**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
                EXCHANGEACT
                OF 1934**For
                the fiscal year ended December 31, 2007**ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIESEXCHANGE
                ACT OF 1934For
                the transition period from ____________to
                ____________**Commission
                File number 1-10352****COLUMBIA
                LABORATORIES, INC.**(Exact
                name of registrant as specified in its charter)**Delaware**
            **59-2758596**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)**354
                Eisenhower Parkway****Livingston,
                New Jersey**
            **07039**(Address
                of principal executive offices)
            (Zip
                Code)Securities
                registered pursuant to Section 12(b) of the Act: NoneSecurities
                registered pursuant to Section 12(g) of the Act:**Common
                Stock, $.01 par value**
            **NASDAQ
                Global Market**(Title
                of each class)
            (Name
                of exchange on whichregistered)




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 No
o





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. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filer
            o
            
            Accelerated
                filer
            xNon-accelerated
                filer
            o
            
            Smaller
                reportingcompany
            o





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




oYes         xNo





The
      aggregate market value of Common Stock held by non-affiliates of the registrant
      on June 30, 2007, the last business day of the registrant’s most recently
      completed second fiscal quarter, based on the closing price on that date of
      $2.41, was $123.1 million.





Number
      of
      shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding
      as
      of March 3, 2008 are 51,961,789.





**Documents
      Incorporated By Reference**




Portions
      of the Columbia Laboratories, Inc. (“Columbia” or the “Company”) Proxy Statement
      for the 2008 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 United States Securities and Exchange Commission
      (“SEC”) and mail it to shareholders on or before April 7, 2008.









**Restatement
      of Previously Issued Financial Statements**





We
      restated our historical audited financial statements for the fiscal years ended
      December 31, 2006, 2005, and 2004 and our unaudited financial information for
      the quarters ended March 31, 2007, June 30, 2007, September 30, 2007, and March
      31, 2006, June 30, 2006 and September 30, 2006. These restatements and revisions
      primarily reflect adjustments to:





·
            Correct
                previously reported interest expense for financing agreements to
                correct
                for understatement in 2004 and 2005 and overstatement in 2006, along
                with
                the respective increase or decrease in net loss and the impact on
                outstanding loan balances and to increase or decrease the accumulated
                deficit.


·
            Correct
                the classification of the contingently redeemable Series C Convertible
                Preferred Stock from Shareholders Equity to temporary
                equity.







.


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


**Fiscal
      Year Ended December 31, 2007**





**Page****Part
                I**Item
                1
            Business
            
            **3**Item
                1A
            Risk
                Factors
            
            **21**Item
                1B
            Unresolved
                Staff Comments
            
            **30**Item
                2
            Properties
            
            **30**Item
                3
            Legal
                Proceedings
            
            **30**Item
                4
            Submission
                of Matters to a Vote of Security Holders
            
            **30****Part
                II**Item
                5
            Market
                for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            **34**Item
                6
            Selected
                Financial Data
            
            **38**Item
                7
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            
            **38**Item
                7A
            Quantitative
                and Qualitative Disclosures about Market Risks
            
            **54**Item
                8
            Financial
                Statements and Supplementary Data
            
            **54**Item9
            Changes
                in and Disagreements with Accountants on Accounting and Financial
Disclosures
            
            **54**Item
                9A
            Controls
                and Procedures
            
            **54**Item
                9B
            Other
                Information
            
            **57****Part
                III**Item
                10
            Directors
                and Executive Officers of the Registrant
            
            **58**Item
                11
            Executive
                Compensation*
            
            **58**Item
                12
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters*
            
            **58**Item
                13
            Certain
                Relationships and Related Transactions*
            
            **58**Item
                14
            Principal
                Accountant Fees and Services *
            
            **58****Part
                IV**Item
                15
            Exhibits
                and Financial Statement Schedules
            
            **59**





*
            Items
                11, 12, 13, 14 and portions of Item 10 are incorporated by reference
                to
                the Company’s 2008 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 Laboratories, 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.





2


**PART
      I**





**Item
      1. Business**





**General**





We
      are in
      the business of developing, manufacturing and selling pharmaceuticals products
      that utilize our proprietary bioadhesive drug delivery technologies. We
      are focused
      predominantly on the women’s
      reproductive healthcare market
      but our product development projects address the broader 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
      two natural progesterone gel products, CRINONE ® 8% and
      PROCHIEVE ® 8% in
      the United States. CRINONE and PROCHIEVE are approved in the U.S. for
      supplementation or replacement of progesterone as part of an Assisted
      Reproductive Technology (“ART”) treatment for infertile women with progesterone
      deficiency and for treatment of secondary amenorrhea. Outside the U.S. CRINONE
      has been approved for marketing for one or more medical indications including
      supplementation or replacement as part of an ART treatment for infertile women,
      treatment of secondary amenorrhea, the prevention of hyperplasia in
      postmenopausal women receiving hormone replacement therapy (“HRT”), the
      reduction of symptoms of premenstrual syndrome (“PMS”), menstrual
      irregularities, dysmenorrhea, and dysfunctional uterine bleeding. We reacquired
      the U.S. marketing rights to CRINONE in December 2006, and can now promote
      these
      products to a full range of reproductive endocrinologists, obstetricians and
      gynecologists who treat infertility. We also promote STRIANT ® testosterone buccal system for the treatment of hypogonadism in men, however, our
      continuing focus in fiscal 2008 is to increase prescriptions
      of our infertility products.




We
      derive
      additional revenues from our established marketing partnerships, through which
      certain of 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.





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. Our vaginal products
      adhere to the vaginal epithelium and the buccal products adhere to the mucosal
      membrane of the gum and cheek. 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. Both vaginal and buccal BDS products provide sustained and controlled
      delivery of active drug ingredients. Its extended period of attachment permits
      use of BDS in products when extended duration of effectiveness is desirable
      or
      required. The Company intends to continue to leverage the advantages of BDS
      drug
      delivery by developing new BDS products that improve the delivery of approved
      drugs that have low oral bioavailability, or where systemic levels of the active
      ingredient must be curtailed. In addition, this delivery system is particularly
      useful for active drug ingredients that cannot be ingested.





3




We
      have
      focused on infertility but our development pipeline also focuses on the broader
      women's reproductive healthcare market because we believe that vaginal delivery
      is a particularly effective way to deliver active ingredients to the female
      reproductive organs.





**OUR
      STRATEGY**




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





*Focus
      on building revenues from our products for the treatment of infertility in
      women.* Since
      2002, Columbia has been increasingly focused on products for the treatment
      of
      infertility in women. In 2006, we reacquired U.S. marketing rights for
      CRINONE ® progesterone gel from Merck Serono S.A. (“Merk Serono”). Our CRINONE 8% and
      PROCHIEVE ® 8%
      progesterone gels form the core to build a broader 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. These products
      currently generate over 55,000 U.S. prescriptions per year. Over 1.2 million
      infertility treatments are performed every year in the U.S. In each instance,
      the reproductive endocrinologist (RE), obstetrician or gynecologist (OB/GYN)
      could improve the likelihood of successful implantation by using supplemental
      progesterone. CRINONE 8% and PROCHIEVE 8% are also used for pregnancy support
      during the first 10 to 12 weeks of gestation. This largely untapped market
      provides growth potential over and above infertility cycle supplementation.
      In
      2007 we expanded our sales force and sales force management from 25 to 35 to
      more effectively call on those physicians that treat over 80% of all infertility
      patients.




*Develop
      a preterm birth prevention indication for* PROCHIEVE ® 8% *.* Our
      lead
      R&D opportunity is the study of PROCHIEVE 8% to reduce the risk of preterm
      birth in women with a short cervix as measured by transvaginal ultrasound in
      mid-pregnancy. This opportunity arose from significant positive data obtained
      from secondary analyses of our earlier recurrent Phase III preterm study. Based
      on those positive data and our discussions with the FDA, we designed the Phase
      III PREGNANT ( **PR** OCHIEVE ®  **E** xtending **G** estatio **N**  **A**  **N** ew **T** herapy)
      study. The Company is conducting the Phase III clinical study with
      PROCHIEVE ® 8%
      progesterone gel to prevent preterm birth and improve infant outcomes for those
      women with a short cervix at mid-pregnancy. This randomized, double-blind,
      placebo-controlled clinical trial will evaluate the effect of
      PROCHIEVE ® 8% on
      reducing the risk of preterm birth in women with a cervical length between
      1.0
      and 2.0 centimeters as measured by transvaginal ultrasound at mid-pregnancy.
      The
      primary endpoint is a reduction in the incidence of preterm birth at less than
      or equal to 32 weeks gestation vs. placebo. If successful, we would apply to
      FDA
      for approval of a label indication for this use. In the fourth quarter of 2007
      we recruited 19 sites, filed the protocol with the Institutional Review Boards
      (“IRB”) and trained their staff in the study protocol. We expect to begin the
      recruiting efforts in the PREGNANT study in the first quarter of 2008. If we
      are
      able to meet our enrollment timeline for this trial, we expect to enroll and
      complete this clinical trial in 2008, with all the babies delivered in time
      to
      report results in the first half of 2009.





4




*Focus
      research and development resources on vaginally-administered lidocaine.* Throughout 2007 we continued to invest in our vaginal lidocaine drug candidate,
      which we are evaluating to prevent and treat the severe uterine cramps that
      result in the debilitating pain of dysmenorrhea. In the U.S. alone, this common,
      painful condition seriously affects about 5.6 million women in the age range
      of
      20 to 45 to the point where they frequently miss work. In mid 2007 we completed
      a multi-dose pharmacokinetic study of the lidocaine candidate and reported
      positive results demonstrating safe blood levels from our delivery system.
      We
      subsequently initiated a 75-patient Phase II study in patients with
      dysmenorrhea. We expect to conclude enrollment in April 2008 and we expect
      to
      announce data and results from this clinical trial in the third quarter of
      2008.





*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 infertility product offering to ** generate
      additional near-term revenues from our commercial infrastructure.





*Continue
      existing and establish new collaborations to develop and commercialize selected
      drugs.* Collaborations
      with pharmaceutical companies have played an important role in helping us
      develop and 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. We also seek opportunities
      to
      apply our technology to approved compounds manufactured and sold by potential
      strategic partners for therapeutic areas outside our focus.





*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.





**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 Note 10 to the consolidated
      financial statements for information on foreign operations.





**Operations**





Our
      sales
      and marketing organization operates solely in the United States, and is
      specifically focused on a select group of obstetricians, gynecologists,
      reproductive endocrinologists. We also market STRIANT to general
      endocrinologists, urologists and a select number of primary care physicians.
      Our
      marketing and sales efforts for STRIANT are primarily focused on maintaining
      the
      current prescription levels. We have entered into partnerships to commercialize
      our products outside 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.





We
      are
      substantially dependent on three manufacturers for the products that we sell
      to
      marketing partners around the world and commercialize ourselves in the United
      States. We sell five vaginal gel products that are each manufactured in bulk
      by
      Fleet Laboratories Limited, Watford, Herts, United Kingdom (“Fleet”) and filled
      into overwrapped single-use disposable applicators by Maropack AG, Zell,
      Switzerland (“Maropack”). Our single buccal product is manufactured for us by
      Mipharm S.p.A., Milan, Italy (“Mipharm”).





5




Our
      wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd., entered into
      an
      agreement dated July 12, 1996, with Fleet to manufacture our progesterone
      vaginal gel products for delivery in bulk containers. Pursuant to the agreement
      Fleet built and operates a dedicated suite for the manufacture of hormone
      products. Fleet may pass on increases in the cost of materials on three months
      notice and increases in labor on the anniversaries of the agreement. The
      original term of the agreement was 10 years after which either party may
      terminate the agreement on twelve (12) months prior written notice. Payments
      under the agreement are made in pounds sterling. Fleet also manufactures the
      Company’s non-progesterone vaginal gel products for delivery in bulk containers
      pursuant to individual purchase orders.





Our
      then
      wholly owned subsidiary, Columbia Laboratories (Ireland) Ltd., entered into
      an
      agreement dated October 28, 1993 (which agreement was later transferred to
      our
      wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd.), with Maropack
      to
      fill our bulk vaginal gel products into overwrapped single-use disposable
      applicators. The original term of the agreement was one (1) year with automatic
      one (1) year renewals. Either party may terminate the agreement on six (6)
      months prior written notice before the end of any renewal term. Prices are
      renegotiated annually based on forecasted production volumes. Payments under
      the
      agreement are made in Swiss francs.





Our
      wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd., entered into
      an
      agreement dated May 7, 2002 with Mipharm to manufacture at least eighty-five
      percent (85%) of our requirements for our STRIANT® testosterone buccal product
      for sale in the United States, Europe and Latin America. Pursuant to the
      agreement Mipharm built and operates a dedicated suite for the manufacture
      of
      hormone products, one-half the cost of which was paid by us. The original term
      of the agreement is twelve (12) years with automatic three (3) year renewals.
      Either party may terminate the agreement on twelve (12) months prior written
      notice before the end of any term. The price of the product may increase based
      on increases in labor costs in Italy or raw materials. Payments under the
      agreement are made in Euros.





**Products**





**Progesterone
      Gel Products: CRINONE and PROCHIEVE**





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.





Our
      principal product is a sustained release gel that delivers natural progesterone
      vaginally. Our vaginal progesterone gel product is marketed under the two brand
      names CRINONE and PROCHIEVE, and is available in 8% and 4%
      formulations.





CRINONE
      8% is principally marketed to reproductive endocrinologists who generally
      perform the more technical procedures to assist women who are infertile become
      pregnant. Our
      2008
      focus for CRINONE commercialization will be to seek to convert sales of pharmacy
      compounded intramuscular progesterone injections and progesterone suppositories
      to sales of CRINONE. Preparation of marketing materials showing our compilation
      of 16 clinical trials that have been conducted to compare CRINONE to other
      forms
      of progesterone, will provide us with a compelling case for the efficacy of
      CRINONE. These data show that CRINONE is as effective as, and in some cases,
      numerically more effective than all the other delivery systems for progesterone.
      In the six clinical trials that included an arm evaluating patient preference,
      patients preferred CRINONE over the competing product in all six clinical
      trials. We believe that if we are able to communicate the information that
      we
      have compiled on CRINONE, through direct marketing to physicians and
      presentations by key opinion leaders in the reproductive endocrinology field,
      we
      should be able to convince physicians to prescribe CRINONE over the competing
      injections and suppositories. Our sales force is now focused on promoting our
      CRINONE 8% to the infertility specialty market. We plan to execute on the
      foundation we laid in 2007 for CRINONE 8% and expect that CRINONE will be a
      key
      revenue driver in 2008.





6





PROCHIEVE
      8% is principally marketed to obstetricians and gynecologists who may use
      progesterone in conjunction with clomiphene citrate to assist women who are
      infertile become pregnant. We
      expect
      that in 2008 we will invest significant resources in the development program
      for
      PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix
      as
      measured by transvaginal ultrasound at mid-pregnancy. This program includes
      a
      clinical trial in pregnant women which we have named the PREGNANT study. In
      2007, we reported data from our completed clinical trial of PROCHIEVE 8% in
      pregnant women with a history of prior pre-term birth. In that clinical trial,
      the study endpoints were not met, and the trial demonstrated that there was
      no
      benefit of administering vaginal progesterone to that patient population.
      However, secondary analyses of the data from this earlier study demonstrated
      a
      statistically significant improvement in the rate of preterm birth and infant
      outcomes in trial participants who had a short cervix at mid-pregnancy. This
      secondary analyses was conducted on a subset of patients with a short cervix
      at
      mid-pregnancy from the previous trial and the PREGNANT clinical trial is
      designed to confirm these data in a larger trial. The PREGNANT study was
      designed based in part on the data set forth in the White Journal and
      discussions with the FDA. This randomized, double-blind, placebo-controlled
      Phase III clinical trial is designed to evaluate the ability of PROCHIEVE 8%
      to
      reduce the risk of preterm birth in women with a short cervix of between 1.0
      and
      2.0 centimeters as measured by transvaginal ultrasound at mid-pregnancy. The
      primary endpoint of this clinical trial is a reduction in preterm births at
      less
      than or equal to 32 weeks versus placebo. If the results of the PREGNANT trial
      confirm the results seen in the earlier clinical trial, we expect to file a
      NDA
      supplement seeking approval of PROCHIEVE 8% for this indication and utilize
      the
      name PROCHIEVE solely related to the preterm birth indication.





PROCHIEVE
      4% is indicated for treatment of secondary amenorrhea. It is marketed only
      in
      the United States. Merck Serono suspended any promotional support for the 4%
      progesterone vaginal gel outside the United States but maintains the marketing
      rights. In
      September 2007, the Company and Ascend
      Therapeutics, Inc. (“Ascend”), entered into a five
      year
      license and supply agreement under which Ascend is responsible for marketing
      and
      sales of PROCHIEVE ® 4% in
      the United States.





The
      Company sells CRINONE and PROCHIEVE brand
      progesterone gels in the United States. The Company promotes these products to
      reproductive endocrinologists, obstetricians, and gynecologists . CRINONE brand
      progesterone gel is sold outside the U. S. by 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
      preferential uptake of drug from the vagina to the uterus, or 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 metabolites
      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. In September 2007, we licensed
      PROCHIEVE 4% to Ascend to market this product in the U.S. effective January
      1,
      2008.





Outside
      the U.S., CRINONE has been
      approved for marketing for one or more medical indications in 60 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.




7





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.





**Other
      Vaginal Gel Women’s Products**





**Replens** **®** **Vaginal Moisturizer** .
      Our BDS
      vaginal gel, without an active pharmaceutical ingredient, is sold as Replens
      Vaginal Moisturizer. Replens is indicated for replenishment of vaginal moisture
      on a sustained basis and to relieve 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 for Lil’ Drug Store’s requirements for Replens in non-U.S. markets
      that expires October 31, 2009 and a promotion agreement that expired at the
      end
      of 2006. 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 that expires October 31, 2009 and a promotion agreement that
      expired at the end of 2006. Columbia sells product on a worldwide basis to
      Lil’
Drug Store. See “Licensing and Development Agreements.”





**Advantage-S** **â** **Bioadhesive Contraceptive Gel.** The
      Company marketed one additional product, Advantage-S â a 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.
      See “Licensing and Development Agreements.”





**Products
      Outside of the Women’s Reproductive Healthcare Market**




**STRIANT** **®** **(testosterone buccal system)** .
      STRIANT
      is approved in the U.S., the U.K., Germany, France, Spain, Italy and 10 other
      European countries for treatment of hypogonadism in men. Hypogonadism is
      characterized by a deficiency or absence of endogenous testosterone production.
      Signs and symptoms of hypogonadism can include decreased libido (sexual desire),
      erectile dysfunction (ED), fatigue, depression, reduced muscle mass, and
      osteoporosis. The purpose of testosterone replacement therapy is 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. The treatment for hypogonadism
      is to replace testosterone through one of many available delivery systems
      including transdermal patches, topical gels, injectable formulations of
      testosterone and the STRIANT buccal system.





STRIANT
      utilizes the BDS to achieve controlled and sustained delivery of testosterone
      via the buccal cavity - the small depression in the mouth where the gum meets
      the upper lip above the incisor teeth. The product, which has the appearance
      of
      a small monoconvex tablet, rapidly adheres to the buccal mucosa. STRIANT is
      absorbed into the bloodstream and delivered directly into the superior vena
      cava
      (major blood vessel), bypassing the gastrointestinal system and liver. In
      clinical trials, STRIANT produced circulating testosterone concentrations in
      hypogonadal males approximating physiologic levels seen in healthy young men.





8




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 men with hypogonadism. 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.





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.





We
      market
      and sell STRIANT in the United States. STRIANT sales comprise less than 1%
      of
      the market for testosterone replacement products in 2007. Due to our focus
      on
      increasing prescriptions for our progesterone gel products and increasing our
      overall business in products for women’s reproductive health, our marketing and
      sales organization is not undertaking activities beyond those that we believe
      are required to maintain current U.S. sales of STRIANT.





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”. Ardana is currently marketing and selling STRIANT
      in the U.K., Ireland, Germany, Sweden, Finland, Norway, Denmark and the
      Netherlands.





In
      May
      2003, the Company and 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”. Mipharm launched STRIANT into the Italian market in
      November, 2007.





**Advance
      Formula Legatrin PM.** In May
      2000, the Company licensed Advanced Formula Legatrin PM ® ,
      a
      product **** for
      the
      relief of occasional pain and sleeplessness associated with minor muscle aches
      to Lil’ Drug Store. Lil’ Drug Store pays the Company a royalty of 20% of the net
      sales of the product. The license agreement had an initial five-year term with
      provisions for automatic renewal. The
      license for Advanced
      Formula Legatrin PM was renewed to May 2010. See “Licensing and Development
      Agreements.”




9





**Research
      and Development**





The
      Company spent $5.8 million in 2007, $6.6 million in 2006 and $5.8 million in
      2005 on research and development activities. The expenditures in 2007, 2006
      and
      2005 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 2007 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. **** Columbia
      has historically developed products using already approved active ingredients
      and developed them in our BDS technology. This has typically meant that Phase
      I
      studies are not required. 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. Phase III
      studies are the “pivotal” studies that regulatory agencies require to show both
      safety and efficacy on a statistically representative population of people
      intended to be treated. ****





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. The development, clinical testing and filing of an
      application to the respective regulatory agencies of those countries where
      the
      drug is intended to be approved for marketing and sales can cost millions of
      dollars.





**PROCHIEVE
      8% in Preventing Preterm Birth** .
      On
      February 5, 2007, the Company reported the results of its 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. The study did not achieve a statistically significant
      reduction in the incidence of preterm birth at week 32, the primary endpoint
      in
      the study population. The incidence and profile of adverse events in patients
      receiving PROCHIEVE 8% was similar to placebo.





On
      April
      26, 2007, the Company reported that evaluation of a secondary endpoint of the
      study revealed a possible effect of PROCHIEVE 8% in delaying cervical
      shortening. Although an effect on cervical length was not the primary focus
      of
      this trial, pursuant to the study protocol, cervical length measurements were
      performed on all women at baseline (approximately at 20 weeks gestation) and
      at
      28 weeks gestation. Data from the study show a statistically significant delay
      in cervical shortening in patients treated with PROCHIEVE 8%, and suggest a
      correlation between the cervical length data, PROCHIEVE 8% administration,
      and
      both a reduction in the likelihood of preterm birth and an improvement in infant
      outcomes.





Evaluation
      of treatment by cervical length at baseline revealed that the “responders” to
      progesterone were patients with a short cervix at baseline. Further evaluation
      of all randomized patients, including patients randomized with a short cervix
      only, show that patients with a cervical length less than 3.0 cm had a
      significant treatment effect to reduce the incidence of preterm birth less
      than
      37 weeks. A further evaluation of the patients with baseline short cervical
      length revealed that in women with a baseline cervical length less than 2.8
      cm,
      there was a statistically significant reduction in preterm birth less than
      or
      equal to 32 weeks gestation. These delays in delivery were associated with
      significant improvements in infant outcome.




10





We
      believe that these data may provide an explanation for previous studies
      conducted by others showing an effect of progesterone administration in
      preventing preterm delivery. While previous clinical trials have been conducted
      in a study population of women who have experienced prior pre-term deliveries,
      those trials did not measure cervical length. We believe that it is possible
      that the group of women who responded to progesterone in earlier trials may
      correspond to the women in our clinical trial whose cervices were shorter at
      baseline. Due to the fact that our study measured cervical length at baseline,
      certain women with a short cervix who were treated at clinics where a cervical
      cerclage is standard of care, were not randomized into our trial. Our trial
      therefore eliminated some of the population of patients that the secondary
      analysis indicates should benefit from progesterone treatment. On the basis
      of
      this analysis and discussions with the FDA, we designed the PREGNANT study
      which
      is underway. This randomized, double-blind, placebo-controlled Phase III
      clinical trial is designed to evaluate the ability of PROCHIEVE 8% to reduce
      the
      risk of preterm birth in women with a short cervix of between 1.0 and 2.0
      centimeters as measured by transvaginal ultrasound at mid-pregnancy. The primary
      endpoint of the PREGNANT clinical trial is a reduction in preterm births at
      less
      than or equal to 32 weeks versus placebo.





In
      the
      fourth quarter of 2007 we recruited 19 study sites, filed the protocol with
      each
      site’s IRB and trained their staff on the study protocol. We expect to begin
      enrollment in the PREGNANT study in the first quarter of 2008. We plan to enroll
      and complete this study in 2008 with all the babies delivered in time to report
      results in the first half of 2009.





**Vaginally
      Administered Lidocaine.** The
      Company is conducting clinical development activities for 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 administration of lidocaine vaginally using our BDS technology can minimize
      or prevent the severe cramping that results in the debilitating pain of
      dysmenorrhea. A European clinical trial conducted by the Company in 2003
      demonstrated 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 BDS. On June 27, 2007, we announced the
      successful completion of a multi-dose pharmacokinetic study of
      vaginally-administered lidocaine. The 43-subject study was designed to measure
      blood levels associated with the Company’s bioadhesive vaginal lidocaine
      formulation at three dose strengths over multiple doses. For each of the dose
      levels studied, use of our bioadhesive formulation over four consecutive days
      was associated with blood levels that are well within an accepted range. Based
      on those results, the Company initiated a Phase II study in the second quarter
      of 2007. This study is a 75-patient Phase II cross-over study in patients
      with dysmenorrhea. We expect to conclude enrollment in April 2008, and announce
      results from this clinical trial in the third quarter of 2008.




11





Once
      we
      have Phase II data on our lidocaine candidate, assuming positive results, we
      believe we will be in a position to explore potential partnership opportunities
      for this product candidate, ideally to co-develop and co-market it. A
      partnership makes sense because many young women affected by dysmenorrhea are
      seen by pediatricians and family practice physicians, not OB/GYNs, and the
      pediatric and family practice markets fall outside our strategic focus. We
      plan
      to have an end of Phase II meeting with FDA and begin designing the Phase III
      program for lidocaine in 2008, again assuming positive data. This will keep
      us
      on track to meet our ultimate goal of an NDA filing with FDA and potential
      approval in 2010.





**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 them
      from
      developing endometrial hyperplasia. We are supplying Prochieve 4% for this
      trial, therefore, our costs are minimal, but we will have access to the data
      and
      could possibly utilize the data for publication purposes in a peer reviewed
      medical journal.





**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. In 2007, Ardana elected to suspend development
      of the product as a result of slow recruitment in a proof of concept clinical
      trial.





**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. A preliminary
      clinical plan, with a focus on reducing the size of systemic uterine fibroids
      is
      under review. We are not currently investing further in this drug candidate
      due
      to our investment in the PREGNANT and vaginal lidocaine clinical trials. We
      may
      consider further investment, if resources allow, at a later date.





