              (25,292,124
              )Basic
                  and diluted
                Weighted-average
                  number of common shares outstanding
              
              
              48,088,516
              
              
              41,752,422
              
              
              40,984,083Basic
                  and diluted net loss per common share
              
              $
              (0.27
              )
              $
              (0.23
              )
              $
              (0.62
              )
  **Adjustments
          for Stock-Based Compensation on Prior Year Financial Statements**
 
 As
          of
          January 1, 2006, the Company adopted FAS 123R, using the modified prospective
          transition method. FAS 123R requires the measurement and recognition of
          compensation expense for all stock-based awards made to the Company’s employees
          and directors including stock options and other stock-based awards based
          on
          estimated fair values. Prior to January 1, 2006, the Company accounted
          for
          share-based compensation granted under its stock option plans using the
          recognition and measurement provisions of APB 25. Under APB 25, a company
          was
          not required to recognize compensation expense for stock options issued
          to
          employees if the exercise price of the stock options was at least equal
          to the
          quoted market price of the Company’s common stock on the “measurement date.” APB
          25 defined the measurement date as the first date on which both the number
          of
          shares that an individual employee was entitled to receive and the option
          price,
          if any, were known.
 
 As
          disclosed in the Company’s September 30, 2006 10-Q filing, the Company’s Audit
          Committee initiated a review in the second half of 2006 of the Company’s stock
          option granting practices from October 1996 to the present. The review
          was
          initiated independently by the Committee in light of the recent heightened
          scrutiny regarding this topic. The review did not reveal any pattern or
          practice
          of inappropriately identifying grant dates with hindsight in order to provide
          “discounted” or “in-the-money” options. However, with respect to fiscal years
          1996-2001, the review identified certain instances where the granting of
          options
          was not consistent with the Company’s practice of establishing the exercise
          price at the closing price on the day before the date of grant. Instead,
          in some
          cases the exercise price was established as the closing price on the date
          of
          grant. The review also identified that, during this period, certain grants
          of
          stock options were approved by the Compensation Committee by means of unanimous
          written consents in lieu of a meeting, in which the date the unanimous
          written
          consent was finalized (which becomes the measurement date for accounting
          purposes) is subject to uncertainties. In such cases, the Company has
          determined, where possible, the measurement date for the unanimous consent
          options as the date on which the Company’s records best indicate the unanimous
          consent to be executed. If such date cannot be determined, then the Company
          used
          the date of mailing of an executed option contract, if the option contract
          was
          dated “as of” the option grant date, or the date upon which the option contract
          was actually executed.
  In
          January 2002 the Company changed its practice for determining the exercise
          price
          of options to the average of the high and low reported sales prices of
          the
          Company’s common stock on the date of grant and consistently applied that
          practice from that time to the present.  We
          have
          concluded that, since January 2002, all option grants have been in accordance with
          the
          terms of the Company’s 1996 Long-term Performance Plan and
          have
          been appropriately accounted for in the Company’s financial statements.
 
 Upon
          completion of its review, the Company concluded that an additional stock-based
          compensation in the aggregate of $998,000 should be recorded to reflect
          additional stock-based compensation expense under APB 25, the accounting
          method
          in effect at the time, relating to the company’s historical stock option
          practices. The majority of such amount is attributable to options granted
          in
          1997, with related compensation expense allocable to the years ended December
          31, 1997 and 1998.
  In
          determining the appropriate method to account for the understatement of
          compensation expense, the Company had considered SEC Staff Accounting Bulletin
          (SAB) No. 99, *Materiality* and does
          not believe the understatement of compensation expense meets the quantitative
          or
          qualitative considerations of materiality under SAB No. 99 for the following
          reasons:
 
