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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



OR



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



For the transition period from  to



Commission File number 1-10352



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COLUMBIA LABORATORIES, INC.

(Exact name of Company as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 59-2758596                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|354 Eisenhower Parkway Livingston, New Jersey                  |  | 07039                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Companys
telephone number, including area code: (973) 994-3999



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Securities registered pursuant to Section 12(g) of the Act:



|                             |  |                                    
|---------------------------- |  | -----------------------------------
|Common Stock, $.01 par value |  | Nasdaq National Market             
|(Title of each class)        |  | (Name of exchange where registered)



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Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    YES  x    NO ̈



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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)    Yes  x    No ̈



The aggregate market value of Columbia Laboratories, Inc. Common Stock, $.01 par value, held by non-affiliates, computed by reference to the price at which the stock was sold as of March 1, 2004: $235,601,016.



Number of shares of Common Stock of Columbia Laboratories,
Inc. issued and outstanding as of March 1, 2004: 39,751, 934.



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Documents Incorporated By Reference



Portions of the Columbia Laboratories, Inc. (Columbia or the Company) Proxy Statement for the 2004
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 Securities and Exchange and mail it to shareholders on or before April 12,
2004.



Index to Annual Report on Form 10-K

Year Ended December 31, 2003



|         |  |                                                                                        |  |      
|-------- |  | -------------------------------------------------------------------------------------- |  | -----
|         |  |                                                                                        |  | Page 
|Part I   |  |                                                                                        |  |      
|Item 1   |  | Business                                                                               |  | 3-11 
|Item 2   |  | Properties                                                                             |  | 11   
|Item 3   |  | Legal Proceedings                                                                      |  | 11   
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                    |  | 11-12
|Part II  |  |                                                                                        |  |      
|Item 5   |  | Market for the Companys Common Stock and Related Stockholder Matters                  |  | 13-14
|Item 6   |  | Selected Financial Data                                                                |  | 15   
|Item 7   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations  |  | 16-22
|Item 7A  |  | Quantitative and Qualitative Disclosures about Market Risks                            |  | 23   
|Item 8   |  | Financial Statements and Supplementary Data                                            |  | 23   
|Item 9   |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosures  |  | 23   
|Item 9A  |  | Controls and Procedures                                                                |  | 23   
|Part III |  |                                                                                        |  |      
|Item 10  |  | Directors and Executive Officers of the Company*                                       |  | 24   
|Item 11  |  | Executive Compensation*                                                                |  | 24   
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management*                        |  | 24   
|Item 13  |  | Certain Relationships and Related Transactions*                                        |  | 24   
|Item 14  |  | Principal Accountant Fees and Services                                                 |  | 24   
|Part IV  |  |                                                                                        |  |      
|Item 15  |  | Exhibits, Financial Statements, Financial Statement Schedules, and Reports on Form 8-K |  | 25-28

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|* | Items 11, 12, 13, 14 and portions of Item 10 are incorporated by reference to the 2004 Proxy Statement
|- | ------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART I



Item 1. Business



General Description of
Business



Columbia Laboratories, Inc. (the
Company) was incorporated as a Delaware corporation in December 1986. The Company is dedicated to research and development and commercialization of womens health care and endocrinology products, including those intended to treat
infertility, endometriosis and hormonal deficiencies. The Company has developed products for vaginal delivery of hormones and other drugs and buccal delivery of hormones and peptides. The vaginal products adhere to the vaginal epithelium and the
buccal products adhere to the mucosal membrane of the gum and cheek. Both forms provide sustained and controlled delivery of active drug ingredients into the bloodstream. This delivery system is particularly useful for active drug ingredients that
cannot be administered orally.



All formulated products utilize
the Bioadhesive Delivery System (BDS) consisting 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 and to
mucous membranes. The polymer remains attached to epithelial surfaces and/or the membranes and is discharged upon normal cell turnover, a physiological process which, depending upon the area of the body, occurs every 12 to 72 hours. This extended
period of attachment permits the BDS to be utilized in products when extended duration of effectiveness is desirable or required.



The Company has focused on womens health care because of the significant number of women whose health and hygiene needs have not been met by
available products and because the Company has found vaginal delivery to be particularly effective. The Company has also found buccal delivery to be advantageous for products for both men and women. The Company intends to continue to develop
products that improve the delivery of previously approved and marketed drugs that cannot be delivered orally.



The Companys principal executive offices are located at 354 Eisenhower Parkway, Livingston, New Jersey 07039, and its telephone number is (973)
994-3999. The Companys subsidiaries, all of which are wholly-owned, are Columbia Laboratories (Bermuda) Ltd. (Columbia Bermuda), Columbia Laboratories (France) SA (Columbia France), which is in the process of being
closed, Columbia Laboratories (UK) Limited (Columbia UK) and Columbia Research Laboratories, Inc. (Columbia Research).



The Companys website is http://www.columbialabs.com. The Company makes its SEC filings available on its website. The Company will provide electronic
or paper copies of its filings free of charge upon request. Information contained on the Companys website or any other website is not incorporated into this Annual Report and does not constitute a part of this Annual Report.



Financial Information About Segments



The Company is currently engaged solely in one business segment  the
development, licensing and sale of pharmaceutical products, medical devices, and cosmetics. See footnote 10 to the consolidated financial statements for information on foreign operations.



Products



Crinone®/Prochieve® (progesterone gel). Crinone is the brand name of the Companys progesterone gel sold by Ares Trading S.A. under a
worldwide license. Prochieve is the brand name of the same progesterone gel sold by the Company in the United States under a June, 2002, sublicense from Ares Trading S.A pursuant to its



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worldwide license to Crinone. The product is a sustained release, vaginally delivered, natural progesterone product. 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. Studies have also found prophylactic progestogen administration to be effective in reducing the
incidence of preterm birth. The American College of Obstetricians and Gynecologists (ACOG) Committee on Obstetric Practice has issued an opinion stating that progesterone may be used as treatment to help prevent preterm birth in women with a
history of delivering prematurely.



Crinone/Prochieve utilizes
the Companys patented BDS which enables the progesterone to achieve a First Uterine Pass Effect©. 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 progesterone seen with orally-delivered synthetic progestins.



Crinone/Prochieve in the 8% progesterone gel is approved in the U.S. for use in 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 are 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. Prochieve was first marketed in the U.S. in September, 2002.



Outside the U.S., Crinone has been approved for marketing for one or more medical indications in more than 28 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.



In April 2001, the Company initiated a voluntary recall of batches of Crinone that were affected by a drug application
problem that could cause the consistency of the gel to change over time. Investigations confirmed that the problem with the affected batches posed no safety risk to patients and that the active ingredient of the product was still effective. In
connection with the recall, the Company halted further shipments of Crinone to its distributor, Ares Trading S.A. (Serono), pending the Companys revalidation of the manufacturing process. In August 2001, Serono filed a lawsuit in
the Supreme Court of the State of New York (the Action) naming the Company as defendant. The Action set forth claims for an alleged breach of contract for failure to supply Crinone in accordance with the supply agreement between the
parties. In November 2001, the Company filed counterclaims against Serono. In June 2002, the Company reached a settlement with Serono. The companies agreed to release all claims against each other. Under the terms of the settlement, Columbia
sublicensed rights to market a second brand of its 8% and 4% progesterone gel products under the brand name, Prochieve, to a defined audience of obstetricians, gynecologists and primary care physicians in the U.S. Serono agreed not to market Crinone
to that audience and the Company agreed not to market Prochieve to fertility specialists in the U.S.



Striant® testosterone buccal system. Striant is approved in the U.S. for hypogonadism. Hypogonadism is characterized by a deficiency or absence
of endogenous testosterone production. Symptoms related to hypogonadism include diminished interest in sex, impotence, reduced lean body mass, decreased bone density, mood depression, fatigue and loss of energy. Striant is applied to gum tissue
above the incisor teeth and releases testosterone for absorption across the oral mucosa as the product gradually hydrates. Striant allows for the slow release and absorption of testosterone through gum and cheek surfaces that are in contact with the
product. One dose twice a day, in the morning and in the evening, maintains consistent physiologic levels of testosterone. It is estimated that hypogonadism affects between four and five million men in the United States, approximately one million of
whom currently receive treatment.



Advantage-S®
Bioadhesive Contraceptive Gel. Advantage-S, the Companys female contraceptive gel utilizes the BDS with the active ingredient nonoxynol-9 and has been marketed in the U.S. by the Company since July 1998 pursuant to FDAs ongoing
review of over-the-counter drug products (including nonoxynol-9 spermicidal products). Among Advantage-S benefits is that it utilizes the Companys BDS, which enables the nonoxynol-9 to adhere to the cervix and permits formulation of the
product with the lowest dose of nonoxynol-9 of all products on the market. The product is also sold in Canada by a licensee under the brand name, Advantage-24.



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Replens® Vaginal Moisturizer. Replens replenishes vaginal moisture on a sustained basis and
relieves the discomfort associated with vaginal dryness. Replens was the first product utilizing the BDS. In May 2000, the Company sold the U.S. rights for Replens to Lil Drug Store Products, Inc. under which the Company continues to receive
royalties of 10% of U.S. Replens sales. The Company has licensed and supplies Replens to other pharmaceutical companies in certain countries outside the U.S.



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. RepHresh uses the Companys BDS and adheres to the epithelial cells of the vaginal lining for 3 days. It is available in convenient pre-filled disposable applicators. RepHresh is also
sold by a licensee in Italy under the brand name Miphil.



Other Products. The Company also marketed Advanced Formula Legatrin PM®, until April 2000, for the relief of occasional pain and sleeplessness associated with minor muscle aches such as night leg cramps; Legatrin® GCM
Formula, which nutritionally supports healthy
joint function; Vaporizer in a Bottle®, a portable cough suppressant for the temporary relief of a cough due to the common cold; and Diasorb®, a pediatric antidiarrheal product. These products do not utilize the Bioadhesive Delivery System.
In May 2000, the Company licensed these products to Lil Drug Store Products, Inc. Under the terms of these agreements, the Company receives license fees equal to 20% of the licensees net sales. These agreements each have five-year terms
with provisions for renewal and contain options that allow for the acquisition of the products by the licensee. On December 29, 2000, Lil Drug Store purchased Vaporizer in a Bottle for $201,800. The production and sale of Diasorb was
discontinued during the first half of 2003.



Sales
Force. In July 2002, the Company concluded an agreement with Innovex LP, an affiliate of Quintiles Transnational Corp. Under the terms of agreement, Innovex, provided a dedicated team of 55 sales representatives on a three-year, fee-for-service
basis, to commercialize the Companys womens healthcare products, i.e., Prochieve 8%, Prochieve 4%, Advantage-S, and RepHresh Vaginal Gel in the U.S. The sales force was recruited and trained in August and September 2002, and began in
October, 2002, to call on a targeted list of approximately 8,000 obstetricians and gynecologists to encourage prescriptions and product recommendations for Prochieve 8%, Advantage-S, and RepHresh Vaginal Gel. The sales force began sales efforts for
Prochieve 4% in April, 2003. In March 2003, the Company concluded a second agreement with Innovex LP, to commercialize Striant in the United States. Under the terms of the agreement, Innovex LP, provided a dedicated team of 67 additional sales
representatives for a two-and-a-half year term. The new sales representatives were recruited in June 2003 and were trained on the Companys womens healthcare products in July 2003 and began calling on obstetricians and gynecologists. The
entire sales force of 122 sales representatives and 13 managers was trained on Striant in September 2003, and added endocrinologists, urologists and certain primary healthcare doctors to their call lists. In January 2004, the Company and Innovex
restructured the existing sales force. The restructured sales force is made up of nine Columbia district managers and 80 sales representatives divided evenly between Columbia and Innovex. Under the terms of this restructuring, Innovex transferred
responsibility for management of the sales force to Columbia, but continues to provide half the sales representatives. Effective immediately, Columbia took responsibility for all field sales management, all sales force support and one-half of the
field sales representatives. Columbia will take full responsibility for the remaining sales representatives by October 2005.



Research and Development



The Company expended $3.3 million in 2003, $5.4 million in 2002 and $7.1 million in 2001 on research and development activities. The expenditures are
primarily the result of costs associated with contracting for, supervising and administering the development and clinical studies of Striant and the delivery of peptides utilizing the BDS. These studies are now coordinated from the Companys
headquarters in New Jersey. The Company cannot predict whether it will be successful in the development of the products listed below or any other products.



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Striant®. On December 3, 2002, the Company announced a submission for marketing approval to
the United Kingdom Medicines Control Agency for Striant. Under current regulations, approval of Striant in the U.K is anticipated in the first half of 2004. Initial regulatory approval of the U.K. application will be the basis for mutual recognition
applications to be filed in the rest of Europe. In October, 2002, the Company executed a license and supply agreement for Striant with Ardana Bioscience, Ltd., Edinburgh, UK, for eighteen European countries (excluding Italy). Under the terms of the
agreement, Ardana will market, distribute and sell Striant. In exchange for these rights, the Company will receive total payments of $8 million, including $4 million in signature and milestone fees received in the fourth quarter of 2002. Additional
milestone payments totaling $2 million are due upon marketing approvals in major European countries included in the agreement. A performance payment of $2 million is also 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. In May, 2003, the Company executed a license and supply agreement for Striant with Mipharm, S.p.A., Milan, Italy, for Italy. Under the terms of the agreement, Mipharm will
market, distribute and sell Striant in Italy. In exchange for these rights, the Company will receive total payments of $1.4 million, including $350,000 in signature fees. Additional milestone payments totaling $250,000 are due upon marketing
approvals in the United Kingdom and Italy. (Initial regulatory approval of the UK application will be the basis for a mutual recognition application in Italy.) Mipharm will provide additional payments to Columbia on unit sales of the product during
the term of the agreement. Performance payments of $800,000 are also due upon achievement of certain levels of sales. Mipharm is Columbias primary manufacturing site for most of the Companys worldwide requirements for Striant under a May
2002 non-exclusive supply agreement.