**Vaginally
      Administered Carbamide Peroxide.** The
      Company is conducting pre-clinical development activities for a
      vaginally-administered carbamide peroxide product for treating or preventing
      vaginal infections. The product candidate is being investigated to determine
      the
      benefit of releasing and maintaining a very low concentration of peroxide over
      an extended period of time, in order to provide the benefits of oxygen release
      without adversely affecting normally-desired local vaginal flora. We do not
      plan
      to invest fully in development of this drug candidate at this time, but may
      consider further investment as resources become available at a later
      date.




**Peptide
      Delivery System.** The
      Company has completed a program that demonstrates that the BDS can deliver
      therapeutic doses of small chain peptides 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 peptide
      buccal tablets.





**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.




12





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. In 2007, Mipharm launched sales of STRIANT ® in  Italy.





***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. In
      2007,
      Ardana elected to suspend development of the product as a result of slow
      recruitment in a proof of concept clinical trial.





***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.




13





In
      May
      2000, the Company licensed Advanced Formula Legatrin PM ® ,
      a
      product **** for
      the
      relief of occasional pain and sleeplessness associated with minor muscle aches,
      to Lil’ Drug Store. Lil’ Drug Store pays the Company a royalty of 20% of the net
      sales of the product. The license agreement had an initial five-year term with
      provisions for automatic renewal. The
      license for Advanced
      Formula Legatrin PM was renewed to May 2010.





***Ascend
      Therapeutics, Inc.***





In
      September 2007, the Company and Ascend,
      entered into a five
      year
      license and supply agreement for the Company’s PROCHIEVE ® 4%
      progesterone gel, pursuant to which, effective January 1, 2008, Ascend is
      responsible for marketing and sales of PROCHIEVE ® 4% in
      the United States. Ascend will purchase product from the Company at a transfer
      price equal to 35% of Ascend’s net selling price with minimum annual
      purchase obligations that increase over the life of the agreement.





**Financing
      Agreements**





On
      July
      31, 2002, PharmaBio Development (“PharmaBio”), an affiliate of Quintiles
      Transnational Corp. 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 17%. As of December 31 2007, the Company has paid
      $4.4 million in royalties to PharmaBio under this agreement. The final payment
      under this agreement of $3.6 million was paid February 29, 2008. During 2007,
      the Company recognized that its method of calculating interest on this financing
      agreement was incorrect and has restated results for 2004, 2005 and 2006. See
      Note 2 in the Company’s Consolidated Financial Statements that shows the effect
      of the restatement.





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 2003 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%. Because
      the minimum amount exceeds $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 received by the Company is being recognized
      as
      interest expense over the seven-year term of the agreement, assuming an interest
      rate of 15%. As of December 31, 2007, the Company has paid $13.1 million in
      royalties (including the true-up payment) to PharmaBio under this agreement.
      In
      2007, the Company recognized that its method of calculating interest on this
      financing agreement was incorrect and has restated results for 2004, 2005 and
      2006. See Note 2 in the Company’s Consolidated Financial Statements that shows
      the effect of the restatement.




14




**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.





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.”




15





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**





We
      receive revenues from our “Progesterone Products” that we promote through our
      own sales force to reproductive endocrinologists and obstetricians and
      gynecologists and sell to wholesalers and specialty pharmacies and from sales
      to
      licensers. We supplement our Progesterone Products revenues by selling other
      products that use our BDS which we refer to as “Other Products”. Most of the
      Other Product revenue is based on sales of products to licensees. As of December
      31, 2007:





Progesterone
      Products are:





·
            CRINONE®8%progesterone
                gelmarketed
                by us in the U.S.·
            CRINONE®8%
                sold to Merck Serono for sale outside the U.S.·
            PROCHIEVE®8%
                progesterone gel marketed by us in the U.S.·
            PROCHIEVE®4%
                progesterone gel sold to Ascend for sale in the U.S. from January
                1,
                2008





Other
      Products are:





·
            STRIANT®testosterone buccal systemmarketed by us in the U.S.·
            STRIANT®sold to our marketing partners outside the U.S.;·
            Replens®Vaginal Moisturizer sold to Lil’ Drug Store outside the
                U.S.·
            RepHresh®Vaginal Gel sold to Lil’ Drug Store on a worldwide basis;
                and·
            Royalty
                and licensing revenues.





Prior
      to
      establishing our own sales force in 2002, we generally out-licensed marketing
      rights to our products. In October 2002, our sales force began to call on
      obstetricians and gynecologists to encourage prescriptions for PROCHIEVE 8%.
      The
      sales force began sales efforts for PROCHIEVE 4% in April 2003, and in September
      2003 began to call on endocrinologists, urologists and certain primary
      healthcare doctors to encourage prescriptions for STRIANT.





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 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. In
      July
      of 2007, in order to better align territories and revenue potential with our
      targeted reproductive endocrinologists and obstetricians, we expanded the sales
      force to 35 sales representatives and sales management.




16





**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.





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 PROCHIEVE 4% in the U.S.,
      RepHresh ® in the
      U.S. and foreign countries, and of Replens ® , 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. The final payment under the 2002 agreement
      was
      made on February 29, 2008.





**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.




17





CRINONE/PROCHIEVE,
      a natural progesterone product, competes in markets with other progestins,
      both
      synthetic and natural, that may be delivered by pharmacy-compounded injections,
      by pharmacy-compounded vaginal suppositories, with Prometrium ® (oral
      micronized progesterone) marketed by Solvay Pharmaceuticals, Inc. (“Solvay”), and Endometrin ® (progesterone vaginal insert) marketed by Ferring Pharmaceuticals, Inc.
      (“Ferring”). CRINONE/PROCHIEVE and Endometrin are the only progestin products
      approved by FDA for use in infertility or for use in pregnant women. Endometrin
      was approved by the FDA in June of 2007.





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. (“Unimed”),
      Testim ® (testosterone gel) marketed by Auxilium Pharmaceuticals Inc. (“Auxilium”), and
      Androderm ® (testosterone transdermal system) marketed by Watson Pharma, Inc. (“Watson”)
      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.





**Customers**





Our
      customers include trade customers, such as drug wholesalers, specialty
      pharmacies, 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 to one hundred twenty days in advance of the expected shipping
      date.





**Revenue
      by Product**





The
      following table sets forth the percentage of the Company's consolidated net
      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 four years ended December
      31:


2007
              
              2006
              
              2005
              
              2004CRINONE®
              
              
              64
              %
              
              39
              %
              
              37
              %
              
              40
              %RepHresh®
              
              
              11
              %
              
              4
              %
              
              12
              %
              
              4
              %PROCHIEVE®
              
              
              5
              %
              
              16
              %
              
              15
              %
              
              10
              %Replens®
              
              
              8
              %
              
              16
              %
              
              11
              %
              
              15
              %STRIANT®
              
              
              7
              %
              
              5
              %
              
              6
              %
              
              18
              %Royalty
                  income
              
              
              2
              %
              
              12
              %
              
              11
              %
              
              6
              %Sales
                  force promotional fees
              
              
              0
              %
              
              4
              %
              
              3
              %
              
              3
              %Licensing
                  fees
              
              
              3
              %
              
              4
              %
              
              3
              %
              
              3
              %Other
                  products
              
              
              0
              %
              
              0
              %
              
              2
              %
              
              1
              %100
              %
              
              100
              %
              
              100
              %
              
              100
              %
  18





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


in
                  millions
              
              2007
              
              2006
              
              2005
              
              2004Merck-Serono
                  (formerly Serono)
              
              $
              8.2
              
              $
              8.2
              
              $
              9.7
              
              $
              8.5Cardinal
                  Healthcare
              
              
              6.0
              
              
              2.1
              
              
              1.8
              
              
              1.4Lil'
                  Drug Store Products, Inc.
              
              
              6.0
              
              
              4.6
              
              
              6.9
              
              
              3.6McKesson
              
              
              3.9
              
              
              1.9
              
              
              1.6
              
              
              1.2AmerisourceBergen
              
              
              2.8
              
              
              -
              
              
              -
              
              
              -All
                  others (none over 5%)
              
              
              2.7
              
              
              0.6
              
              
              2.0
              
              
              3.1$
              29.6
              
              $
              17.4
              
              $
              22.0
              
              $
              17.8





**Sales
      by Geographic Area**





The
      following table sets forth the Company's consolidated net revenues, 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:


in
                  millions
              
              2007
              
              2006
              
              2005
              
              2004United
                  States
              
              $
              15.2
              
              $
              8.0
              
              $
              10.9
              
              $
              11.2Switzerland
              
              
              8.1
              
              
              5.7
              
              
              5.4
              
              
              3.3Other
                  European Countries
              
              
              6.3
              
              
              3.7
              
              
              5.7
              
              
              3.3Subtotal
                  International
              
              
              14.4
              
              
              9.4
              
              
              11.1
              
              
              6.6$
              29.6
              
              $
              17.4
              
              $
              22.0
              
              $
              17.8


**Employees**





As
      of
      March 5, 2008, the Company had 56 employees: 3 in management, 4 in production,
      36 in sales and marketing, and 13 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.




19





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”).




20


**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, 2007, we had a net loss of $14.3 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** **®** **8%, PROCHIEVE** **®** **4%,** **** **Replens** **®** **,
      and RepHresh** **®** **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 8% to Merck Serono for sale outside the U.S., the
      sale
      of PROCHIEVE 4% to Ascend for sale in 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
      2007, comprised approximately 49% 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 8%  in
      its
      ex-U.S. territories,  Ascend
      fails to effectively market PROCHIEVE 4% in the U.S., 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, and we began in 2007 to call for the first time
      on
      reproductive endocrinologists, a medical specialty in infertility. Our goal
      is
      to grow CRINONE ® prescribing practices 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 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.





21


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.





**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, including Endometrin® (progesterone vaginal insert)
      marketed by Ferring, Prometrium ® (oral
      micronized progesterone) marketed by Solvay, pharmacy-compounded injections
      and
      pharmacy-compounded vaginal suppositories. In June, 2007, Ferring obtained
      FDA
      approval for, and launched, Endometrin ® (progesterone vaginal insert) a competing product for use in infertility.
      Ferring is one of the leading companies in the infertility market and, in
      addition to Endometrin, offers gonadotropin hormones generally used for the
      treatment of infertility. Ferring may have greater awareness among key
      reproductive endocrinology opinion leaders than Columbia.





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, Testim ® (testosterone gel) marketed by Auxilium, and Androderm ® (testosterone transdermal system) marketed by Watson. 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.





22


**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 that 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.





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.





23


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. Other 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.





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
      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.





24


**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;·
            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.





25


**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 ® 8%
      (progesterone gel) which is being evaluated for the prevention of preterm birth
      in women with a short cervix at mid-pregnancy, and PROCHIEVE ® 4%
      (progesterone gel), which is being evaluated for the prevention of endometrial
      hyperplasia in women with an intact uterus undergoing estrogen replacement
      therapy, none of our product candidates have 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.





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 third-party suppliers of raw materials for our products, the
      loss of whom 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.




26





We
      currently purchase progesterone and testosterone for our products from only
      one
      supplier. If that supplier is unable or unwilling to satisfy our needs, we
      will
      be required to seek alternative sources of supply. While several alternative
      sources of progesterone and testosterone exist, the time needed to obtain
      regulatory approvals for new suppliers may 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, including Fleet,
      which
      manufacturers our vaginal gel products in bulk, Maropack, which fills our
      vaginal gel products into applicators and Mipharm which manufacturers
      STRIANT ®. 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, 2007, we had certain net operating loss carryforwards of
      approximately $157.3 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 2006, our Common Stock traded in a range from $2.53 to $5.98 per share.
      In
      fiscal year 2007, our Common Stock traded in a range from $1.04 to $5.25 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. 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.





27


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





As
      of
      March 3, 2008, we had 51,961,789 shares of Common Stock outstanding, of which
      51,482,724 shares were freely tradable by non-affiliates. As of that date,
      approximately 479,065 **** shares
      of
      Common Stock were restricted or held by affiliates. 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 21,098,776 shares of Common Stock
      will be outstanding, all of which will have been registered for resale under
      the
      Securities Act. 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. In addition, we may issue convertible debt without shareholder
      approval. 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 or convertible debt that may be issued in the future. While we have no
      present intention to authorize or issue any additional series of preferred
      stock
      or convertible debt, such preferred stock or convertible debt, if authorized
      and
      issued, 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, 2007, we had outstanding approximately $40 million principal
      amount of our convertible debt due December 31, 2011. In addition, as of
      December 31, 2007 we had remaining future minimum payments due to PharmaBio
      pursuant to certain financing agreements of approximately $20.5 million. On
      February 29, 2008, the Company paid $3.6 million of this obligation. Our annual
      interest expense is more than $8 million of which approximately $3.2
      million is the annual cash portion of the expense relating to the convertible
      debt, for the next 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.




28


**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.





**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.




29


**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Properties**





As
      of
      December 31, 2007, the Company leased the following properties:





Location
            
            Use
            
            Square
                feet
            
            Expiration
            
            Annual
                RentLivingston,
                NJ
            
            
            Corporate
                office
            
            
            9,450
            
            
            October,
                2013
            
            $
            212,625Paris,
                France
            
            
            European
                logistics office
            
            
            150
            
            
            3
                months notice
            
            $
            18,811





**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.





In
      connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which
      assets consisted of the patents underlying the Company's BDS, other patent
      applications, and related technology, the Company agreed to pay Bio-Mimetics
      a
      royalty equal to two percent of the net sales of products based on the assets
      up
      to an aggregate of $7.5 million or until the last of the relevant patents
      expired. The Company determined that the obligation to pay royalties on STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ® terminated
      in September of 2006, with the expiration of a certain Canadian patent, but
      continues on Replens ® and
      RepHresh ® .
      On
      December 28, 2007, Bio-Mimetics filed a complaint in the United States District
      Court for Massachusetts ( *Bio-Mimetics,
      Inc. v. Columbia Laboratories, Inc.* )
      alleging breach of contract, violation of the covenant of good faith and fair
      dealing, and unjust enrichment for the Company’s failure to continue royalty
      payments on STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ®  .
      The
      Company intends to defend this action vigorously.





**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, 2007.




30





**Executive
      Officers and Directors of the Registrant**





Our
      executive officers and Directors as of March 3, 2008, were as follows:





Name
            
            Age
            
            Position
                with the CompanyRobert
                S. Mills
            
            55
            
            President
                and Chief Executive Officer, DirectorMichael
                McGrane
            
            58
            
            Senior
                Vice President, General Counsel and SecretaryJames
                A. Meer
            
            62
            
            Senior
                Vice President, Chief Financial Officer and TreasurerStephen
                G. Kasnet
            
            61
            
            Chairman
                of the BoardEdward
                A. Blechschmidt
            
            55
            
            Vice
                Chairman of the BoardValerie
                L. Andrews
            
            48
            
            DirectorJames
                S. Crofton
            
            55
            
            DirectorDenis
                M. O’Donnell, M.D.
            
            54
            
            DirectorSelwyn
                P. Oskowitz, M.D.
            
            62
            
            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.





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 33-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 from 2004 to 2006 as Senior Vice
      President, Chief Financial Officer, Secretary and Treasurer of Pharmos
      Corporation, a biotechnology company, prior to which he was a consultant from
      2001 to 2004 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.





31


Mr. Kasnet
      has been a director of the Company since August 2004 and Chairman of the Board
      since November 2004. He is the Chairman of Dartmouth Street Capital LLC, which
      he joined in 2007. 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.





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 (home healthcare) from March 2000 until his retirement
      in July 2002. He previously served as Chief Executive Officer of Olsten
      Corporation (“Olsten”) (staffing services), 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 (information technology) and Siemens' Pyramid Technology (information
      technology), prior to which he served more than 20 years with Unisys Corporation
      (information technology), ultimately as Chief Financial Officer. He is currently
      a director of Health South Corp. (healthcare) and Lionbridge Technologies,
      Inc.
      (business services).





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
      ((information technology)). He is currently a Director of American Mold Guard,
      Inc (construction materials).





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 Director 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. Dr. Oskowitz
      has
      been an assistant professor of obstetrics, gynecology and reproductive biology
      at Harvard Medical School since 1993. He 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.




32




**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.




33






**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 Global Market.





High
            
            LowFiscal
                Year Ended December 31, 2006First
                Quarter
            
            $
            5.20
            
            $
            4.01Second
                Quarter
            
            
            5.26
            
            
            2.90Third
                Quarter
            
            
            4.03
            
            
            2.53Fourth
                Quarter
            
            
            5.98
            
            
            3.21Fiscal
                Year Ended December 31, 2007First
                Quarter
            
            $
            5.25
            
            $
            1.04Second
                Quarter
            
            
            3.20
            
            
            1.29Third
                Quarter
            
            
            2.72
            
            
            2.00Fourth
                Quarter
            
            
            2.96
            
            
            2.03





At
      March
      3, 2008, 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”), 5 shareholders of record of the
      Company’s contingently redeemable Series C Convertible Preferred Stock (“Series
      C Preferred Stock”) and 7 shareholders of record of the Company’s Series E
      convertible preferred stock (“Series E Preferred Stock”). The Company estimates
      that there were approximately 7,000 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 (not
      to
      exceed 2,705,236 shares at
      December 31,2007 ). The
      Series C Preferred Stock pays a 5% dividend, payable quarterly in arrears on
      the
      last day of the quarter. The security holders of Series C Preferred Stock have
      certain redemption rights due to events beyond the control of the Company such
      as delisting, dividend defaults and certain other defaults. The terms of the
      Series C Preferred Stock have remained the same since inception.





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.





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.




34





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 became exercisable on June
      20, 2007, and expire on December 22, 2011, unless ea rlier
      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. On April 1, 2007, the Company recorded a liability from
      the
      contract with Merck Serono for certain sales returns associated with sales
      made
      by Merck Serono. The Company recorded the estimated liability of $1,000,000
      as
      an increase in the purchase price that is being amortized aver the remaining
      term of the license. The balance of approximately $3.7 million was used for
      general corporate purposes.





All
      of
      such securities were issued in unregistered offerings pursuant to Section 4(2)
      of the Securities Act of 1933, as amended or Regulation D
      thereunder.





During
      2007, outstanding options were exercised resulting in the issuance of 43,050
      shares of Common Stock and the receipt of $0.1 million by the Company. Proceeds
      were used for general corporate purposes. In addition, 2,075 shares of Series
      C
      Preferred Stock were converted into 1,564,548 shares of Common Stock, and 5,453
      shares of Series E Preferred Stock were converted into 272,650 shares of Common
      Stock.





**Equity
      Compensation Plan Information**





The
      following table sets forth aggregate information for the fiscal year ended
      December 31, 2007, 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
            
            
            4,936,335
            
            $
            4.64
            
            
            1,862,026Equity
                compensation plans not approved by security holders
            
            
            625,000
            
            $
            7.28
            
            
            0Total
            
            
            5,561,335
            
            $
            4.94
            
            
            1,862,026





The
      Company has one shareholder-approved equity compensation plan, 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.




35





**Stockholder
      Rights Plan**





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.





**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.




36


**Performance
      Graph**


Comparison
                  of
                  Five-Year Cumulative Total Return***Columbia
                  Laboratories, Inc., Russell 2000 Index, Value Line Drug, And Peer
                  Group**(Performance
                  Results Through 12/31/07)





Assumes
                  $100 invested at the close of trading 12/02 in Columbia Laboratories,
                  Inc.
                  common stock, Russell 2000 Index,Value
                  Line Drug, and Peer Group.**Source:
                Value Line, Inc.**Factual
                  material is obtained from sources believed to be reliable, but
                  the
                  publisher is not responsible for any errors or omissions contained
                  herein.





Peer
      Group Companies are Adolor Corp., Anesiva, Inc., Antares Pharma, Inc., Barrier
      Therapeutics, Inc., Cell Therapeutics, Inc., Collagenex Pharmaceuticals, Inc.,
      Cyclacel Pharmaceuticals, Inc., Depomed, Inc., Entremed, Inc., ISTA
      Pharmaceuticals, Inc., NPS Pharmaceuticals, Inc., Penwest Pharmaceuticals Co.,
      Renovis, Inc., and Sciclone Pharmaceuticals, Inc.




37


**Item
      6. Selected Financial Data**





The
      following selected financial data (not covered by the auditors’ reports) 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. As discussed in Note 2 to the consolidated financial
      statements, the financial statements for the years ended December 31, 2006,
      2005, and 2004 have been restated to correct previously reported interest
      expense for financing arrangements and to correct the classification of
      contingently redeemable Series C Preferred stock. The interest expense and
      net
      loss have been adjusted for the year 2003.





**Financial
      Highlights**


2007
              
              2006
              
              2005
              
              2004
              
              2003(Restated)
              
              (Restated)
              
              (Restated)
              
              (Restated)**Statement
                  of Operations Data:**(000's
                  except per share data)Net
                  Revenues
              
              $
              29,627
              
              $
              17,393
              
              $
              22,041
              
              $
              17,860
              
              $
              22,415Gross
                  Profit
              
              
              20,613
              
              
              9,573
              
              
              13,929
              
              
              10,072
              
              
              12,632Operating
                  Expenses
              
              
              28,721
              
              
              20,733
              
              
              21,160
              
              
              32,044
              
              
              32,214Interest
                  Expense
              
              
              7,946
              
              
              2,670
              
              
              3,491
              
              
              3,928
              
              
              2,285Net
                  Loss
              
              
              (14,292
              )
              
              (12,485
              )
              
              (10,104
              )
              
              (26,067
              )
              
              (21,590
              )Loss
                  per common share
              
              
              (0.28
              )
              
              (0.26
              )
              
              (0.25
              )
              
              (0.64
              )
              
              (0.58
              )Weighted
                  average number of commonshares
                  outstanding-basic and diluted
              
              
              51,124
              
              
              48,089
              
              
              41,752
              
              
              40,984
              
              
              37,440**Balance
                  Sheet Data at December 31****(000's)**Working
                  capital (deficiency)
              
              $
              14,461
              
              $
              23,410
              
              
              ($3,471
              )
              $
              9,303
              
              $
              33,690Total
                  Assets
              
              
              56,589
              
              
              65,839
              
              
              14,732
              
              
              29,268
              
              
              42,755Notes
                  payable
              
              
              27,536
              
              
              25,299
              
              
              -
              
              
              -
              
              
              10,000Long-term
                  portion of financing agreements
              
              
              11,426
              
              
              13,277
              
              
              10,921
              
              
              20,299
              
              
              16,186Contingently
                  Redeemable Series C Preferred Stock
              
              
              1,125
              
              
              3,200
              
              
              3,250
              
              
              3,250
              
              
              3,250Shareholders'
                  equity (deficiency)
              
              
              2,015
              
              
              12,616
              
              
              (20,573
              )
              
              (17,157
              )
              
              2,398


**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”).




38





We
      are in
      the business of developing, manufacturing and selling pharmaceutical products
      that utilize our proprietary bioadhesive drug delivery technologies. We
      are focused
      predominantly on the women’s
      reproductive healthcare market
      but our product development projects address the broader 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.





We
      have a
      35 person sales organization that promotes
      our two natural progesterone gel products, CRINONE ® 8% and
      PROCHIEVE ® 8% in
      the United States. We acquired the U.S. marketing rights to CRINONE in December
      2006, and can now promote these products to a full range of reproductive
      endocrinologists, obstetricians and gynecologists who treat infertility. We
      also
      promote STRIANT ® testosterone buccal system for the treatment of hypogonadism in men, however, our
      focus
      in fiscal 2008 is to increase prescriptions
      of our infertility products.




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





Through
      our development organization, we seek opportunities to develop new products
      using our drug delivery technology and obtain new label indications for our
      existing products. We expect that we will retain proprietary rights to certain
      of these products and label indications, particularly where they are
      complementary to our existing sales and marketing capabilities. We also expect
      to seek strategic partners for, or to divest, products that fall outside our
      core women’s healthcare focus.





Our
      net
      loss for 2007 was $ 14.3 million, or $0.28 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. Our sales and
      distribution expenses will be higher in 2008 to fund market research and medical
      education programs for our progesterone products. In 2008, we expect that our
      research and development expenses will be higher than those in 2007, primarily
      as a result of our investment in our PREGNANT clinical trial of Prochieve 8%
      for
      the prevention of preterm birth in women with a short cervix at mid-pregnancy,
      and in clinical trials related to development of our drug candidate,
      vaginally-administered lidocaine for treatment of dysmenorrhea, or painful
      menstruation.





Our
      2007
      revenues reflect the first full year of our marketing efforts for both brands
      of
      8% progesterone gel in the US, and in particular our attention to CRINONE 8%.
      In
      2007, we undertook significant activities to frame the marketing materials
      and
      activities for CRINONE 8%. Our CRINONE 8% sales and marketing activities in
      2007
      included:


·
            Expansion
                of our sales force from 25 to 35 sales representatives and sales
                management personnel to focus on the infertility specialty market,
                particularly on the west coast of the
                U.S.


·
            Establishment
                of a strong presence at the annual meeting of the American Society
                of
                Reproductive Medicine in October 2007, which we believe effectively
                emphasized our objective of becoming a major player in the market
                for
                infertility treatments


·
            Preparation
                of marketing materials showing our compilation of 16 clinical trials
                that
                have been conducted to compare CRINONE to other forms of progesterone,
                which provided us with a compelling case for the efficacy of CRINONE.
                We
                believe that these data show that CRINONE is as effective as, and
                in some
                cases numerically more effective than the other delivery systems
                for
                progesterone. In the six clinical trials that included an arm evaluating
                patient preference, patients preferred CRINONE over the competing
                product
                in all six clinical trials;


·
            Formulation
                of our Infertility Advisory Committee of respected reproductive
                endocrinologists from around the United States who provide us with
                insight
                on how to best communicate to physicians and patients all the clinical
                information that is available for
                CRINONE


·
            Outreach
                to key opinion leaders and a number of reproductive endocrinologists
                who
                have agreed to speak on behalf of CRINONE





39




Our
      partner Merck Serono has exclusive rights to market CRINONE in all countries
      outside of the United States. Increased sales of CRINONE in non-U.S. markets
      by
      Merck Serono, who pays us a transfer price on CRINONE sales, contributed to
      revenue growth in 2007. Worldwide progesterone sales were up 84% over 2006.
      We
      expect that CRINONE sales will continue to increase in markets outside the
      U.S.,
      and that it may enter new markets, including China, if approved.





We
      expect
      that our 2008 focus for CRINONE commercialization will be to seek to convert
      sales of pharmacy compounded intramuscular progesterone injections and
      progesterone suppositories to sales of CRINONE. We believe that these products
      share 75% of the total U.S. progesterone market. We believe that if we are
      able
      to communicate the information that we have compiled on CRINONE, through direct
      marketing to physicians and presentations by key opinion leaders in the
      reproductive endocrinology field, we should be able to convince physicians
      to
      prescribe CRINONE over the competing injections and suppositories.