 (1)
              The
                  compensation expense principally affected the financial statements
                  for the
                  years 1997 through 2001, which are not presented. Because the Company
                  had
                  significant cumulative operating losses during that period, the
                  understatement of compensation expense did not mask a change in
                  earnings
                  or other trends. (2)
              The
                  understatement of compensation expense during the period did not
                  have a
                  material effect on earnings per share, affecting solely 1997, by
                  $0.02,
                  and 1998, by $0.01. (3)
              The
                  understatement of compensation expense did not affect whether the
                  Company
                  would have reported income or loss during any
                  period. (4)
              The
                  understatement of compensation expense did not affect a segment
                  or other
                  portion of the Company’s business that has been identified as playing a
                  significant role in the Company’s
                  operations. (5)
              The
                  understatement of compensation expense did not affect compliance
                  with loan
                  covenants or other contractual requirements during the
                  period. (6)
              The
                  understatement of compensation expense had the affect of increasing
                  management’s compensation under the Company’s Incentive Compensation Plan
                  by an estimate of $19,000 in 1997, which the Company considers
                  insignificant. (7)
              The
                  understatement of compensation expense was inadvertent and did
                  not involve
                  a concealment of an unlawful transaction. 
 The
          Company has, in accordance with the transition provisions of Staff Accounting
          Bulletin (SAB) No. 108, *Considering
          the Effects of Prior Year Misstatements when Quantifying Misstatements
          in
          Current Year Financial Statements* ,
          recorded a reclassification within the equity section of the consolidated
          balance sheet as an increase in additional paid-in capital and an increase
          in
          accumulated deficit for the year ended December 31, 2006, of $998,000,
          excluding
          any related tax effect.  Since the Company substantially reported losses
          during this period, the impact to income taxes was not considered material.
          This
          reclassification represents the effect of the adjustment resulting from
          the
          non-cash charges discussed above, all of which relate to prior fiscal
          years .
  F-27
 
 (6)
        COMMITMENTS AND CONTINGENCIES:
 
 Cash
        and cash equivalents-
 
 The
        Company maintains its cash in bank deposit accounts which, at times, may
        exceed
        federally insured limits. The Company believes that there is no credit risk
        with
        respect to these accounts.
 
 Leases -
 
 The
        Company leases office space, office equipment under noncancelable operating
        leases. Lease expense for each of the three years ended December 31, 2006,
        2005,
        and 2004 totaled $223,122, $265,620, and $355,055, respectively. Future minimum
        lease payments as of December 31, 2006 are as follows:
 
 2007
              
              $
              141,6712008
              
              
              12,5002009
              
              
              12,5002010
              
              
              10,611$
              177,282
 
 Royalties -
 
 In
        1989,
        the Company purchased the assets of Bio-Mimetics, Inc. which consisted of
        the
        patents underlying the Company's Bioadhesive Delivery System (BDS), other
        patent
        applications and related technology, for $2,600,000, in the form of 9%
        convertible debentures which were converted into 500,000 shares of Common
        Stock
        during 1991, and $100,000 in cash. In addition, Bio-Mimetics, Inc. receives
        a
        royalty equal to 2% of the net sales of products based on the BDS up to an
        aggregate amount of $7,500,000. The royalty payments are payable over the
        life
        of the patent(s) which are specific to each product or fifteen years, whichever
        is longer. In addition, beginning in March 1995, the Company agreed to prepay
        a
        portion of the remaining royalty obligation if certain conditions are met.
        The
        Company may not assign the patents underlying the BDS without the prior written
        consent of Bio-Mimetics, Inc. until the aggregate royalties have been paid.
        Royalty expense under this agreement amounted to $245,416, $405,798 and $339,706
        in 2006, 2005 and 2004, respectively.
 
 Geographic
        Area of Operations-
 
 Included
        in the Company’s Consolidated Balance sheet at December 31, 2006 and 2005 are
        the net assets of the Company’s subsidiaries located in Bermuda, France and the
        United Kingdom that total approximately $5.2 million and $9.3 million,
        respectively.
 
 Employment
        Agreements -
 
 In
        March
        2006, the Company entered into a two-year employment agreement with an
        individual to serve as President and Chief Executive Officer of the Company.
        Pursuant to his employment agreement, the employee is entitled to a base
        salary
        of $340,000 per year plus a target 50% bonus. Additionally, the employee
        was
        granted 40,000 shares of restricted Company Common Stock.
 