Terbutaline Vaginal
Gel. In December, 2002, the Company announced a development and license agreement with Ardana Bioscience, Ltd., for the Companys terbutaline vaginal gel product for development for the treatment of infertility, dysmenorrhea and
endometriosis. The Company received a payment of $250,000 upon signing of the agreement, and will receive an additional $250,000 upon successful completion of the Phase II clinical trial, which are expected to be completed in the first half of 2004.
Under the terms of the agreement, if the Phase II trial is successful, the companies will work together to progress the product through clinical trials and applications for regulatory approvals. The Company will have the right to market the product
in North America and Ardana will 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.



Lidocaine Vaginal Gel. Lidocaine vaginal gel utilizes our BDS and is designed as a potential treatment for
dysmenorrhea and gynecologic pain. We have completed the development work on this product and a critical trial in Europe. Results from this trial, which were announced on February 5, 2004, will guide the Phase III program. Trial results showed that
lidocaine vaginal gel reduced the frequency of uterine contractions, as well as the intensity and frequency of uterine pain. We believe that this product will offer a new and novel approach to treating women who suffer from these painful conditions.



Testosterone Vaginal Gel.In October 2000, the Company
completed a Phase I trial of its testosterone progressive hydration vaginal tablet for women. The study demonstrated that testosterone could be delivered vaginally over a period of days. Vaginal gel and vaginal tablet forms have been developed, both
of which provide multiple dosing advantages. A preliminary clinical plan, with a focus on reduction in fibroids as well as general testosterone replacement is under review by our clinical advisors. We plan to move this project into a more active
stage in 2004.



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



Licensing and Development Agreements



In May 1995, the Company entered into a worldwide, except for South Africa, license and supply agreement with American Home Products Corporation, now Wyeth, (Wyeth) for its Wyeth-Ayerst Laboratories division to market
Crinone. The Company agreed to supply Crinone at a price equal to 30% of Wyeths net selling price. In July,



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1999, Wyeth assigned the license and supply agreement to Ares Trading, S.A., (Serono). In June, 2002, the license and supply agreement was
amended and restated and a marketing sublicense was granted to the Company permitting the Company to sell progesterone gel under a second brand name, Prochieve, to the non-infertility specialist market in the U.S. Under the marketing sublicense, the
Company is obligated to pay Serono a royalty equal to 30% of its net sales to the non-infertilty specialist market. The Company is obligated to pay Serono an additional royalty of 40% of Prochieves net sales to the infertility specialist
market. Conversely, Serono is obligated to pay the Company an additional royalty of 40% of Crinone net sales to the non-infertility specialist market in the U.S.



In March 1999, the Company entered into a license and supply agreement with Mipharm SpA (Mipharm) under which
Mipharm will be the exclusive marketer of the Companys womens healthcare products in Italy, Portugal, Greece and Ireland with a right of first refusal for Spain. Mipharm currently sells two licensed products in Italy.



In October 2002, the Company and Ardana Bioscience, Ltd. entered into a
license and supply agreement (described above) for Striant the Companys testosterone product in eighteen European countries (excluding Italy).



In December 2002, the Company and Ardana Bioscience, Ltd. executed a development and license agreement (described above) for the Companys
terbutaline vaginal gel product.



In May 2003, the Company and
Mipharm S.p.A. entered into a license and supply agreement (described above), under which Mipharm will market, distribute and sell Striant in Italy. Mipharm is the manufacturer for Striant under a May 2002 agreement.



Financial Agreements



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



On March 5, 2003, Columbia Laboratories, Inc. and PharmaBio Development
enterted into a second agreement under which PharmaBio Development, will pay $15 million to Columbia over a 15-month period commencing 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 revenues, and a 4.5% royalty of net sales above those levels. The royalty term is seven years. Royalty payments commenced for the 2003 third quarter and are subject to minimum ($30 million) and maximum ($55
million) amounts. Because the minimum amount exceeds the $15 million to be received, the Company has recorded the amounts received through December 31, 2003, as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the
$15 million to be received by the Company is being recognized as interest expense over the seven-year term of the agreement, assuming an interest rate of 10.67%.



Patents, Trademarks and Protection of Proprietary Information



The Company purchased the patents underlying the Bioadhesive Delivery System from Bio-Mimetics, Inc.
(Bio-Mimetics). The basic patent that covers the Bioadhesive Delivery System was issued in the United States in 1986 and by the European Patent Office in 1992. The Company has the exclusive right to the use of the Bioadhesive Delivery
System subject to certain third party licenses issued by Bio-Mimetics that have been assigned to the Company and certain restrictions on the assignment of the patents. See Managements Discussion and Analysis of Financial Conditions and
Results of Operations.



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During 2003, there were two patents granted to the Company. The first patent was for the use of progestin
therapy for maintaining amenorrhea. The second patent was for the bioadhesive progressive hydration tablet.



During 2002, there was one United States patent granted to the Company, for the use of certain polycarboxylic acid polymers for vaginal pH buffering to
prevent miscarriage and premature labor associated with bacterial vaginosis.



During 2001, there were two United States patents granted to the Company. One was for bioadhesive progressive hydration tablets and for the methods of making and using the same and the second was for the use of
progesterone for maintaining amenorrhea.



The Company continues
to develop the core Bioadhesive Delivery System and has filed additional patent applications. Because the Company operates on a worldwide basis, the Company seeks worldwide patent protection for its technology and products. While patent applications
do not ensure the ultimate issuance of a patent, and having patent protection cannot ensure that no competitors will emerge, this is a fundamental step in protecting the technologies of the Company.



The Company has filed Replens, Advantage 24,
Advantage-S, Advantage-LA, Crinone, Prochieve, RepHresh RepHresh Vaginal Gel, Striant, Striant SR and Chronodyne as trademarks in countries
throughout the world. Applications for the registration of trademarks do not ensure the ultimate registration of these marks. 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.



The Company also relies on confidentiality and nondisclosure agreements. 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.



Manufacturing



Crinone®, Prochieve®, Advantage-S®, RepHresh® and Replens® are manufactured and packaged by third-party manufacturers in Europe.
Striant is manufactured in Italy by Mipharm S.p.A..



Medical
grade, cross-linked polycarbophil, the polymer used in the Companys products utilizing the Bioadhesive Delivery System, is currently available from only one supplier, Noveon, Inc. (Noveon). The Company believes that Noveon will
supply as much of the material as the Company may require because the Companys products rank among the highest value-added uses of the polymer. There can be no assurance that Noveon will continue to supply the product. In the event that Noveon
cannot or will not supply enough of the product to satisfy the Companys needs, the Company will be required to seek alternative sources of polycarbophil. There can be no assurance that an alternative source of polycarbophil can be obtained.



All of the other raw materials used by the Company for its
products utilizing the BDS are available from several sources.



Sales of
Products



The Company is currently restructuring its
full-time 90 person sales force and contracts with a third party to provide the Company with approximately 40 of its 80 sales representatives. The sales force calls on OB/GYNs, endocrinologists, urologists and certain primary healthcare
physicians and educates the doctors and other healthcare



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professionals in their offices on the benefits of Striant, Prochieve, Advantage-S and RepHresh. The Company utilizes four employees to make calls on the
Companys trade customers on behalf of Striant and Prochieve and utilizes approximately 20 drug manufacturers representative firms to make calls on the Companys trade customers on behalf of Advantage-S and RepHresh. The
manufacturers representatives receive commissions based on sales of those two products made within their respective territories. The Companys direct customers are drug wholesalers and chain drug stores.



Sales



The following table sets forth the percentage of the Companys consolidated net sales by product, for each product
accounting for 5% or more of consolidated net sales in any of the three years ended December 31, 2003



|                                             |  |      |   |  |      |   |  |      |  
|-------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                             |  | 2003 |   |  | 2002 |   |  | 2001 |  
|Crinone                                      |  | 34   | % |  | 38   | % |  | 29   | %
|Prochieve                                    |  | 26   | % |  | 37   | % |  | 0    | %
|Striant                                      |  | 13   | % |  | 0    | % |  | 0    | %
|Replens                                      |  | 16   | % |  | 13   | % |  | 25   | %
|Advantage-S                                  |  | 1    | % |  | 2    | % |  | 11   | %
|Other Products, Licensing and Royalty Income |  | 10   | % |  | 10   | % |  | 35   | %
|                                             |  |      |   |  |      |   |  |      |  
|                                             |  | 100  | % |  | 100  | % |  | 100  | %
|                                             |  |      |   |  |      |   |  |      |  



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



|                               |  |      |            |      |   |           |  |   |          
|------------------------------ |  | ---- | ---------- | ---- | - | --------- |  | - | ---------
|                               |  | 2003 |            | 2002 |   | 2001     
|Ares-Serono                    |  | $    | 8,655,947  |      | $ | 3,878,513 |  | $ | 527,723  
|Lil Drug Store Products, Inc. |  |      | 3,281,034  |      |   | 1,356,343 |  |   | 1,106,758
|Cardinal Healthcare            |  |      | 3,296,865  |      |   | 1,624,556 |  |   |         
|McKesson                       |  |      | 2,890,998  |      |   | 489,585   |  |   |         
|Amerisource Bergen             |  |      | 447,455    |      |   | 599,028   |  |   |         
|ANDA, Inc.                     |  |      |           |      |   | 623,808   |  |   |         
|All others (none over 5%)      |  |      | 3,842,729  |      |   | 846,716   |  |   | 519,373  
|                               |  |      |            |      |   |           |  |   |          
|                               |  | $    | 22,415,028 |      | $ | 9,418,549 |  | $ | 2,153,854
|                               |  |      |            |      |   |           |  |   |          



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##### Table of Contents

Competition



The Company has both entered into strategic alliance agreements for the marketing of its womens health care products and is marketing the products
itself, but there can be no assurance that the Company or its partners will have the ability to compete successfully. The Companys success is dependent in part on the marketing efforts of its strategic alliance partners, over which the Company
has limited ability to influence, and its own efforts, that also rely upon its contract sales force. The markets that the Company and its strategic alliance partners operate in or intend to enter are characterized by intense competition. The Company
and its partners compete against established pharmaceutical and consumer product companies which market products addressing similar needs. In addition, numerous companies are developing or, in the future, may develop enhanced delivery systems and
products competitive with the Companys present and proposed products. Some of the Companys and its partners competitors possess greater financial, research and technical resources than the Company or its partners. Moreover, these
companies may possess greater marketing capabilities than the Company or its partners, including the resources to implement extensive advertising campaigns.



Crinone®/Prochieve®, although a natural progesterone product, competes in markets with other progestins, both synthetic and natural, which may be
delivered orally, by injections or by suppositories. Some of the more successful orally dosed products include Provera® marketed by Pfizer, Prometrium® marketed by Solvay, Prempro® and Premphase® marketed by Wyeth. Advantage-S®
and RepHresh® also compete against numerous products in their respective categories of spermicidal contraceptives and feminine hygiene products. Striant® competes against other testosterone products that can be delivered by injections,
transdermal patches and transdermal gels. Some of the more successful testosterone products include AndroGel® (testosterone gel) marketed by Unimed Pharmaceuticals, Inc. and Androderm® (testosterone transdermal system) marketed by Watson
Pharma, Inc.



Government Regulation



The Company is subject to both the applicable regulatory provisions of the
FDA in the United States and the applicable regulatory agencies in those foreign countries where its products are manufactured and/or distributed.



In the United States, manufacturers of pharmaceutical products are subject to extensive regulation by various Federal and state governmental entities
relating to nearly every aspect of the development, manufacture and commercialization of such products. The FDA, which is the principal regulatory authority in the United States for such products, 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. As a result of FDA regulations, pursuant to which new pharmaceuticals are required
to undergo extensive and rigorous testing, obtaining pre-market regulatory approval requires extensive time and cash expenditures. The manufacturing of the Companys products which are either manufactured and/or sold in the United States, is
subject to current Good Manufacturing Practices prescribed by the FDA. The advertising of over-the-counter drugs in the United States is subject to the review of the Federal Trade Commission (FTC) pursuant to the general authority of the
FTC to monitor and prevent unfair or deceptive trade practices.



As in the United States, a number of foreign countries require pre-marketing approval by health regulatory authorities. Requirements for approval may differ from country to country and may involve different types of testing. There can be
substantial delays in obtaining required approvals from regulatory authorities after applications are filed. Even after approvals are obtained, further delays may be encountered before the products become commercially available.



Product Liability



The Company can be exposed to product liability claims by consumers. Although the Company presently maintains product
liability insurance coverage in the amount of $15 million, there can be no assurance that such insurance will be sufficient to cover all possible liabilities. In the event of a successful suit against the Company, insufficiency of insurance coverage
could have a materially adverse effect on the Company.



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##### Table of Contents

Employees



As of March 1, 2004, the Company had 51 employees, 6 in management, 7 in production, 21 in sales and marketing, and 17 in support functions. None of the
Companys employees are represented by a labor union. The Company believes that its relationship with its employees is satisfactory.



The Company has an employment agreement with one employee, who is a stockholder of the Company. See Executive CompensationEmployment
Agreement. The Board of Directors of the Company has adopted both a Form of Indemnification Agreement for Officers and Directors, and a Form of Executive Change of Control Severance Agreement.