Our
      sales
      force is now focused on promoting our CRINONE 8% to the infertility specialty
      market. We plan to execute on the foundation we laid in 2007 for CRINONE 8%
      and
      expect that CRINONE will be a key revenue driver in 2008.





**Clinical
      development of PROCHIEVE 8% for Prevention of Preterm Birth in Women with
      Mid-pregnancy Short Cervix.**





We
      expect
      that in 2008 we will invest significant resources in the development program
      for
      PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix
      as
      measured by transvaginal ultrasound at mid-pregnancy. This program includes
      a
      clinical trial in pregnant women which we have named the PREGNANT study. In
      2007, we reported data from our completed clinical trial of PROCHIEVE 8% in
      pregnant women with a history of prior pre-term birth. In that clinical trial,
      the study endpoints were not met, and the trial demonstrated that there was
      no
      benefit of administering vaginal progesterone to this patient population.
      However, secondary analyses of the data from this earlier study demonstrated
      a
      statistically significant improvement in the rate of preterm birth and infant
      outcomes in trial participants who had a short cervix in mid-pregnancy. The
      PREGNANT clinical trial is designed to confirm these data in a larger trial.
      If
      the results of the PREGNANT trial confirm the results seen in the earlier
      clinical trial, we expect to file a NDA supplement seeking approval of PROCHIEVE
      8% for this indication.





The
      clinical trial data were published in October 2007 in the peer-reviewed journal *Ultrasound
      in Obstetrics & Gynecology* (also
      known as the “White Journal”), which, was followed by the publication of an
      abstract entitled “ *Progesterone
      Reduces the Rate of Cervical Shortening in Women at Risk for Preterm
      Birth* ”
in
      the
      December 2007 supplement of the *American
      Journal of Obstetrics and Gynecology* .
      Because
      we were able to publish data in advance of the 2008 Annual Meeting of the
      Society for Maternal-Fetal Medicine in late January 2008, the data underlying
      this abstract were discussed in an oral presentation at that
      meeting.





The
      PREGNANT study was designed based in part on the data set forth in the White
      Journal and discussions with the FDA. This randomized, double-blind,
      placebo-controlled Phase III clinical trial is designed to evaluate the ability
      of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix
      of between 1.0 and 2.0 centimeters as measured by transvaginal ultrasound at
      mid-pregnancy. The primary endpoint of this clinical trial is a reduction in
      preterm births at less than or equal to 32 weeks versus placebo.





In
      the
      fourth quarter of 2007 we recruited 19 study sites, filed the protocol with
      each
      site’s Institutional Review Board (“IRB”) and trained their staff on the study
      protocol. We expect to begin the recruiting efforts in the PREGNANT study in
      the
      first quarter of 2008. If we are able to meet our enrollment timeline for this
      trial, we expect to enroll and complete this clinical trial in 2008, with all
      the babies delivered in time to report results in the first half of
      2009.





40




**Clinical
      development of vaginally-administered lidocaine for the treatment of
      dymenorrhea.**





Throughout
      2007 we continued to invest in our vaginal lidocaine drug candidate, which
      we
      are evaluating to prevent and treat the severe uterine cramps that result in
      the
      debilitating pain of dysmenorrhea. In the U.S. alone, this common, painful
      condition seriously affects about 5.6 million women in the age range of 20
      to 45
      to the point where they frequently miss work. This figure exclude very young
      women between the onset of menstruation and age 20 who can suffer dysmenorrhea
      at a higher percentage than the more mature female population between the ages
      of 20 and 45.





In
      mid
      2007 we completed a multi-dose pharmacokinetic study of the lidocaine candidate
      and reported positive results demonstrating safe blood levels from our delivery
      system. We subsequently initiated a 75-patient Phase II cross-over study in
      patients with dysmenorrhea. We expect to conclude enrollment in April 2008,
      at
      the current rate of enrollment. We expect to announce data and results from
      this
      clinical trial in the third quarter of 2008.





We
      expect
      that the data from the Phase II clinical trial of our lidocaine candidate,
      if
      positive, will significantly reduce the risk of further investment in this
      drug
      candidate, allowing us to explore potential collaborative arrangements for
      further development and commercialization of this product candidate The
      potential market for a vaginal lidocaine product includes pediatricians and
      family practice physicians, who fall outside our strategic focus. If the Phase
      II clinical trial data support further development of the drug candidate, we
      plan to have an end of Phase II meeting with FDA and begin designing the Phase
      III program for lidocaine in 2008.




41


**Results
      of Operations**





**Summary**





We
      restated our historical audited financial statements for the fiscal years ended
      December 31, 2006, 2005, and 2004, and our unaudited financial information
      for
      the quarters ended March 31, 2007, June 30, 2007, September 30, 2007, and March
      31, 2006, June 30, 2006 and September 30, 2006. These restatements and revisions
      primarily reflect adjustments to:





·
            Correct
                previously reported interest expense for financing agreements for
                understatement in 2004 and 2005 and overstatement in 2006, along
                with the
                respective increase or decrease in net loss and the impact on outstanding
                loan balances and to increase or decrease the accumulated
                deficit.


·
            Correct
                the classification of the contingently redeemable Series C Convertible
                Preferred Stock from Shareholders Equity to temporary
                equity.





We
      receive revenues from our Progesterone Products that we either promote through
      our own sales force to reproductive endocrinologists, obstetricians, and
      gynecologists, and sell to wholesalers and specialty pharmacies or have
      partnered with other companies. We supplement our Progesterone Product revenue
      by selling other products that use our BDS which we refer to as “Other
      Products”. Most of the Other Product revenue is based on sales of products to
      licensees.




Fiscal
                2007Progesterone
                Products
            
            ·CRINONE®8%
                (progesterone gel) marketed by the Company in the U.S.
              
              ·CRINONE®8%
                sold to Merck Serono for foreign markets:
              
              ·PROCHIEVE®8%
                (progesterone gel):
              
              ·PROCHIEVE®4%
                (licensed to Ascend Therapeutics, Inc., effective January 1,
                2008)Other
                Products
            
            ·STRIANT®(testosterone
                buccal system) marketed by the Company in the US
              
              ·STRIANT®sold
                to our partners for foreign markets:
              
              ·Replens®Vaginal
                Moisturizer sold to Lil’ Drug Store Products, Inc (“Lil’ Drug Store”) for
                foreign markets
              
              ·RepHresh®Vaginal
                Gel sold to Lil’ Drug Store on a worldwide basis
              
              ·Royalty
                and licensing revenues





All
      of
      our products are manufactured in Europe by third parties on behalf of our
      foreign subsidiaries who sell the products to our worldwide licensees, and
      to
      the Company in the case of the products we commercialize ourselves in the United
      States. Because our European revenues reflect these sales and are reduced only
      by our product manufacturing costs, we have historically shown a profit from
      our
      European operations.





Revenues
      from our United States operations principally relate to the Company’s products
      that we promote to physicians through our sales representatives, as well as
      royalty income from products that we have licensed. The Company charges our
      United States operations all Selling and Distribution expenses that support
      our
      marketing, sales and distribution efforts. Research and Development expenses
      are
      charged to our United States operations for product development which
      principally supports new products and new label indications for products to
      be
      sold in this country. In addition, the majority of our General and
      Administrative expenses represent the Company’s management activities as a
      public company and are charged to our United States operations. The amortization
      of the repurchase of the U.S. rights to CRINONE ® is also
      charged to our United States operations. As a result, we have historically
      shown
      a loss from our United States operations that has been significantly greater
      than, and offsets, the profits from our European operations.





42




**Net
      Revenues**


**(In
                  thousands, except percentages)**
              
              **2007**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2006**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2005**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2004**Revenues
              
              $
              29,628
              
              
              70
              %
              $
              17,393
              
              
              -21
              %
              $
              22,041
              
              
              23
              %
              $
              17,860


Net
      revenues increased 70% in 2007 to $29.6 million as compared to $17.4 million
      in
      2006, $22.0 million in 2005 and $17.9 million in 2004. Net revenues from
      Progesterone Products increased 83% to $20.5 million from $11.2 million in
      2006,
      $13.0 in 2005 and $9.0 million in 2004. The increase in 2007 over 2006 was
      primarily as a result of the addition of the U.S. CRINONE ® sales
      generated by the Company under the marketing rights purchased from Merck Serono
      in December 2006. The decline in 2006 from 2005 was primarily driven by the
      cancellation of the sale of a semi-annual batch of CRINONE ® to Merck
      Serono in anticipation of the U.S. rights acquisition. In the fourth quarter
      of
      2004, primarily two customers returned $1.4 million of PROCHIEVE 8% 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 recorded additional
      provisions of $1 million in 2004 and $0.5 million in 2005.





Net
      revenues from Other Products increased 48% to $9.2 million from $6.2 million
      in
      2006, decreased 29% from $9.0 million in 2005 and increased 1% from $8.9 million
      in 2004. The principal drivers of the increase in 2007 net revenues are from
      additional RepHresh ® orders
      from Lil’ Drug Stores and increased STRIANT ® sales.
      The decrease of sales in 2006 from 2005 was principally due to lower
      RepHresh ® orders
      and lower STRIANT ® sales.
      Revenues in 2005 reflect an additional provision for STRIANT sales returns
      of
      $1.8 million. Worldwide rights to RepHresh were sold in 2004 to Lil’ Drug Store,
      who placed orders in 2005.





Gross
      profit as a percentage of net revenues was 70% in 2007 as compared to 55% in
      2006, 63% in 2005 and 56% in 2004. The 15 percentage point increase in gross
      profit percentage from 2006 to 2007 was the result of the change in product
      mix
      to higher margin U.S. CRINONE ® sales
      including the elimination of royalty income and expense formerly recognized
      under the license agreement with Merck Serono. For 2007, gross profit percentage
      for Progesterone Products improved 26% based on the shift from the previous
      Merck Serono license arrangement to the current full US ownership of CRINONE.
      Gross profit percentage on Other Products decreased to 63% in 2007 from 73%
      in
      2006 principally due to the loss of promotion fee income from Lil’ Drug Store.





The
      decrease in 2006 gross profit as a percentage of net revenues from 63% in 2005
      to 55% was caused by reduced sales of CRINONE ® in the
      U.S. by Merck Serono in anticipation of 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 to lower margin OTC 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 for product returns and a reduction in the royalty paid to
      Merck Serono as a result of product returned in 2005.





The
      net
      loss for 2007 was $14.3 million or $.28 per share as compared to a net loss
      of
      $12.5 million (restated), or $.26 per share, in 2006, a net loss of $10.1
      million (restated) or $.25 per share in 2005 and $26.1 million (restated) or
      $.54 per share in 2004 as a result of the foregoing as well as the following
      components.





43




**Selling
      and Distribution**





**(In
                thousands, except percentages)**
            
            **2007**
            
            **Percentage**
              **inc./
                (dec.)**
              **from
                prior**
              **year**
            
            **2006**
            
            **Percentage**
              **inc./
                (dec.)**
              **from
                prior**
              **year**
            
            **2005**
            
            **Percentage**
              **inc./
                (dec.)**
              **from
                prior**
              **year**
            
            **2004**Selling
                and distribution
            
            $
            10,112
            
            
            53
            %
            $
            6,600
            
            
            (23.1
            )%
            $
            8,578
            
            
            -55
            %
            $
            19,007As
                a percentage of revenue
            
            
            34
            %
            
            (4
            )
              pp
            
            38
            %
            
            (1
            )
              pp
            
            39
            %
            
            (67.5
            )
              pp
            
            106
            %




*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 $10.1 million, $6.6 million, $8.6 million and $19.0 million in
      2007, 2006, 2005, and 2004 respectively. Selling and distribution expenses
      increased by approximately 53% in 2007 compared to 2006 and decreased by
      approximately 23% and 55% in 2006 compared to 2005 and 2005 compared to 2004,
      respectively. The primary reason for the 2007 increase was market research
      and
      marketing expenses to aid the Company in marketing CRINONE ® .
      The
      decrease in 2006 from 2005 reflects a 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.





Included
      in the 2007 expenses were sales force costs of approximately $5.2 million,
      product marketing expenses of approximately $3.7 million and $1.0 million in
      sales information and distribution costs. Expenses in 2006 included
      approximately $4.0 million in sales force costs, approximately $2.2 million
      in
      product marketing expenses and approximately $0.5 million in distribution costs.
      Expenses in 2005 included approximately $5.6 million in sales force costs,
      approximately $2.2 million in product marketing expenses and approximately
      $0.7
      million in distribution 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)**
              
              **2007**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2006**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2005**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2004**General
                  and administrative
              
              $
              7,825
              
              
              6
              %
              $
              7,402
              
              
              9
              %
              $
              6,825
              
              
              -10
              %
              $
              7,588As
                  a percentage of revenue
              
              
              26
              %
              
              (17
              )pp
              
              43
              %
              
              12
              pp
              
              31
              %
              
              -11.5
              pp
              
              19.1
              %


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 $0.4 million, or 6%, to approximately $7.8
      million in 2007 from approximately $7.4 million in 2006 which was an increase
      of
      $0.6 million from $6.8 million in 2005. The increase from Statement 123R stock
      compensation expense over 2006 was $0.3 million and the balance was an increase
      in professional expenses. The increase in 2006 over 2005 of $0.6 million
      resulted primarily from the impact of 123R recognition 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).




44





**Research
      and Development**


**(In
                  thousands, except percentages)**
              
              **2007**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2006**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2005**
              
              **Percentage**
                **inc./
                  (dec.)**
                **from
                  prior**
                **year**
              
              **2004**Research
                  and development
              
              $
              5,779
              
              
              (12
              )%
              $
              6,596
              
              
              15
              %
              $
              5,757
              
              
              6
              %
              $
              5,449As
                  a percentage of revenue
              
              
              20
              %
              
              (19
              )
                pp
              
              38
              %
              
              (12
              )
                pp
              
              26
              %
              
              -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
      decreased $0.8 million in 2007 from 2006. The decrease is primarily related
      to
      the completion in early 2007 of the Company’s Phase III trial for PROHIEVE ® 8% for
      the prevention of recurrent preterm birth which is partially offset by expenses
      associated with the 2007 Phase II lidocaine trial for women with severe
      dysmenorrhea and the start up expenses for the Phase III PREGNANT study.
      Research and development expenses increased to approximately $6.6 million in
      2006 from approximately $5.8 million in 2005. This increase primarily reflects
      costs associated with
      the
      Company’s Phase III clinical trial of PROCHIEVE ® 8% in
      preventing recurrent preterm birth. Study-related costs increased by
      approximately $1.2 million in 2006 over 2005 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). Research and development expenses increased to approximately $5.4
      million in 2004 from approximately $3.3 million in 2003. This increase primarily
      reflects costs associated with
      the
      Company’s Phase III clinical trial of PROCHIEVE ® 8% in
      preventing recurrent preterm birth. 2004 costs also included payments
      related to the MRP, a one-time event as previously discussed.





**Amortization
      of Crinone** ® **Acquisition**





The
      Company purchased the marketing rights for U.S. sales of CRINONE ® 8%
      from
      Merck Serono in December 2006 for $33 million. In the second quarter of 2007,
      the Company recognized a $1 million adjustment to the purchase price to reflect
      contingent liabilities for Merck Serono sales returns. The $33 million charge
      is
      being amortized over 6.75 years, and the $1 million charge is being amortized
      over 6.5 years. Amortization expense of the acquisition cost for CRINONE ® U.S.
      marketing rights for 2007 was $5.0 million. The 2006 charge was $0.1
      million.





**Other
      Income (Expense)**





Interest
      expense was $7.9 million, $2.7 million as restated, $3.5 million as restated
      and
      $3.9 million as restated in 2007, 2006 2005, and 2004 respectively. In December
      of 2006, the Company issued $40 million in convertible subordinated notes.
      Interest expense of 2007 includes cash interest of $3.2 million and $2.5 million
      in charges associated with amortization of beneficial conversion feature,
      amortization of the warrant costs and issuance costs. The balance of $2.2
      million was for the remainder of the PharmaBio obligations. The restatement
      of
      interest expense lowers interest for PharmaBio by $0.1 million in 2006 and
      raises previously reported interest expense in 2005 by $0.8 million, and in
      2004
      by $0.9 million..





2007,
      2006, 2005, and 2004 interest expense included approximately $2.3 million,
      $2.5
      million as restated, $3.3 million as restated, and $3.2 million as restated,
      respectively, as a result of amortizing 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. This note
      was paid in full on March 15, 2005.




45





Other
      income in 2007 reflects interest income of $1.0 million and the receipt of
      approximately $0.8 million from the sale of New Jersey state net operating
      losses. 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. 2005 reflects interest income of $0.2 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. On February 29, 2008,
      the
      Company made the final payment under the 2002 agreement. 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.





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. In the event of a “change of control”, as defined in the
      convertible notes, the holder of each note is entitled to a “make-whole premium”
if the holder exercises its rights to convert the note, in whole or in part,
      during the “change of control redemption/conversion period,” as defined in the
      convertible notes. The make-whole premium is calculated in accordance with
      paragraph 5(e)(iii)(B) of the notes and decreases as our common stock price
      increases and the date of the change of control extends from the closing. No
      make-whole premium is due if the stock price is $3.50 or less or $10.50 or
      greater.. The Notes contain customary events of default. The Notes are
      subordinated to the Company’s obligations to PharmaBio. The Warrants were
      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.




46


Our
      future contractual obligations include the following:





For
                  the Fiscal Years Ended December 31,Total
              
              2008
              
              2009
              
              2010
              
              2011
              
              Beyond(in
                  thousands)$40
                  million convertible notes
              
              $
              40,000
              
              
              
              
              
              
              
              
              
              
              $
              40,000Interest
                  on $40 million convertible notes
              
              
              13,600
              
              $
              3,200
              
              $
              3,200
              
              $
              3,200
              
              
              4,000PharmaBio
                  women's healthcarefinance
                  agreement
              
              
              3,621
              
              
              3,621
              
              
              
              
              
              -
              
              
              
              
              
              -PharmaBio
                  Striant®
              
              
              -finance
                  agreement
              
              
              16,862
              
              
              166
              
              
              166
              
              
              16,530Operating
                  lease obligations
              
              
              1,385
              
              
              240
              
              
              243
              
              
              244
              
              
              238
              
              
              420Executive
                  agreements
              
              
              1,481
              
              
              1,481Total
              
              $
              76,949
              
              $
              8,708
              
              $
              3,609
              
              $
              19,974
              
              $
              44,238
              
              $
              420


**Recent
      Accounting Pronouncements**





In
      December 2006, the Financial Accounting Standards Board (“FASB”) issued a FASB
      Staff Position (“FSP”) EITF 00-19-2 “ *Accounting
      for Registration Payment Arrangements”* (“FSP
      00-19-2”). FSP 00-19-2 defines a registration payment arrangement as an
      arrangement where the issuer (i) will endeavor to file a registration statement
      for the resale of financial instruments, have the registration statement
      declared effective, or maintain its effectiveness and (ii) transfer
      consideration to the counterparty if the registration statement is not declared
      effective or its effectiveness is not maintained. We entered into certain
      registration payment arrangements in connection with the sale of our Common
      Stock in March 2006 and the issuance of our convertible notes in December 2006.
      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 was
      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. FSP 00-19-2 did not have a material
      impact on our consolidated results of operations and financial position in
      2007.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ”
(“SFAS
      157”), which clarifies the definition of fair value, establishes guidelines for
      measuring fair value, and expands disclosures regarding fair value measurements.
      SFAS 157 does not require any new fair value measurements and eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      SFAS No. 157 and FSP 157 (b) are effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. As proposed
      the
      effective date of SFAS No. 157 would be deferred to Fiscal years beginning
      after
      November 15, 2008 and for interim periods within those years for certain non
      financial assets and liabilities. The Company is currently evaluating the impact
      that adopting SFAS 157 will have on our financial position, cash flows or
      results of operations.




47





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ”
(“SFAS
      159”). SFAS 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value that are not currently required to be
      measured at fair value. SFAS 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar assets and liabilities. SFAS 159
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. The Company has not yet determined the impact, if any, that
      the implementation of SFAS.159 will have on its results of operations or
      financial position.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “ *Business
      Combinations* ”
(“SFAS
      141(R)”). SFAS 141(R) will change the accounting for business combinations.
      Under SFAS 141(R), an acquiring entity will be required to recognize all the
      assets acquired and liabilities assumed in a transaction at the acquisition-date
      fair value with limited exceptions. SFAS 141(R) will change the accounting
      treatment and disclosure for certain specific items in a business combination.
      SFAS 141(R) applies prospectively to business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. SFAS 141(R) will impact the
      Company in the event of any future acquisition.




In
      December 2007, the FASB also issued SFAS No. 160, “ *Non-controlling
      Interests in Consolidated Financial Statements—an Amendment of Accounting
      Research Bulletin No. 51* ”
(“SFAS
      160”). SFAS 160 establishes new accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
      December 15, 2008. The Company does not believe that SFAS 160 will have a
      material impact on its consolidated financial statements.





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.





**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 $17 million, $25 million, and $7 million, at December
      31,
      2007, December 31, 2006, and December 31, 2005, respectively.





The
      Company believes the approximately $17 million of cash on hand at December
      31,
      2007 will allow it to sustain its operations.




48





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


2006
              
              2005
              
              20042007
              
              (Restated)
              
              (Restated)
              
              (Restated)Cash
                  flows:Operating
                  activities
              
              $
              (7,914,299
              )
              $
              (13,080,977
              )
              $
              (8,283,473
              )
              $
              (20,399,171
              )Investing
                  activities
              
              
              (102,021
              )
              
              (33,015,757
              )
              
              (83,367
              )
              
              (282,367
              )Financing
                  activities
              
              
              (40,803
              )
              
              64,208,356
              
              
              (4,213,299
              )
              
              9,447,186


Operating
      Activities:





The
      net
      loss in 2007 of $14.3 million is reduced by non cash items totaling $10.4
      million leaving cash operating losses of $3.9 million. Changes to assets and
      liabilities increased by $5.4 million leaving cash flow from operations as
      a use
      of funds at $7.9 million. Changes to assets and liabilities reflect the effects
      of the increased revenues of CRINONE ® ,
      STRIANT ® and
      RepHresh ® .
      Accounts receivable grew by $1.5 million. Inventory grew by $1.0 million.
      Accounts payable and accrued expenses decreased by $1.4 million and $0.2 million
      respectively. The reduction in accrued expenses related to: sales returns of
      $1.3 million, miscellaneous expenses and interest.





The
      restated net loss in 2006 of $12.5 million is reduced by non-cash items totaling
      $4.2 million leaving cash operating losses of $8.3 million. Working capital
      decreased by $0.8 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 $13.1 million. Working
      capital changes reflect a reduction in the sales return levels from 2005 levels
      by both a reduction in receivables $1.3 million and heavy sales returns in
      the
      fourth quarters. Inventories increased $0.9 million. The increase in other
      assets, ($1.4 million) represents the capitalization of the $40 million
      subordinated debt issue expenses. Similarly, the increase in accounts 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
      restated net loss in 2005 was $10.1 million which included $3.9 million in
      non
      cash charges leaving cash operating losses of $6.2 million. Working capital
      grew
      by $3.8 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 of $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
      restated net loss in 2004 of $26.1 million included $4.8 million of non cash
      charges leaving net cash operating losses of $21.3 million. Working capital
      decreased by $2.3 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 million (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.





Investing
      Activities:





In
      2007,
      the Company purchased office equipment at a cost of $0.1 million.




49





In
      December of 2006, the Company purchased the U.S. rights to CRINONE ® for the
      US market at a cost of $33 million. In the
      second quarter of 2007, the Company recognized an additional $1 million
      adjustment to the purchase price to reflect contingent liabilities for Merck
      Serono sales returns.





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 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 :





Net
      cash
      used in financing activities in 2007 of $0.04 million represents Series C
      Preferred Stock dividends, purchase of treasury stock and the proceeds from
      the
      exercise of options.




Financing
      activities in 2006 produced net funds to the Company of $64.2 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 $5.4 million to PharmaBio and $0.2 million
      in
      dividends to the holders of the Company’s Series C Preferred Stock.




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 the
      U.S.
      marketing rights to CRINONE ®  ($33
      million), purchase Merck Serono’s current inventory of that product, and pay
      other costs related to the transaction. In the second quarter of 2007, the
      Company recognized an additional $1 million adjustment to the purchase price
      to
      reflect contingent liabilities for Merck Serono sales returns. 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, 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, $0.1 million of amortization related to these
      discounts is classified as interest expense in our consolidated statements
      of
      operations. Unamortized discounts of $14.8 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, $1.0 million paid to PharmaBio Development
      under the Company’s two product financing agreements (including a $1.9 million
      true-up payment under the women’s healthcare products financing agreement), and
      $0.2 million in dividends paid to the owners of the Company’s Series C Preferred
      Stock. Offsetting these payments was the receipt of $6.9 million 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 $6.4
      million from the issuance of Common Stock, $3 million pursuant to the Striant
      financing agreement, and $0.2 million from the exercise of options and warrants.
      Offsetting these receipts was $0.2 million in dividends paid to the owners
      of
      the contingently redeemable Company’s Series C Convertible Preferred
      Stock.





50





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 paid on 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 $4.4 million to December 31, 2007. The final payment
      under this agreement of $3.6 million was paid to PharmaBio on February 29,
      2008.





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 the
      contractually required true-up payment.  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 $0.2 Million true-up payment at the end of the year. The Company
      has
      paid $13.1 million to December 31, 2007.





The
      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.





As
      of
      December 31, 2007, the Company had outstanding exercisable options and warrants
      that, if exercised, would result in approximately $50.0 million of additional
      capital and would cause the number of shares of Common Stock outstanding to
      increase. However, there can be no assurance that any such options or warrants
      will be exercised.





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 ® .
      On
      December 28, 2007, Bio-Mimetics filed a complaint in the United States District
      Court for Massachusetts *(Bio-Mimetics,
      Inc. v Columbia Laboratories, Inc.)* alleging
      breach of contract, violation of the covenant of good faith and fair dealing,
      and unjust enrichment for the Company’s failure to continue royalty payments on
      STRIANT ®, PROCHIEVE ®, and
      CRINONE ®.. The Company
      intends  to
      defend
      this action vigorously.





51


The
      Company anticipates it will spend approximately $ 0.4
      million o n
      equipment in 2008.





As
      of
      December 31, 2007, the Company had available net operating loss carryforwards
      of
      approximately $157.3 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, 2007, 2006, and 2005 other assets in the accompanying consolidated
      balance sheet include deferred tax assets of approximately $60.5 million, $53.2
      million, and $50.8 million respectively, (comprised primarily of a net operating
      loss carryforward) for which a valuation allowance has been recorded because
      the
      probability of realizing the deferred tax assets are not determinable. With
      respect to the Company’s net operating loss carryforwards, it has not undertaken
      an analysis to determine whether the utilization of this tax asset would be
      limited by Section 382 of the Internal Revenue Code.