 In
        March
        2006, the Company entered into a two-year employment agreement with an
        individual to serve as Senior Vice President, General Counsel and Secretary
        of
        the Company. Pursuant to his employment agreement, the employee is entitled
        to a
        base salary of $279,500 per year plus a target 40% bonus. In addition, the
        employee was granted 30,000 shares of restricted Company Common Stock.
 
 In
        December 2006, the Company entered into an employment agreement with an
        individual to serve as Senior Vice President, Chief Financial Officer and
        Treasurer of the Company through March 31, 2008. Pursuant to his employment
        agreement, the employee is entitled to a base salary of $260,000 per year
        plus a
        target 35% bonus. Additionally, the employee was granted options to purchase
        100,000 shares of the Company’s Common Stock at an exercise price of $4.285 per
        share. The options vest ratably over a four-year period. In addition, the
        employee was granted 10,000 shares of restricted Company Common Stock.
  F-28
  Legal
        Proceedings -
 
 Claims
        and lawsuits have been filed against the Company from time to time. Although
        the results of pending claims are always uncertain, the Company does not
        believe
        the results of any such actions, individually or in the aggregate, will have
        a
        material adverse effect on the Company’s financial position or results of
        operation. Additionally, the Company believes that it has adequate reserves
        or
        adequate insurance coverage in respect of these claims, but no assurance
        can be
        given as to the sufficiency of such reserves or insurance in the event of
        any
        unfavorable outcome resulting from these actions. It is the policy of management
        to disclose the amount or range of reasonably possible losses in excess of
        recorded amounts.
 
 (7)
        GEOGRAPHIC INFORMATION AND CUSTOMER CONCENTRATION:
 
 Geographic
        Information-
 
 The
        Company and its subsidiaries are engaged in one line of business, the
        development, licensing and sale of pharmaceutical products. The following
        table
        shows selected information by geographic area:
  Revenues
              
              (Loss)
                  profit from Operations
              
              Identifiable
                  AssetsAs
                  of and for the year ended December 31, 2006-United
                  States
              
              $
              7,950,735
              
              $
              (14,827,488
              )
              $
              60,632,896Europe
              
              
              9,442,346
              
              
              3,668,600
              
              
              5,205,848$
              17,393,081
              
              $
              (11,158,888
              )
              $
              65,838,744As
                  of and for the year ended December 31, 2005-United
                  States
              
              $
              10,970,046
              
              $
              (12,528,650
              )
              $
              5,426,684Europe
              
              
              11,070,796
              
              
              5,297,969
              
              
              9,304,866$
              22,040,842
              
              $
              (7,230,681
              )
              $
              14,731,550As
                  of and for the year ended December 31, 2004-United
                  States
              
              $
              11,236,330
              
              $
              (22,733,040
              )
              $
              14,207,833Europe
              
              
              6,624,074
              
              
              761,136
              
              
              15,060,535$
              17,860,404
              
              $
              (21,971,904
              )
              $
              29,268,368
 
 F-29
  Customer
        Concentration-
 
 The
        following table presents information about Columbia’s revenues by customer,
        including royalty and license revenue:
  2006
              
              2005
              
              2004Ares-Serono
              
              $
              8,234,198
              
              $
              9,765,387
              
              $
              8,512,147Lil'
                  Drug Store Products, Inc.
              
              
              4,637,928
              
              
              6,906,358
              
              
              3,565,760Cardinal
                  Healthcare
              
              
              2,060,152
              
              
              1,773,811
              
              
              1,419,962McKesson
              
              
              1,892,728
              
              
              1,620,188
              
              
              1,218,438All
                  others (none over 5%)
              
              
              568,075
              
              
              1,975,098
              
              
              3,144,097$
              17,393,081
              
              $
              22,040,842
              
              $
              17,860,404
 
 Revenues
        from sales of CRINONE ® to Merck
        Serono S.A.were $6.7 million in 2006, compared to $8.1 million in 2005 and
        $7.2
        million in 2004. The 2006 figure reflects the reduction in sales of
        approximately $0.6 million relating to the reversal of sales previously recorded
        in 2006 upon repurchase of Serono’s U.S. CRINONE product inventory.
 