Item 2. Properties



As of March 1,
2004, the Company leases the following properties:



|               |  |                       |  |             |  |             |  |            
|-------------- |  | --------------------- |  | ----------- |  | ----------- |  | -----------
|Location       |  | Use                   |  | Square feet |  | Expiration  |  | Annual Rent
|Livingston, NJ |  | Corporate office      |  | 12,780      |  | July 2007   |  | $182,000   
|Paris, France  |  | Administrative office |  | 2,100       |  | August 2004 |  | $  53,000  



Item 3. Legal Proceedings



Claims and lawsuits
have been filed against the Company from time to time. Although the results of pending litigation 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 adequate reserves or adequate insurance coverage for any unfavorable outcome resulting from these actions.



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



None.



Executive Officers of the Registrant



Set forth is a list of names, ages, positions held
and business experience of the persons serving as executive officers of the Company as of March 1, 2004. 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 of Columbias directors and 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 Mr.
Wilkinsons employment agreement.



James J. Apostolakis (Age 61)
has been a director and Vice Chairman of the Companys Board of Directors since January 1999 and served as President from January 2000 until April 2001. Mr. Apostolakis has been a Managing Director at Poseidon Capital Corporation, an investment
banking firm, since February of 1998. Mr. Apostolakis has also served as President of Lexington Shipping & Trading Corporation, a company engaged in shipping operations, since 1973. From 1989 until 1992, Mr. Apostolakis served as a director on
the Board of Directors of Grow Group, a paint and specialty chemicals company. From 1982 to 1988, he served as a director for Macmillan, Inc., a publishing and information services company. Mr. Apostolakis received an A.B. in Economics from the
University of Pennsylvania in 1962 and an LL.B from Harvard University Law School in 1965.



Meg Coogan (Age 50) joined the Company as Senior Vice President, Marketing and Sales in August 2002. For the previous 10 years Ms. Coogan held various positions within the Interpublic Group of Companies most
recently as



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##### Table of Contents

President of McCann Healthcare, a pharmaceutical advertising agency. Prior to McCann Healthcare, Ms. Coogan was General Manager of Lowe McAdams. From 1983 to
1988 she held various sales and marketing positions within Ortho-McNeil, a Johnson & Johnson company. Ms. Coogan graduated from Rutgers University.



Michael McGrane(Age 54) joined the Company as Vice President, General Counsel and Secretary in January, 2002. Prior to joining the Company, he
served as Vice President, General Counsel and Secretary to The Liposome Company, Inc., a biotechnology company, from 1999 to 2001, and as Vice President, General Counsel and Secretary to Novartis Consumer Health, Inc., from 1997 to 1998. Prior to
Novartis, Mr. McGrane held various positions with Sandoz Pharmaceuticals Corporation, including Associate General Counsel. Before joining Sandoz, he was Regulatory Counsel to the U.S. Food and Drug Administration. 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.



Robert S. Mills (Age 51) joined the company as Senior Vice President, Operations, in May, 2001. Prior to joining the company, he served as Senior
Vice President, Manufacturing Operations at Watson Pharmaceuticals, from 1996-2001, and as Vice President, Operations at Alpharma, Inc. from 1993-1996. Prior to Alpharma, Mr. Mills held various positions with Aventis, SA, including Director-Plant
Operations. Mr. Mills holds a B.S.Degree from Grove City College.



David L. Weinberg (Age 58) has been Vice PresidentFinance and Administration, Chief Financial Officer and Treasurer of the Company from September 1997 to the present. From September 1997 until January 2002, he also served as
Secretary and previously from the inception of the Company until June 1991, he served as Vice PresidentFinance and Administration, Chief Financial Officer, Treasurer and Secretary. From October 1991 until September 1997, Mr. Weinberg was
employed by Transmedia Network Inc., a company specializing in consumer savings programs, where he served in various capacities including Vice President and Chief Financial Officer. From February 1981 until August 1986, Mr. Weinberg worked for Key
Pharmaceuticals, Inc., a company engaged in the development, manufacturing, marketing and sales of pharmaceuticals until its sale to Schering-Plough Corporation. Mr. Weinberg served in various capacities including Vice President  Finance,
Treasurer and Secretary. Mr. Weinberg received a B.B.A. in Accounting from Hofstra University in 1968.



G. Frederick Wilkinson (Age 48) has been a director of the Company since 2001 and its President and Chief Executive Officer since April 15, 2001
and Chairman of the Board since May 15, 2003. Prior to joining the Company, he served as Chief Operating Officer and Senior Vice President, Sales and Marketing of Watson Pharmaceuticals, Inc. from June 1999. Previously, Mr. Wilkinson was Vice
President of Watson Pharmaceuticals, Inc. from July 1997, and Executive Vice President  Sales and Marketing of Watson Laboratories, Inc. from July 1996. Prior to his employment at Watson, Mr. Wilkinson was the President and General Manager of
Creighton Pharmaceuticals, a wholly owned subsidiary of Sandoz Pharmaceuticals, Inc. from 1994 to 1996. Prior to that, he held various marketing management positions at Sandoz from 1980. Mr. Wilkinson received his M.B.A. from Capital University in
1984 and his B.S. in Pharmacy from Ohio Northern University in 1979.



Code
of Ethics



The Board of Directors of the Company
has adopted a Code of Ethics applicable to all Board members, executive officers and all employees.



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##### Table of Contents

PART II



Item 5. Market for the Companys Common Stock and Related Stockholder Matters



The Companys $.01 par value Common Stock (Common Stock) began trading on the NASDAQ National Market System under the symbol CBRX on
February 13, 2004. Prior to that date it traded on the American Stock Exchange under the symbol COB. The following table sets forth the high and low sales prices of the Common Stock on the American Stock Exchange, as reported on the Composite Tape.



|                                    |  |      |       |     |   |     
|----------------------------------- |  | ---- | ----- | --- | - | ----
|                                    |  | High |       | Low
|Fiscal Year Ended December 31, 2002 |  |      |       |     |   |     
|                                    |  |     
|First Quarter                       |  | $    | 5.18  |     | $ | 3.10
|Second Quarter                      |  |      | 6.00  |     |   | 4.07
|Third Quarter                       |  |      | 5.60  |     |   | 4.06
|Fourth Quarter                      |  |      | 4.59  |     |   | 2.90
|                                    |  |     
|Fiscal Year Ended December 31, 2003 |  |      |       |     |   |     
|                                    |  |     
|First Quarter                       |  | $    | 4.20  |     | $ | 2.76
|Second Quarter                      |  |      | 11.60 |     |   | 3.93
|Third Quarter                       |  |      | 16.15 |     |   | 9.80
|Fourth Quarter                      |  |      | 12.07 |     |   | 4.86



At March 1, 2004,
there were 400 shareholders of record of the Companys Common Stock. The Company estimates that there are approximately 9,500 beneficial owners, 1 shareholders of record of the Companys Series B Convertible Preferred Stock (Series B
Preferred Stock) and 12 shareholders of record of the Companys Series C Convertible Preferred Stock (Series C Preferred Stock).



Effective as of February 6, 2001, the Company entered into the Amended and Restated Common Stock Purchase Agreement with Acqua Wellington to sell up to
$16.5 million of the Common Stock, under the Registration Statement, the Prospectus, and the related Prospectus Supplement dated February 6, 2001 and amended on April 13, 2001. Pursuant to the Purchase Agreement, the Company may, from time to time
over the term of the Purchase Agreement and at its sole discretion, issue and sell to Acqua Wellington up to $16.5 million of the Common Stock, subject to certain conditions, at a price per share based on the daily volume weighted average price of
the Common Stock over a certain period of time less a discount ranging from 5% to 7%. In addition, during the period in which the Company elects to issue and sell shares of the Common Stock to Acqua Wellington, the Company may also, at its sole
discretion, grant Acqua Wellington a call option at the same discount for the applicable period to purchase additional shares of the Common Stock up to the applicable amount being sold by the Company in such period, subject to the overall limit of
$16.5 million described above. The Company and Acqua Wellington have agreed to extend the term of the Agreement until February 6, 2005. All other terms remain the same. At March 1, 2004, $9 million may be sold under the Agreement, subject to the
registration statement relating to the extension of the term of the Agreement becoming effective.



During 2003, the Company issued 2,764,612 shares of its common stock to a group of institutional investors, which resulted in the Company receiving
$28,805,091 after expenses. Also in 2003, outstanding options and warrants were exercised resulting in the issuance of 1,318,190 shares of common stock and the receipt of $6,994,115 by the Company.



During 2002, the Company issued 2,691,012 shares of its common stock to
several institutional investors, which resulted in the Company receiving $11,962,067 after expenses. $6,500,000 of the gross proceeds was received pursuant to the Purchase Agreement with Acqua Wellington.



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##### Table of Contents

During 2001, the Company issued 2,146,459 shares of its common stock, which resulted in the Company
receiving $8,962,936 after expenses. $1 million of the gross proceeds were received from Acqua Wellington pursuant to the Purchase Agreement.



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



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



Between January 7, 1999 and February 1, 1999 the Company sold (i) 6,660
shares of Series C Convertible Preferred Stock, convertible into shares of the Companys Common Stock, par value $.01 (the Series C Convertible Preferred Stock), and (ii) warrants to purchase up to an aggregate of 233,100 shares of
Common Stock at an exercise price of $3.50 per share (the Series C Warrants) for an aggregate purchase price of $6,660,000. The Series C Preferred Stock may be converted into Common Shares at a conversion price equal to the lesser of (i)
$3.50 and (ii) 100% of the average of the closing prices of the Common Shares as reported on the exchange upon which they are registered for the three Trading Days immediately preceding the date of conversion. The offer, sale, and delivery of the
Series C Preferred Stock was made pursuant to Rule 501 of Regulation D under the Securities Act of 1933.



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.



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 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.



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##### Table of Contents

Item 6. Selected Financial Data



The following selected financial data (not covered by the auditors report) have been summarized from the Companys consolidated 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 Report.



|                                                             |  |      |         |   |                                  |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------ |  | ---- | ------- | - | -------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                                             |  |      |         |   | For the Years Ended December 31, |  
|                                                             |  | 2003 |         |   | 2002                             |   |         | 2001 |  |   | 2000    |   |  | 1999 |       
|Statement of Operations Data: (000s except per share data)  |  |      |         |   |                                  |   |         |      |  |   |         |   | 
|                                                             |  |      |         |   |                                 
|Net sales                                                    |  | $    | 22,415  |   |                                  | $ | 9,419   |      |  | $ | 2,154   |   |  | $    | 13,173 |   |  | $ | 18,921 |  
|Net loss                                                     |  |      | (21,151 | ) |                                  |   | (16,850 | )    |  |   | (15,846 | ) |  |      | (2,603 | ) |  |   | (2,210 | )
|Loss per common share                                        |  |      | (0.57   | ) |                                  |   | (0.50   | )    |  |   | (0.51   | ) |  |      | (0.09  | ) |  |   | (0.09  | )
|Weighted average number of common shares outstanding-diluted |  |      | 37,440  |   |                                  |   | 34,392  |      |  |   | 31,243  |   |  |      | 30,235 |   |  |   | 28,853 |  
|                                                             |  |      |         |   |                                 
|Balance Sheet Data: (000s)                                  |  |      |         |   |                                  |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|                                                             |  |      |         |   |                                 
|Working capital                                              |  | $    | 33,690  |   |                                  | $ | 4,717   |      |  | $ | 4,622   |   |  | $    | 10,936 |   |  | $ | 3,441  |  
|Total assets                                                 |  |      | 42,480  |   |                                  |   | 12,766  |      |  |   | 8,560   |   |  |      | 15,519 |   |  |   | 12,988 |  
|Note payable                                                 |  |      | 10,000  |   |                                  |   | 10,000  |      |  |   | 10,000  |   |  |      | 10,000 |   |  |   | 10,000 |  
|Long-term portion of financing agreements                    |  |      | 15,747  |   |                                  |   | 1,350   |      |  |   |        |   |  |      |       |   |  |   |       |  
|Stockholders equity (deficiency)                            |  |      | 6,087   |   |                                  |   | (8,395  | )    |  |   | (3,421  | ) |  |      | 3,494  |   |  |   | (274   | )



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##### Table of Contents

Item 7. Managements Discussion and Analysis of Financial Conditions and Results of Operations



Forward-Looking Information



The Company and its representatives from time to time make written or verbal forward looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission and in the Companys reports to stockholders, which 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, 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. Although the Company
believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include, without limitation: (i) the successful marketing of products by the Company and its licensees; (ii) increased competitive activity from companies in the pharmaceutical industry, some of which
have greater resources than the Company; (iii) social, political and economic risks to the Companys foreign operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;
(iv) changes in the laws, regulations and policies, including changes in accounting standards, that affect, or will affect, the Company in the United States and abroad; (v) foreign currency fluctuations affecting the relative prices at which the
Company and foreign competitors sell their products in the same market; (vi) failure to develop the Companys products or delay in development of the Companys products and (vii) the timely completion of studies and approvals by the FDA
and other regulatory agencies. 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 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission.



History of Losses.



The Company has had a history of losses in each fiscal year since its founding. For the fiscal year ended December 31, 2003,
we had a net loss of $21.2 million. Our losses in 2003 were primarily the result of a lack of sales and the costs of the Companys commercialization activities for the womens healthcare products and Striant®, including the 135 person
sales force under the fee for service agreement with Innovex. If we are unable to successfully market our products, particularly Prochieve® 8% and Striant®, and otherwise increase sales of our products, we may not have sufficient funds to
continue operations unless we are able to raise additional funds from sales of securities or otherwise. We cannot assure you that any additional financing will be available to us on acceptable terms, if at all.