**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, 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. 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.




*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
      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 expiration dating 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.




52




*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. In 2007, the Company revalued the financing
      agreements to reflect the cash flow component of the arrangement which resulted
      in a restatement of earnings for 2006, 2005, and 2004. The impact of this change
      was to increase interest expense for 2004 and 2005 by $0.9 million and $0.8
      million respectively, and to lower interest expense for 2006 by $0.1 million
      .





*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
      previously disclosed, a review of the Company’s stock option granting practices
      from October 1996 through 2006, resulted in the recording for the year ended
      December 31, 2006, of $998,000 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 was
      attributable to options granted in 1997, with related compensation expense
      allocable to the years ended December 31, 1997, and 1998. 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* ,”
the
      Company 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.  Because 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 or outcome 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 further disclosures the Company may make on related
      subjects in subsequent reports filed with the SEC.




53





**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. Expenditures primarily related
      to manufacturing in 2007 were approximately $0.7 million more than they would
      have been if the average 2006 exchange rates had been in effect in
      2007.





**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





**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, 2007. Based on
      this evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded that, as of December 31, 2007, the Company’s disclosure controls and
      procedures were not effective due to the material weakness noted
      below.





**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.




54




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, 2007, 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
      not
      effective as of December 31, 2007.





*Identification
      of a Material Weakness*





A
      material weakness is a significant deficiency, or a combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected.





During
      the audit of the 2007 financial statements, it was determined that the Company’s
      method for calculating interest on its financing agreements and the
      classification of its contingently redeemable Series C Convertible Preferred
      stock were not correct, and the Company’s management has elected to restate the
      financial statements for 2004, 2005 and 2006.





*Remediation* **** *of
      a
      Material Weakness* ****





The
      Company will engage an external consultant to review its current accounting
      for
      financial transactions and report to management its findings.





McGladrey
      and Pullen LLP, an independent registered public accounting firm, has issued
      an
      attestation report on the Company’s internal control over financial reporting
      (see Report of Independent Registered Public Accounting Firm).




55


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders


of
      Columbia Laboratories, Inc.





We
      have
      audited Columbia Laboratories, Inc. and Subsidiaries internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Columbia Laboratories, Inc.
      and
      Subsidiaries’ 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 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, assessing the risk that a material weakness exists, and
      testing and evaluating the design and operating effectiveness of internal
      control based on the assessed risk. Our audit also included 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.





A
      material weakness is a deficiency, or a combination of deficiencies, in internal
      control over financial reporting, such that there is a reasonable possibility
      that a material misstatement of the company's annual or interim financial
      statements will not be prevented or detected on a timely basis. The following
      material weakness has been identified and included in management's assessment.
      As of December 31, 2007, the Company did not maintain effective internal control
      over (i) accounting for contingently redeemable preferred stock and (ii)
      accounting for interest expense in relation to financing agreements with
      indeterminate payments. This material weakness was considered in determining
      the
      nature, timing, and extent of audit tests applied in our audit of the 2007
      financial statements, and this report does not affect our report dated March
      25,
      2008, on those financial statements.





In
      our
      opinion, because of the effect of the material weakness described above on
      the
      achievement of the objectives of the control criteria, Columbia Laboratories,
      Inc. and Subsidiaries has not maintained effective internal control over
      financial reporting as of December 31, 2007, 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, 2007 consolidated financial
      statements of Columbia Laboratories, Inc. and our report dated March 25, 2008
      expressed an unqualified opinion on those financial
      statements.




/s/
      McGladrey & Pullen, LLP


McGLADREY
      & PULLEN, LLP


New
      York,
      NY


March
      25,
      2008




56




**Item
      9 B. Other Information**





In
      the
      fourth quarter of 2007 the Company reported all required disclosures on Form
      8-K.




57




**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 2008 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 2008 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 2008 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 2008 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 2008 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 2008 Annual Meeting of Shareholders under the
      heading “Relationship with Independent Auditors”.




58


**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 amended14/3.2
            —
            Amended
                and Restated By-laws of Company3/4.1
            —
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock of the Company, dated as of January 7, 19993/4.2
            —
            Securities
                Purchase Agreement, dated as of January 7, 1999, between the Company
                and
                each of the purchasers named on the signature pages thereto3/4.3
            —
            Securities
                Purchase Agreement, dated as of January 19, 1999, among the Company,
                David
                M. Knott and Knott Partners, L.P.3/4.4
            —
            Form
                of Warrant to Purchase Common Stock3/4.5
            —
            Warrant
                to Purchase Common Stock granted to James J. Apostolakis on September
                23,
                19994.6
            —
            Certificate
                of Designations of Series E Convertible Preferred Stock, filed May
                10,
                2005 with the Delaware Secretary of State13/4.7
            —
            Preferred
                Stock Purchase Agreement, dated as of May 10, 2005, among Columbia
                Laboratories, Inc., Perry Partners L.P. and Perry Partners International,
                Inc.13/4.8
            —
            Securities
                Purchase Agreement,dated March 10, 2006, by and between Columbia Laboratories, Inc.
                and the
                Purchasers listed on Exhibit A thereto15/4.9
            —
            Form
                of Restricted Stock Agreement18/4.10
            —
            Form
                of Option Agreement18/4.11
            —
            Securities
                Purchase Agreement, dated December 21, 2006, by and between Columbia
                Laboratories, Inc. and the Purchasers listed on Exhibit A
                thereto21/10.1
            —
            1996
                Long-term Performance Plan, as amended, of the Company2/10.2
            —
            Asset
                Purchase, License and Option Agreement between Bio-Mimetics, Inc.
                and
                Columbia Laboratories, Inc., dated November 22, 19891/10.3
            —
            License
                and Supply Agreement by and between the Company and Mipharm S.p.A.
                dated
                March 5, 19994/10.4
            —
            Settlement
                Agreement and Release dated as of March 16, 2000 between Columbia
                Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.5/10.5
            —
            License
                Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                Products, Inc.6/10.6
            —
            Rights
                Agreement dated as of March 13, 2002, by and between Columbia
                Laboratories, Inc. and First Union National Bank, as Rights Agent7/10.7†
            —
            Semi-Exclusive
                Supply Agreement dated May 7, 2002 between the Company and Mipharm
                S.p.A.8/10.8†
            —
            Amended
                and Restated License and Supply Agreement dated June 4, 2002 between
                the
                Company and Ares Trading S.A.8/10.9†
            —
            Marketing
                License Agreement dated June 4, 2002 between the Company and Ares
                Trading
                S.A. and Serono, Inc.8/10.10†
            —
            Investment
                and Royalty Agreement dated July 31, 2002 between the Company and
                PharmaBio Development Inc.8/10.11†
            —
            License
                and Supply Agreement dated October 16, 2002 between the Company and
                Ardana
                Bioscience Limited9/10.12†
            —
            Development
                and License Agreement dated December 26, 2002 between the Company
                and
                Ardana Bioscience Limited9/




59





10.13†
            —
            Investment
                and Royalty Agreement dated March 5, 2003 between the Company and
                PharmaBio Development Inc.9/10.14†
            —
            License
                and Supply Agreement Dated May 27, 2003 between the Company and Mipharm
                S.p.A.10/10.15
            —
            Form
                of Indemnification Agreement for Officers and Directors11/10.16
            —
            Form
                of Executive Change of Control Severance Agreement11/10.17†
            —
            Asset
                Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug
                Store Products, Inc.12/10.18†
            —
            Supply
                Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
                Products, Inc.12/10.19†
            —
            Professional
                Promotion Agreement dated June 29, 2004, between the Company and
                Lil’ Drug
                Store Products, Inc.12/10.20
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and Robert S.
                Mills
                dated March 30, 200616/10.21
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and Michael
                McGrane
                dated March 30, 200616/10.22
            —
            Letter
                Agreement Supplement to STRIANT® Investment and Royalty Agreement dated
                April 14, 200617/10.23
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and James Meer
                dated
                December 6, 200619/10.24
            —
            Separation
                Agreement by and between Columbia Laboratories, Inc. and David L.
                Weinberg
                effective as of December 12, 200620/10.25†
            —
            Agreement,
                dated December 21, 2006, by and among Ares Trading S.A., Serono,
                Inc., the Company and its wholly-owned subsidiary, Columbia Laboratories
                (Bermuda), Ltd21/10.26
            —
            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.21/10.27
            —
            Description
                of the Registrant’s Compensation and Reimbursement Practices for
                Non-employee Directors.22/10.28
            —
            Columbia
                Laboratories, Inc., Incentive Plan22/10.29
            —
            Lease
                Agreement between Allwood Associates I and Columbia Laboratories,
                Inc.,
                dated July 6, 200722/10.30†
            —
            License
                and Supply Agreement between Columbia Laboratories, Inc. and Ascend
                Therapeutics, Inc., dated September 27, 200723/10.31
            —
            Supply
                Agreement between Columbia Laboratories (Bermuda) Limited and Fleet
                Laboratories Limited, dated July 12, 199624/10.32
            —
            Packaging
                Agreement between Columbia Laboratories (Ireland) Ltd. and Maropack
                AG,
                dated October 28, 199324/14
            —
            Code
                of Ethics of the Company11/21
            —
            Subsidiaries
                of the Company24/23.1
            —
            Consent
                of Goldstein Golub Kessler LLP24/23.2
            —
            Consent
                of McGladrey & Pullen, LLP24/31(i).1
            —
            Certification
                of Chief Executive Officer of the Company24/31(i).2
            —
            Certification
                of Chief Financial Officer of the Company24/32.1
            —
            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 200224/32.2
            —
            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 2002.24/†
            
            Confidential
                treatment has been requested with respect to certain portions of
                this
                exhibit. Omitted portions have been filed separately with the
                SEC.




60




1/
            
            Incorporated
                by reference to the Registrant's Registration Statement on Form S-1
                (File
                No. 33-31962) declared effective on May 14, 19902/
            
            Incorporated
                by reference to the Registrant's Proxy Statement dated May 10,
                20003/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 19984/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 19995/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 19996/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended June 30, 20007/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated March
                12, 20028/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 14, 20029/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200210/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 14, 200311/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200312/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 4, 200413/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated May 12,
                200514/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200515/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated March
                16, 200616/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated April
                3, 200617/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated April
                17, 200618/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated May 17,
                200619/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 7, 200620/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 15, 200621/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 26, 2006




61




22/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q, dated
                August 8, 200723/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q, dated
                November 8, 200724/
            
            Filed
                herewith





62


**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 25, 2008
            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
                25, 2008Robert
                Mills
            
            (Principal
                Executive Officer)/s/
                James A. Meer
            
            Senior
                Vice President, Chief
            
            March
                25, 2008James
                A. Meer
            
            Financial
                Officer and Treasurer
              (Principal
                Financial and Accounting Officer)/s/
                Valerie Andrews
            
            Director
            
            March
                25, 2008Valerie
                Andrews/s/
                Edward A. Blechschmidt
            
            Vice
                Chairman of the Board of Directors
            
            March
                25, 2008Edward
                A. Blechschmidt/s/
                James S. Crofton
            
            Director
            
            March
                25, 2008James
                S. Crofton/s/
                Stephen G. Kasnet
            
            Chairman
                of the Board of Directors
            
            March
                25, 2008Stephen
                G. Kasnet/s/
                Denis M. O’Donnell
            
            Director
            
            March
                25, 2008Denis
                M. O’Donnell/s/
                Selwyn P. Oskowitz
            
            Director
            
            March
                25, 2008Selwyn
                P. Oskowitz





63





COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





INDEX
      TO FINANCIAL STATEMENTS





PageReports
                of Independent Registered Public Accounting Firms
            F-2 –
                F-3Consolidated
                Balance Sheets as of December 31, 2007, 2006 and 2005
            F-4Consolidated
                Statements of Operations for the Four Years Ended December 31,
                2007
            F-6Consolidated
                Statements of Comprehensive Operations for the Four Years Ended December
                31, 2007
            F-7Consolidated
                Statements of Shareholders' Equity (Deficiency) for the Four Years
                Ended
                December 31, 2007
            F-8Consolidated
                Statements of Cash Flows for the Four Years Ended December 31,
                2007
            F-10Notes
                to Consolidated Financial Statements
            F-12




F-1




**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Shareholders


of
      Columbia Laboratories, Inc.:





We
      have
      audited the consolidated balance sheet of Columbia Laboratories, Inc. and
      Subsidiaries as of December 31, 2007, and the related consolidated statements
      of
      operations, comprehensive operations, shareholders’ equity (deficiency) and cash
      flows for the year then ended. These consolidated financial statements are
      the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these consolidated financial statements 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 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 audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Columbia Laboratories,
      Inc.
      and Subsidiaries as of December 31, 2007 and the results of its operations
      and
      its cash flows for the year then ended, in conformity with U.S. generally
      accepted accounting principles.





As
      disclosed in Note 1 to the consolidated financial statements, effective January
      1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109”.





We
      also
      have audited the adjustments described in Note 2 that were applied to restate
      the 2006 and 2005 consolidated balance sheets and the 2006, 2005 and 2004
      consolidated statements of operations, shareholders’ equity (deficiency) and
      cash flows to correct errors. In our opinion, such adjustments are appropriate
      and have been properly applied. We were not engaged to audit, review, or apply
      any procedures to the 2006, 2005 and 2004 consolidated financial statements
      of
      the Company other than with respect to the adjustments and, accordingly, we
      do
      not express an opinion or any other form of assurance on the 2006, 2005 and
      2004
      consolidated financial statements taken as a whole.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Columbia Laboratories, Inc. and Subsidiaries’
internal control over financial reporting as of December 31, 2007, based on
      criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our
      report dated March 25, 2008 expressed an opinion that Columbia Laboratories,
      Inc. and Subsidiaries had not maintained effective internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO).




/s/
      McGladrey & Pullen, LLP




McGLADREY
      & PULLEN, LLP


New
      York,
      New York


March
      25,
      2008





F-2





REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
      the
      Board of Directors and Shareholders


of
      Columbia Laboratories, Inc.:




We
      have
      audited, before the effects of the adjustments for the correction of the errors
      described in Note 2, 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, shareholders' 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.




We
      were not engaged to audit, review or apply any
      procedures to the adjustments for the correction of the errors described in
      Note
      2 and, accordingly, we do not express an opinion or any other form of assurance
      about whether any adjustments are appropriate and have been properly applied.
      Those adjustments were audited by McGladrey and Pullen, LLP.




In
      our
      opinion, except for the errors described in Note 2, the consolidated 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.




As
      disclosed in Note 7, the Company changed its method of accounting for
      stock-based compensation effective January 1, 2006.




/s/
      Goldstein Golub Kessler LLP





GOLDSTEIN
      GOLUB KESSLER LLP


New
      York,
      New York


March
      15,
      2007





F-3





COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS





AS
      OF
      DECEMBER 31, 2007, 2006 AND 2005





ASSETS




2007
            
            2006
            
            2005(Restated)
            
            (Restated)CURRENT
                ASSETSCash
                and cash equivalents of which $16,982,742 is interest bearing as
                of
                December 31, 2007
            
            $
            17,221,811
            
            $
            25,270,377
            
            $
            7,136,854Accounts
                receivable, net of allowances for doubtful accounts of $95,733, $100,000
                and $50,000 in 2007, 2006 and 2005 respectively
            
            
            3,810,993
            
            
            2,305,056
            
            
            3,897,068Inventories
            
            
            3,047,129
            
            
            2,105,038
            
            
            1,821,433Prepaid
                expenses and other current assets
            
            
            1,287,300
            
            
            993,766
            
            
            748,859Total
                current assets
            
            
            25,367,233
            
            
            30,674,237
            
            
            13,604,214PROPERTY
                AND EQUIPMENTMachinery
                and equipment
            
            
            2,252,222
            
            
            2,653,285
            
            
            2,680,099Computer
                software
            
            
            444,332
            
            
            444,332
            
            
            442,785Office
                Equipment and furniture and fixtures
            
            
            643,390
            
            
            645,039
            
            
            660,4373,339,944
            
            
            3,742,656
            
            
            3,783,321Less-accumulated
                depreciation and amortization
            
            
            (2,687,977
            )
            
            (2,978,820
            )
            
            (2,780,741
            )651,967
            
            
            763,836
            
            
            1,002,580INTANGIBLE
                ASSETS - NET
            
            
            28,859,788
            
            
            32,865,556
            
            
            -OTHER
                ASSETS
            
            
            1,710,289
            
            
            1,535,115
            
            
            124,756TOTAL
                ASSETS
            
            $
            56,589,277
            
            $
            65,838,744
            
            $
            14,731,550




(Continued)




F-4




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS




AS
      OF
      DECEMBER 31, 2007, 2006 AND 2005





LIABILITIES
      AND SHAREHOLDERS’ EQUITY





2007
            
            2006
            
            2005(Restated)
            
            (Restated)CURRENT
                LIABILITIES:Current
                portion of financing agreements
            
            $
            3,786,538
            
            $
            553,947
            
            $
            12,840,161Accounts
                payable
            
            
            2,215,942
            
            
            3,586,770
            
            
            1,905,381Accrued
                expenses
            
            
            4,903,881
            
            
            3,123,092
            
            
            2,329,475Total
                Current Liabilities
            
            
            10,906,361
            
            
            7,263,809
            
            
            17,075,017NOTES
                PAYABLE - (Note 4)
            
            
            27,536,178
            
            
            25,299,135DEFERRED
                REVENUE
            
            
            3,580,880
            
            
            4,182,648
            
            
            4,058,327LONG-TERM
                PORTION OF FINANCING AGREEMENTS
            
            
            11,425,601
            
            
            13,276,784
            
            
            10,921,092TOTAL
                LIABILITIES
            
            
            53,449,020
            
            
            50,022,376
            
            
            32,054,436COMMITMENTS
                AND CONTINGENCIESContingently
                Redeemable Series C Convertible Preferred Stock; 1,125, 3,200, and
                3,250
                shares issued and outstanding in 2007 2006, and 2005 respectively
                (liquidation preference of $1,250,000 $3,200,000 and $3,250,000 in
                2007,
                2006 and 2005 respectively)
            
            
            1,125,000
            
            
            3,200,000
            
            
            3,250,000SHAREHOLDERS'
                EQUITY:Preferred
                stock, $.01 par value; 1,000,000 shares authorizedSeries
                B Convertible Preferred Stock, 130 shares issued and outstanding
                in 2007,
                2006 and 2005 (liquidation preference of $13,000 in 2007, 2006 and
                2005)
            
            
            1
            
            
            1
            
            
            1Series
                E Convertible Preferred Stock, 63,547, 69,000 and 69,000 shares issued
                and
                outstanding in 2007, 2006 and 2005 respectively (liquidation preference
                of
                $6,354,700, $6,900,000 and $6,900,000 in 2007, 2006 and 2005
                respectively)
            
            
            635
            
            
            690
            
            
            690Common
                Stock $.01 par value; 100,000,000 shares authorized; 51,730,151,
                49,694,213 and 41,754,784 shares issued in 2007, 2006 and 2005
                respectively
            
            
            517,302
            
            
            496,942
            
            
            417,548Capital
                in excess of par value
            
            
            222,376,941
            
            
            218,687,977
            
            
            172,090,055Less
                cost of 18,000 and 6,000 treasury shares in 2007 and 2006
                respectively
            
            
            (54,030
            )
            
            (26,880
            )Accumulated
                deficit
            
            
            (221,033,196
            )
            
            (206,741,406
            )
            
            (193,258,323
            )Accumulated
                other comprehensive income
            
            
            207,604
            
            
            199,044
            
            
            177,143Shareholders'
                equity
            
            
            2,015,257
            
            
            12,616,368
            
            
            (20,572,886
            )TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            56,589,277
            
            $
            65,838,744
            
            $
            14,731,550





The
      accompanying notes to consolidated financial statements


are
      an
      integral part of these statements




F-5




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF OPERATIONS





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007




2007
            
            2006
            
            2005
            
            2004(Restated)
            
            (Restated)
            
            (Restated)NET
                REVENUES
            
            $
            29,627,638
            
            $
            17,393,081
            
            $
            22,040,842
            
            $
            17,860,404COST
                OF REVENUES
            
            
            9,014,540
            
            
            7,819,843
            
            
            8,111,497
            
            
            7,788,601GROSS
                PROFIT
            
            
            20,613,098
            
            
            9,573,238
            
            
            13,929,345
            
            
            10,071,803OPERATING
                EXPENSES:Selling
                and distribution
            
            
            10,111,796
            
            
            6,600,371
            
            
            8,578,022
            
            
            19,006,585General
                and administrative
            
            
            7,824,741
            
            
            7,402,188
            
            
            6,825,148
            
            
            7,588,437Research
                and development
            
            
            5,778,641
            
            
            6,596,339
            
            
            5,756,856
            
            
            5,448,685Amortization
                of licensing right
            
            
            5,005,768
            
            
            134,444
            
            
            -
            
            
            -Total
                operating expenses
            
            
            28,720,946
            
            
            20,733,342
            
            
            21,160,026
            
            
            32,043,707Loss
                from operations
            
            
            (8,107,848
            )
            
            (11,160,104
            )
            
            (7,230,681
            )
            
            (21,971,904
            )OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            979,953
            
            
            862,068
            
            
            165,886
            
            
            241,342Interest
                expense
            
            
            (7,946,048
            )
            
            (2,669,771
            )
            
            (3,491,234
            )
            
            (3,928,156
            )Other,
                net
            
            
            782,153
            
            
            482,428
            
            
            451,700
            
            
            (407,926
            )(6,183,942
            )
            
            (1,325,275
            )
            
            (2,873,648
            )
            
            (4,094,740
            )Net
                loss
            
            $
            (14,291,790
            )
            $
            (12,485,379
            )
            $
            (10,104,329
            )
            $
            (26,066,644
            )LOSS
                PER COMMON SHARE - BASIC AND DILUTED
            
            $
            (0.28
            )
            $
            (0.26
            )
            $
            (0.25
            )
            $
            (0.64
            )WEIGHTED
                - AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND
                DILUTED
            
            
            51,124,266
            
            
            48,088,516
            
            
            41,752,422
            
            
            40,984,083




The
      accompanying notes to consolidated financial statements


are
      an
      integral part of these statements.




F-6




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE OPERATIONS





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007




2007
            
            2006
            
            2005
            
            2004(Restated)
            
            (Restated)
            
            (Restated)NET
                LOSS
            
            $
            (14,291,790
            )
            $
            (12,485,379
            )
            $
            (10,104,329
            )
            $
            (26,066,644
            )Other
                comprehensive income (loss):Foreign
                currency translation, net of tax
            
            
            8,560
            
            
            21,901
            
            
            (64,684
            )
            
            50,458Comprehensive
                loss
            
            $
            (14,283,230
            )
            $
            (12,463,478
            )
            $
            (10,169,013
            )
            $
            (26,016,186
            )




The
      accompanying notes to consolidated financial statements


are
      an
      integral part of these statements.




F-7




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES




CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007


(RESTATED)





Series B Convertible
              Preferred Stock
            
            Series E Convertible
              Preferred Stock
            
            Common StockNumber of
              Shares
            
            Amount
            
            Number of
              Shares
            
            Amount
            
            Number of
              Shares
            
            Amount
            
            Capital in
              Excess of
              Par Value
            
            Treasury
              Stock
            
            Accumulated
              Deficit
            
            Accumulated Other
              Comprehensive
              Income (Loss)
            
            TotalBalance,
                January 1, 2004
            
            
            130
            
            $
            1
            
            
            0
            
            $
            -
            
            
            39,679,381
            
            $
            396,794
            
            $
            158,896,593
            
            
            
            
            $
            (157,087,350
            )
            $
            191,369
            
            $
            2,397,407Issuance
                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 options granted to
                      non-employees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,514
            
            
            
            
            
            
            
            
            
            
            
            14,514Options
                exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Dividends
                on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (162,500
            )
            
            
            
            
            
            
            
            
            
            
            (162,500
            )Translation
                adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,458
            
            
            50,458Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (26,066,644
            )
            
            
            
            
            (26,066,644
            )Balance,
                December 31, 2004
            
            
            130
            
            
            1
            
            
            -
            
            
            -
            
            
            41,751,934
            
            
            417,519
            
            
            165,337,568
            
            
            -
            
            
            (183,153,994
            )
            
            241,827
            
            
            (17,157,079
            )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
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            (10,104,329
            )
            
            -
            
            
            (10,104,329
            )Balance,
                December 31, 2005
            
            
            130
            
            $
            1
            
            
            69,000
            
            $
            690
            
            
            41,754,784
            
            $
            417,548
            
            $
            172,090,055
            
            $
            -
            
            $
            (193,258,323
            )
            $
            177,143
            
            $
            (20,572,886
            )




(Continued)




F-8




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)


(RESTATED)





Series B Convertible
              Preferred Stock
            
            Series E Convertible
              Preferred Stock
            
            Common Stock
            
            Capital in
            
            
            
            
            
            Accumulated
                OtherNumber of
              Shares
            
            Amount
            
            Number of
              Shares
            
            Amount
            
            Number of
              Shares
            
            Amount
            
            Excess ofPar Value
            
            Treasury Stock
            
            Accumulated
              Deficit
            
            ComprehensiveIncome
                (Loss)
            
            TotalBalance,
                December 31, 2005
            
            
            130
            
            $
            1
            
            
            69,000
            
            $
            690
            
            
            41,754,784
            
            $
            417,548
            
            $
            172,090,055
            
            $
            -
            
            $
            (193,258,323
            )
            $
            177,143
            
            $
            (20,572,886
            )Cumulative
                effect adjustmenton
                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
                for convertible notes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,754,656
            
            
            
            
            
            
            
            
            
            
            
            14,754,656Conversion
                of Series C Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,285
            
            
            143
            
            
            49,857
            
            
            
            
            
            
            
            
            
            
            
            50,000Purchase
                of treasury stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (26,880
            )
            
            
            
            
            
            
            
            (26,880
            )Dividends
                on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (161,379
            )
            
            
            
            
            
            
            
            
            
            
            (161,379
            )Translation
                adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            21,901
            
            
            21,901Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (12,485,378
            )
            
            
            
            
            (12,485,378
            )Balance,
                December 31, 2006
            
            
            130
            
            
            1
            
            
            69,000
            
            
            690
            
            
            49,694,213
            
            
            496,942
            
            
            218,687,977
            
            
            (26,880
            )
            
            (206,741,406
            )
            
            199,044
            
            
            12,616,368Options
                exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            43,050
            
            
            431
            
            
            62,810
            
            
            
            
            
            
            
            
            
            
            
            63,241Share
                based compensation expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            155,690
            
            
            1,557
            
            
            1,646,365
            
            
            
            
            
            
            
            
            
            
            
            1,647,922Conversion
                of Series C Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,564,548
            
            
            15,645
            
            
            2,059,355
            
            
            
            
            
            
            
            
            
            
            
            2,075,000Conversion
                of Series E Preferred Stock
            
            
            
            
            
            
            
            
            (5,453
            )
            
            (55
            )
            
            272,650
            
            
            2,727
            
            
            (2,672
            )
            
            
            
            
            
            
            
            
            
            
            -Purchase
                of treasury stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (27,150
            )
            
            
            
            
            
            
            
            (27,150
            )Dividends
                on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (76,894
            )
            
            
            
            
            
            
            
            
            
            
            (76,894
            )Translation
                adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,560
            
            
            8,560Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (14,291,790
            )
            
            
            
            
            (14,291,790
            )Balance,
                December 31, 2007
            
            
            130
            
            $
            1
            
            
            63,547
            
            $
            635
            
            
            51,730,151
            
            $
            517,302
            
            $
            222,376,941
            
            $
            (54,030
            )
            $
            (221,033,196
            )
            $
            207,604
            
            $
            2,015,257




The
      accompanying notes to consolidated financial statements are an integral part
      of
      these statements.