 F-30
  (8)
        QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
 
 The
        following table summarizes selected quarterly data for the years ended December
        31, 2006 and 2005:
 
 First
                Quarter
              
              Second
                Quarter
              
              Third
                Quarter
              
              Fourth
                Quarter
              
              Full
                YearNet
                  sales
              
              $
              3,633,732
              
              $
              4,658,872
              
              $
              4,082,541
              
              $
              1,573,812
              
              $
              13,948,957Fee
                  income and other income
              
              
              911,645
              
              
              864,241
              
              
              863,846
              
              
              804,392
              
              
              3,444,124Gross
                  profit
              
              
              2,667,109
              
              
              3,219,374
              
              
              2,772,406
              
              
              914,349
              
              
              9,573,238Loss
                  from operations
              
              
              (2,147,137
              )
              
              (1,925,036
              )
              
              (2,266,429
              )
              
              (4,820,286
              )
              
              (11,158,888
              )Net
                  loss
              
              
              (2,746,322
              )
              
              (2,477,595
              )
              
              (2,557,397)
              )
              
              (4,830,407
              )
              
              (12,611,721
              )Basic
                  and diluted loss per common share
              
              
              (0.06
              )
              
              (0.05
              )
              
              (0.05
              )
              
              (0.10
              )
              
              (0.27
              )2005Net
                  sales
              
              $
              3,354,172
              
              $
              5,320,388
              
              $
              5,504,230
              
              $
              4,051,218
              
              $
              18,230,008Fee
                  income and other income
              
              
              926,405
              
              
              1,013,457
              
              
              1,029,712
              
              
              841,260
              
              
              3,810,834Gross
                  profit
              
              
              2,463,572
              
              
              4,088,410
              
              
              4,143,828
              
              
              3,233,535
              
              
              13,929,345Loss
                  from operations
              
              
              (3,553,014
              )
              
              (958,944
              )
              
              (649,653
              )
              
              (2,069,070
              )
              
              (7,230,681
              )Net
                  loss
              
              
              (4,214,707
              )
              
              (1,590,036
              )
              
              (1,281,942
              )
              
              (2,220,451
              )
              
              (9,307,136
              )Basic
                  and diluted loss per common share
              
              
              (0.10
              )
              
              (0.04
              )
              
              (0.03
              )
              
              (0.05
              )
              
              (0.23
              )
 
 2005
        second quarter net sales reflect a provision for product returns amounting
        to
        $1.6 million.
 
 F-31
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 INDEX
        TO FINANCIAL STATEMENT SCHEDULE
 
 PageReport
                  of Independent Registered Accounting Firm
              F-33Schedule
                  II-Valuation and Qualifying Accounts
              F-34
 
 F-32
  REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
        the
        Board of Directors and Stockholders
 of
        Columbia Laboratories, Inc.:
 
 We
        have
        audited in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the financial statements of Columbia
        Laboratories, Inc. and Subsidiaries for each of the three years in the period
        ended December 31, 2006 included in this Form 10-K and have issued our report
        thereon dated March 15, 2007. Our audits were made for the purpose of forming
        an
        opinion on the basic financial statements taken as a whole. Schedule II is
        the
        responsibility of the Company's management and is presented for purposes
        of
        complying with the Securities and Exchange Commission's rules and is not
        part of
        the basic financial statements. This schedule has been subjected to the auditing
        procedures applied in the audits of the basic financial statements and, in
        our
        opinion, fairly states in all material respects the financial data required
        to
        be set forth therein in relation to the basic financial statements taken
        as a
        whole.
 