As of December 31, 2003, we had certain net operating loss carryforwards of
approximately $92 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 on or before December 31, 2013. If we were to lose the benefits of these loss carryforwards, our future earnings and cash resources would be materially
and adversely affected.



Marketing Efforts.



We have entered into agreements with other companies for the distribution
and marketing of Crinone® and some of our over-the-counter products in the U.S, and several foreign countries, and we promote Prochieve®, RepHresh®, Advantage-S®, and Striant® on our own behalf in the U.S. Our success is
dependent to a great extent on costly marketing efforts by us and of our distribution and marketing partners. Our failure to successfully market our products could have a material adverse effect on our cash flow.



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As previously disclosed, we entered into an agreements with Innovex to identify, hire, help train and
deploy a full time, 135-person sales force to sell Prochieve®, Advantage-S® and RepHresh® to a targeted list of obstetricians and gynecologists in the United States, and to sell Striant® to a target list of urologists,
endocrinologists and primary care physicians in the United States. In the first quarter of 2004 we are restructuring the sales force and reducing its size to a 90-person sales force with 80 sales representatives. We cannot assure you that our
restructured sales force will be successful in promoting Striant®, Prochieve®, Advantage-S®, and RepHresh®. Also as previously disclosed, in July 2002 and March 2003, we entered into agreements with PharmaBio Development, Inc. under
which we received upfront money paid in quarterly installments in exchange for royalty payments on our womens healthcare products and Striant®, respectively. Royalty payments are owed to PharmaBio for a fixed period of time. The royalty
payments are subject to minimum and maximum amounts and the minimum amounts are in excess of the amounts received by us. Our failure to successfully market our products could have a material adverse effect on our ability to pay the minimum amounts
to PharmaBio.



Competition.



We and our partners operate in or intend to enter intensely competitive
markets. We compete against established pharmaceutical and consumer product companies that market products addressing similar needs. In addition, numerous companies are developing, or in the future may develop, enhanced delivery systems and products
that compete with our present and proposed products. Some competitors have greater financial, research and technical resources than we have. These competitors may also have greater marketing capabilities, including the resources to implement
extensive advertising campaigns. It is possible that we may not have the resources to withstand these and other competitive forces. As a result, we may not gain, and may lose, market share.



Crinone®/Prochieve®, although a natural progesterone product,
competes in markets with other progestins, both synthetic and natural, which may be delivered orally, by injections or by suppositories. Some of the more successful orally dosed products include Provera® marketed by Pfizer, Prometrium®
marketed by Solvay Pharmaceuticals, and Prempro® and Premphase® marketed by Wyeth. Advantage-S® and RepHresh® also compete against numerous products in their respective categories of spermicidal contraceptives and feminine hygiene
products. Striant® competes against other testosterone products that can be delivered by injections, transdermal patches, and transdermal gels. Some of the more successful testosterone products include AndroGel® (testosterone gel) marketed
by Unimed Pharmaceuticals, Inc. and Androderm® (testosterone transdermal system) marketed by Watson Pharma, Inc.



Intellectual Property Rights



Our success and ability to compete is partially dependent on our proprietary technology. We rely primarily on a combination of U.S. 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 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.



Even though we have patents covering our Bioadhesive
Delivery System, 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 patents of others, we cannot assure you that our technology does not and will not infringe on the patents 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.



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##### Table of Contents

We have filed the following as trademarks in countries throughout the world: Advantage-S, Advantage-24,
Advantage-LA, Crinone, Chronodyne, Prochieve, Replens, RepHresh, RepHresh Vaginal Gel, 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.



Government Regulation



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, the Drug Enforcement Administration, the Federal Trade Commission, state agencies; and
regulatory agencies in those foreign countries where our products are manufactured or distributed. Some of our pharmaceutical products are in various stages of development and will require significant research and development efforts before we can
sell them. These efforts include extensive clinical testing, during which the products may be found to be ineffective.



We employ various quality control measures in our efforts to ensure that our products conform to their intended specifications and standards proscribed by
applicable governmental regulations. However, notwithstanding our efforts, our products or 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.



As in the United States, almost all foreign countries require pre-marketing approval by health regulatory authorities.
Requirements for approval differ from country to country and involve different types of testing. There can be substantial delays in obtaining, or failures to obtain, required approvals from regulatory authorities. Even after approvals are obtained,
there can be further delays encountered before the products become commercially available. These failures or delays can have material adverse effects on our business and prospects. We have made a submission for marketing approval to the United
Kingdom Medicines and Healthcare Products Regulatory Agency for Striant®. Under current regulations, approval of Striant® in the U.K is anticipated in the first quarter of 2004. Initial regulatory approval of the U.K. application will be the
basis for mutual recognition applications to be filed in the rest of Europe. We can give no assurance that we will be successful in obtaining regulatory approval of Striant in the U.K.



Dependence on a Principal Supplier.



Medical grade, cross-linked polycarbophil, the polymer used in our products using our Bioadhesive Delivery System, is currently available from only one
supplier, Noveon, Inc. 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.



Dependence on Third Party Developers and Manufacturers.



We rely on third parties to develop and manufacture our products. These third parties may not be able to satisfy our needs
in the future. The failure to develop new products or delays in development 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 and our ability to
deliver our products on a timely and competitive basis.



Insurance Coverage
and Product Liability Claims.



Due to the nature of our
business, we may be exposed to product liability claims by consumers. Although we presently maintain product liability insurance coverage in the amount of $15 million, this may not be sufficient to cover



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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
food and drug retailers require us to have a minimum level of product liability insurance coverage before they will purchase or accept our products for retail distribution. Our failure to satisfy insurance requirements could limit our ability to
achieve broad retail distribution of our products. This could have a material adverse effect upon our business and financial condition.



Key Employees.



Our success depends in large part upon the abilities and continued service of our executive officers and other key employees, particularly G. Frederick
Wilkinson, our President and Chief Executive Officer. We have entered into an employment agreement with Mr. Wilkinson, which expires in April, 2004. The Board of Directors of the Company has adopted both a Form of Indemnification Agreement for
Officers and Directors, and a Form of Executive Change of Control Severance Agreement. The loss of services of these persons could have a material adverse effect on our business and prospects.



Stock Options, Warrants and Other Securities.



As of March 1, 2004, we have 39,751,934 shares of common stock outstanding,
of which approximately 37,351,934 shares are freely tradable. Approximately 2,400,000 shares of our common stock are restricted securities, but may be sold pursuant to Rule 144. We also have the following securities outstanding: Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock, a subordinated convertible note, warrants, and options. If all of these securities are exercised or converted, an additional 8,488,113 shares of common stock will be outstanding, 8,038,113 of
which have been registered under the Securities Act. When issued, these shares will be freely tradable. 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.



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



Anti-takeover Measures.



Columbia Laboratories, Inc. is 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 and our Stockholder Rights Plan 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.



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. Our Crinone®, Prochieve®, Advantage-S®, RepHresh® and Striant® products are manufactured in Europe. We are exposed to
currency fluctuation related to manufacturing our products in Euros and other currencies and selling them in U.S. dollars and other currencies.



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Critical Accounting Policies and Estimates



The Company has identified the policies below as critical to its business operations and the understanding of its
results of operations. For a detailed discussion on the application of these and other accounting policies, see Note 1 of the consolidated financial statements included in Item 14 of this Annual Report on Form 10-K, beginning on page F-11. Note that
the preparation of this Annual Report on Form 10-K requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.



Revenue recognition.The Companys revenue recognition is significant because revenue is a key component of the
Companys 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 from the sale of products are recorded at the time goods are shipped to customers. Provisions for returns, rebates and other allowances are estimated based
on a percentage of sales and are recorded in the same period the related sales are recognized. Royalties and additional monies owed to the Company based on the strategic alliance partners sales are recorded as revenue as sales are made by the
strategic alliance partners. License fees are recognized in net sales over the term of the license.



Impairment of intangible assets.The Company periodically evaluates its intangible assets for potential impairment indicators. Judgments regarding
the existence of impairment indicators are based on legal factors, market condition and operational performance. Future events could cause the Company to conclude that impairment factors exist and that certain intangible assets are impaired. Any
resulting impairment loss could have a material adverse impact on results of operations.



Accounting For PharmaBio Agreements.In July 2002 and March 2003, the Company entered into agreements with PharmaBio Development, Inc. 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 and because the minimum amounts are in excess
of the amount to be received by the Company, the Company has recorded the money received as liabilities. The excess of the minimum to be paid by the Company over the amount received by the Company is being recorded as interest expense over the terms
of the agreements.



Liquidity and Capital Resources



Cash and cash equivalents increased from approximately $5,018,000 at
December 31, 2002 to approximately $30,966,000 at December 31, 2003. During 2003, the Company received approximately $28,805,000, net of expenses, from the sale of 2,764,612 shares of its common stock, $14,250,000 from the proceeds of the PharmaBio
agreements and approximately $6,994,000 from the exercise of options and warrants. During 2003, the Company used approximately $22,476,000 of cash for operating activities, approximately $609,000 for payments to PharmaBio, approximately $587,000 to
pay off a note payable, approximately $178,000 for dividends and approximately $358,000 for fixed asset additions. The effect of exchange rate changes increased cash by approximately $107,000.



Effective as of February 6, 2001, the Company entered into the Amended and
Restated Common Stock Purchase Agreement with Acqua Wellington to sell up to $16.5 million of the Common Stock, under the Registration Statement, the Prospectus, and the related Prospectus Supplement dated February 6, 2001 and amended on April 13,
2001. Pursuant to the Purchase Agreement, the Company may, from time to time over the term of the Purchase Agreement and at its sole discretion, issue and sell to Acqua Wellington up to $16.5 million of the Common Stock, subject to certain
conditions, at a price per share based on the daily volume weighted average price of the Common Stock over a certain period of time less a discount ranging from 5% to 7%. In addition, during the period in which the Company elects to issue and sell
shares of the Common Stock to Acqua Wellington, the Company may also, at its sole discretion, grant Acqua Wellington a call option at the same discount for the applicable period to purchase additional



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##### Table of Contents

shares of the Common Stock up to the applicable amount being sold by the Company in such period, subject to the overall limit of $16.5 million described
above. The Company issued and sold $6.5 million and $1.0 million of its Common Stock to Acqua Wellington in 2002 and 2001, respectively. The Company and Acqua Wellington have agreed to extend the term of the Agreement until February 6, 2005. All
other terms remain the same. At March 1, 2004, $9 million may be sold under the Agreement subject to the registration statement relating to the extension of the term of the Agreement becoming effective.



For the fiscal year ended December 31, 2003, the Company had a net loss of
$21.2 million, which was primarily the result of a lack of sales and the costs of the Companys commercialization activities which did not result in anticipated sales. In 2003, the major sources of cash were approximately $28.8 million from the
sale of the Companys common stock to investors, the receipt of approximately $14.2 million from PharmaBio Development and approximately $7.0 million received as the result of the exercise of options and warrants.



In January 1999, the Company raised approximately $6.4 million, net of
expenses, from the issuance and sale of Series C Convertible Preferred Stock. (Preferred Stock). The Preferred Stock, sold to twenty-four accredited investors, has a stated value of $1,000 per share. The Preferred Stock is convertible
into common stock at the lower of: (i) $3.50 per common share, and (ii) 100% of the average of the closing prices during the three trading days immediately preceding the conversion notice. If conversion is based on the $3.50 conversion price,
conversion may take place after the underlying common stock is registered. If conversion is based on the alternative calculation, conversion cannot take place for fifteen months. The Preferred Stock pays a 5% dividend, payable quarterly in arrears
on the last day of the quarter.



In connection with the 1989
purchase of the assets of Bio-Mimetics, Inc., which assets consisted of the patents underlying the Companys Bioadhesive Delivery System, other patent applications and related technology, the Company pays Bio-Mimetics, Inc. a royalty equal to
two percent of the net sales of products based on the Bioadhesive Delivery System, to an aggregate of $7.5 million. The Company is required to prepay a portion of the remaining royalty obligation, in cash or stock at the option of the Company, if
certain conditions are met. Through December 31, 2003, the Company has paid approximately $ 2,600,000 in royalty payments.



As of December 31, 2003, the Company has outstanding exercisable options and warrants that, if exercised, would result in approximately $ 48.4 million of
additional capital. However, there can be no assurance that such options or warrants will be exercised.



Significant expenditures anticipated by the Company in the near future are concentrated on equipment. The Company anticipates it will spend approximately
$500,000 on equipment in 2004.



As of December 31, 2003, the
Company had available net operating loss carryforwards of approximately $92 million to offset its potential future U.S. taxable income.



In accordance with Statement of Financial Accounting Standards No. 109, as of December 31, 2003 and 2002, other assets in the accompanying consolidated
balance sheet include deferred tax assets of approximately $32 million and $23 million, respectively, (comprised primarily of a net operating loss carryforward) for which a valuation allowance has been recorded since the realizability of the
deferred tax assets are not determinable.



Results of Operations



Net sales increased by approximately 138% in 2003 to
approximately $22.4 million as compared to $9.4 million in 2002 and $2.2 million in 2001. Sales of Crinone accounted for approximately $7.7 million in 2003 as compared to approximately $3.6 million in 2002 and approximately $528,000 in 2001. In
April 2001, the Company requested its licensee Serono to voluntarily recall a number of batches of Crinone. The Company resumed sales of Crinone to Serono in May 2002. In the 2002 third quarter, the Company began selling Prochieve 8% and in the 2003
first quarter began selling Prochieve 4%. Sales of the Prochieve line of products accounted for approximately $5.8 million in 2003 and approximately $3.5 million in 2002. Sales of the product Replens were approximately $3.6 million in 2003 as
compared to $1.2 million and $0.6 million in 2002 and 2001, respectively. In the 2003 third quarter, the Company began selling Striant and 2003 sales approximated $2.9 million.