F-9




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007




2007
            
            2006
            
            2005
            
            2004(Restated)
            
            (Restated)
            
            (Restated)CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (14,291,790
            )
            $
            (12,485,379
            )
            $
            (10,104,329
            )
            $
            (26,066,644
            )Adjustments
                to reconcile net loss to net cash used in operating activities
                -Depreciation
                and amortization
            
            
            5,462,888
            
            
            395,003
            
            
            287,741
            
            
            379,855Amortization
                of beneficial conversion features
            
            
            1,265,496
            
            
            30,344
            
            
            -
            
            
            -Amortization
                of warrants
            
            
            971,548
            
            
            23,449
            
            
            -
            
            
            -Provision
                for doubtful accounts
            
            
            15,000
            
            
            105,855
            
            
            187,962
            
            
            48,917Provision
                for sales returns
            
            
            992,502
            
            
            1,802,868
            
            
            2,431,823
            
            
            3,336,339Write-down
                of inventories
            
            
            80,961
            
            
            612,094
            
            
            1,036,136
            
            
            1,018,677Share
                based compensation
            
            
            1,647,922
            
            
            1,248,448
            
            
            -
            
            
            -Interest
                accrued on financing agreements net of payments made
            
            
            1,381,407
            
            
            (4,539,253
            )
            
            1,667,223
            
            
            2,638,385Loss
                on sale of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            577,917Issuance
                of options for services
            
            
            -
            
            
            -
            
            
            7,453
            
            
            14,514Changes
                in assets and liabilities -(Increase)
                decrease in:Accounts
                receivable
            
            
            (1,520,937
            )
            
            1,345,895
            
            
            27,457
            
            
            725,519Inventories
            
            
            (1,023,052
            )
            
            (895,699
            )
            
            (115,025
            )
            
            (1,291,997
            )Prepaid
                expenses and other current assets
            
            
            (293,534
            )
            
            (104,645
            )
            
            554,706
            
            
            1,106,353Other
                assets
            
            
            (418,405
            )
            
            (1,416,416
            )
            
            (3,615
            )
            
            19,514Increase
                (decrease) in:Accounts
                payable
            
            
            (1,370,828
            )
            
            1,681,389
            
            
            (866,726
            )
            
            (34,129
            )Accrued
                expenses
            
            
            (211,709
            )
            
            (1,009,251
            )
            
            (3,213,546
            )
            
            (3,231,833
            )Deferred
                revenue
            
            
            (601,768
            )
            
            124,321
            
            
            (180,733
            )
            
            359,442Net
                cash used in operating activities
            
            
            (7,914,299
            )
            
            (13,080,977
            )
            
            (8,283,473
            )
            
            (20,399,171
            )




(Continued)




F-10





COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007





2007
            
            2006
            
            2005
            
            2004(Restated)
            
            (Restated)
            
            (Restated)CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            $
            (102,021
            )
            $
            (15,757
            )
            $
            (83,367
            )
            $
            (582,367
            )Acquisition
                of intangibles
            
            
            -
            
            
            (33,000,000
            )
            
            -
            
            
            300,000Net
                cash used in investing activities
            
            
            (102,021
            )
            
            (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
            
            
            63,241
            
            
            1,021,759
            
            
            8,253
            
            
            229,686Proceeds
                from financing agreements
            
            
            -
            
            
            -
            
            
            -
            
            
            3,000,000Payment
                for purchase of treasury stock
            
            
            (27,150
            )
            
            (26,880
            )
            
            -
            
            
            -Principal
                payment pursuant to financing agreements
            
            
            -
            
            
            (5,391,268
            )
            
            (959,052
            )
            
            -Dividends
                paid
            
            
            (76,894
            )
            
            (161,379
            )
            
            (162,500
            )
            
            (162,500
            )Net
                cash (used in) provided by financing activities
            
            
            (40,803
            )
            
            64,208,356
            
            
            (4,213,299
            )
            
            9,447,186EFFECT
                      OF EXCHANGE RATE CHANGES ON CASH
            
            
            8,557
            
            
            21,900
            
            
            (64,598
            )
            
            50,426NET
                      (DECREASE)/ INCREASE IN CASH AND CASH
                      EQUIVALENTS
            
            
            (8,048,566
            )
            
            18,133,522
            
            
            (12,644,737
            )
            
            (11,183,926
            )CASH
                      AND CASH EQUIVALENTS, Beginning of year
            
            
            25,270,377
            
            
            7,136,854
            
            
            19,781,591
            
            
            30,965,517CASH
                      AND CASH EQUIVALENTS, End of year
            
            $
            17,221,811
            
            $
            25,270,377
            
            $
            7,136,854
            
            $
            19,781,591SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONInterest
                paid
            
            $
            2,488,889
            
            $
            -
            
            $
            356,250
            
            $
            712,500Taxes
                paid
            
            $
            34,759
            
            $
            49,492
            
            $
            6,800
            
            $
            110,700Accrual
                of financing costs
            
            $
            25,000
            
            $
            1,275,000
            
            $
            -
            
            $
            -Increase
                of US Crinone license right cost
            
            $
            1,000,000
            
            $
            -
            
            $
            -
            
            $
            -Conversion
                    of Series C preference shares to common stock
            
            $
            2,075,000
            
            $
            50,000
            
            $
            -
            
            $
            -Conversion
                of Series E preference shares to common stock
            
            $
            545,300
            
            $
            -
            
            $
            -




The
      accompanying notes to consolidated financial statements


are
      an
      integral part of these statements.




F-11




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 or are intended to treat infertility, endometriosis,
      dysmenorrhea, preterm birth for women with a short cervix at mid-pregnancy
      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. Prior year financial statements have been
      reclassified to conform to the 2007 presentation. The VAT refunds due for prior
      years have been reclassified from accounts receivable to prepaid assets. At
      December 31, 2005 and 2006 this amounted to $24,941 and $122,951,
      respectively,





Liquidity -





As
      shown
      in the financial statements, the Company has had recurring losses from
      operations. Management believes the approximately $17.2 million of cash on
      hand
      at December 31, 2007 will allow the Company to sustain its operations.




Accounting
      Estimates -





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 reserves, license fees, payments to distributors, and
      share based compensation. 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 shareholders'
      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-12




Fair
      Value of Financial Instruments-





The
      estimated fair value of the convertible subordinated notes payable, beneficial
      conversion feature, and detachable warrants amounted to $52,463,820 and
      $54,700,863 at December 31, 2007 and 2006, respectively. 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. The
      fair
      value of the financing agreements described in Note 5 approximates their
      carrying amount.




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
                31,2007
            
            2006
            
            2005Finished
                goods
            
            $
            1,734,052
            
            $
            1,305,872
            
            $
            1,165,413Raw
                materials
            
            
            1,313,077
            
            
            799,166
            
            
            656,020$
            3,047,129
            
            $
            2,105,038
            
            $
            1,821,433




Shipping
      costs are included in selling and distribution expenses and amounted to
      approximately $101,616, $39,000, $39,000 and $63,000 in 2007, 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 $215,000, $250,000, $288,000 and $337,000
      in
      2007, 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 10 for customer concentrations.





The
      Company depends on one supplier for a key excipient used in its products and
      one
      supplier for the active pharmaceutical ingredients.





F-13




Intangible
      Assets-





On
      December 22, 2006, the Company acquired the US rights to CRINONE ® (progesterone gel).  The
      cost
      of the acquisition was $33,000,000 in cash and is being amortized over a
      6.75-year period. On
      April
      1, 2007, the Company recorded a liability from the contract with Merck Serono
      for certain sales returns associated with sales made by Merck Serono. The
      Company recorded the estimated liability of $1,000,000 as an increase in the
      purchase price that is being amortized over the remaining term of the
      license.




2007
            
            2006Balance
                at January 1
            
            $
            33,000,000Acquisition
                of license
            
            
            
            
            $
            33,000,000Assumption
                of sales return liability
            
            
            1,000,000
            
            
            -34,000,000
            
            
            33,000,000Accumulated
                amortization
            
            
            (5,140,212
            )
            
            (134,444
            )Balance
                at December 31
            
            $
            28,859,788
            
            $
            32,865,556




Amortization
      expense amounted to $5,005,768 and $134,444 in 2007 and 2006
      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:





2007
            
            2006
            
            2005Sales
                returns
            
            $
            1,923,765
            
            $
            1,240,234
            
            $
            745,882Salaries
            
            
            757,587
            
            
            752,022
            
            
            684,286Royalties
            
            
            17,390
            
            
            216,411
            
            
            369,303Interest
            
            
            800,000
            
            
            88,889
            
            
            -Professional
                fees
            
            
            441,525
            
            
            594,166
            
            
            284,914Inventory
                management fees
            
            
            553,463
            
            
            -
            
            
            -Marketing
                expenses
            
            
            244,177
            
            
            117,769
            
            
            -Other
            
            
            165,974
            
            
            113,601
            
            
            245,090$
            4,903,881
            
            $
            3,123,092
            
            $
            2,329,475




Income
      Taxes -





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - An Interpretation
      of FASB No 109.” FIN 48 provides detailed guidance for the financial statement
      recognition, measurement and disclosure of uncertain tax positions recognized
      in
      the financial statements in accordance with SFAS No. 109. Tax positions must
      meet a “more-likely-than-not” recognition threshold at the effective date to be
      recognized upon the adoption of FIN 48 and in subsequent periods. Upon the
      adoption of FIN 48, the Company had no unrecognized tax benefits. During the
      year ended December 31, 2007, the Company recognized no adjustments for
      uncertain tax benefits.




F-14




The
      reconciliation of the effective income tax rate to the federal statutory rate
      is
      as follows:




2007
            
            2006
            
            2005
            
            2004Federal
                income tax rate
            
            
            -35.0
            %
            
            -34.0
            %
            
            -34
            %
            
            -34
            %Statutory
                rate over expected future federal benefit
            
            
            1.0
            %Foreign
                Income tax benefit/loss
            
            
            -15.1
            %
            
            -10.2
            %
            
            -18.2
            %
            
            -1.0
            %State
                tax net of federal benefit
            
            
            -4.9
            %
            
            -4.3
            %
            
            -4.9
            %
            
            -3.4
            %Permanent
                items:Intercompany
                interest income
            
            
            4.2
            %
            
            5.5
            %
            
            8.2
            %
            
            3.6
            %Amortization
                of technology rights
            
            
            -2.4
            %
            
            -2.8
            %
            
            -3.4
            %
            
            -1.3
            %R&D
                Credit
            
            
            -
            
            
            1.0
            %
            
            -3.3
            %
            
            -0.6
            %Other
            
            
            -0.1
            %
            
            0.1
            %
            
            0.1
            %
            
            0.1
            %Effect
                of permanent differences
            
            
            1.7
            %
            
            3.8
            %
            
            1.6
            %
            
            1.8
            %Effective
                income tax rate
            
            
            -52.3
            %
            
            -44.7
            %
            
            -55.4
            %
            
            -36.6
            %Increase
                in valuation allowance
            
            
            52.3
            %
            
            44.7
            %
            
            55.4
            %
            
            36.6
            %Effective
                income tax rate
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %




As
      of
      December 31, 2007, the Company has U.S. tax net operating loss carryforwards
      of
      approximately $157.3 million which expire through 2025. The Company also has
      unused tax credits of approximately $1.7 million which expire at various dates
      through 2025. Utilization of net operating loss carryforwards may be limited
      in
      any year due to limitations in the Internal Revenue Code. As of December 31,
      2007, 2006, and 2005 other assets in the accompanying consolidated balance
      sheets include deferred tax assets of approximately $60.5, $53.2 and $50.8
      million, respectively (comprised primarily of a net operating loss
      carryforwards, for which a 100% valuation allowance has been recorded since
      the
      realizability of the deferred tax assets is not determinable. With respect
      to
      the Company’s net operating loss carryforwards, it has not undertaken an
      analysis to determine whether the utilization of this tax asset would be limited
      by Section 382 of the Internal Revenue Code.





The
      Company recognizes interest and penalties, if any, related to uncertain tax
      positions in general and administrative expenses. No interest and penalties
      related to uncertain tax positions were accrued at December 31,
      2007.





The
      Company has not been audited by the IRS to date. However, the Company expects
      no
      material changes to unrecognized tax positions within the next 12 months.




F-15




Deferred
                Tax Assets (Liabilities)
            
            2007
            
            2006
            
            2005Share
                Based Compensation
            
            $
            973,848
            
            $
            399,519
            
            $
            -Allowance
                for doubtful accounts
            
            
            26,525
            
            
            28,125
            
            
            9,375Allowance
                for returns
            
            
            346,412
            
            
            465,088
            
            
            279,706Inventory
                reserve
            
            
            71,889
            
            
            75,000
            
            
            68,358Book
                accumulated depreciation net of tax
            
            
            (8,779
            )
            
            (21,431
            )
            
            (50,948
            )Accumulated
                amortization - CRINONE license
            
            
            1,054,663
            
            
            27,500
            
            
            -Vacation
                accrual
            
            
            14,634
            
            
            34,978
            
            
            76,565Inventory
                Capitalization
            
            
            17,318
            
            
            13,497
            
            
            25,873Long
                term debt (beneficial conversion feature net of book amortization
                )
            
            
            (2,694,844
            )
            
            (3,169,405
            )
            
            -Federal
                net operating loss
            
            
            58,983,654
            
            
            53,622,476
            
            
            48,541,400Unused
                R&D credit
            
            
            1,743,065
            
            
            1,743,065
            
            
            1,862,756Net
                Deferred Tax Assets
            
            $
            60,528,385
            
            $
            53,218,411
            
            $
            50,813,085Less
                Valuation Allowance:Federal
            
            
            (60,528,385
            )
            
            (53,218,411
            )
            
            (50,813,085
            )Deferred
                Taxes Assets
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**




The
      Company files income tax returns as well as multiple state, local and foreign
      jurisdiction tax r eturns.
      Tax years ended December 31, 2004 or later remain subject to examination by
      the IRS. S tate
      and
      local jurisdiction tax returns remain subject to examination for tax years
      ended December 31, 2004 or later.





Revenue
      Recognition -





*Revenue
      recognition* Revenues
      on sales of products by Columbia are discussed in detail below. Royalties and
      additional monies owed to the Company based on sales by 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. The Company’s
      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. The Company continually analyzes
      the
      reserve for future sales returns and increases such reserve if deemed
      appropriate. 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 larger wholesale customers. This information includes
      for each of the Company’s 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 its 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 customers will not ship product that has
      expiration dating 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 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-16




An
      analysis of the reserve for sales returns is as follows:




2007
            
            2006
            
            2005
            
            2004Balance
                at beginning of year
            
            $
            1,240,234
            
            $
            745,882
            
            $
            1,992,010
            
            $
            275,000Addition
                related to Crinone® purchase
            
            
            1,000,000
            
            
            -
            
            
            -
            
            
            -Adjusted
                Balance at Beginning of year
            
            
            2,240,234
            
            
            745,882
            
            $
            1,992,010
            
            
            275,000Provision:Related
                to current year sales
            
            
            527,819
            
            
            210,275
            
            
            272,913
            
            
            216,195Related
                to prior years' sales
            
            
            500,000
            
            
            1,592,592
            
            
            2,158,910
            
            
            3,120,1441,027,819
            
            
            1,802,867
            
            
            2,431,823
            
            
            3,336,339Returns:Related
                to current year sales
            
            
            (61,125
            )
            
            (46,825
            )
            
            (67,928
            )
            
            -Related
                to 2006 Crinone® purchase
            
            
            (328,896
            )
            
            -
            
            
            -
            
            
            -Related
                to prior years' sales
            
            
            (954,267
            )
            
            (1,261,690
            )
            
            (3,610,023
            )
            
            (1,619,329
            )(1,344,288
            )
            
            (1,308,515
            )
            
            (3,677,951
            )
            
            (1,619,329
            )Balance
                at end of year
            
            $
            1,923,765
            
            $
            1,240,234
            
            $
            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, the Company 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. In 2007, the Company
      recorded an estimated liability of $1.0 million for certain sales returns
      associated with sales made by Merck Serono.





Sales
      returns provisions for the year 2007 were $2.0 million including $1.0 million
      in
      the second quarter as
      an
      increase in the purchase price of the U.S rights to CRINONE for future returns
      as a result of product sold by Merck Serono that was still in the channel at
      the
      time of purchase of the such rights. The current year’s provision in 2007
      increased by $0.3 million from 2006 levels to reflect primarily the increase
      in
      sales of progesterone products. During the year, the Company undertook to reduce
      further its PROCHIEVE ® inventory
      levels in distribution channels. The Company recognized $0.4 million for the
      Merck Serono returns during 2007 and reduced the $1.0 million reserve
      accordingly.





Sales
      returns provisions for the year 2006 were $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 which was
      significantly affected by the 2003 STRIANT ® launch
      activities and the uncertainty in estimating the returns with a launch. The
      Company carried out a plan in 2006 to bring STRIANT inventory levels in
      distribution channels to demand levels.




F-17




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.




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 3). 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 $.9 million in
      2007, $1.3 million in 2006, $1.5 in 2005 and $4.6 million in 2004, and is
      included in selling and distribution expense.





Payments
      to Distributors-





The
      Company estimates fees it pays its distributors and specialty pharmacies for
      customer services that include supplemental sales calling, providing information
      about their customers and the processing of sales returns. The fees for these
      services are charged to selling and distribution expenses. In 2007, these fees
      were $0.6 million.





Research
      and Development Costs-





Company-sponsored
      research and development costs related to future products are expensed as
      incurred.




Reclassification
      -




For
      comparability, certain 2006 and 2005 amounts in
      the Consolidated Financial Statements have been reclassified, where appropriate,
      to conform to the financial statement presentation used in 2007.




F-18




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 9,704,058, 9,554,307,
      6,678,725, and 6,204,400 at December 31, 2007, 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 years ended December 31, 2007 and
      2006, reflect the impact of SFAS 123(R). Employee stock-based compensation
      expense for the years ended December 31, 2007 and 2006, was $ 1,490,059
      and $1,065,383
      respectively, which consisted primarily of stock-based compensation expense
      related to employee stock options recognized under SFAS 123(R).





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 7) 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).




F-19




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 years ended December 31, 2007 and
      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
      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 approach, and compensation
      expense for all stock-based awards granted subsequent to December 31, 2005,
      will also be recognized using the straight line 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
      December 2006, the Financial Accounting Standards Board (“FASB”) issued a FASB
      Staff Position (“FSP”) EITF 00-19-2 “ *Accounting
      for Registration Payment Arrangements”* (“FSP
      00-19-2”). FSP 00-19-2 defines a registration payment arrangement as an
      arrangement where the issuer (i) will endeavor to file a registration statement
      for the resale of financial instruments, have the registration statement
      declared effective, or maintain its effectiveness and (ii) transfer
      consideration to the counterparty if the registration statement is not declared
      effective or its effectiveness is not maintained. The Company entered into
      certain registration payment arrangements in connection with the private
      placement of Common Stock in March 2006, and the issuance of our convertible
      notes in December 2006. 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. FSP 00-19-2 did not have a material
      impact on our consolidated results of operations and financial position in
      2007.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ”
(“SFAS
      157”), which clarifies the definition of fair value, establishes guidelines for
      measuring fair value, and expands disclosures regarding fair value measurements.
      SFAS 157 does not require any new fair value measurements and eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      SFAS No. 157 and FSP 157-b are effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. As proposed
      the
      effective date of SFAS No. 157 would be deferred to Fiscal years beginning
      after
      November 15, 2008 and for interim periods within those years for certain non
      financial assets and liabilities. The Company is currently evaluating the impact
      that adopting SFAS 157 will have on its financial position, cash flows or
      results of operations.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ”
(“SFAS
      No. 159”). SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value that are not currently
      required to be measured at fair value. SFAS 159 also establishes presentation
      and disclosure requirements designed to facilitate comparisons between entities
      that choose different measurement attributes for similar assets and liabilities.
      SFAS No. 159 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007. The Company has not yet determined the
      impact, if any, that the implementation of SFAS No. 159 will have on its results
      of operations or financial position.




F-20




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “ *Business
      Combinations* (“SFAS
      141(R)”). SFAS 141(R) will change the accounting for business combinations.
      Under SFAS 141(R), an acquiring entity will be required to recognize all the
      assets acquired and liabilities assumed in a transaction at the acquisition-date
      fair value with limited exceptions. SFAS 141(R) will change the accounting
      treatment and disclosure for certain specific items in a business combination.
      SFAS 141(R) applies prospectively to business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. SFAS 141(R) will impact the
      Company in the event of any future acquisition.




In
      December 2007, the FASB issued SFAS 160, “ *Non-controlling
      Interests in Consolidated Financial Statements* —an
      amendment of Accounting Research Bulletin 51 “(SFAS 160)”. SFAS 160 establishes
      new accounting and reporting standards for the non-controlling interest in
      a
      subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective
      for fiscal years beginning on or after December 15, 2008. The Company does
      not
      believe that SFAS 160 will have a material impact on its consolidated financial
      statements





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.





(2)
      RESTATEMENT





On
      March
      18, 2008, the Company filed a Current Report on Form 8-K stating its intention
      to restate its financial statements for the years ended December 31, 2005 and
      December 31, 2006, and for the quarterly periods ended March 31, June 30,
      September 30, 2006 and 2007, to correct accounting errors. The restatements
      are
      the result of the following:





With
      respect to its Pharma-Bio Financing Agreements, when the Company initially
      recorded each transaction, it applied the yield to maturity method for
      accounting for the interest expense, but did not recognize the interim payment
      obligations which resulted in implicit interest rates of 13% and 11%,
      respectively. The Company has determined that it should have applied the
      effective yield method called for in Accounting Principles Board Opinion 21
      (“APB 21”) to account for interest expense, should have included the impact of
      the interim payments on the implicit interest rates, and should not have
      separately recorded a loss on early extinguishment. Under APB 21, the implicit
      interest rates would have been approximately 17% and 15%, respectively.
      Therefore, the Company overstated its interest expense in 2006 by $0.1 million
      and understated its interest expense for fiscal years 2005 ($0.8 million),
      and
      2004 ($0.9 million). Further, if not corrected, the Company would be overstating
      its interest expense for 2007, 2008, 2009, and 2010. Over the life of each
      financing agreement, however, the total payments and the recorded interest
      expense would be equal under both accounting methods. Further the adjustments
      do
      not change current cash flows or repayment obligations.




The
      Company has concluded that the timing difference in interest expense should
      be
      reflected in 2004 and 2005, as higher interest expense for each period and
      lower
      interest expense in 2006. The Company increased its beginning 2004 accumulated
      deficit by $0.4 million. The change in interest expense results in an increase
      of $0.9 million and $0.8 million for 2004 and 2005 and a $0.1 million
      interest expense reduction in 2006. The Company restated its Statement of
      Operations by these amounts. These changes also had the cumulative
      effect of decreasing Shareholders’ Equity by $2.0 million by the end of
      2006. Total cash interest expense over the term of the financing agreements
      did
      not change. The July 2002 financing agreement was fully paid on February 29,
      2008.





F-21




With
      respect to its contingently redeemable Series C Preferred Stock, the Company
      recorded the amount as Shareholders’ Equity on its balance sheet. The Company
      reclassified its contingently redeemable Series C Convertible Preferred Stock
      on
      its Balance Sheet from Shareholders’ Equity to temporary equity, because the
      holders have redemption rights for certain events that are not controlled by
      the
      Company. The
      terms of the Series C Preferred Stock have not changed from the original
      issuance in 1999.




Shareholders’
      Equity was reduced in total by approximately $5.2 million, and $5.4 million
      as
      of December 31, 2006, and 2005, respectively, for both the accounting
      adjustments and the reclassification.




The
      restatements also affect amounts disclosed in Notes 3, 5, 6, 7 and 8 to the
      accompanying Consolidated Financial Statements.




All
      amounts referenced in this Annual Report reflect the relevant amounts on a
      restated basis. The previously issued Financial Statements for the periods
      noted
      above should no longer be relied upon.