  GOLDSTEIN
        GOLUB KESSLER LLP
 
 New
        York,
        New York
 March
        15,
        2007
 F-33
  COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 
 SCHEDULE
        II - VALUATION AND QUALIFYING ACCOUNTS
 
 FOR
        THE THREE YEARS ENDED DECEMBER 31, 2006
  Description
              
              Balance
                  at beginning of year
              
              Charged
                  to (credited to) costs and expenses
              
              Deductions
                  (A)
              
              Balance
                  at end of yearYEAR
                  ENDED DECEMBER 31, 2006:Allowance
                    for doubtful accounts
              
              $
              50,000
              
              $
              105,855
              
              $
              55,855
              
              $
              100,000YEAR
                  ENDED DECEMBER 31, 2005:Allowance
                  for doubtful accounts
              
              $
              86,114
              
              $
              187,962
              
              $
              224,076
              
              $
              50,000YEAR
                  ENDED DECEMBER 31, 2004:Allowance
                  for doubtful accounts
              
              $
              120,000
              
              $
              48,917
              
              $
              82,803
              
              $
              86,114
 
 (A)
        Deductions represent the write-off of uncollectible accounts
 
 F-34
  **EXHIBIT
        INDEX**
 
 **Exhibit
        Numbers**
 
 3.1
              --
              Restated
                  Certificate of Incorporation of the Company, as amended33/3.2
              --
              Amended
                  and Restated By-laws of Company10/4.1
              --
              Certificate
                  of Designations, Preferences and Rights of Series C Convertible
                  Preferred
                  Stock of the Company, dated as of January 7, 199910/4.2
              --
              Securities
                  Purchase Agreement, dated as of January 7, 1999, between the Company
                  and
                  each of the purchasers named on the signature pages thereto10/4.3
              --
              Securities
                  Purchase Agreement, dated as of January 19, 1999, among the Company,
                  David
                  M. Knott and Knott Partners, L.P.10/4.4
              --
              Securities
                  Purchase Agreement, dated as of February 1, 1999, between the Company
                  and
                  Windsor Partners, L.P.10/4.5
              --
              Registration
                  Rights Agreement, dated as of January 7, 1999, between the Company
                  and
                  each of the purchasers named on the signature pages thereto10/4.6
              --
              Form
                  of Warrant to Purchase Common Stock10/4.7
              --
              Warrant
                  to Purchase Common Stock granted to James J. Apostolakis on September
                  23,
                  19994.8
              --
              Certificate
                  of Designations of Series E Convertible Preferred Stock, filed
                  May 10,
                  2005 with the Delaware Secretary of State30/10.1
              --
              Employment
                  Agreement dated as of January 1, 1996, between the Company and
                  Norman M.
                  Meier6/*10.2
              --
              Employment
                  Agreement dated as of January 1, 1996, between the Company and
                  William J.
                  Bologna6/*10.3
              --
              1988
                  Stock Option Plan, as amended, of the Company4/10.4
              --
              1996
                  Long-term Performance Plan, as amended, of the Company7/10.5
              --
              License
                  and Supply Agreement between Warner-Lambert Company and the Company
                  dated
                  December 5, 19913/10.6
              --
              Asset
                  Purchase, License and Option Agreement, dated November 22,
                  19891/10.7
              --
              Employment
                  Agreement dated as of April 15, 1997, between the Company and Nicholas
                  A.
                  Buoniconti8/*10.8
              --
              License
                  and Supply Agreement for CRINONE®between Columbia Laboratories, Inc. (Bermuda) Ltd. and American
                  Home
                  Products dated as of May 21, 19955/10.9
              --
              Addendum
                  to Employment Agreement dated as of September 1, 1997, between
                  the Company
                  and Norman M. Meier8/*10.10
              --
              Addendum
                  to Employment Agreement dated as of September 1, 1997, between
                  the Company
                  and William J. Bologna8/*10.11
              --
              Addendum
                  to Employment Agreement dated as of September 1, 1997, between
                  the Company
                  and Nicholas A. Buoniconti8/*10.12
              --
              Convertible
                  Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due
                  March
                  15, 2005 and Registration Rights Agreement all dated as of March
                  16, 1998
                  between the Company and SBC Warburg Dillon Read Inc.9/10.13
              --
              Termination
                  Agreement dated as of April 1, 1998 between the Company and the
                  Warner-Lambert Company9/10.14
              --
              Addendum
                  to Employment Agreement dated as of October 8, 1998, between the
                  Company
                  and Nicholas A. Buoniconti.10/*
  