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Gross profit as a percentage of sales increased in 2003 to 56% as compared to 44% in 2002 and a negative
23% in 2001. The 56% gross profit percentage resulted from the introduction of Striant and the increase in Crinone and Prochieve sales. The 44% gross profit percentage in 2002 was the result of the reintroduction of Crinone sales and the launch of
Prochieve 8%. Cost of goods sold for Prochieve includes a 30% royalty on net sales. The negative 23% gross profit percentage in 2001 resulted from the reduced sales caused by the Crinone recall and the inability to reduce fixed manufacturing costs.



Selling and distribution expenses were approximately $22.6
million, $6.1 million and $1.1 million in 2003, 2002 and 2001, respectively. Selling and distribution expenses increased by approximately 273% in 2003 compared to 2002 and by 474% in 2002 compared to 2001. The commencement of commercialization
efforts by the Company in September 2002 accounted for the increase in both 2003 and 2002. Included in the 2003 expenses were sales force costs of approximately $11,531,000, product marketing expenses of approximately $7,759,000 and salary costs of
approximately $1,404,000. Expenses in 2002 included approximately $2,412,000 in sales force costs, approximately $1,614,000 in product marketing expenses and approximately $390,000 in salary costs.



General and administrative expenses increased approximately $1.3 million or
24% to approximately $6.4 million in 2003 from approximately $5.1 million in 2002. The increase resulted from higher insurance costs ($554,000), the hiring of additional administrative personnel ($297,000) and the increase in the cost of non-legal
consultants ($261,000). General and administrative expenses increased approximately $881,000 or 21% to approximately $5.1 million in 2002 from approximately $4.3 million in 2001. The increase resulted from higher legal fees ($368,000), higher
insurance costs ($112,000), and the hiring of additional administrative personnel ($413,000).



Research and development expenses decreased in 2003 to $3.3 million from $5.4 million in 2002 and $7.1 million in 2001. The completion in 2002 of many of the Striant related studies which had begun in 2000 and 2001
was the primary reason for the decrease in 2003 and 2002.



Litigation settlement expense of $3,960,000 in 2002 represents the amount the Company agreed to pay Ares Trading S.A. to settle the litigation that followed the recall of Crinone in April 2001.



Product recall costs in 2001 in the amount of $1,500,000 represented an
estimate of the Companys direct out-of-pocket costs related to the voluntary recall of Crinone. In 2002, the remaining unused accrual amounting to $449,000 was reversed.



Corporate restructuring expense in 2001, of $1,000,000, represents the costs of closing the Paris office. These costs
included employee severance payments and other costs



Interest
expense amounted to approximately $1,846,000, $853,000 and $755,000 in 2003, 2002 and 2001, respectively. The 2003 increase in interest expense included $1,085,000 as a result of amortizing as interest expense over the term of the agreements, the
difference between the minimum amounts to be paid to PharmaBio Development and the amounts received. Interest expense related to the Companys convertible subordinated note payable, totaled approximately $713,000 in 2003, 2002 and 2001.



As a result, the net loss for 2003 was $21,151,019 or $0.57
per share as compared to a net loss of $16,849,789 or $0.50 per share in 2002 and a net loss of $15,845,627 or $0.51 per share in 2001.



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.



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##### Table of Contents

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 has only a fixed rate debt obligation that comes due in 2005.
The Company may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose the Company to material market risk.



Item 8. Financial Statements and Supplementary Data



The financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15(a) below.



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



None



Item 9 A. Controls and Procedures



The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Companys filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Companys management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Companys management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.



As of December 31, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Companys management,
including the Companys chief executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act
of 1934. Based upon that evaluation, the chief executive officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective.



During the fiscal quarter ended December 31, 2003, there have been no significant changes in the Companys internal
controls or in other factors that could significantly affect these internal controls.



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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 by reference to Columbias Proxy Statement for its 2004 Annual Meeting of Shareholders. The
information concerning compliance with Section 16(a) of the Exchange Act is incorporated by reference to Columbias Proxy Statement for its 2004 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 by reference to Columbias Proxy Statement for its 2004 Annual Meeting of Shareholders.



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



The information required by Item 12 is incorporated by reference to Columbias Proxy Statement for its 2004 Annual Meeting of Shareholders.



Item 13. Certain Relationships and Related Transactions



The information required by Item 13 is incorporated by reference to Columbias Proxy Statement for its 2004 Annual Meeting of Shareholders.



Item 14. Principal Accountant Fees and Services



The information required by Item 14 is incorporated by reference to Columbias Proxy Statement for its 2004 Annual Meeting of Shareholders.



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PART IV



Item 15. Exhibits, Financial Statements and Financial Statement Schedules, and Reports on Form 8-K



(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) Reports on Form 8-K



On November 12, 2003, the Company filed a Form 8-K in which it had attached a copy of two Company press releases dated
November 12, 2003 the first titled Columbia Laboratories Reports 2003 Third Quarter Financial Results and the second titled Columbia Laboratories Initiates U.S. Study in Pregnant Women at Risk of Preterm Labor



On December 1, 2003, The Company filed a Form 8-K in which it announced that
it had executed a standstill agreement with a shareholder, Perry Corp.



(c)
Exhibits



|      |  |   |  |                                                                                                                                                   
|----- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |  
|3.1   |  |  |  | Restated Certificate of Incorporation of the Company, as amended1/                                                                                
|      |  |  
|3.2   |  |  |  | Amended and Restated By-laws of Company10/                                                                                                        
|      |  |  
|4.1   |  |  |  | Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company, dated as of January 7, 199910/        
|      |  |  
|4.2   |  |  |  | Securities Purchase Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
|      |  |  
|4.3   |  |  |  | Securities Purchase Agreement, dated as of January 19, 1999, among the Company, David M. Knott and Knott Partners, L.P.10/                        
|      |  |  
|4.4   |  |  |  | Securities Purchase Agreement, dated as of February 1, 1999, between the Company and Windsor Partners, L.P.10/                                    
|      |  |  
|4.5   |  |  |  | Registration Rights Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
|      |  |  
|4.6   |  |  |  | Form of Warrant to Purchase Common Stock10/                                                                                                       
|      |  |  
|4.7   |  |  |  | Warrant to Purchase Common Stock granted to James J. Apostolakis on September 23, 1999                                                            
|      |  |  
|10.1  |  |  |  | Employment Agreement dated as of January 1, 1996, between the Company and Norman M. Meier6/*                                                      
|      |  |  
|10.2  |  |  |  | Employment Agreement dated as of January 1, 1996, between the Company and William J. Bologna6/*                                                   
|      |  |  
|10.3  |  |  |  | 1988 Stock Option Plan, as amended, of the Company4/                                                                                              
|      |  |  
|10.4  |  |  |  | 1996 Long-term Performance Plan, as amended, of the Company7/                                                                                     
|      |  |  
|10.5  |  |  |  | License and Supply Agreement between Warner-Lambert Company and the Company dated December 5, 19913/                                              
|      |  |  
|10.6  |  |  |  | Asset Purchase, License and Option Agreement, dated November 22, 19891/                                                                           
|      |  |  
|10.7  |  |  |  | Employment Agreement dated as of April 15, 1997, between the Company and Nicholas A. Buoniconti8/*                                                
|      |  |  
|10.8  |  |  |  | License and Supply Agreement for Crinone between Columbia Laboratories, Inc. (Bermuda) Ltd. and American Home Products dated as of May 21, 19955/ 
|      |  |  
|10.9  |  |  |  | Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Norman M. Meier8/*                                        
|      |  |  
|10.10 |  |  |  | Addendum to Employment Agreement dated as of September 1, 1997, between the Company and William J. Bologna8/*                                     



|
|



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|       |  |   |  |                                                                                                                                                                                                                                         
|------ |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |  
|10.11  |  |  |  | Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Nicholas A. Buoniconti8/*                                                                                                                       
|       |  |  
|10.12  |  |  |  | Convertible Note Purchase Agreement, 71/8% Convertible
Subordinated Note due March 15, 2005 and Registration Rights Agreement all dated as of March 16, 1998 between the Company and SBC Warburg Dillon Read Inc.9/                     
|       |  |  
|10.13  |  |  |  | Termination Agreement dated as of April 1, 1998 between the Company and the Warner-Lambert Company9/                                                                                                                                    
|       |  |  
|10.14  |  |  |  | Addendum to Employment Agreement dated as of October 8, 1998, between the Company and Nicholas A. Buoniconti.10/*                                                                                                                       
|       |  |  
|10.15  |  |  |  | Agreement dated as of December 14, 1998, by and among Columbia Laboratories, Inc., William J. Bologna, Norman M. Meier, James J. Apostolakis, David Ray, Bernard Marden, Anthony R. Campbell,
David M. Knott and Knott Partners, L.P.10/
|       |  |  
|10.16A |  |  |  | License and Supply Agreement by an between the Company and MiPharm SpA dated March 5, 199911/                                                                                                                                           
|       |  |  
|10.16B |  |  |  | License and Supply Agreement for Crinone between Columbia Laboratories (Bermuda) Limited and Ares Trading S.A. dated as of May 20, 199912/                                                                                              
|       |  |  
|10.17  |  |  |  | Addendum to Employment Agreement dated as of January 1, 2000 between the Company and Norman M. Meier12/*                                                                                                                                
|       |  |  
|10.18  |  |  |  | Addendum to Employment Agreement dated as of January 1, 2000 between the Company and William J. Bologna12/*                                                                                                                             
|       |  |  
|10.19  |  |  |  | Employment Agreement dated as of January 1, 2000 between the Company and James J. Apostolakis12/*                                                                                                                                       
|       |  |  
|10.20  |  |  |  | Employment Agreement dated December 30, 1999 between the Company and Dominique de Ziegler12/*                                                                                                                                           
|       |  |  
|10.21  |  |  |  | Settlement Agreement and Release dated as of March 16, 2000 between Columbia Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.12/                                                                                            
|       |  |  
|10.22  |  |  |  | Replens Purchase and License Agreement dated April 18, 2000, between the Company and Lil Drug Store Products, Inc.13/                                                                                                                  
|       |  |  
|10.23  |  |  |  | License Agreement dated April 18, 2000, between the Company and Lil Drug Store Products, Inc.13/                                                                                                                                       
|       |  |  
|10.24  |  |  |  | Distribution Agreement dated April 18, 2000, between the Company and Lil Drug Store Products, Inc.13/                                                                                                                                  
|       |  |  
|10.25  |  |  |  | Stock Purchase Agreement, dated January 31, 2001, between the Company and Ridgeway Investment Limited14/                                                                                                                                
|       |  |  
|10.26  |  |  |  | Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of February 6, 2001.15/                                                           
|       |  |  
|10.27  |  |  |  | Employment Agreement dated March 16, 2001 between the Company and G. Frederick Wilkinson16/*                                                                                                                                            
|       |  |  
|10.28  |  |  |  | Stock Purchase Agreement, dated May 10, 2001, between the Company and Ridgeway Investment Limited17/                                                                                                                                    
|       |  |  
|10.29  |  |  |  | Stock Purchase Agreement, dated July 23, 2001, between the Company and Ridgeway Investment Limited18/                                                                                                                                   
|       |  |  
|10.30  |  |  |  | Rights Agreement dated as of March 13, 2002, by and between Columbia Laboratories, Inc. and First Union National Bank, as Rights Agent19/                                                                                               
|       |  |  
|10.31 |  |  |  | Semi-Exclusive Supply Agreement dated May 7, 2002 between the Company and Mipharm S.p.A.20/                                                                                                                                             
|       |  |  
|10.32 |  |  |  | Amended and Restated Licence and Supply Agreement dated June 4, 2002 between the Company and Ares Trading S.A.20/                                                                                                                       
|       |  |  
|10.33 |  |  |  | Marketing License Agreement dated June 4, 2002 between the Company and Ares Trading S.A. and Serono, Inc.20/                                                                                                                            
|       |  |  
|10.34 |  |  |  | Master Services Agreement dated July 31, 2002 between the Company and Innovex LP20/                                                                                                                                                     
|       |  |  
|10.35 |  |  |  | Stock Purchase Agreement dated July 31, 2002 By and Between Columbia Laboratories, Inc. and PharmaBio Development Inc.20/                                                                                                               