(2A)
      ADJUSTMENTS TO AUDITED FINANCIAL STATEMENTS




Restated
            
            
            
            As
                reported
            
            Restated
            
            
            
            As
                reported2006
            
            Adjustments
            
            2006
            
            2005
            
            Adjustments
            
            2005BALANCE
                SHEET DATA:LONG-TERM
                PORTION OF FINANCING AGREEMENTS
            
            $
            13,276,784
            
            $
            2,047,007
            
            $
            11,229,777
            
            $
            10,921,092
            
            $
            2,173,349
            
            $
            8,747,743TOTAL
                LIABILITIES
            
            
            50,022,376
            
            
            2,047,007
            
            
            47,975,369
            
            
            32,054,436
            
            
            2,173,349
            
            
            29,881,087Contingently
                Redeemable Series C Preferred Stock
            
            
            3,200,000
            
            
            3,200,000
            
            
            -
            
            
            3,250,000
            
            
            3,250,000STOCKHOLDERS'
                EQUITY (DEFICIENCY):Series
                C Convertible Preferred Stock,
            
            
            -
            
            
            (32
            )
            
            32
            
            
            -
            
            
            (32
            )
            
            32Capital
                in excess of par value
            
            
            218,687,977
            
            
            (3,199,968
            )
            
            221,887,945
            
            
            172,090,055
            
            
            (3,249,968
            )
            
            175,340,023Accumulated
                    deficit
            
            
            (206,741,406
            )
            
            (2,047,007
            )
            
            (204,694,399
            )
            
            (193,258,323
            )
            
            (2,173,349
            )
            
            (191,084,974
            )Shareholders'
                equity
            
            
            12,616,368
            
            
            (5,247,007
            )
            
            17,863,375
            
            
            (20,572,886
            )
            
            (5,423,349
            )
            
            (15,149,537
            )TOTAL
                LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
            
            $
            65,838,744
            
            $
            -
            
            $
            65,838,744
            
            $
            14,731,550
            
            $
            -
            
            $
            14,731,550





STATEMENT
                  OF OPERATIONS SELECTED DATA:
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported2006
              
              Adjustments
              
              2006
              
              2005
              
              Adjustments
              
              2005
              
              2004
              
              Adjustments
              
              2004OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              862,068
              
              
              
              
              
              862,068
              
              
              165,886
              
              
              
              
              
              165,886
              
              
              241,342
              
              
              
              
              
              241,342Interest
                  expense
              
              
              (2,669,771
              )
              $
              (153,658
              )
              
              (2,516,113
              )
              
              (3,491,234
              )
              $
              (797,193
              )
              
              (2,694,041
              )
              
              (3,928,156
              )
              
              (937,020
              )
              
              (2,991,136
              )Loss
                  on early debt extinguishment
              
              
              -
              
              
              280,000
              
              
              (280,000
              )
              
              -
              
              
              
              
              
              -Net
                  loss
              
              $
              (12,485,379
              )
              $
              126,342
              
              $
              (12,611,721
              )
              $
              (10,104,329
              )
              $
              (797,193
              )
              $
              (9,307,136
              )
              $
              (26,066,644
              )
              $
              (937,020
              )
              $
              (25,129,624
              )LOSS
                    PER COMMON SHARE - BASIC AND DILUTED
              
              $
              (0.26
              )
              $
              0.01
              
              $
              (0.27
              )
              $
              (0.25
              )
              $
              (0.02
              )
              $
              (0.23
              )
              $
              (0.64
              )
              $
              (0.02
              )
              $
              (0.62
              )




Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reportedCASH
                  FLOW DATA:
              
              2006
              
              Adjustments
              
              2006
                  (1)
              
              2005
              
              Adjustments
              
              2005
                  (1)
              
              2004
              
              Adjustments
              
              2004
                  (1)Net
                  loss
              
              $
              (12,485,379
              )
              $
              126,342
              
              $
              (12,611,721
              )
              $
              (10,104,329
              )
              
              (797,193
              )
              $
              (9,307,136
              )
              $
              (26,066,644
              )
              
              (937,020
              )
              $
              (25,129,624
              )Interest
                  accrued on financing agreements net of payments made
              
              
              (4,539,253
              )
              
              153,658
              
              
              (4,692,911
              )
              
              1,667,223
              
              
              797,193
              
              
              870,030
              
              
              2,638,385
              
              
              937,020
              
              
              1,701,365Loss
                  on early extinguishment of financing agreement
              
              
              -
              
              
              (280,000
              )
              
              280,000
              
              
              
              
              
              
              
              
              -Net
                  cash used in operating activities
              
              
              (13,080,977
              )
              
              -
              
              
              (13,080,977
              )
              
              (8,283,473
              )
              
              -
              
              
              (8,283,473
              )
              
              (20,977,088
              )
              
              -
              
              
              (20,977,088
              )




(1)
      As
      reported amounts reflect a reclassification of payments of interest on financing
      agreements from financing activities to operating activities.




F-22




(3)
      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”).
      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 and $699,000 to Merck Serono in accordance
      with this agreement for the years 2006 and 2005, respectively. In December
      2006,
      the Company acquired the U.S. marketing rights to CRINONE from Merck
      Serono and eliminated the future PROCHIEVE® royalty payments . The
      Company continues to supply CRINONE to Merck
      Serono for all ex-U.S. requirements. On
      April
      1, 2007, the Company recorded a liability from the contract with Merck Serono
      for certain sales returns associated with sales made by Merck Serono pursuant
      to
      the December 2006 acquisition agreement. The Company recorded the estimated
      liability of $1.0 million as an increase in the purchase price that is being
      amortized over the remaining term of the patent life of the
      product.





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 $0.5 million, 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 $2.0 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 Lil’ Drug Store. 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.





F-23




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 $0.8, $0.4
      and $0.8 million were 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
      of
      the Company’s patent rights to expire or lapse 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
      $0.7, $0.7, $0.5 and $0.5 million in 2007, 2006, 2005 and 2004, respectively.
      The remaining $3.2 million as of December 31, 2007 is shown as deferred revenue
      in the accompanying consolidated balance sheets.





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. The Company 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
      $53,199, $41,574, $41,573 and $38,003 in 2007, 2006, 2005 and 2004,
      respectively. The remaining $356,093 as of December 31, 2007 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 intangible 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.





On
      September 27, 2007, the Company entered into a License and Supply Agreement
      with
      Ascend Therapeutics, Inc. (“Ascend”), pursuant to which the Company granted
      Ascend an exclusive, five year license to market and sell the Company’s
      PROCHIEVE ® 4%
      (progesterone gel) product in the United States effective January 1, 2008. Ascend
      will purchase product from Columbia at a transfer price equal to 35% of Ascend’s
      net selling price with minimum annual purchase obligations that increase over
      the life of the agreement.





(4)
      NOTES 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 5) 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 became 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
      $33.0
      million 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.




F-24




The
      Company recorded original issue discounts of $6,272,566 to the notes based
      upon
      the fair value of warrants granted. In addition, beneficial conversion features
      totaling $8,482,090 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 years ended December 31, 2007 and 2006, $2,237,043 and
      $53,793, respectively, of amortization related to these discounts is classified
      as interest expense in the consolidated statements of operations.
      Unamortized discounts of $12,463,822 and $14,700,863 have been reflected as
      a
      reduction to the face value of the convertible notes
      in
      the consolidated balance sheets as of December 31, 2007 and 2006 respectively.





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.





(5)
      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 were 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 17% (12.51% prior to the restatement described
      in
      Note 2). The Company recorded $617,016, $615,709, $677,354, and $884,765 as
      interest expense for the years 2007, 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 $647,884 for 2007, $548,464 for 2006, $2,290,662 (which included
      the $1,891,944 true-up) for 2005, and $423,137 for 2004. The final payment
      of
      $3.6 million was made on February 29, 2008.





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 15% (10.67% prior to the restatements
      described in Note 2). The Company recorded $1,648,756, $1,900,640, $2,658,300,
      and $2,288,032 as interest expense in 2007, 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 would 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,
      exceeded $13 million, the Company would have been entitled to have such excess
      reimbursed. Including
      the Early Payment, the
      Company has paid PharmaBio approximately $13,100,000 through 2007.




F-25




Liabilities
      from financing agreements consist of the following:





December
                312007
            
            2006
            
            2005(Restated)
            
            (Restated)July
                31, 2002 financing agreement
            
            $
            3,620,653
            
            $
            3,749,941
            
            $
            3,682,697March
                5, 2003 financing agreement
            
            
            11,591,486
            
            
            10,080,790
            
            
            20,078,55615,212,139
            
            
            13,830,731
            
            
            23,761,253Less:
                current portion
            
            
            3,786,538
            
            
            553,947
            
            
            12,840,161$
            11,425,601
            
            $
            13,276,784
            
            $
            10,921,092





(6)
      CONTINGENTLY REDEEMABLE SERIES C CONVERTIBLE PREFERRED 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 redemption 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 (not to exceed
      2,705,236 shares). 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 were converted into 142,857 Common Shares, in 2006,
      50
      shares of Series C Preferred Stock were converted into 14,285 Common Shares,
      and
      in 2007, 2,075 shares of Series C Preferred Stock were converted into 1,564,548
      Common Shares. Each holder of Series C Preferred Stock has the right to redeem
      all or a portion of their shares in cash and upon the occurrence of certain
      events under the Series C Preferred Stock certificate of designations. The
      terms
      of the contingently redeemable Series C Convertible Preferred Stock remain
      as
      originally stated.





(7)
      SHAREHOLDERS’ EQUITY





Preferred
      Stock -
      Authorized Preferred Stock is 1,000,000 shares at a par value of $0.01 per
      share.





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.




F-26




On
      March
      12, 2002, the Company adopted a Shareholder Rights Plan (“Rights Plan”) designed
      to protect company shareholders 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 shareholders 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. In 2007, 5,453 shares of Series E Preferred Stock were converted into
      272,650 shares of Common Stock.





Common
      Stock-





During
      2007, the Company issued 43,050
      shares of Common Stock for the exercise of stock options with proceeds of
      $63,241, and 155,690 shares of restricted Common Stock were granted to its
      key
      employees and to members of the Board of Directors.





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.





In
      2005,
      the Company issued 2,850 shares of its Common Stock for the exercise of stock
      options with proceeds of $8,253.




F-27





Warrants -





As
      of
      December 31, 2007, 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
            
            
            350,000$
            5.69
            
            
            4,867,755





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 2007, 2006 and 2005.





As
      of
      December 31, 2007, 4,867,755 warrants were exercisable.





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.





The
      following table summarizes the impact of the adoption of SFAS 123(R) on
      stock-based compensation costs on the Company’s Consolidated Statements of
      Operations for the years ended December 31, 2007, 2006, 2005 and
      2004:




F-28





Year
                EndedDecember
                31,2007
            
            2006
            
            2005
            
            2004Employee
                share-based compensation in:Cost
                of revenue
            
            $
            148,589
            
            $
            82,720
            
            $
            -
            
            $
            -Selling
                and distribution
            
            
            160,573
            
            
            87,032
            
            
            -
            
            
            -General
                and administrative
            
            
            1,014,702
            
            
            733,695
            
            
            -
            
            
            -Research
                and development
            
            
            166,195
            
            
            161,936
            
            
            -
            
            
            -Total
                employee share-based compensationin
                operating expenses
            
            
            1,341,470
            
            
            982,663
            
            
            -
            
            
            -Total
                employee share-based compensation
            
            $
            1,490,059
            
            $
            1,065,383
            
            $
            -
            
            $
            -





Stock
      compensation for consultants amounted to $157,863 and $183,065 for 2007 and
      2006, respectively. 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 the pro forma information for the years ended December 31, 2005
      and 2004 reflecting the impact of stock-based compensation as if accounted
      for
      under SFAS 123(R):





2005
            
            2004(Restated)
            
            (Restated)(proforma)
            
            (proforma)Net
                loss, before share-based compensationfor
                employees, prior period
            
            $
            (10,104,329
            )
            $
            (26,066,644
            )Add:
                share-based compensation expense foremployees
                determined under fair-value based method
            
            
            (1,609,735
            )
            
            (2,101,241
            )Net
                loss, after effect of share-based compensationfor
                employees
            
            $
            (11,714,064
            )
            $
            (28,167,885
            )Net
                loss per share:Basic
                and diluted - as reported in prior year
            
            $
            (0.25
            )
            $
            (0.64
            )Basic
                and diluted - after effect of share-basedcompensation
                for employees
            
            $
            (0.29
            )
            $
            (0.69
            )




As
      of
      December 31, 2007, total unamortized share-based compensation cost related
      to
      non-vested stock options was $1,648,743 which is expected to be recognized
      over
      the remaining vesting period of the outstanding options, up to the next 29
      months. The Company selected the Black-Scholes option pricing model as the
      most
      appropriate model for determining the estimated fair value for share-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-29




The
      assumptions used to value options granted are as follows:





2007
            
            2006
            
            2005
            
            2004Risk
                free interest rate
            
            
            4.53
            %
            
            4.87
            %
            
            4.03
            %
            
            3.01
            %Expected
                term
            
            
            4.52
                years
            
            
            4.84
                years
            
            
            6.67
                years
            
            
            4.95
                yearsDividend
                yield
            
            
            0.0
            
            
            0.0
            
            
            0.0
            
            
            0.0Expected
                volatility
            
            
            85.68
            %
            
            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 Company did not
      consider implied volatility because there are no options traded on its stock.
      The risk-free interest rate assumption is based upon observed interest rates
      appropriate for the estimated term of the employee stock options. The dividend
      yield assumption is based on the Company’s history and expectation of dividend
      payouts on Common Stock.





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 -





In
      October 1996, the Company adopted the 1996 Long-term Performance Plan (“1996
      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. Options granted prior to 2006 have a ten year
      term.
      Since 2006, the Company has been issuing stock options with a seven year term.
      Options generally vest over a four-year period, with 25% vesting on each of
      the
      first four anniversaries of the date of grant. The 2007 annual option grant
      to
      employees vested 25% of the grant upon the grant date with the balance to vest
      equally over the next three years. The Company’s general policy is to issue new
      shares upon the exercise of stock options




Pursuant
      to the Performance Plan, an aggregate of 8,000,000 shares of Common Stock have
      been reserved for issuance. Under the 1988 Stock Option Plan, as amended (the
      “88” Plan”), a total of 5.0 million 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.




F-30


A
      summary
      of the status of the Company’s two stock option plans as of December 31, 2007,
      2006, 2005 and 2004 and changes during the years ending on those dates is
      presented below:





2007
            
            
            
            2006
            
            2005
            
            2004Weighted-
            
            
            
            Weighted-
            
            
            
            Weighted-
            
            
            
            Weighted-Average
            
            
            
            Average
            
            
            
            Average
            
            
            
            AverageExercise
            
            
            
            Exercise
            
            
            
            Exercise
            
            
            
            ExerciseShares
            
            Price
            
            Shares
            
            Price
            
            Shares
            
            Price
            
            Shares
            
            PriceOutstanding
                at beginning of year
            
            
            4,686,552
            
            $
            8.57
            
            
            5,960,525
            
            $
            7.79
            
            
            5,479,400
            
            $
            8.73
            
            
            6,087,050
            
            $
            8.57Granted
            
            
            1,710,850
            
            
            1.50
            
            
            434,900
            
            
            4.29
            
            
            976,680
            
            
            2.56
            
            
            852,400
            
            
            4.51Exercised
            
            
            (43,050
            )
            
            1.47
            
            
            (335,049
            )
            
            3.05
            
            
            (2,850
            )
            
            2.90
            
            
            -
            
            
            -Forfeited
            
            
            (1,418,017
            )
            
            12.84
            
            
            (1,373,824
            )
            
            6.27
            
            
            (492,705
            )
            
            7.89
            
            
            (1,460,050
            )
            
            5.60Outstanding
                at end of year
            
            
            4,936,335
            
            
            4.64
            
            
            4,686,552
            
            
            8.57
            
            
            5,960,525
            
            
            7.79
            
            
            5,479,400
            
            
            8.73Options
                exercisable at year end
            
            
            3,196,121
            
            
            
            
            
            3,782,060
            
            
            
            
            
            4,645,938
            
            
            
            
            
            4,141,314




The
      weighted average grant date fair values of options granted in 2007, 2006, 2005
      and 2004 was $1.50, $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, 2007:





Options
                Outstanding
            
            Options
                Exercisable
            
            Unvested
                OptionsWeighted-
            
            
            
            
            
            Weighted-Average
            
            Weighted-
            
            
            
            Average
            
            Weighted-
            
            
            
            Weighted-Range
                of
            
            Number
            
            Remaining
            
            Average
            
            Number
            
            Remaining
            
            Average
            
            Number
            
            AverageExercise
            
            Outstanding at
            
            Contractual
            
            Exercise
            
            Exercisable at
            
            Contractual
            
            Exercise
            
            Unvested at
            
            ExercisePrices
            
            12/31/07
            
            Life (Years)
            
            Price
            
            12/31/07
            
            Life (Years)
            
            Price
            
            12/31/07
            
            Price$1.42
            
            
            1,474,170
            
            
            6.16
            
            $
            1.42
            
            
            355,418
            
            
            6.16
            
            $
            1.42
            
            
            1,118,752
            
            $
            1.42$1.91
                - $3.44
            
            
            1,024,815
            
            
            5.48
            
            
            2.66
            
            
            691,965
            
            
            5.31
            
            
            2.77
            
            
            332,850
            
            $
            2.45$3.51
                - $5.75
            
            
            1,026,350
            
            
            5.19
            
            
            4.48
            
            
            745,363
            
            
            4.69
            
            
            4.56
            
            
            280,987
            
            $
            4.29$5.87
                - $11.63
            
            
            1,411,000
            
            
            1.84
            
            
            9.56
            
            
            1,403,375
            
            
            1.81
            
            
            9.58
            
            
            7,625
            
            $
            6.54$1.42
                - $11.63
            
            
            4,936,335
            
            
            4.58
            
            
            4.64
            
            
            3,196,121
            
            
            3.72
            
            
            6.03
            
            
            1,740,214
            
            $
            2.10




The
      weighted average exercise price and the weighted average remaining contractual
      life of the outstanding options expected to vest at December 31, 2007 amounted
      to $6.01 and 3.91 years, respectively.





The
      aggregate intrinsic value of options outstanding, options expected to vest
      and
      options exercisable at December 31, 2007 were $1,313,322, $1,181,990, and
      $340,201 respectively.





During
      2007, cash received from the exercise of options was $63,241.





Restricted
      stock grants consist of grants of the Company’s Common Stock that may vest in
      the future. The Board has set a one, 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 at the closing price amortized ratably
      over the vesting period.




F-31


A
      summary
      of the Company’s restricted stock activity and related information for 2007 is
      as follows:





2007Weighted-Average GrantShares
            
            Date Fair ValueUnvested
                at beginning of period
            
            
            146,875
            
            $
            4.49Granted
            
            
            159,390
            
            $
            1.79Vested
            
            
            (105,469
            )
            $
            1.69Forfeited
            
            
            (3,700
            )
            $
            1.40Unvested
                at December 31, 2007
            
            
            197,096
            
            $
            2.36




As
      of
      December 31, 2007, there was $0.3 million of total unrecognized compensation
      costs related to non-vested restricted share-based compensation. The
      remaining cost is expected to be recognized over a weighted average period
      of 0.7 years. The total fair value of shares vested during the years ended
      December 31, 2007, 2006, 2005 and 2004 was $0.2, $0.1, $0.0 and $0.0
      respectively.





**Adjustments
      for Stock-Based Compensation on Prior Year Financial Statements**





As
      of
      January 1, 2006, the Company adopted SFAS 123R, using the modified prospective
      transition method. SFAS 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
      previously disclosed, a review of the Company’s stock option granting practices
      from October 1996 through 2006 resulted in the recording for the year ended
      December 31, 2006, of an equity reclassification of $998,000 to reflect
      additional prior period 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 was 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 considered SEC Staff
      Accounting Bulletin (SAB) No. 99, *Materiality.* 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* ,
      the
      Company 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.  Because the Company
      substantially reported losses during this period, the impact to income taxes
      was
      not considered material. This reclassification represented the effect of the
      adjustment resulting from the non-cash charges discussed above, all of which
      relate to prior fiscal years.


F-32





(8)
      LOSS PER COMMON SHARE:





The
      calculation of basic and diluted loss per common share is as
      follows:





2007
            
            2006
            
            2005
            
            2004(Restated)
            
            (Restated)
            
            (Restated)Net
                loss
            
            $
            (14,291,790
            )
            $
            (12,485,379
            )
            $
            (10,104,329
            )
            $
            (26,066,644
            )Less:
                Preferred stock dividends
            
            
            (76,894
            )
            
            (161,379
            )
            
            (162,500
            )
            
            (162,500
            )Net
                loss applicable tocommon
                stock
            
            $
            (14,368,684
            )
            $
            (12,646,758
            )
            $
            (10,266,829
            )
            $
            (26,229,144
            )Basic
                and dilutedWeighted-average
                number ofcommon
                shares outstanding
            
            
            51,124,266
            
            
            48,088,516
            
            
            41,752,422
            
            
            40,984,083Basic
                and diluted net loss percommon
                share
            
            $
            (0.28
            )
            $
            (0.26
            )
            $
            (0.25
            )
            $
            (0.64
            )





(9)
      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 and office equipment under noncancelable operating
      leases. Lease expense for each of the four years ended December 31, 2007, 2006,
      2005 and 2004 totaled $209,478, $223,122, $265,620 and $355,055 respectively.
      Future minimum lease payments as of December 31, 2007 are as
      follows:




2008
              
              $
              239,8012009
              
              
              243,0052010
              
              
              244,1562011
              
              
              237,7652012
              
              
              420,097Thereafter
              
              $
              1,384,824




Royalties -





In
      1989,
      the Company purchased the assets of Bio-Mimetics Inc., which assets 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. is entitled
      to 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. 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 the date, of any year. 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 $114,466, $245,416, $405,798 and $339,706 in 2007, 2006, 2005 and
      2004, respectively. The Company determined that royalty payments on
      STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ® terminated
      in September of 2006, with the expiration of a certain Canadian patent, but
      continue on Replens ® and
      RepHresh ® .
      On
      December 28, 2007, Bio-Mimetics filed a complaint in the United States District
      Court for Massachusetts ( *Bio-Mimetics,
      Inc. v. Columbia Laboratories, Inc.* )
      alleging breach of contract, violation of the covenant of good faith and fair
      dealing, and unjust enrichment for the Company’s failure to continue royalty
      payments on STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ® .
      The
      Company intends to defend this action vigorously.




F-33




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.
      The
      agreement was due to expire on March 31, 2008, but was renewed pursuant to
      its
      terms for one year to expire March 31, 2009. Pursuant to the employment
      agreement, the employee is entitled to a base salary of $390,000 per year plus
      a
      target 50% bonus.





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. The agreement was due to expire on March 31, 2008, but was renewed
      pursuant to its terms for one year to expire March 31, 2009. Pursuant to the
      employment agreement, the employee is entitled to a base salary of $295,700
      per
      year plus a target 40% bonus.





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. The agreement was due to expire on March 31, 2008,
      but
      was renewed pursuant to its terms for one year to expire March 31, 2009.
      Pursuant to the employment agreement, the employee is entitled to a base salary
      of $275,000 per year plus a target 35% bonus.





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.




In
      connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which
      assets consisted of the patents underlying the Company’s BDS, other patent
      applications, and related technology, the Company agreed to pay Bio-Mimetics
      a
      royalty equal to two percent of the net sales of products based on the assets
      up
      to an aggregate of $7.5 million or until the last of the relevant patents
      expired. The Company determined that royalty payments on STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ® terminated
      in September of 2006, with the expiration of a certain Canadian patent, but
      continue on Replens ® and
      RepHresh ® .
      On
      December 28, 2007, Bio-Mimetics filed a complaint in the United States District
      Court for Massachusetts ( *Bio-Mimetics,
      Inc. v. Columbia Laboratories, Inc.* )
      alleging breach of contract, violation of the covenant of good faith and fair
      dealing, and unjust enrichment for the Company’s failure to continue royalty
      payments on STRIANT ® ,
      PROCHIEVE ® ,
      and
      CRINONE ® .
      The
      Company intends to defend this action vigorously.




F-34


(10)
      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 Company conducts
      its international business through its Bermuda subsidiary which contracts with
      various manufacturers located in the United Kingdom, Switzerland and Italy,
      to
      make product for both its international and domestic operations. Most
      arrangements with licensees are made by the Bermuda company. These customers
      sell their products into several countries. The Company’s largest international
      customer is MerckSerono with Lil’ Drug store next in revenue size and Ardana and
      Mipharm who are small contributors.




The
      following table shows selected information by geographic area:





Long
                LivedRevenues
            
            AssetsAs
                of and for the yearended
                December 31, 2007-United
                States
            
            $
            15,257,884
            
            $
            30,397,655Switzerland
            
            
            8,101,831
            
            
            -Other
                European Countries
            
            
            6,267,923
            
            
            824,389Subtotal
                International
            
            
            14,369,754
            
            
            824,389$
            29,627,638
            
            $
            31,222,044As
                of and for the yearended
                December 31, 2006-United
                States
            
            $
            7,950,735
            
            $
            34,625,301Switzerland
            
            
            5,716,289
            
            
            -Other
                European Countries
            
            
            3,726,057
            
            
            539,206Subtotal
                International
            
            
            9,442,346
            
            
            539,206$
            17,393,081
            
            $
            35,164,507As
                of and for the yearended
                December 31, 2005-United
                States
            
            $
            10,970,046
            
            $
            509,653Switzerland
            
            
            5,404,847
            
            
            -Other
                European Countries
            
            
            5,665,949
            
            
            617,683Subtotal
                International
            
            
            11,070,796
            
            
            617,683$
            22,040,842
            
            $
            1,127,336As
                of and for the yearended
                December 31, 2004-United
                States
            
            $
            11,236,330
            
            $
            628,418Switzerland
            
            
            3,320,908
            
            
            -Other
                European Countries
            
            
            3,303,166
            
            
            699,763Subtotal
                International
            
            
            6,624,074
            
            
            699,763$
            17,860,404
            
            $
            1,328,181




F-35




Customer
      Concentration-





The
      following table presents information about Columbia’s revenues by customer,
      including royalty and license revenue:





2007
            
            2006
            
            2005
            
            2004MerckSerono
            
            $
            8,151,292
            
            $
            8,234,198
            
            $
            9,765,387
            
            $
            8,512,147Cardinal
                Healthcare
            
            
            6,098,510
            
            
            2,060,152
            
            
            1,773,811
            
            
            1,419,962Lil'
                Drug Store Products, Inc.
            