  10.15
              --
              Agreement
                  dated as of December 14, 1998, by and among Columbia Laboratories,
                  Inc.,
                  William J. Bologna, Norman M. Meier, James J. Apostolakis, David
                  Ray,
                  Bernard Marden, Anthony R. Campbell, David M. Knott and Knott Partners,
                  L.P.10/10.16A
              --
              License
                  and Supply Agreement by an between the Company and Mipharm S.p.A.
                  dated
                  March 5, 199911/10.16B
              --
              License
                  and Supply Agreement forCRINONE®between Columbia Laboratories (Bermuda) Limited and Ares Trading
                  S.A.
                  dated as of May 20, 199912/10.17
              --
              Addendum
                  to Employment Agreement dated as of January 1, 2000 between the
                  Company
                  and Norman M. Meier12/*10.18
              --
              Addendum
                  to Employment Agreement dated as of January 1, 2000 between the
                  Company
                  and William J. Bologna12/*10.19
              --
              Employment
                  Agreement dated as of January 1, 2000 between the Company and James
                  J.
                  Apostolakis12/*10.20
              --
              Employment
                  Agreement dated December 30, 1999 between the Company and Dominique
                  de
                  Ziegler12/*10.21
              --
              Settlement
                  Agreement and Release dated as of March 16, 2000 between Columbia
                  Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.12/10.22
              --
              Replens®Purchase and License Agreement dated April 18, 2000, between the
                  Company
                  and Lil’ Drug Store Products, Inc.13/10.23
              --
              License
                  Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                  Products, Inc.13/10.24
              --
              Distribution
                  Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                  Products, Inc.13/10.25
              --
              Stock
                  Purchase Agreement, dated January 31, 2001, between the Company
                  and
                  Ridgeway Investment Limited14/10.26
              --
              Amended
                  and Restated Common Stock Purchase Agreement by and between the
                  Company
                  and Acqua Wellington North American Equities Fund, Ltd., effective
                  as of
                  February 6, 2001.15/10.27
              --
              Employment
                  Agreement dated March 16, 2001 between the Company and G. Frederick
                  Wilkinson16/*10.28
              --
              Stock
                  Purchase Agreement, dated May 10, 2001, between the Company and
                  Ridgeway
                  Investment Limited17/10.29
              --
              Stock
                  Purchase Agreement, dated July 23, 2001, between the Company and
                  Ridgeway
                  Investment Limited18/10.30
              --
              Rights
                  Agreement dated as of March 13, 2002, by and between Columbia
                  Laboratories, Inc. and First Union National Bank, as Rights
                  Agent19/10.31†
              --
              Semi-Exclusive
                  Supply Agreement dated May 7, 2002 between the Company and Mipharm
                  S.p.A.20/10.32†
              --
              Amended
                  and Restated License and Supply Agreement dated June 4, 2002 between
                  the
                  Company and Ares Trading S.A.20/10.33†
              --
              Marketing
                  License Agreement dated June 4, 2002 between the Company and Ares
                  Trading
                  S.A. and Serono, Inc.20/10.34†
              --
              Master
                  Services Agreement dated July 31, 2002 between the Company and
                  Innovex
                  LP20/10.35†
              --
              Stock
                  Purchase Agreement dated July 31, 2002 By and Between Columbia
                  Laboratories, Inc. and PharmaBio Development Inc.20/10.36†
              --
              Investment
                  and Royalty Agreement dated July 31, 2002 between the Company and
                  PharmaBio Development Inc.20/
  