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|       |  |   |  |                                                                                                                                                                                                                
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |  
|10.36 |  |  |  | Investment and Royalty Agreement dated July 31, 2002 between the Company and PharmaBio Development Inc.20/                                                                                                     
|       |  |  
|10.37 |  |  |  | License and Supply Agreement dated October 16, 2002 between the Company and Ardana Bioscience Limited21/                                                                                                       
|       |  |  
|10.38 |  |  |  | Development and License Agreement dated December 26, 2002 between the Company and Ardana Bioscience Limited21/                                                                                                 
|       |  |  
|10.39  |  |  |  | Amendment No. 1 to the Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of January 31,
200321/            
|       |  |  
|10.40 |  |  |  | Investment and Royalty Agreement dated March 5, 2003 between the Company and PharmaBio Development Inc.21/                                                                                                     
|       |  |  
|10.41 |  |  |  | Sales Force Work Order #8872 pursuant to the Master Services Agreement having an Effective Date of July 31, 2002, between the Company and Innovex LP21/                                                        
|       |  |  
|10.42  |  |  |  | Separation and Consulting Agreement dated April 15, 2003 between the Company and William J. Bologna22/                                                                                                         
|       |  |  
|10.43 |  |  |  | License and Supply Agreement Dated May 27, 2003 between the Company and Mipharm S.p.A.23/                                                                                                                      
|       |  |  
|10.44  |  |  |  | Standstill Agreement dated December 1, 2003 between the Company and Perry Corp.24/                                                                                                                             
|       |  |  
|10.45 |  |  |  | Amended and Restated Sales Force Work Order #8795 And Termination of Work Order #8872 pursuant to the Master Services Agreement having an effective date of January 26, 2004 between the
Company and Innovex25/
|       |  |  
|10.46  |  |  |  | Form of Indemnification Agreement for Officers and Directors25/                                                                                                                                                
|       |  |  
|10.47  |  |  |  | Form of Executive Change of Control Severance Agreement25/                                                                                                                                                     
|       |  |  
|14     |  |  |  | Code of Ethics of the Company25/                                                                                                                                                                               
|       |  |  
|21     |  |  |  | Subsidiaries of the Company25/                                                                                                                                                                                 
|       |  |  
|31.1   |  |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company25/                                                                                                                            
|       |  |  
|32.2   |  |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the Company25/                                                                                                                            
|       |  |  
|32.1   |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.25/                                                                                     
|       |  |  
|32.2   |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.25/                                                                                     

---

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

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

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

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

|4/ | Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended December 31, 1993.
|-- | --------------------------------------------------------------------------------------------------------------

|5/ | Incorporated by reference to the Registrants Registration Statement on Form S-1 (File No. 33-60123) declared effective
August 28, 1995.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------

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

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



27



---

##### Table of Contents

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

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

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

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

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

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

|14/ | Incorporated by reference to the Registrants Current Report on Form 8-K, dated January 31, 2001.
|--- | -------------------------------------------------------------------------------------------------

|15/ | Incorporated by reference to the Registrants Registration Statement on Form S-3 (File No. 333-38230) declared effective
May 7, 2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|16/ | Incorporated by reference to the Registrants
Current Report on Form 8-K, dated March 16, 2001.
|--- | -----------------------------------------------------------------------------------------------

|17/ | Incorporated by reference to the Registrants Current Report on Form 8-K, dated May 10, 2001.
|--- | ---------------------------------------------------------------------------------------------

|18/ | Incorporated by reference to the Registrants Current Report on Form 8-K, dated July 23, 2001.
|--- | ----------------------------------------------------------------------------------------------

|19/ | Incorporated by reference to the Registrants Current Report on Form 8-K, dated March 12, 2002.
|--- | -----------------------------------------------------------------------------------------------

|20/ | Incorporated by reference to the registrants Quarterly Report on Form 10-Q dated August 14, 2002.
|--- | --------------------------------------------------------------------------------------------------

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

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

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

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

|25/ | Filed herewith.
|--- | ---------------

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



28



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##### Table of Contents

SIGNATURES



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



|                    |  |                             |  |                                  
|------------------- |  | --------------------------- |  | ---------------------------------
|                    |  | COLUMBIA LABORATORIES, INC.
|                    |  |                            
|Date: March 8, 2004 |  | By:                         |  | /s/ David L. Weinberg            
|                    |  |                             |  | David L. Weinberg, 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 Company and in the capacities and on the dates indicated.



|                                             |  |                                                                                                            |  |               
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------------
|                                             |  |                                                                                                           
|/s/ Fred WilkinsonFred Wilkinson             |  | Chairman of the Board of Directors and President and Chief Executive Officer                               |  | March 8, 2004 
|                                             |  |                                                                                                           
|/s/ James J. ApostolakisJames J. Apostolakis |  | Vice Chairman of the Board of Directors                                                                    |  | March 4, 2004 
|                                             |  |                                                                                                           
|/s/ David L. WeinbergDavid L. Weinberg       |  | Vice President-Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | March 8, 2004 
|                                             |  |                                                                                                           
|/s/ Jean CarvaisJean Carvais                 |  | Director                                                                                                   |  | March 5, 2004 
|                                             |  |                                                                                                           
|/s/ Max LinkMax Link                         |  | Director                                                                                                   |  | March 3, 2004 
|                                             |  |                                                                                                           
|/s/ Denis M. ODonnellDenis M. ODonnell     |  | Director                                                                                                   |  | March 10, 2004
|                                             |  |                                                                                                           
|/s/ Selwyn P. OskowitzSelwyn P. Oskowitz     |  | Director                                                                                                   |  | March 10, 2004
|                                             |  |                                                                                                           
|/s/ Robert C. StraussRobert C. Strauss       |  | Director                                                                                                   |  | March 8, 2004 



29



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



INDEX TO FINANCIAL STATEMENTS



|                                                                                                         |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  | Page
|Report of Independent Certified Public Accountants                                                       |  | F-2 
|                                                                                                         | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                             |  | F-3 
|                                                                                                         | 
|Consolidated Statements of Operations for the Three Years Ended December 31, 2003                        |  | F-5 
|                                                                                                         | 
|Consolidated Statements of Comprehensive Operations for the Three Years Ended December 31, 2003          |  | F-6 
|                                                                                                         | 
|Consolidated Statements of Stockholders Equity (Deficiency) for the Three Years Ended December 31, 2003 |  | F-7 
|                                                                                                         | 
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2003                        |  | F-9 
|                                                                                                         | 
|Notes to Consolidated Financial Statements                                                               |  | F-11



F-1



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##### Table of Contents

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders

of Columbia Laboratories, Inc.:



We have audited the accompanying consolidated balance sheets of Columbia Laboratories, Inc.
(a Delaware corporation) and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive operations, stockholders equity (deficiency) and cash flows for each of the three years in the
period ended December 31, 2003. 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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.



In our
opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Columbia Laboratories, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.



GOLDSTEIN GOLUB KESSLER LLP

New York, New York

February 13, 2004



F-2



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



AS OF DECEMBER 31, 2003 AND 2002



ASSETS



|                                                                                                                   |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                   |  | 2003 |            |   | 2002 |  
|CURRENT ASSETS:                                                                                                    |  |      |            |   |      |   |            |  
|Cash and cash equivalents, of which $30,273,715 is interest-bearing as of December 31, 2003                        |  | $    | 30,965,517 |   |      | $ | 5,018,365  |  
|Accounts receivable, net of allowance for doubtful accounts of $120,000 and $30,000 in 2003 and 2002, respectively |  |      | 4,780,921  |   |      |   | 2,198,181  |  
|Inventories                                                                                                        |  |      | 2,469,224  |   |      |   | 2,325,210  |  
|Prepaid expenses and other current assets                                                                          |  |      | 2,240,920  |   |      |   | 825,833    |  
|Loans receivable, related party                                                                                    |  |      |           |   |      |   | 211,122    |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|Total current assets                                                                                               |  |      | 40,456,582 |   |      |   | 10,578,711 |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|PROPERTY AND EQUIPMENT:                                                                                            |  |      |            |   |      |   |            |  
|Machinery and equipment                                                                                            |  |      | 2,151,482  |   |      |   | 2,268,502  |  
|Computer software                                                                                                  |  |      | 445,385    |   |      |   | 401,356    |  
|Office equipment and furniture and fixtures                                                                        |  |      | 770,702    |   |      |   | 535,359    |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|                                                                                                                   |  |      | 3,367,569  |   |      |   | 3,205,217  |  
|Less - accumulated depreciation and amortization                                                                   |  |      | (2,405,574 | ) |      |   | (2,332,782 | )
|                                                                                                                   |  |      |            |   |      |   |            |  
|                                                                                                                   |  |      | 961,995    |   |      |   | 872,435    |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|INTANGIBLE ASSETS, net                                                                                             |  |      | 920,418    |   |      |   | 1,163,341  |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|OTHER ASSETS                                                                                                       |  |      | 140,654    |   |      |   | 151,820    |  
|                                                                                                                   |  |      |            |   |      |   |            |  
|TOTAL ASSETS                                                                                                       |  | $    | 42,479,649 |   |      | $ | 12,766,307 |  
|                                                                                                                   |  |      |            |   |      |   |            |  



(Continued)



F-3



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



AS OF DECEMBER 31, 2003 AND 2002



(Continued)



LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)



|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------------ | - | ---- | - | ------------ | -
|                                                                                                                                                                               |  | 2003 |              |   | 2002 |  
|CURRENT LIABILITIES:                                                                                                                                                           |  |      |              |   |      |   |              |  
|Note payable - short-term                                                                                                                                                      |  | $    |             |   |      | $ | 586,667      |  
|Current portion of financing agreements                                                                                                                                        |  |      | 1,228,865    |   |      |   | 900,000      |  
|Accounts payable                                                                                                                                                               |  |      | 2,806,236    |   |      |   | 3,489,118    |  
|Accrued expenses                                                                                                                                                               |  |      | 2,731,692    |   |      |   | 885,606      |  
|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|Total current liabilities                                                                                                                                                      |  |      | 6,766,793    |   |      |   | 5,861,391    |  
|                                                                                                                                                                               |  |     
|NOTE PAYABLE - long-term                                                                                                                                                       |  |      | 10,000,000   |   |      |   | 10,000,000   |  
|DEFERRED REVENUE                                                                                                                                                               |  |      | 3,879,618    |   |      |   | 3,949,859    |  
|LONG-TERM PORTION OF FINANCING AGREEMENTS                                                                                                                                      |  |      | 15,746,695   |   |      |   | 1,350,000    |  
|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|TOTAL LIABILITIES                                                                                                                                                              |  |      | 36,393,106   |   |      |   | 21,161,250   |  
|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|                                                                                                                                                                               |  |     
|COMMITMENTS AND CONTINGENCIES (Note 7)                                                                                                                                         |  |      |              |   |      |   |              |  
|                                                                                                                                                                               |  |     
|STOCKHOLDERS EQUITY (DEFICIENCY):                                                                                                                                             |  |      |              |   |      |   |              |  
|Preferred stock, $.01 par value; 1,000,000 shares authorized:                                                                                                                  |  |      |              |   |      |   |              |  
|Series B Convertible Preferred Stock, 130 and 1,130 shares issued and outstanding in 2003 and 2002, respectively (liquidation preference of
$13,000 at December 31, 2003)      |  |      | 1            |   |      |   | 11           |  
|Series C Convertible Preferred Stock, 3,250 and 3,750 shares issued and outstanding in 2003 and 2002, respectively (liquidation preference of
$3,250,000 at December 31, 2003) |  |      | 32           |   |      |   | 38           |  
|Common stock, $.01 par value; 100,000,000 shares authorized; 39,679,381 and 35,453,722 shares issued and outstanding in 2003 and 2002,
respectively                            |  |      | 396,794      |   |      |   | 354,537      |  
|Capital in excess of par value                                                                                                                                                 |  |      | 162,146,561  |   |      |   | 126,664,805  |  
|Accumulated deficit                                                                                                                                                            |  |      | (156,648,214 | ) |      |   | (135,497,195 | )
|Accumulated other comprehensive income (loss)                                                                                                                                  |  |      | 191,369      |   |      |   | 82,861       |  
|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|Total stockholders equity (deficiency)                                                                                                                                        |  |      | 6,086,543    |   |      |   | (8,394,943   | )
|                                                                                                                                                                               |  |      |              |   |      |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                                                                                                        |  | $    | 42,479,649   |   |      | $ | 12,766,307   |  
|                                                                                                                                                                               |  |      |              |   |      |   |              |  



The accompanying notes
to consolidated financial statements

are an integral part of these statements.



F-4



---

##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                     |  | 2003 |             |   | 2002 |   |             | 2001 | 
|NET SALES                                            |  | $    | 22,415,028  |   |      | $ | 9,418,549   |      |  | $ | 2,153,854   |  
|                                                     |  |      |            
|COST OF GOODS SOLD                                   |  |      | 9,782,784   |   |      |   | 5,228,519   |      |  |   | 2,658,690   |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Gross profit                                         |  |      | 12,632,244  |   |      |   | 4,190,030   |      |  |   | (504,836    | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|OPERATING EXPENSES:                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Selling and distribution                             |  |      | 22,570,177  |   |      |   | 6,053,732   |      |  |   | 1,054,472   |  
|General and administrative                           |  |      | 6,376,274   |   |      |   | 5,135,121   |      |  |   | 4,254,143   |  
|Reseach and development                              |  |      | 3,267,966   |   |      |   | 5,350,156   |      |  |   | 7,132,720   |  
|Litigation settlement expense                        |  |      |            |   |      |   | 3,960,000   |      |  |   |            |  
|Product recall costs                                 |  |      |            |   |      |   | (449,489    | )    |  |   | 1,500,000   |  
|Corporate restructuring expenses                     |  |      |            |   |      |   |            |      |  |   | 1,000,000   |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Total operating expenses                             |  |      | 32,214,417  |   |      |   | 20,049,520  |      |  |   | 14,941,335  |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Loss from operations                                 |  |      | (19,582,173 | ) |      |   | (15,859,490 | )    |  |   | (15,446,171 | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|OTHER INCOME (EXPENSE):                              |  |      |             |   |      |   |             |      |  |   |             |  
|Interest income                                      |  |      | 134,387     |   |      |   | 51,844      |      |  |   | 246,937     |  
|Interest expense                                     |  |      | (1,846,281  | ) |      |   | (852,864    | )    |  |   | (755,398    | )
|Other, net                                           |  |      | 143,048     |   |      |   | (189,279    | )    |  |   | 109,005     |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |      | (1,568,846  | ) |      |   | (990,299    | )    |  |   | (399,456    | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Net loss                                             |  | $    | (21,151,019 | ) |      | $ | (16,849,789 | )    |  | $ | (15,845,627 | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|LOSS PER COMMON SHARE - BASIC AND DILUTED            |  | $    | 0.57        |   |      | $ | 0.50        |      |  |   | 0.51        |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|WEIGHED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |  |      |             |   |      |   |             |      |  |   |             |  
|BASIC AND DILUTED                                    |  |      | 37,440,270  |   |      |   | 34,392,060  |      |  |   | 31,243,307  |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  



The accompanying notes
to consolidated financial statements

are an integral part of these statements.