            
            5,958,925
            
            
            4,637,928
            
            
            6,906,358
            
            
            3,565,760McKesson
            
            
            3,888,354
            
            
            1,892,728
            
            
            1,620,188
            
            
            1,218,438AmerisourceBergen
            
            
            2,800,555
            
            
            -
            
            
            -
            
            
            -All
                others (none over 5%)
            
            
            2,730,002
            
            
            568,075
            
            
            1,975,098
            
            
            3,144,097$
            29,627,638
            
            $
            17,393,081
            
            $
            22,040,842
            
            $
            17,860,404




Revenues
      from sales of CRINONE ® to Merck
      Serono S.A.were $8.2 million in 2007 and 2006, $9.8 million in 2005 and $8.5
      million in 2004. The 2007 figure represents the sales of CRINONE® to Merck
      Serono ex-United States only whereas previously the Company sold product to
      Merck Serono for both the US and international markets. At the end of 2006,
      the
      Company acquired the US rights to Crinone®. 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-36


(11)
      QUARTERLY FINANCIAL INFORMATION (UNAUDITED):





The
      following table summarizes selected quarterly data for the years ended December
      31, 2007 2006 and 2005:





2007
            
            First
              Quarter
            
            Second
              Quarter
            
            Third
              Quarter
            
            Fourth
              Quarter
            
            Full
              Year(Restated)
            
            (Restated)
            
            (Restated)Net
                Revenues
            
            $
            6,684,620
            
            $
            7,287,014
            
            $
            7,308,079
            
            $
            8,347,925
            
            $
            29,627,638Gross
                profit
            
            
            4,612,433
            
            
            4,483,725
            
            
            5,578,997
            
            
            5,937,943
            
            
            20,613,098Loss
                from operations
            
            
            (1,842,496
            )
            
            (1,865,255
            )
            
            (1,886,598
            )
            
            (2,513,499
            )
            
            (8,107,848
            )Net
                loss
            
            
            (3,535,976
            )
            
            (3,589,375
            )
            
            (3,724,362
            )
            
            (3,442,077
            )
            
            (14,291,790
            )Basic
                and diluted lossper
                common share
            
            $
            (0.07
            )
            $
            (0.07
            )
            $
            (0.07
            )
            $
            (0.07
            )
            $
            (0.28
            )2006
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)Net
                Revenues
            
            $
            4,545,377
            
            $
            5,523,113
            
            $
            4,946,387
            
            $
            2,378,204
            
            $
            17,393,081Gross
                profit
            
            
            2,667,109
            
            
            3,219,374
            
            
            2,772,406
            
            
            914,349
            
            
            9,573,238Loss
                from operations
            
            
            (2,148,353
            )
            
            (1,925,036
            )
            
            (2,266,429
            )
            
            (4,820,286
            )
            
            (11,160,104
            )Net
                loss
            
            
            (2,940,189
            )
            
            (2,244,065
            )
            
            (2,561,410
            )
            
            (4,739,715
            )
            
            (12,485,379
            )Basic
                and diluted lossper
                common share
            
            $
            (0.07
            )
            $
            (0.05
            )
            $
            (0.05
            )
            $
            (0.09
            )
            $
            (0.26
            )2005
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)
            
            
            (Restated)Net
                Revenues
            
            $
            4,280,577
            
            $
            6,333,845
            
            $
            6,533,942
            
            $
            4,892,478
            
            $
            22,040,842Gross
                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
            
            
            (4,472,538
            )
            
            (1,765,343
            )
            
            (1,458,897
            )
            
            (2,407,551
            )
            
            (10,104,329
            )Basic
                and diluted lossper
                common share
            
            $
            (0.11
            )
            $
            (0.04
            )
            $
            (0.04
            )
            $
            (0.06
            )
            $
            (0.25
            )




(11)
      QUARTERLY UNAUDITED FINANCIAL STATEMENTS FOR 2007 AND 2006 RESTATEMENTS - SEE
      NOTE 2





As
      disclosed in Note 2, the Company is restating within this Annual Report on
      Form
      10K, its unaudited condensed consolidated financial statements for the first,
      second, and third quarters of 2007 and 2006. These restatements and revisions
      primarily reflect adjustments to:





Correct
      previously reported interest expense for financing arrangements for
      understatement or overstatements in each of the quarters of 2007 and 2006 along
      with the respective increase or decrease in net loss and the impact on
      outstanding balances of financing agreements and to increase or decrease the
      accumulated deficit.





Correct
      the classification of the contingently redeemable Series C Convertible Preferred
      Stock from Shareholders’ Equity to temporary equity for the quarters ended 2007.





Background





As
      described in Note 2, when the Company initially recorded the Pharma-Bio
      Financing Agreements, it applied the yield to maturity method for accounting
      for
      the interest expense, but did not recognize the interim payment obligations
      that resulted in implicit interest rates of 13% and 11%, respectively. The
      Company has determined that it should have applied the effective yield method
      called for in Accounting Principles Board Opinion 21 (“APB 21”) to account for
      interest expense, and should have included the impact of the interim payments
      on
      the implicit interest rates. Under APB 21, the implicit interest rates would
      have been approximately 17% and 15%, respectively. Over the life of each
      financing agreement, however, the payments and the recorded interest expense
      would be equal under both accounting methods. Further, the adjustments do not
      change current cash flows or repayment obligations.




F-37




Within
      the quarters ended March 31, June 30, and September 30, 2007 and 2006, interest
      expense, the financing agreement liability and accumulated deficit have been
      adjusted as per the tables below.




In
      addition, the Company had previously recorded the contingently redeemable Series
      C Convertible Preferred Stock amount as Shareholders’ Equity on its balance
      sheets. The Company reclassified its contingently redeemable Series C
      Convertible Preferred Stock from Shareholders’ Equity to temporary equity,
      because the holders have redemption rights for certain events that are not
      controlled by the Company. The
      terms of the Series C Convertible Preferred
      Stock have not changed from the original issuance in 1999.




For
      the
      quarters ended March 31, June 30, and September 30, 2007 and 2006, the Company
      revised its interest expense by the following amounts:




Interest
              
              Interest
              
              Interest
              
              InterestExpense
              
              Expense
              
              Expense
              
              Expense2007
              
              Year
                  to Date
              
              2006
              
              Year
                  to Date2007
              
              
              
              2006(unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)Quarter
                  ended March 31
              
              
              (193,189
              )
              
              (193,189
              )
              
              193,867
              
              
              193,867Quarter
                  ended June 30
              
              
              (193,982
              )
              
              (387,171
              )
              
              (234,746
              )
              
              (40,879
              )Quarter
                  ended September 30
              
              
              (205,937
              )
              
              (593,108
              )
              
              4,013
              
              
              (36,866
              )




The
      net
      effects of the restatement adjustments on the condensed balance sheets as of
      the
      quarters ended March 31, June 30, and September 30, 2007 are indicated in the
      following table.




F-38




COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 CONDENSED
        CONSOLIDATED BALANCE SHEETS
 UNAUDITED


Restated
            
            
            
            As
                reported
            
            Restated
            
            
            
            As
                reported
            
            Restated
            
            
            
            As
                reportedMarch
                31,
            
            March
                31,
            
            March
                31,
            
            June
                30,
            
            June
                30,
            
            June
                30,
            
            September
                30,
            
            September
                30,
            
            September
                30,2007
            
            Adjustments
            
            2007
            
            2007
            
            Adjustments
            
            2007
            
            2007
            
            Adjustments
            
            2007(Unaudited)
            
            
            
            (Unaudited)
            
            (Unaudited)
            
            
            
            (Unaudited)
            
            (Unaudited)
            
            
            
            (Unaudited)ASSETS:Cash
                and cash equivalents
            
            $
            20,269,847
            
            
            
            
            $
            20,269,847
            
            $
            19,994,621
            
            
            
            
            $
            19,994,621
            
            $
            19,226,558
            
            
            
            
            $
            19,226,558Accounts
                receivable, net
            
            
            4,872,451
            
            
            
            
            
            4,872,451
            
            
            4,214,478
            
            
            
            
            
            4,214,478
            
            
            3,935,860
            
            
            
            
            
            3,935,860Inventories
            
            
            2,456,656
            
            
            
            
            
            2,456,656
            
            
            2,184,540
            
            
            
            
            
            2,184,540
            
            
            2,243,022
            
            
            
            
            
            2,243,022Prepaid
                expenses and other current assets
            
            
            753,122
            
            
            
            
            
            753,122
            
            
            473,702
            
            
            
            
            
            473,702
            
            
            382,630
            
            
            
            
            
            382,630Total
                current assets
            
            
            28,352,076
            
            
            
            
            
            28,352,076
            
            
            26,867,341
            
            
            
            
            
            26,867,341
            
            
            25,788,070
            
            
            
            
            
            25,788,070Property
                and equipment, net
            
            
            710,632
            
            
            
            
            
            710,632
            
            
            659,071
            
            
            
            
            
            659,071
            
            
            614,066
            
            
            
            
            
            614,066Intangible
                Assets, net
            
            
            31,643,335
            
            
            
            
            
            31,643,335
            
            
            31,382,152
            
            
            
            
            
            31,382,152
            
            
            30,120,970
            
            
            
            
            
            30,120,970Other
                Assets
            
            
            1,677,058
            
            
            
            
            
            1,677,058
            
            
            1,620,019
            
            
            
            
            
            1,620,019
            
            
            1,633,020
            
            
            
            
            
            1,633,020TOTAL
                ASSETS
            
            $
            62,383,101
            
            
            
            
            $
            62,383,101
            
            $
            60,528,583
            
            
            
            
            $
            60,528,583
            
            $
            58,156,126
            
            
            
            
            $
            58,156,126LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                portion of financing agreements
            
            $
            3,745,244
            
            
            
            
            $
            3,745,244
            
            $
            3,800,806
            
            
            
            
            $
            3,800,806
            
            $
            3,829,484
            
            
            
            
            $
            3,829,484Accounts
                payable
            
            
            2,458,341
            
            
            
            
            
            2,458,341
            
            
            2,280,245
            
            
            
            
            
            2,280,245
            
            
            2,125,640
            
            
            
            
            
            2,125,640Accrued
                expenses
            
            
            2,850,793
            
            
            
            
            
            2,850,793
            
            
            3,732,613
            
            
            
            
            
            3,732,613
            
            
            4,110,557
            
            
            
            
            
            4,110,557Total
                Current Liabilities
            
            
            9,054,378
            
            
            
            
            
            9,054,378
            
            
            9,813,664
            
            
            
            
            
            9,813,664
            
            
            10,065,681
            
            
            
            
            
            10,065,681Notes
                Payable
            
            
            25,837,064
            
            
            
            
            
            25,837,064
            
            
            26,385,162
            
            
            
            
            
            26,385,162
            
            
            26,951,333
            
            
            
            
            
            26,951,333Deferred
                revenue
            
            
            4,119,368
            
            
            
            
            
            4,119,368
            
            
            3,939,853
            
            
            
            
            
            3,939,853
            
            
            3,760,351
            
            
            
            
            
            3,760,351Long-term
                portion of financing agreements (1)
            
            
            10,498,485
            
            
            1,853,818
            
            
            8,644,667
            
            
            10,788,812
            
            
            1,659,836
            
            
            9,128,976
            
            
            11,096,321
            
            
            1,453,899
            
            
            9,642,422TOTAL
                LIABILITIES
            
            
            49,509,295
            
            
            1,853,818
            
            
            47,655,477
            
            
            50,927,491
            
            
            1,659,836
            
            
            49,267,655
            
            
            51,873,686
            
            
            1,453,899
            
            
            50,419,787COMMITMENTS
                AND CONTINGENCIESContingently
                Redeemable Series C Convertible Preferred Stock (2)
            
            
            1,400,000
            
            
            1,400,000
            
            
            -
            
            
            1,125,000
            
            
            1,125,000
            
            
            -
            
            
            1,125,000
            
            
            1,125,000
            
            
            -1,400,
                1,125, and 1,125 shares issued and outstandingin
                first, second and third quarter, liquidation preferenceof
                $1,400,000, $1,125,000, and $1,250,000 respectivelySHAREHOLDERS'
                EQUITY:Series
                C Convertible Preferred Stock, 1,400, 1,125, 1,125 sharesissued
                and outstanding in first, second, and third quarter,liquidation
                preference of $1,400,000, $1,125,000, and $1,125,000 respectively
                (2)
            
            
            -
            
            
            (14
            )
            
            14
            
            
            -
            
            
            (11
            )
            
            11
            
            
            -
            
            
            (11
            )
            
            11Preferred
                Stock, $0.01 par value; 1,000,000 shares authorizedSeries
                B Convertible Preferred Stock, 130 shares issued andand
                outstanding in for three quarters
            
            
            1
            
            
            
            
            
            1
            
            
            1
            
            
            
            
            
            1
            
            
            1
            
            
            
            
            
            1Series
                E Convertible Preferred Stock, 69,000, 68,742 and 68,742,sharesissued
                and outstanding in first, second, and third quarter,
            
            
            690
            
            
            
            
            
            690
            
            
            687
            
            
            
            
            
            687
            
            
            687
            
            
            
            
            
            687Common
                Stock, $0.01 par value; 100,000,000authorized;
                51,188,863, 51,439,651, and 51,470,401 shares issuedin
                first, second and third quarter respectively
            
            
            511,889
            
            
            
            
            
            511,889
            
            
            514,391
            
            
            
            
            
            514,391
            
            
            514,704
            
            
            
            
            
            514,704Capital
                in excess of par value
            
            
            221,065,991
            
            
            (1,399,986
            )
            
            222,465,977
            
            
            221,665,264
            
            
            (1,124,989
            )
            
            222,790,253
            
            
            222,065,339
            
            
            (1,124,989
            )
            
            223,190,328Less
                cost of 6,000, 12,000, and 12,000 treasury shares
            
            
            (26,880
            )
            
            
            
            
            (26,880
            )
            
            (40,140
            )
            
            
            
            
            (40,140
            )
            
            (40,140
            )
            
            
            
            
            (40,140
            )Accumulated
                deficit
            
            
            (210,277,382
            )
            
            (1,853,818
            )
            
            (208,423,564
            )
            
            (213,866,757
            )
            
            (1,659,836
            )
            
            (212,206,921
            )
            
            (217,591,116
            )
            
            (1,453,899
            )
            
            (216,137,217
            )Accumulated
                other comprehensive income
            
            
            199,497
            
            
            
            
            
            199,497
            
            
            202,646
            
            
            
            
            
            202,646
            
            
            207,965
            
            
            
            
            
            207,965TOTAL
                SHAREHOLDERS' EQUITY
            
            
            11,473,806
            
            
            (3,253,818
            )
            
            14,727,624
            
            
            8,476,092
            
            
            (2,784,836
            )
            
            11,260,928
            
            
            5,157,440
            
            
            (2,578,899
            )
            
            7,736,339TOTAL
                LIABILITIES AND SHAREHOLDERSEQUITY
            
            $
            62,383,101
            
            $
            -
            
            $
            62,383,101
            
            $
            60,528,583
            
            $
            -
            
            $
            60,528,583
            
            $
            58,156,126
            
            $
            -
            
            $
            58,156,126




(1)  Adjustment
      to correct the amount of interest recorded on financing agreements


(2)  Adjustment
      to reclassify Series C Convertible Preferred Stock to temporary equity due
      to
      redemption provisions




F-39




The
      following table sets forth statement of operations data for the quarters ended
      March 31, June 30, and September 30, 2007 and 2006.




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


Three
                  Months Ended March 31,
              
              Six
                  Months Ended June 30,
              
              Nine
                  Months Ended September 30,Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported2007
              
              Adjustments
              
              2007
              
              2007
              
              Adjustments
              
              2007
              
              2007
              
              Adjustments
              
              2007NET
                  REVENUES
              
              $
              6,684,620
              
              
              
              
              $
              6,684,620
              
              $
              13,971,634
              
              
              
              
              $
              13,971,634
              
              $
              21,279,713
              
              
              
              
              $
              21,279,713COST
                  OF REVENUES
              
              
              2,072,187
              
              
              
              
              
              2,072,187
              
              
              4,875,476
              
              
              
              
              
              4,875,476
              
              
              6,604,558
              
              
              
              
              
              6,604,558Gross
                  profit
              
              
              4,612,433
              
              
              
              
              
              4,612,433
              
              
              9,096,158
              
              
              
              
              
              9,096,158
              
              
              14,675,155
              
              
              
              
              
              14,675,155OPERATING
                  EXPENSES:Selling
                  and distribution
              
              
              1,897,282
              
              
              
              
              
              1,897,282
              
              
              4,061,132
              
              
              
              
              
              4,061,132
              
              
              6,908,326
              
              
              
              
              
              6,908,326General
                  and administrative
              
              
              1,984,525
              
              
              
              
              
              1,984,525
              
              
              3,899,773
              
              
              
              
              
              3,899,773
              
              
              5,813,335
              
              
              
              
              
              5,813,335Research
                  and development
              
              
              1,350,901
              
              
              
              
              
              1,350,901
              
              
              2,359,600
              
              
              
              
              
              2,359,600
              
              
              3,803,257
              
              
              
              
              
              3,803,257Amortization
                  of licensing right
              
              
              1,222,221
              
              
              
              
              
              1,222,221
              
              
              2,483,404
              
              
              
              
              
              2,483,404
              
              
              3,744,586
              
              
              
              
              
              3,744,586Total
                  operating expenses
              
              
              6,454,929
              
              
              
              
              
              6,454,929
              
              
              12,803,909
              
              
              
              
              
              12,803,909
              
              
              20,269,504
              
              
              
              
              
              20,269,504Loss
                  from operations
              
              
              (1,842,496
              )
              
              
              
              
              (1,842,496
              )
              
              (3,707,751
              )
              
              
              
              
              (3,707,751
              )
              
              (5,594,349
              )
              
              
              
              
              (5,594,349
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              263,556
              
              
              
              
              
              263,556
              
              
              505,589
              
              
              
              
              
              505,589
              
              
              739,895
              
              
              
              
              
              739,895Interest
                  expense (1)
              
              
              (1,934,554
              )
              
              193,189
              
              
              (2,127,743
              )
              
              (3,904,416
              )
              
              387,171
              
              
              (4,291,587
              )
              
              (5,908,736
              )
              
              593,108
              
              
              (6,501,844
              )Other,
                  net
              
              
              (22,482
              )
              
              
              
              
              (22,482
              )
              
              (18,773
              )
              
              
              
              
              (18,773
              )
              
              (86,522
              )
              
              
              
              
              (86,522
              )(1,693,480
              )
              
              193,189
              
              
              (1,886,669
              )
              
              (3,417,600
              )
              
              387,171
              
              
              (3,804,771
              )
              
              (5,255,363
              )
              
              593,108
              
              
              (5,848,471
              )Net
                  loss
              
              $
              (3,535,976
              )
              $
              193,189
              
              $
              (3,729,165
              )
              $
              (7,125,351
              )
              $
              387,171
              
              $
              (7,512,522
              )
              $
              (10,849,712
              )
              $
              593,108
              
              $
              (11,442,820
              )NET
                  LOSS PER COMMON SHARE:Basic
                  and diluted
              
              $
              (0.07
              )
              $
              0.01
              
              $
              (0.08
              )
              $
              (0.14
              )
              $
              0.01
              
              $
              (0.15
              )
              $
              (0.21
              )
              $
              0.01
              
              $
              (0.23
              )WEIGHTED
                      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic
                  and diluted
              
              
              50,081,448
              
              
              
              
              
              50,081,448
              
              
              50,713,299
              
              
              
              
              
              50,713,299
              
              
              50,955,758
              
              
              
              
              
              50,955,758


(1) Adjusted
          to correct the amount of interest recorded on financing
          agreements


F-40




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


Three
                  Months Ended March 31,
              
              Three
                  Months Ended June 30,
              
              Three
                  Months Ended September 30,Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported2007
              
              Adjustments
              
              2007
              
              2007
              
              Adjustments
              
              2007
              
              2007
              
              Adjustments
              
              2007NET
                  REVENUES
              
              $
              6,684,620
              
              
              
              
              $
              6,684,620
              
              $
              7,287,014
              
              
              
              
              $
              7,287,014
              
              $
              7,308,079
              
              
              
              
              $
              7,308,079COST
                  OF REVENUES
              
              
              2,072,187
              
              
              
              
              
              2,072,187
              
              
              2,803,289
              
              
              
              
              
              2,803,289
              
              
              1,729,082
              
              
              
              
              
              1,729,082Gross
                  profit
              
              
              4,612,433
              
              
              
              
              
              4,612,433
              
              
              4,483,725
              
              
              
              
              
              4,483,725
              
              
              5,578,997
              
              
              
              
              
              5,578,997OPERATING
                  EXPENSES:Selling
                  and distribution
              
              
              1,897,282
              
              
              
              
              
              1,897,282
              
              
              2,163,850
              
              
              
              
              
              2,163,850
              
              
              2,847,194
              
              
              
              
              
              2,847,194General
                  and administrative
              
              
              1,984,525
              
              
              
              
              
              1,984,525
              
              
              1,915,248
              
              
              
              
              
              1,915,248
              
              
              1,913,562
              
              
              
              
              
              1,913,562Research
                  and development
              
              
              1,350,901
              
              
              
              
              
              1,350,901
              
              
              1,008,699
              
              
              
              
              
              1,008,699
              
              
              1,443,657
              
              
              
              
              
              1,443,657Amortization
                  of licensing right
              
              
              1,222,221
              
              
              
              
              
              1,222,221
              
              
              1,261,183
              
              
              
              
              
              1,261,183
              
              
              1,261,182
              
              
              
              
              
              1,261,182Total
                  operating expenses
              
              
              6,454,929
              
              
              
              
              
              6,454,929
              
              
              6,348,980
              
              
              
              
              
              6,348,980
              
              
              7,465,595
              
              
              
              
              
              7,465,595Loss
                  from operations
              
              
              (1,842,496
              )
              
              
              
              
              (1,842,496
              )
              
              (1,865,255
              )
              
              
              
              
              (1,865,255
              )
              
              (1,886,598
              )
              
              
              
              
              (1,886,598
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              263,556
              
              
              
              
              
              263,556
              
              
              242,033
              
              
              
              
              
              242,033
              
              
              234,306
              
              
              
              
              
              234,306Interest
                  expense (1)
              
              
              (1,934,554
              )
              
              193,189
              
              
              (2,127,743
              )
              
              (1,969,862
              )
              
              193,982
              
              
              (2,163,844
              )
              
              (2,004,321
              )
              
              205,937
              
              
              (2,210,258
              )Other,
                  net
              
              
              (22,482
              )
              
              
              
              
              (22,482
              )
              
              3,709
              
              
              
              
              
              3,709
              
              
              (67,749
              )
              
              
              
              
              (67,749
              )(1,693,480
              )
              
              193,189
              
              
              (1,886,669
              )
              
              (1,724,120
              )
              
              193,982
              
              
              (1,918,102
              )
              
              (1,837,764
              )
              
              205,937
              
              
              (2,043,701
              )Net
                  loss
              
              
              ($3,535,976
              )
              $
              193,189
              
              $
              (3,729,165
              )
              $
              (3,589,375
              )
              $
              193,982
              
              $
              (3,783,357
              )
              $
              (3,724,362
              )
              $
              205,937
              
              $
              (3,930,299
              )NET
                  LOSS PER COMMON SHARE:Basic
                  and diluted
              
              
              ($0.07
              )
              $
              0.01
              
              $
              (0.08
              )
              
              ($0.07
              )
              $
              0.00
              
              
              ($0.07
              )
              
              ($0.07
              )
              $
              0.01
              
              $
              (0.08
              )WEIGHTED
                  AVERAGE NUMBER OF COMMON
                  SHARES OUTSTANDING:Basic
                  and diluted
              
              
              50,081,448
              
              
              
              
              
              50,081,448
              
              
              51,342,528
              
              
              
              
              
              51,342,528
              
              
              51,432,770
              
              
              
              
              
              51,432,770




(1)
        Adjusted to correct the amount of interest recorded on financing
        agreements




F-41


COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three
                    Months Ended March 31,
                
                Six
                    Months Ended June 30,
                
                Nine
                    Months Ended September 30,Restated
                
                
                
                As
                    reported
                
                Restated
                
                
                
                As
                    reported
                
                Restated
                
                
                
                As
                    reported2006
                
                Adjustments
                
                2006
                
                2006
                
                Adjustments
                
                2006
                
                2006
                
                Adjustments
                
                2006NET
                    REVENUES
                
                $
                4,545,377
                
                
                
                
                $
                4,545,377
                
                $
                10,068,490
                
                
                
                
                $
                10,068,490
                
                $
                15,014,877
                
                
                
                
                $
                15,014,877COST
                    OF REVENUES
                
                
                1,878,268
                
                
                
                
                
                1,878,268
                
                
                4,182,007
                
                
                
                
                
                4,182,007
                
                
                6,355,988
                
                
                
                
                
                6,355,988Gross
                    profit
                
                
                2,667,109
                
                
                
                
                
                2,667,109
                
                
                5,886,483
                
                
                
                
                
                5,886,483
                
                
                8,658,889
                
                
                
                
                
                8,658,889OPERATING
                    EXPENSES:Selling
                    and distribution
                
                
                1,499,979
                
                
                
                
                
                1,499,979
                
                
                3,239,490
                
                
                
                
                
                3,239,490
                
                
                4,859,602
                
                
                
                
                
                4,859,602General
                    and administrative
                
                
                1,588,866
                
                
                
                
                
                1,588,866
                
                
                3,348,796
                
                
                
                
                
                3,348,796
                
                
                5,064,597
                
                
                
                
                
                5,064,597Research
                    and development
                
                
                1,726,617
                
                
                
                
                
                1,726,617
                
                
                3,370,370
                
                
                
                
                
                3,370,370
                
                
                5,073,292
                
                
                
                
                
                5,073,292Total
                    operating expenses
                
                
                4,815,462
                
                
                
                
                
                4,815,462
                
                
                9,958,656
                
                
                
                
                
                9,958,656
                
                
                14,997,491
                
                
                
                
                
                14,997,491Loss
                    from operations
                
                
                (2,148,353
                )
                
                
                
                
                (2,148,353
                )
                
                (4,072,173
                )
                
                
                
                
                (4,072,173
                )
                
                (6,338,602
                )
                
                
                
                
                (6,338,602
                )OTHER
                    INCOME (EXPENSE):Interest
                    income
                
                
                100,495
                
                
                
                
                
                100,495
                
                
                355,899
                
                
                
                
                
                355,899
                
                
                612,691
                
                
                
                
                
                612,691Interest
                    expense (1)
                
                
                (864,858
                )
                
                (193,867
                )
                
                (670,991
                )
                
                (1,455,591
                )
                
                40,879
                
                
                (1,496,470
                )
                
                (1,984,567
                )
                
                36,866
                
                
                (2,021,433
                )Other,
                    net
                
                
                (27,473
                )
                
                
                
                
                (27,473
                )
                
                (11,173
                )
                
                
                
                
                (11,173
                )
                
                (33,970
                )
                
                
                
                
                (33,970
                )(791,836
                )
                
                (193,867
                )
                
                (597,969
                )
                
                (1,110,865
                )
                
                40,879
                
                
                (1,151,744
                )
                
                (1,405,846
                )
                
                36,866
                
                
                (1,442,712
                )Net
                    loss
                
                $
                (2,940,189
                )
                $
                (193,867
                )
                $
                (2,746,322
                )
                $
                (5,183,038
                )
                $
                40,879
                
                $
                (5,223,917
                )
                $
                (7,744,448
                )
                $
                36,866
                
                $
                (7,781,314
                )NET
                    LOSS PER COMMON SHARE:Basic
                    and diluted
                
                $
                (0.07
                )
                $
                (0.01
                )
                $
                (0.06
                )
                $
                (0.11
                )
                $
                (0.00
                )
                $
                (0.11
                )
                $
                (0.17
                )
                $
                0.00
                
                $
                (0.17
                )WEIGHTED
                        AVERAGE NUMBER OF  COMMON SHARES
                        OUTSTANDING:Basic
                    and diluted
                
                
                43,344,655
                
                
                
                
                
                43,344,655
                
                
                46,467,128
                
                
                
                
                
                46,467,128
                
                
                47,547,819
                
                
                
                
                
                47,547,819




(1)
        Adjusted to correct the amount of interest recorded on financing
        agreements




F-42


COLUMBIA
        LABORATORIES, INC. AND SUBSIDIARIES
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three
                    Months Ended March 31,
                
                Three
                    Months Ended June 30,
                
                Three
                    Months Ended September 30,Restated
                
                
                
                As
                    reported
                
                Restated
                
                
                
                As
                    reported
                
                Restated
                
                
                
                As
                    reported2006
                
                Adjustments
                
                2006
                
                2006
                
                Adjustments
                
                2006
                
                2006
                
                Adjustments
                
                2006NET
                    REVENUES
                
                $
                4,545,377
                
                
                