  10.37†
              --
              License
                  and Supply Agreement dated October 16, 2002 between the Company
                  and Ardana
                  Bioscience Limited21/10.38†
              --
              Development
                  and License Agreement dated December 26, 2002 between the Company
                  and
                  Ardana Bioscience Limited21/10.39
              --
              Amendment
                  No. 1 to the Amended and Restated Common Stock Purchase Agreement
                  by and
                  between the Company and Acqua Wellington North American Equities
                  Fund,
                  Ltd., effective as of January 31, 200321/10.40†
              --
              Investment
                  and Royalty Agreement dated March 5, 2003 between the Company and
                  PharmaBio Development Inc.21/10.41†
              --
              Sales
                  Force Work Order #8872 pursuant to the Master Services Agreement
                  having an
                  Effective Date of July 31, 2002, between the Company and Innovex
                  LP21/10.42
              --
              Separation
                  and Consulting Agreement dated April 15, 2003 between the Company
                  and
                  William J. Bologna22/10.43†
              --
              License
                  and Supply Agreement Dated May 27, 2003 between the Company and
                  Mipharm
                  S.p.A.23/10.44
              --
              Standstill
                  Agreement dated December 1, 2003 between the Company and Perry
                  Corp.24/10.45†
              --
              Amended
                  and Restated Sales Force Work Order #8795 And Termination of Work
                  Order
                  #8872 pursuant to the Master Services Agreement having an effective
                  date
                  of January 26, 2004 between the Company and Innovex25/10.46
              --
              Form
                  of Indemnification Agreement for Officers and Directors25/10.47
              --
              Form
                  of Executive Change of Control Severance Agreement25/10.48
              --
              Employment
                  Agreement dated as of March 16, 2004 between the Company and G.
                  Frederick
                  Wilkinson26/*10.49†
              --
              Asset
                  Purchase Agreement Dated June 29, 2004, between the Company and
                  Lil’ Drug
                  Store Products, Inc.27/10.50†
              --
              Supply
                  Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
                  Products, Inc.27/10.51†
              --
              Professional
                  Promotion Agreement dated June 29, 2004, between the Company and
                  Lil’ Drug
                  Store Products, Inc.27/10.52
              --
              Letter
                  Agreement and General Release of Claims, effective as of December
                  31,
                  2004, between Columbia Laboratories, Inc. and James J.
                  Apostolakis28/10.53
              --
              Employment
                  Agreement dated as of February 25, 2005 between the Company and
                  Robert S.
                  Mills29/*10.54
              --
              Columbia
                  Laboratories Inc. Incentive Plan, 200429/*10.55
              --
              Description
                  of the Registrant’s compensation and reimbursement practices for
                  non-employee directors31/10.56
              --
              Preferred
                  Stock Purchase Agreement, dated as of May 10, 2005, among Columbia
                  Laboratories,Inc.,
                  Perry Partners L.P. and Perry Partners International, Inc.30/10.57
              --
              Columbia
                  Laboratories Inc. Incentive Plan32/*10.58
              --
              2005
                  base salaries and incentive bonus targets for the Registrant’s executive
                  officers32/*10.59
              --
              Securities
                  Purchase Agreement,****dated
                  March 10, 2006, by and between Columbia Laboratories, Inc. and
                  the****Purchasers
                  listed on Exhibit A thereto34/10.60
              --
              Employment
                  Agreement by and between Columbia Laboratories, Inc. and Robert
                  S. Mills
                  dated March 30, 200635/*10.61
              --
              Employment
                  Agreement by and between Columbia Laboratories, Inc. and Michael
                  McGrane
                  dated March 30, 200635/*10.62A
              --
              Letter
                  Agreement Supplement to STRIANT®Investment and Royalty Agreement dated April 14, 200636/
  