F-5



---

##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



|                                        |  |      |             |   |      |   |             |      |  |   |             |  
|--------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                        |  | 2003 |             |   | 2002 |   |             | 2001 | 
|NET LOSS                                |  | $    | (21,151,019 | ) |      | $ | (16,849,789 | )    |  | $ | (15,845,627 | )
|                                        |  |      |            
|Other comprehensive income:             |  |      |             |   |      |   |             |      |  |   |             |  
|Foreign curency translation, net of tax |  |      | 108,508     |   |      |   | 101,459     |      |  |   | 18,054      |  
|                                        |  |      |             |   |      |   |             |      |  |   |             |  
|Comprehensive loss                      |  | $    | (21,042,511 | ) |      | $ | (16,748,330 | )    |  | $ | (15,827,573 | )
|                                        |  |      |             |   |      |   |             |      |  |   |             |  



The accompanying notes
to consolidated financial statements

are an integral part of these statements.



F-6



---

##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



|                                                      |  |                                      |   |                                      |        |   |                                      |       |   |              |   |                                |                 |  |                    |        |  |                                               |                  |   |        |            |  |   |         |  |   |             |   |  |   |              |   |  |   |         |   |  |   |             |  
|----------------------------------------------------- |  | ------------------------------------ | - | ------------------------------------ | ------ | - | ------------------------------------ | ----- | - | ------------ | - | ------------------------------ | --------------- |  | ------------------ | ------ |  | --------------------------------------------- | ---------------- | - | ------ | ---------- |  | - | ------- |  | - | ----------- | - |  | - | ------------ | - |  | - | ------- | - |  | - | ----------- | -
|                                                      |  | Series A Convertible Preferred Stock |   | Series B Convertible Preferred Stock |        |   | Series C Convertible Preferred Stock |       |   | Common Stock |   | Capital in Excess of Par Value |                 |  | AccumulatedDeficit |        |  | Accumulated Other Comprehensive Income (Loss) |                  |   | Total  |           
|                                                      |  | Number ofShares                      |   |                                      | Amount |   | Number ofShares                      |       |   | Amount       |   |                                | Number ofShares |  |                    | Amount |  |                                               | Number of Shares |   | Amount |            |  |   |        
|Balance, January 1, 2001                              |  | 33                                   |   |                                      | $      |  |                                      | 1,630 |   |              | $ | 16                             |                 |  | 4,050              |        |  | $                                             | 41               |   |        | 30,494,924 |  | $ | 304,949 |  | $ | 105,991,194 |   |  | $ | (102,801,779 | ) |  | $ | (544    | ) |  | $ | 3,493,877   |  
|Issuance of common stock                              |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        | 2,146,459  |  |   | 21,465  |  |   | 8,962,936   |   |  |   |             |   |  |   |        |   |  |   | 8,984,401   |  
|Options exercised                                     |  |                                      |   |                                      |        |   |                                      |       |   |              |   |                                |                 |  |                    |        |  |                                               |                  |   |        | 7,500      |  |   | 75      |  |   | 41,175      |   |  |   |             |   |  |   |        |   |  |   | 41,250      |  
|Warrants exercised                                    |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        | 8,557      |  |   | 85      |  |   | 12,165      |   |  |   |             |   |  |   |        |   |  |   | 12,250      |  
|Dividends on preferred stock                          |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   | (201,663    | ) |  |   |             |   |  |   |        |   |  |   | (201,663    | )
|Fair market value of options granted to non-employees |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   | 112,387     |   |  |   |             |   |  |   |        |   |  |   | 112,387     |  
|Translation adjustment                                |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   |            |   |  |   |             |   |  |   | (18,054 | ) |  |   | (18,054     | )
|Conversion of preferred stock                         |  | (33                                  | ) |                                      |        |  |                                      |      |   |              |   |                               |                 |  | (300               | )      |  |                                               | (3               | ) |        | 94,985     |  |   | 950     |  |   | (947        | ) |  |   |             |   |  |   |        |   |  |   |            |  
|Net loss                                              |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   |            |   |  |   | (15,845,627  | ) |  |   |        |   |  |   | (15,845,627 | )
|                                                      |  |                                      |   |                                      |        |   |                                      |       |   |              |   |                                |                 |  |                    |        |  |                                               |                  |   |        |            |  |   |         |  |   |             |   |  |   |              |   |  |   |         |   |  |   |             |  
|Balance, December 31, 2001                            |  |                                     |   |                                      |        |  |                                      | 1,630 |   |              |   | 16                             |                 |  | 3,750              |        |  |                                               | 38               |   |        | 32,752,425 |  |   | 327,524 |  |   | 114,917,247 |   |  |   | (118,647,406 | ) |  |   | (18,598 | ) |  |   | (3,421,179  | )
|Issuance of common stock                              |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  | 0                  |        |  |                                               |                 |   |        | 2,691,012  |  |   | 26,910  |  |   | 11,935,156  |   |  |   |             |   |  |   |         |   |  |   | 11,962,066  |  
|Dividends on preferred stock                          |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   | (187,500    | ) |  |   |             |   |  |   |        |   |  |   | (187,500    | )
|Translation adjustment                                |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   |            |   |  |   |             |   |  |   | 101,459 |   |  |   | 101,459     |  
|Conversion of preferred stock                         |  |                                     |   |                                      |        |  |                                      | (500  | ) |              |   | (5                             | )               |  |                   |        |  |                                               |                 |   |        | 10,285     |  |   | 103     |  |   | (98         | ) |  |   |             |   |  |   |        |   |  |   |            |  
|Net loss                                              |  |                                     |   |                                      |        |  |                                      |      |   |              |   |                               |                 |  |                   |        |  |                                               |                 |   |        |           |  |   |        |  |   |            |   |  |   | (16,849,789  | ) |  |   |        |   |  |   | (16,849,789 | )
|                                                      |  |                                      |   |                                      |        |   |                                      |       |   |              |   |                                |                 |  |                    |        |  |                                               |                  |   |        |            |  |   |         |  |   |             |   |  |   |              |   |  |   |         |   |  |   |             |  
|Balance, December 31, 2002                            |  |                                     |   |                                      | $      |  |                                      | 1,130 |   |              | $ | 11                             |                 |  | 3,750              |        |  | $                                             | 38               |   |        | 35,453,722 |  | $ | 354,537 |  | $ | 126,664,805 |   |  | $ | (135,497,195 | ) |  | $ | 82,861  |   |  | $ | (8,394,943  | )
|                                                      |  |                                      |   |                                      |        |   |                                      |       |   |              |   |                                |                 |  |                    |        |  |                                               |                  |   |        |            |  |   |         |  |   |             |   |  |   |              |   |  |   |         |   |  |   |             |  



(Continued)



F-7



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



(Continued)



|                                                      |  |                                     |  |                                     |   |                 |                                     |   |        |              |     |                 |                              |       |        |                    |   |                 |                                            |  |            |   |  |   |         |   |  |   |             |   |  |   |              |   |  |   |         |  |   |             |  
|----------------------------------------------------- |  | ----------------------------------- |  | ----------------------------------- | - | --------------- | ----------------------------------- | - | ------ | ------------ | --- | --------------- | ---------------------------- | ----- | ------ | ------------------ | - | --------------- | ------------------------------------------ |  | ---------- | - |  | - | ------- | - |  | - | ----------- | - |  | - | ------------ | - |  | - | ------- |  | - | ----------- | -
|                                                      |  | Series A ConvertiblePreferred Stock |  | Series B ConvertiblePreferred Stock |   |                 | Series C ConvertiblePreferred Stock |   |        | Common Stock |     |                 | Capital inExcess of ParValue |       |        | AccumulatedDeficit |   |                 | AccumulatedOtherComprehensiveIncome (Loss) |  | Total      |  
|                                                      |  | Number ofShares                     |  | Amount                              |   | Number ofShares |                                     |   | Amount |              |     | Number ofShares |                              |       | Amount |                    |   | Number ofShares |                                            |  | Amount     |   |  |   |         |  
|Balance, December 31, 2002                            |  |                                    |  | $                                   |  |                 | 1,130                               |   |        | $            | 11  |                 |                              | 3,750 |        |                    | $ | 38              |                                            |  | 35,453,722 |   |  | $ | 354,537 |   |  | $ | 126,664,805 |   |  | $ | (135,497,195 | ) |  | $ | 82,861  |  | $ | (8,394,943  | )
|Issuance of common stock                              |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  | 2,764,612  |   |  |   | 27,646  |   |  |   | 28,777,445  |   |  |   |             |   |  |   |        |  |   | 28,805,091  |  
|Options exercised                                     |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  | 1,260,268  |   |  |   | 12,603  |   |  |   | 6,781,574   |   |  |   |             |   |  |   |        |  |   | 6,794,177   |  
|Warrants exercised                                    |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  | 57,922     |   |  |   | 579     |   |  |   | 199,359     |   |  |   |             |   |  |   |        |  |   | 199,938     |  
|Fair market value of options granted to non-employees |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  |           |   |  |   |        |   |  |   | 96,152      |   |  |   |             |   |  |   |        |  |   | 96,152      |  
|Dividends on preferred stock                          |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  |           |   |  |   |        |   |  |   | (178,125    | ) |  |   |             |   |  |   |        |  |   | (178,125    | )
|Translation adjustment                                |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  |           |   |  |   |        |   |  |   |            |   |  |   |             |   |  |   | 108,508 |  |   | 108,508     |  
|Conversion of preferred stock                         |  |                                    |  |                                     |  |                 | (1,000                              | ) |        |              | (10 | )               |                              | (500  | )      |                    |   | (6              | )                                          |  | 163,427    |   |  |   | 1,634   |   |  |   | (1,619      | ) |  |   |             |   |  |   |        |  |   | (1          | )
|Payment of related party loan                         |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  | (20,570    | ) |  |   | (205    | ) |  |   | (193,030    | ) |  |   |             |   |  |   |        |  |   | (193,235    | )
|Net loss                                              |  |                                    |  |                                     |  |                 |                                    |   |        |              |    |                 |                              |      |        |                    |   |                |                                            |  |           |   |  |   |        |   |  |   |            |   |  |   | (21,151,019  | ) |  |   |        |  |   | (21,151,019 | )
|                                                      |  |                                     |  |                                     |   |                 |                                     |   |        |              |     |                 |                              |       |        |                    |   |                 |                                            |  |            |   |  |   |         |   |  |   |             |   |  |   |              |   |  |   |         |  |   |             |  
|Balance, December 31, 2003                            |  |                                    |  | $                                   |  |                 | 130                                 |   |        | $            | 1   |                 |                              | 3,250 |        |                    | $ | 32              |                                            |  | 39,679,381 |   |  | $ | 396,794 |   |  | $ | 162,146,561 |   |  | $ | (156,648,214 | ) |  | $ | 191,369 |  | $ | 6,086,543   |  
|                                                      |  |                                     |  |                                     |   |                 |                                     |   |        |              |     |                 |                              |       |        |                    |   |                 |                                            |  |            |   |  |   |         |   |  |   |             |   |  |   |              |   |  |   |         |  |   |             |  



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



F-8



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



|                                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                             |  | 2003 |             |   | 2002 |   |             | 2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |      |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                     |  | $    | (21,151,019 | ) |      | $ | (16,849,789 | )    |  | $ | (15,845,627 | )
|Adjustments to reconcile net loss to net cash used in operating activities - |  |      |             |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                                |  |      | 513,109     |   |      |   | 579,412     |      |  |   | 688,198     |  
|Provision for doubtful accounts                                              |  |      | 133,509     |   |      |   | (1,191      | )    |  |   | 17,000      |  
|Provision for returns and allowances                                         |  |      | 406,000     |   |      |   | 310,183     |      |  |   | 368,273     |  
|Write-down of inventories                                                    |  |      | 461,648     |   |      |   | 453,797     |      |  |   | 166,905     |  
|Loss on disposal of fixed assets                                             |  |      |            |   |      |   | 6,384       |      |  |   | 27,961      |  
|Gain on sale of assets                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Interest expense on financing agreements                                     |  |      | 1,085,073   |   |      |   |            |      |  |   |            |  
|Issuance of warrants and options for consulting services                     |  |      | 96,152      |   |      |   |            |      |  |   | 112,387     |  
|                                                                             |  |      |            
|Changes in assets and liabilities                                            |  |      |             |   |      |   |             |      |  |   |             |  
|(Increase) decrease in:                                                      |  |      |             |   |      |   |             |      |  |   |             |  
|Accounts receivable                                                          |  |      | (3,122,249  | ) |      |   | (1,695,525  | )    |  |   | 2,105,880   |  
|Inventories                                                                  |  |      | (605,662    | ) |      |   | (1,786,554  | )    |  |   | (179,620    | )
|Prepaid expenses                                                             |  |      | (1,415,087  | ) |      |   | (287,571    | )    |  |   | 220,341     |  
|Other assets                                                                 |  |      | 29,053      |   |      |   | (16,032     | )    |  |   | 195,141     |  
|                                                                             |  |      |            
|Increase (decrease) in:                                                      |  |      |             |   |      |   |             |      |  |   |             |  
|Accounts payable                                                             |  |      | (682,882    | ) |      |   | 2,858,650   |      |  |   | (165,040    | )
|Accrued expenses                                                             |  |      | 1,846,086   |   |      |   | (465,129    | )    |  |   | 220,889     |  
|Deferred revenue                                                             |  |      | (70,241     | ) |      |   | 3,949,859   |      |  |   | (100,000    | )
|                                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash used in operating activities                                        |  |      | (22,476,510 | ) |      |   | (12,943,506 | )    |  |   | (12,167,312 | )
|                                                                             |  |      |             |   |      |   |             |      |  |   |             |  