                
                $
                4,545,377
                
                $
                5,523,113
                
                
                
                
                $
                5,523,113
                
                $
                4,946,387
                
                
                
                
                $
                4,946,387COST
                    OF REVENUES
                
                
                1,878,268
                
                
                
                
                
                1,878,268
                
                
                2,303,739
                
                
                
                
                
                2,303,739
                
                
                2,173,981
                
                
                
                
                
                2,173,981Gross
                    profit
                
                
                2,667,109
                
                
                
                
                
                2,667,109
                
                
                3,219,374
                
                
                
                
                
                3,219,374
                
                
                2,772,406
                
                
                
                
                
                2,772,406OPERATING
                    EXPENSES:Selling
                    and distribution
                
                
                1,499,979
                
                
                
                
                
                1,499,979
                
                
                1,739,511
                
                
                
                
                
                1,739,511
                
                
                1,620,112
                
                
                
                
                
                1,620,112General
                    and administrative
                
                
                1,588,866
                
                
                
                
                
                1,588,866
                
                
                1,761,146
                
                
                
                
                
                1,761,146
                
                
                1,715,801
                
                
                
                
                
                1,715,801Research
                    and development
                
                
                1,726,617
                
                
                
                
                
                1,726,617
                
                
                1,643,753
                
                
                
                
                
                1,643,753
                
                
                1,702,922
                
                
                
                
                
                1,702,922Total
                    operating expenses
                
                
                4,815,462
                
                
                
                
                
                4,815,462
                
                
                5,144,410
                
                
                
                
                
                5,144,410
                
                
                5,038,835
                
                
                
                
                
                5,038,835Loss
                    from operations
                
                
                (2,148,353
                )
                
                
                
                
                (2,148,353
                )
                
                (1,925,036
                )
                
                
                
                
                (1,925,036
                )
                
                (2,266,429
                )
                
                
                
                
                (2,266,429
                )OTHER
                    INCOME (EXPENSE):Interest
                    income
                
                
                100,495
                
                
                
                
                
                100,495
                
                
                255,404
                
                
                
                
                
                255,404
                
                
                256,792
                
                
                
                
                
                256,792Interest
                    expense (1)
                
                
                (864,858
                )
                
                (193,867
                )
                
                (670,991
                )
                
                (590,733
                )
                
                234,746
                
                
                (825,479
                )
                
                (528,976
                )
                
                (4,013
                )
                
                (524,963
                )Other,
                    net
                
                
                (27,473
                )
                
                
                
                
                (27,473
                )
                
                16,300
                
                
                
                
                
                16,300
                
                
                (22,797
                )
                
                
                
                
                (22,797
                )(791,836
                )
                
                (193,867
                )
                
                (597,969
                )
                
                (319,029
                )
                
                234,746
                
                
                (553,775
                )
                
                (294,981
                )
                
                (4,013
                )
                
                (290,968
                )Net
                    loss
                
                $
                (2,940,189
                )
                $
                (193,867
                )
                $
                (2,746,322
                )
                $
                (2,244,065
                )
                $
                234,746
                
                $
                (2,478,811
                )
                $
                (2,561,410
                )
                $
                (4,013
                )
                $
                (2,557,397
                )NET
                    LOSS PER COMMON SHARE:Basic
                    and diluted
                
                $
                (0.07
                )
                $
                (0.01
                )
                $
                (0.06
                )
                $
                (0.05
                )
                $
                0.00
                
                $
                (0.05
                )
                $
                (0.05
                )
                $
                0.00
                
                $
                (0.05
                )WEIGHTED
                        AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic
                    and diluted
                
                
                43,344,655
                
                
                
                
                
                43,344,655
                
                
                49,555,297
                
                
                
                
                
                49,555,297
                
                
                49,673,962
                
                
                
                
                
                49,673,962
  (1)
            Adjusted to correct the amount of interest recorded on financing
            agreements


F-43


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)


Three
                  months Ended March 31
              
              Six
                  months Ended June 30
              
              Nine
                  months Ended September 30Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported2007
              
              Adjustments
              
              2007
                  (2)
              
              2007
              
              Adjustments
              
              2007
                  (2)
              
              2007
              
              Adjustments
              
              2007
                  (2)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (3,535,976
              )
              
              193,189
              
              $
              (3,729,165
              )
              $
              (7,125,351
              )
              
              387,171
              
              $
              (7,512,522
              )
              $
              (10,849,712
              )
              
              593,108
              
              $
              (11,442,820
              )Adjustments
                    to reconcile net loss to netcash
                    used in operating activities-Depreciation
                  and amortization
              
              
              1,336,005
              
              
              
              
              
              1,336,005
              
              
              2,710,728
              
              
              
              
              
              2,710,728
              
              
              4,084,445
              
              
              
              
              
              4,084,445Amortization
                  on beneficial conversion features
              
              
              303,441
              
              
              
              
              
              303,441
              
              
              613,208
              
              
              
              
              
              613,208
              
              
              933,767
              
              
              
              
              
              933,767Amortization
                  on warrant valuation
              
              
              234,489
              
              
              
              
              
              234,489
              
              
              472,819
              
              
              
              
              
              472,819
              
              
              718,432
              
              
              
              
              
              718,432Provision
                  for doubtful accounts
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Provision
                  for sales returns
              
              
              309,047
              
              
              
              
              
              309,047
              
              
              495,784
              
              
              
              
              
              495,784
              
              
              641,023
              
              
              
              
              
              641,023Writedown
                  of inventories
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Accrued
                  Stock based compensation
              
              
              627,023
              
              
              
              
              
              627,023
              
              
              957,143
              
              
              
              
              
              957,143
              
              
              1,319,712
              
              
              
              
              
              1,319,712Interest
                  accrued on financing agreements (1)  net
                  of payments made
              
              
              412,998
              
              
              (193,189
              )
              
              606,187
              
              
              758,886
              
              
              (387,171
              )
              
              1,146,057
              
              
              1,095,073
              
              
              (593,108
              )
              
              1,688,181Changes
                  in assets and liabilities-
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              
              -(Increase)
                  decrease in:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Accounts
                  receivable
              
              
              (2,570,397
              )
              
              
              
              
              (2,570,397
              )
              
              (1,909,781
              )
              
              
              
              
              (1,909,781
              )
              
              (1,633,986
              )
              
              
              
              
              (1,633,986
              )Inventories
              
              
              (351,618
              )
              
              
              
              
              (351,618
              )
              
              (79,502
              )
              
              
              
              
              (79,502
              )
              
              (137,984
              )
              
              
              
              
              (137,984
              )Prepaid
                  expenses and other current assets
              
              
              243,646
              
              
              
              
              
              243,646
              
              
              520,423
              
              
              
              
              
              520,423
              
              
              614,318
              
              
              
              
              
              614,318Other
                  assets
              
              
              (202,523
              )
              
              
              
              
              (202,523
              )
              
              (205,032
              )
              
              
              
              
              (205,032
              )
              
              (278,907
              )
              
              
              
              
              (278,907
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              (328,429
              )
              
              
              
              
              (328,429
              )
              
              (506,525
              )
              
              
              
              
              (506,525
              )
              
              (661,130
              )
              
              
              
              
              (661,130
              )Accrued
                  expenses
              
              
              (1,381,346
              )
              
              
              
              
              (1,381,346
              )
              
              (1,687,197
              )
              
              
              
              
              (1,687,197
              )
              
              (1,453,558
              )
              
              
              
              
              (1,453,558
              )Deferred
                  revenue
              
              
              (63,280
              )
              
              
              
              
              (63,280
              )
              
              (242,795
              )
              
              
              
              
              (242,795
              )
              
              (422,297
              )
              
              
              
              
              (422,297
              )Net
                  cash used in operating activities
              
              
              (4,966,920
              )
              
              -
              
              
              (4,966,920
              )
              
              (5,227,192
              )
              
              -
              
              
              (5,227,192
              )
              
              (6,030,804
              )
              
              -
              
              
              (6,030,804
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of property and equipment
              
              
              -
              
              
              
              
              
              -
              
              
              (1,497
              )
              
              
              
              
              (1,497
              )
              
              (9,085
              )
              
              
              
              
              (9,085
              )Net
                  cash used in investing activities
              
              
              -
              
              
              
              
              
              -
              
              
              (1,497
              )
              
              
              
              
              (1,497
              )
              
              (9,085
              )
              
              
              
              
              (9,085
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from the sale of common stock, net
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Proceeds
                  from exercise of options
              
              
              -
              
              
              
              
              
              -
              
              
              11,360
              
              
              
              
              
              11,360
              
              
              63,241
              
              
              
              
              
              63,241Payment
                  for purchase of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              (13,260
              )
              
              
              
              
              (13,260
              )
              
              (13,260
              )
              
              
              
              
              (13,260
              )Dividends
                  paid
              
              
              (34,063
              )
              
              
              
              
              (34,063
              )
              
              (48,770
              )
              
              
              
              
              (48,770
              )
              
              (62,832
              )
              
              
              
              
              (62,832
              )Net
                  cash used in financing activities
              
              
              (34,063
              )
              
              
              
              
              (34,063
              )
              
              (50,670
              )
              
              
              
              
              (50,670
              )
              
              (12,851
              )
              
              
              
              
              (12,851
              )EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              453
              
              
              
              
              
              453
              
              
              3,602
              
              
              
              
              
              3,602
              
              
              8,921
              
              
              
              
              
              8,921NET
                  DECREASE IN CASH
              
              
              (5,000,530
              )
              
              
              
              
              (5,000,530
              )
              
              (5,275,757
              )
              
              
              
              
              (5,275,757
              )
              
              (6,043,819
              )
              
              
              
              
              (6,043,819
              )CASH,
                  BEGINNING OF PERIOD
              
              
              25,270,377
              
              
              
              
              
              25,270,377
              
              
              25,270,377
              
              
              
              
              
              25,270,377
              
              
              25,270,377
              
              
              
              
              
              25,270,377CASH
                  END OF PERIOD
              
              $
              20,269,847
              
              
              
              
              $
              20,269,847
              
              $
              19,994,621
              
              
              
              
              $
              19,994,621
              
              $
              19,226,558
              
              
              
              
              $
              19,226,558NON-CASH
                  INVESTING ACTIVITIESAccrued
                  US Crinone Licensing Right purchase cost increase
              
              $
              1,000,000
              
              
              
              
              
              
              
              $
              1,000,000
              
              
              
              
              $
              1,000,000
              
              $
              1,000,000
              
              
              
              
              $
              1,000,000NON-CASH
                  FINANCING ACTIVITIESConversion
                  of preferred Series C&E shares
              
              $
              13,789
              
              
              
              
              
              
              
              $
              13,789
              
              
              
              
              $
              13,789
              
              $
              15,751
              
              
              
              
              $
              15,751


(1) Adjustment
        to correct the amount of interest expense recorded ont financing agreements
        and
        to separate related payments between principal and interest.
 (2)
        As reported amounts reflect a reclassification of
        payments of interest on financing agreements from financing activities to
        operating activities.


F-44


CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)


Three
                  months Ended March 31
              
              Six
                  months Ended June 30
              
              Nine
                  months Ended September 30Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported
              
              Restated
              
              
              
              As
                  reported2006
              
              Adjustments
              
              2006
                  (2)
              
              2006
              
              Adjustments
              
              2006
                  (2)
              
              2006
              
              Adjustments
              
              2006
                  (2)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (2,940,189
              )
              
              (193,867
              )
              $
              (2,746,322
              )
              $
              (5,183,038
              )
              
              40,879
              
              $
              (5,223,917
              )
              $
              (7,744,448
              )
              
              36,866
              
              $
              (7,781,314
              )Adjustments
                    to reconcile net loss to netcash
                    used in operating activities-Depreciation
                  and amortization
              
              
              65,674
              
              
              
              
              
              65,674
              
              
              131,018
              
              
              
              
              
              131,018
              
              
              192,543
              
              
              
              
              
              192,543Amortization
                  on beneficial conversion features
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Amortization
                  on warrant valuation
              
              
              0
              
              
              
              
              
              0
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Provision
                  for doubtful accounts
              
              
              721
              
              
              
              
              
              721
              
              
              55,855
              
              
              
              
              
              55,855
              
              
              105,855
              
              
              
              
              
              105,855Provision
                  for sales returns
              
              
              208,014
              
              
              
              
              
              208,014
              
              
              620,868
              
              
              
              
              
              620,868
              
              
              712,908
              
              
              
              
              
              712,908Writedown
                  of inventories
              
              
              158,275
              
              
              
              
              
              158,275
              
              
              349,722
              
              
              
              
              
              349,722
              
              
              455,393
              
              
              
              
              
              455,393Stock
                  based compensation
              
              
              101,057
              
              
              
              
              
              101,057
              
              
              390,054
              
              
              
              
              
              390,054
              
              
              701,086
              
              
              
              
              
              701,086Accrued
                  Interest expense on financing agreements
              
              
              775,201
              
              
              193,867
              
              
              581,334
              
              
              (4,980,634
              )
              
              239,121
              
              
              (5,219,755
              )
              
              (4,661,339
              )
              
              243,134
              
              
              (4,904,473
              )net
                  of Payments made (1)Loss
                  on partial extinguishment of financing agreement
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              (280,000
              )
              
              280,000
              
              
              -
              
              
              (280,000
              )
              
              280,000Loss
                  on disposal of fixed asset
              
              
              2,177
              
              
              
              
              
              2,177
              
              
              2,178
              
              
              
              
              
              2,178
              
              
              3,275
              
              
              
              
              
              3,275Changes
                  in assets and liabilities-(Increase)
                  decrease in:
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              
              
              -Accounts
                  receivable
              
              
              167,173
              
              
              
              
              
              167,173
              
              
              169,559
              
              
              
              
              
              169,559
              
              
              (211,839
              )
              
              
              
              
              (211,839
              )Inventories
              
              
              (229,758
              )
              
              
              
              
              (229,758
              )
              
              (297,045
              )
              
              
              
              
              (297,045
              )
              
              (297,298
              )
              
              
              
              
              (297,298
              )Prepaid
                  expenses and other current assets
              
              
              (313,188
              )
              
              
              
              
              (313,188
              )
              
              (98,667
              )
              
              
              
              
              (98,667
              )
              
              (483,377
              )
              
              
              
              
              (483,377
              )Other
                  assets
              
              
              (145
              )
              
              
              
              
              (145
              )
              
              4,552
              
              
              
              
              
              4,552
              
              
              4,566
              
              
              
              
              
              4,566Increase
                  (decrease) in:Accounts
                  payable
              
              
              1,426,703
              
              
              
              
              
              1,426,703
              
              
              (142,215
              )
              
              
              
              
              (142,215
              )
              
              (165,469
              )
              
              
              
              
              (165,469
              )Accrued
                  expenses
              
              
              (752,468
              )
              
              
              
              
              (752,468
              )
              
              (913,350
              )
              
              
              
              
              (913,350
              )
              
              (279,745
              )
              
              
              
              
              (279,745
              )Deferred
                  revenue
              
              
              243,846
              
              
              
              
              
              243,846
              
              
              477,593
              
              
              
              
              
              477,593
              
              
              300,950
              
              
              
              
              
              300,950Net
                  cash used in operating activities
              
              
              (1,086,907
              )
              
              -
              
              
              (1,086,907
              )
              
              (9,413,550
              )
              
              -
              
              
              (9,413,550
              )
              
              (11,366,939
              )
              
              -
              
              
              (11,366,939
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of property and equipment
              
              
              (9,500
              )
              
              
              
              
              (9,500
              )
              
              (9,500
              )
              
              
              
              
              (9,500
              )
              
              (14,210
              )
              
              
              
              
              (14,210
              )Net
                  cash used in investing activities
              
              
              (9,500
              )
              
              
              
              
              (9,500
              )
              
              (9,500
              )
              
              
              
              
              (9,500
              )
              
              (14,210
              )
              
              
              
              
              (14,210
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from the sale of common stock, net
              
              
              28,813,385
              
              
              
              
              
              28,813,385
              
              
              28,766,126
              
              
              
              
              
              28,766,126
              
              
              28,766,126
              
              
              
              
              
              28,766,126Proceeds
                  from exercise of options
              
              
              260,045
              
              
              
              
              
              260,045
              
              
              972,511
              
              
              
              
              
              972,511
              
              
              1,021,759
              
              
              
              
              
              1,021,759Payments
                  for purchase of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -Principal
                  Payments pursuant to financing agreements
              
              
              
              
              
              
              
              
              
              
              
              (5,391,268
              )
              
              
              
              
              (5,391,268
              )
              
              (5,391,268
              )
              
              
              
              
              (5,391,268
              )Dividends
                  paid
              
              
              (40,625
              )
              
              
              
              
              (40,625
              )
              
              (81,250
              )
              
              
              
              
              (81,250
              )
              
              (121,379
              )
              
              
              
              
              (121,379
              )Net
                  cash provided by (used in) financing activities
              
              
              29,032,805
              
              
              
              
              
              29,032,805
              
              
              24,266,119
              
              
              
              
              
              24,266,119
              
              
              24,275,238
              
              
              
              
              
              24,275,238EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              7,125
              
              
              
              
              
              7,125
              
              
              23,754
              
              
              
              
              
              23,754
              
              
              21,143
              
              
              
              
              
              21,143NET
                  INCREASE (DECREASE) IN CASH
              
              
              27,943,523
              
              
              
              
              
              27,943,523
              
              
              14,866,823
              
              
              
              
              
              14,866,823
              
              
              12,915,232
              
              
              
              
              
              12,915,232CASH,
                  BEGINNING OF PERIOD
              
              
              7,136,854
              
              
              
              
              
              7,136,854
              
              
              7,136,854
              
              
              
              
              
              7,136,854
              
              
              7,136,854
              
              
              
              
              
              7,136,854CASH
                  END OF PERIOD
              
              $
              35,080,377
              
              
              
              
              $
              35,080,377
              
              $
              22,003,677
              
              
              
              
              $
              22,003,677
              
              $
              20,052,086
              
              
              
              
              $
              20,052,086




(1) Adjustment
        to correct the amount of interest expense recorded ont financing agreements
        and
        to separate related payments between principal and interest.


(2)
        As reported amounts reflect a reclassification of
        payments of interest on financing agreements from financing activities to
        operating activities.


F-45




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





INDEX
      TO FINANCIAL STATEMENT SCHEDULE





PageReports
                of Independent Registered Public Accounting Firms
            
            F-48 –
              F-49Schedule
                II-Valuation and Qualifying Accounts
            
            F-50







REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors and Shareholders
 of
        Columbia Laboratories, Inc.
 
 Our
        audits of the consolidated financial statements and internal control over
        financial reporting referred to in our report dated March 25, 2008 included
        elsewhere in this Annual Report on Form 10-K also included the 2007 information
        in the financial statement schedule of Columbia Laboratories, Inc. listed
        in
        Item 15(a) of this Form 10-K. This schedule is the responsibility of Columbia
        Laboratories, Inc.’s management. Our responsibility is to express an opinion
        based on our audits of the consolidated financial statements.
 
 In
        our
        opinion, the 2007 information in the financial statement schedule, when
        considered in relation to the basic consolidated financial statements taken
        as a
        whole, present fairly in all material respects the information set forth
        therein.
  
 /s/
        McGladrey & Pullen, LLP
 
 McGLADREY
        & PULLEN, LLP
 New
        York, NY
 March
        25, 2008




F-48




REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and Shareholders


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.





/s/
      Goldstein Golub Kessler LLP




GOLDSTEIN
      GOLUB KESSLER LLP


New
      York,
      New York


March
      15,
      2007





F-49




COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





SCHEDULE
      II – VALUATION AND QUALIFYING ACCOUNTS





FOR
      THE FOUR YEARS ENDED DECEMBER 31, 2007





Charged
                toBalance
                at
            
            (credited
                to)
            
            
            
            Balancebeginning
            
            costs
                and
            
            
            
            at
                endDescription
            
            of
                year
            
            expenses
            
            Deductions (A)
            
            of
                yearYEAR
                ENDED DECEMBER 31, 2007:Allowance
                for doubtful accounts
            
            $
            100,000
            
            $
            15,000
            
            $
            19,267
            
            $
            95,733YEAR
                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-50





**EXHIBIT
      INDEX**





**Exhibit
      Numbers**





3.1
            —
            Restated
                Certificate of Incorporation of the Company, as amended14/3.2
            —
            Amended
                and Restated By-laws of Company3/4.1
            —
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock of the Company, dated as of January 7, 19993/4.2
            —
            Securities
                Purchase Agreement, dated as of January 7, 1999, between the Company
                and
                each of the purchasers named on the signature pages thereto3/4.3
            —
            Securities
                Purchase Agreement, dated as of January 19, 1999, among the Company,
                David
                M. Knott and Knott Partners, L.P.3/4.4
            —
            Form
                of Warrant to Purchase Common Stock3/4.5
            —
            Warrant
                to Purchase Common Stock granted to James J. Apostolakis on September
                23,
                19994.6
            —
            Certificate
                of Designations of Series E Convertible Preferred Stock, filed May
                10,
                2005 with the Delaware Secretary of State13/4.7
            —
            Preferred
                Stock Purchase Agreement, dated as of May 10, 2005, among Columbia
                Laboratories, Inc., Perry Partners L.P. and Perry Partners International,
                Inc.13/4.8
            —
            Securities
                Purchase Agreement,dated March 10, 2006, by and between Columbia Laboratories, Inc.
                and the
                Purchasers listed on Exhibit A thereto15/4.9
            —
            Form
                of Restricted Stock Agreement18/4.10
            —
            Form
                of Option Agreement18/4.11
            —
            Securities
                Purchase Agreement, dated December 21, 2006, by and between Columbia
                Laboratories, Inc. and the Purchasers listed on Exhibit A thereto21/10.1
            —
            1996
                Long-term Performance Plan, as amended, of the Company2/10.2
            —
            Asset
                Purchase, License and Option Agreement between Bio-Mimetics, Inc.
                and
                Columbia Laboratories, Inc., dated November 22, 19891/10.3
            —
            License
                and Supply Agreement by and between the Company and Mipharm S.p.A.
                dated
                March 5, 19994/10.4
            —
            Settlement
                Agreement and Release dated as of March 16, 2000 between Columbia
                Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.5/10.5
            —
            License
                Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
                Products, Inc.6/10.6
            —
            Rights
                Agreement dated as of March 13, 2002, by and between Columbia
                Laboratories, Inc. and First Union National Bank, as Rights Agent7/10.7†
            —
            Semi-Exclusive
                Supply Agreement dated May 7, 2002 between the Company and Mipharm
                S.p.A.8/10.8†
            —
            Amended
                and Restated License and Supply Agreement dated June 4, 2002 between
                the
                Company and Ares Trading S.A.8/10.9†
            —
            Marketing
                License Agreement dated June 4, 2002 between the Company and Ares
                Trading
                S.A. and Serono, Inc.8/10.10†
            —
            Investment
                and Royalty Agreement dated July 31, 2002 between the Company and
                PharmaBio Development Inc.8/10.11†
            —
            License
                and Supply Agreement dated October 16, 2002 between the Company and
                Ardana
                Bioscience Limited9/10.12†
            —
            Development
                and License Agreement dated December 26, 2002 between the Company
                and
                Ardana Bioscience Limited9/











10.13†
            —
            Investment
                and Royalty Agreement dated March 5, 2003 between the Company and
                PharmaBio Development Inc.9/10.14†
            —
            License
                and Supply Agreement Dated May 27, 2003 between the Company and Mipharm
                S.p.A.10/10.15
            —
            Form
                of Indemnification Agreement for Officers and Directors11/10.16
            —
            Form
                of Executive Change of Control Severance Agreement11/10.17†
            —
            Asset
                Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug
                Store Products, Inc.12/10.18†
            —
            Supply
                Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
                Products, Inc.12/10.19†
            —
            Professional
                Promotion Agreement dated June 29, 2004, between the Company and
                Lil’ Drug
                Store Products, Inc.12/10.20
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and Robert S.
                Mills
                dated March 30, 200616/10.21
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and Michael
                McGrane
                dated March 30, 200616/10.22
            —
            Letter
                Agreement Supplement to STRIANT® Investment and Royalty Agreement dated
                April 14, 200617/10.23
            —
            Employment
                Agreement by and between Columbia Laboratories, Inc. and James Meer
                dated
                December 6, 200619/10.24
            —
            Separation
                Agreement by and between Columbia Laboratories, Inc. and David L.
                Weinberg
                effective as of December 12, 200620/10.25†
            —
            Agreement,
                dated December 21, 2006, by and among Ares Trading S.A., Serono,
                Inc., the Company and its wholly-owned subsidiary, Columbia Laboratories
                (Bermuda), Ltd21/10.26
            —
            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.21/10.27
            —
            Description
                of the Registrant’s Compensation and Reimbursement Practices for
                Non-employee Directors.22/10.28
            —
            Columbia
                Laboratories, Inc., Incentive Plan22/10.29
            —
            Lease
                Agreement between Allwood Associates I and Columbia Laboratories,
                Inc.,
                dated July 6, 200722/10.30†
            —
            License
                and Supply Agreement between Columbia Laboratories, Inc. and Ascend
                Therapeutics, Inc., dated September 27, 200723/10.31
            —
            Supply
                Agreement between Columbia Laboratories (Bermuda) Limited and Fleet
                Laboratories Limited, dated July 12, 199624/10.32
            —
            Packaging
                Agreement between Columbia Laboratories (Ireland) Ltd. and Maropack
                AG,
                dated October 28, 199324/14
            —
            Code
                of Ethics of the Company11/21
            —
            Subsidiaries
                of the Company24/23.1
            —
            Consent
                of Goldstein Golub Kessler LLP24/23.2
            —
            Consent
                of McGladrey & Pullen, LLP24/31(i).1
            —
            Certification
                of Chief Executive Officer of the Company24/31(i).2
            —
            Certification
                of Chief Financial Officer of the Company24/32.1
            —
            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 200224/32.2
            —
            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 2002.24/









†
            
            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, 19902/
            
            Incorporated
                by reference to the Registrant's Proxy Statement dated May 10,
                20003/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 19984/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 19995/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 19996/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                quarter ended June 30, 20007/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated March
                12, 20028/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 14, 20029/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200210/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 14, 200311/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200312/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q dated
                August 4, 200413/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated May 12,
                200514/
            
            Incorporated
                by reference to the Registrant’s Annual Report on Form 10-K for the year
                ended December 31, 200515/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated March
                16, 200616/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated April
                3, 2006









17/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated April
                17, 200618/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated May 17,
                200619/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 7, 200620/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 15, 200621/
            
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, dated
                December 26, 200622/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q, dated
                August 8, 200723/
            
            Incorporated
                by reference to the Registrant’s Quarterly Report on Form 10-Q, dated
                November 8, 200724/
            
            Filed
                herewith