  10.62B
              --
              Form
                  of Restricted Stock Agreement37/10.63
              --
              Form
                  of Option Agreement37/10.64
              --
              Description
                  of the registrant’s compensation and reimbursement practices for
                  non-employee directors37/10.65
              --
              None10.66
              --
              Employment
                  Agreement by and between Columbia Laboratories, Inc. and James
                  Meer dated
                  December 6, 200638/*10.67
              --
              Separation
                  Agreement by and between Columbia Laboratories, Inc. and David
                  L. Weinberg
                  effective as of December 12, 200639/10.68†
              --
              Agreement,
                  dated December 21, 2006, by and among Ares Trading S.A., Serono,
                  Inc., the Company and its wholly-owned subsidiary, Columbia Laboratories
                  (Bermuda), Ltd40/10.69
              --
              Amendment
                  No. 1 to the Amended and Restated License and Supply Agreement,
                  entered into December 21, 2006, by and between Ares Trading S.A and
                  Columbia Laboratories (Bermuda), Ltd.40/10.70
              --
              Securities
                  Purchase Agreement, dated December 21, 2006, by and between Columbia
                  Laboratories, Inc. and the Purchasers listed on Exhibit A
                  thereto40/14
              --
              Code
                  of Ethics of the Company25/21
              --
              Subsidiaries
                  of the Company41/23
              --
              Consent
                  of Goldstein Golub Kessler LLP41/31(i).1
              --
              Certification
                  of Chief Executive Officer of the Company41/31(i).2
              --
              Certification
                  of Chief Financial Officer of the Company41/32.1
              --
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.41/32.2
              --
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.41/*
              
              Management
                  contract or compensatory plan or arrangement required to be filed
                  as an
                  exhibit to this form pursuant to item 601 of Regulation
                  S-K.†
              
              Confidential
                  treatment has been requested with respect to certain portions of
                  this
                  exhibit. Omitted portions have been filed separately with the
                  SEC.1/
              
              Incorporated
                  by reference to the Registrant's Registration Statement on Form
                  S-1 (File
                  No. 33-31962) declared effective on May 14, 1990.2/
              
              Incorporated
                  by reference to the Registrant's Annual Report on Form 10-K for
                  the year
                  ended December 31, 1990.3/
              
              Incorporated
                  by reference to the Registrant's Current Report on Form 8-K, filed
                  on
                  January 2, 1992.4/
              
              Incorporated
                  by reference to the Registrant's Annual Report on Form 10-K for
                  the year
                  ended December 31, 1993.5/
              
              Incorporated
                  by reference to the Registrant's Registration Statement on Form
                  S-1 (File
                  No. 33-60123) declared effective August 28, 1995.6/
              
              Incorporated
                  by reference to the Registrant's Annual Report on Form 10-K for
                  the year
                  ended December 31, 1995.
  
  7/
              
              Incorporated
                  by reference to the Registrant's Proxy Statement dated May 10,
                  2000.8/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 1997.9/
              
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                  quarter ended March 31, 1998.10/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 1998.11/
              
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                  quarter ended March 31, 1999.12/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 199913/
              
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 2000.14/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated January
                  31, 2001.15/
              
              Incorporated
                  by reference to the Registrant’s Registration Statement on Form S-3 (File
                  No. 333-38230) declared effective May 7, 2001.16/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated March
                  16, 2001.17/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated May 10,
                  2001.18/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated July
                  23, 2001.19/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated March
                  12, 2002.20/
              
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q dated
                  August 14, 2002.21/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 200222/
              
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q dated May
                  14, 2003.23/
              
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q dated
                  August 14, 2003.
  
  24/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated
                  December 1, 2003.25/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 200326/
              
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q dated May
                  10, 2004.27/
              
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                  August 4, 2004.28/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated January
                  3, 2005.29/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated March
                  1, 2005.30/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated May 12,
                  2005.31/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated April
                  11, 2005.32/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated May 20,
                  2005.33/
              
              Incorporated
                  by reference to the Registrant’s Annual Report on Form 10-K for the year
                  ended December 31, 2005.34/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated March
                  16, 2006.35/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated April
                  3, 2006.36/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated April
                  17, 2006.37/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated May 17,
                  2006.38/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated
                  December 7, 2006.39/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated
                  December 15, 2006.40/
              
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K, dated
                  December 26, 2006.41/
              
              Filed
                  herewith