(Continued)



F-9



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



(Continued)



|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                     |  | 2003 |            |   | 2002 |   |            | 2001 | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                |  |      |            |   |      |   |            |      |  |   |            |  
|Purchase of property and equipment                   |  | $    | (357,993   | ) |      | $ | (808,104   | )    |  | $ | (188,602   | )
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                |  |      | (357,993   | ) |      |   | (808,104   | )    |  |   | (188,602   | )
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                |  |      |            |   |      |   |            |      |  |   |            |  
|Net proceeds from issuance of common stock           |  |      | 28,805,091 |   |      |   | 11,962,067 |      |  |   | 8,984,401  |  
|Issuance of note payable                             |  |      |           |   |      |   | 3,960,000  |      |  |   |           |  
|Payment of note payable                              |  |      | (586,667   | ) |      |   | (3,373,333 | )    |  |   |           |  
|Proceeds from exercise of options and warrants       |  |      | 6,994,115  |   |      |   |           |      |  |   | 53,500     |  
|Proceeds from financing agreements                   |  |      | 14,250,000 |   |      |   | 2,250,000  |      |  |   |           |  
|Payments pursuant to financing agreements            |  |      | (609,513   | ) |      |   |           |      |  |   |           |  
|Dividends paid                                       |  |      | (178,125   | ) |      |   | (187,500   | )    |  |   | (201,663   | )
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities            |  |      | 48,674,901 |   |      |   | 14,611,234 |      |  |   | 8,836,238  |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH              |  |      | 106,754    |   |      |   | 97,905     |      |  |   | (14,195    | )
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  |      | 25,947,152 |   |      |   | 957,529    |      |  |   | (3,533,871 | )
|                                                     |  |      |           
|CASH AND CASH EQUIVALENTS,                           |  |      |            |   |      |   |            |      |  |   |            |  
|Beginning of year                                    |  |      | 5,018,365  |   |      |   | 4,060,836  |      |  |   | 7,594,707  |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|CASH AND CASH EQUIVALENTS,                           |  |      |            |   |      |   |            |      |  |   |            |  
|End of year                                          |  | $    | 30,965,517 |   |      | $ | 5,018,365  |      |  | $ | 4,060,836  |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    |  |      |            |   |      |   |            |      |  |   |            |  
|Interest paid                                        |  | $    | 761,208    |   |      | $ | 807,595    |      |  | $ | 712,500    |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Taxes paid                                           |  | $    | 24,800     |   |      | $ | 93,900     |      |  | $ | 58,300     |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES          |  |      |            |   |      |   |            |      |  |   |            |  
|Related party loan repaid with common stock          |  | $    | 193,235    |   |      | $ |           |      |  | $ |           |  
|                                                     |  |      |            |   |      |   |            |      |  |   |            |  



The accompanying notes
to consolidated financial statements

are an integral part of these statements



F-10



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##### Table of Contents

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 dedicated to research and development of womens healthcare and endocrinology products, including those intended to treat infertility,
endometriosis and hormonal deficiencies. The Company is also developing 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.



Accounting Estimates-



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.



Foreign Currency-



The assets and liabilities of the Companys foreign subsidiaries are translated into
U.S. dollars at current exchange rates and revenue and expense items are translated at average rates of exchange prevailing during the period. Resulting translation adjustments are accumulated as a separate component of stockholders equity.



Accounts Receivable-



Accounts receivable are reported at their outstanding unpaid principal balances reduced by
allowances for doubtful accounts and potential returns. 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.



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,
|               |  | 2003         |           | 2002
|Finished goods |  | $            | 1,096,785 |      | $ | 1,564,136
|Raw materials  |  |              | 1,372,439 |      |   | 761,074  
|               |  |              |           |      |   |          
|               |  | $            | 2,469,224 |      | $ | 2,325,210
|               |  |              |           |      |   |          



Shipping costs are included in selling
and distribution expenses.



F-11



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##### Table of Contents

Property and Equipment-



Property and equipment is stated at cost less accumulated depreciation. Leasehold improvements are amortized over the life of the respective
leases. Depreciation is computed on the straight-line basis over the estimated useful lives of the respective assets, as follows:



|                        |  |      
|----------------------- |  | -----
|                        |  | Years
|Software                |  | 3    
|Machinery and equipment |  | 5    
|Furniture 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.



Concentration of Credit Risk-



The
Company sells its products to customers worldwide. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Management believes that the Company is not subject to any significant concentrations of
credit risk.



Intangible Assets-



Intangible assets consist of the following:



|                              |  |              |            |   |      |   |            |  
|----------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                              |  | December 31, |           
|                              |  | 2003         |            |   | 2002 |  
|Patents                       |  | $            | 2,600,000  |   |      | $ | 2,600,000  |  
|Trademarks                    |  |              | 1,566,000  |   |      |   | 1,566,000  |  
|Licensing rights              |  |              | 100,000    |   |      |   | 100,000    |  
|                              |  |              |            |   |      |   |            |  
|                              |  |              | 4,266,000  |   |      |   | 4,266,000  |  
|Less accumulated amortization |  |              | (3,345,582 | ) |      |   | (3,102,659 | )
|                              |  |              |            |   |      |   |            |  
|                              |  | $            | 920,418    |   |      | $ | 1,163,341  |  
|                              |  |              |            |   |      |   |            |  



Patents are being amortized on a
straight-line basis over their remaining lives (through 2003). Trademarks are being amortized on a straight-line basis over ten years to fifteen years. Licensing rights are being amortized over a period of five years.



On March 16, 2000, the Company acquired the U.S. rights for the product Advantage-S. The cost
of the acquisition was $1,225,000 (in cash and Company common stock) which is being amortized over a 15-year period.



Aggregate amortization expense for the year ended December 31, 2003 was $242,923.



Future estimated amortization expense is as follows:



|     |  |   |       
|---- |  | - | ------
|2004 |  | $ | 83,334
|2005 |  |   | 81,667
|2006 |  |   | 81,667
|2007 |  |   | 81,667
|2008 |  |   | 81,667



F-12



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##### Table of Contents

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 deferred revenue, in measuring whether
the long-lived asset is recoverable. Unrecoverable amounts are charged to operations.



Accrued Expenses-



Accrued expenses
consist of the following:



|                     |  |      |           |      |   |        
|-------------------- |  | ---- | --------- | ---- | - | -------
|                     |  | 2003 |           | 2002
|Royalties            |  | $    | 564,582   |      | $ | 205,696
|Contract sales force |  |      | 900,000   |      |   |       
|Marketing costs      |  |      | 399,618   |      |   |       
|Professional fees    |  |      | 196,666   |      |   | 108,629
|Interest             |  |      | 207,812   |      |   | 210,273
|Salaries             |  |      | 175,370   |      |   | 101,039
|Other                |  |      | 287,644   |      |   | 259,969
|                     |  |      |           |      |   |        
|                     |  | $    | 2,731,692 |      | $ | 885,606
|                     |  |      |           |      |   |        



Income Taxes-



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



|                                |  |       |    |  |       |    |  |       |   
|------------------------------- |  | ----- | -- |  | ----- | -- |  | ----- | --
|                                |  | 2003  |    |  | 2002  |    |  | 2001  |   
|Federal income tax rate         |  | (34.0 | )% |  | (34.0 | )% |  | (34.0 | )%
|Increase in valuation allowance |  | 34.0  |    |  | 34.0  |    |  | 34.0  |   
|                                |  |       |    |  |       |    |  |       |   
|Effective income tax rate       |  | 0.0   | %  |  | 0.0   | %  |  | 0.0   | % 
|                                |  |       |    |  |       |    |  |       |   



As of December 31, 2003, the Company
has U.S. tax net operating loss carryforwards of approximately $92 million which expire through 2023. The Company also has unused tax credits of approximately $1,439,000 which expire at various dates through 2023. Utilization of net operating loss
carryforwards may be limited in any year due to limitations in the Internal Revenue Code. As of December 31, 2003 and 2002, other assets in the accompanying consolidated balance sheets include deferred tax assets of approximately $32 million and $23
million, respectively (comprised primarily of a net operating loss carryforward), for which a 100% valuation allowance has been recorded since the realizability of the deferred tax assets is not determinable.



Revenue Recognition-



Revenues from the sale of products are recorded at the time title passes from the Company to
the customer which is at the time goods are shipped. Provisions for returns, rebates and other allowances are estimated based on a percentage of sales and are recorded in the same period the related sales are recognized. Royalties and additional
monies owed to the Company based on the Companys strategic alliance partners sales are included in net sales as sales are recorded by the strategic alliance partners.



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##### Table of Contents

License Fees-



License revenue consists of up-front, milestone and similar payments under license agreements and is recognized when earned under the terms
of the applicable agreements. Milestone payments represent payments for the occurrence of contract-specified events and coincide with the achievement of a substantive element in a multi-element arrangement (see Note 2). License revenue, including
milestone payments, is deferred and recognized in net sales 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 $6,800,000 in 2003,
$1,317,000 in 2002 and $55,000 in 2001.



Research and
Development Costs-



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



Loss
per Share-



Basic loss per share is computed by dividing the net loss plus
preferred dividends by the weighted-average number of shares of common stock outstanding during the period. 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 antidilutive. Outstanding options and warrants excluded from the calculation amounted to 6,944,911, 7,704,618 and 7,140,118 at December 31, 2003, 2002 and 2001, 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.



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##### Table of Contents

Stock-based Compensation-



The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the stock option plans and warrants issued to employees. Had compensation cost been determined based on the fair value at the grant dates for those awards consistent with the method of Statement of Financial
Accounting Standard No. 123, the Companys net loss per share would have been increased to the pro forma amounts indicated below.



|                                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                                                 |  | 2003 |             |   | 2002 |   |             | 2001 | 
|Net loss, as reported                                                                                            |  | $    | (21,151,019 | ) |      | $ | (16,849,789 | )    |  | $ | (15,845,627 | )
|Deduct: Total stock-based employee compensation expense determined under-fair-value based methods for all awards |  |      | (2,048,636  | ) |      |   | (2,522,790  | )    |  |   | (3,655,328  | )
|                                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Pro forma net loss                                                                                               |  | $    | (23,199,655 | ) |      | $ | (19,372,579 | )    |  | $ | (19,500,955 | )
|                                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Loss per share: As reported                                                                                      |  | $    | (0.57       | ) |      | $ | (0.50       | )    |  | $ | (0.51       | )
|                                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Pro forma                                                                                                        |  | $    | (0.62       | ) |      | $ | (0.57       | )    |  | $ | (0.63       | )
|                                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  



The estimated grant date present value
reflected in the above table is determined using the Black-Scholes model. The material assumptions and adjustments incorporated in the Black-Scholes model in estimating the value of the options reflected in the above table include the following: (i)
an exercise price equal to the fair market value of the underlying stock on the dates of grant, (ii) an option term of five years in 2003 and three years in 2002 and 2001, (iii) a risk-free rate of 4.25% in 2003 and 5.0% in 2002 and 2001 that
represents the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the option term, (iv) volatility of 59.2% for 2003, 57.8% for 2002 and 86.4% for 2001 and (v) no annualized dividends paid with respect to a share
of Common Stock at the date of grant. The ultimate values of the options will depend on the future price of the Companys Common Stock, which cannot be forecast with reasonable accuracy. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the Companys Common Stock over the exercise price on the date the option is exercised.



The weighted-average fair value of options and warrants granted to employees during 2003, 2002 and 2001 was $3.33, $1.81 and $3.66,
respectively.



Product Recall Costs-



Product recall costs represent the direct out-of-pocket costs related to the recall of the
product Crinone that took place in April 2001. In 2002, the unused portion of the accrual was reversed.



Corporate Restructuring Expense-



During the second quarter of 2001, the Companys management decided to close the France office. The Company recorded a restructuring charge for the anticipated costs
associated with closing the office consisting of employee severance payments and other costs.



Recent Accounting Pronouncements-



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



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##### Table of Contents

Reclassification of Prior-year Amounts-



Prior-year financial statements have been reclassified to conform to the 2003 presentation.



(2) STRATEGIC ALLIANCE AGREEMENTS:



In May 1995, the Company entered into a worldwide license and supply
agreement, except for South Africa, with American Home Products Corporation (AHP) under which the Wyeth-Ayerst Laboratories division of AHP marketed Crinone. The Company supplied Crinone to AHP at a price equal to 30% of AHPs net
selling price. On July 2, 1999, AHP assigned the license and supply agreement to Ares-Serono, a Swiss pharmaceutical company. The Company supplies Crinone to Ares Trading S.A. (Serono) under the same terms as in the agreement with AHP.
In June 2002, as part of the settlement of litigation between the two companies, the Company acquired the right to market a second brand of its 8% and 4% progesterone gel products under the trade name Prochieve to a defined audience of obstetricians, gynecologists and primary care
physicians in the United States. Under this agreement the Company is required to pay a 30% royalty to Serono based on net sales of the products. The Company paid approximately $1,526,898 and $985,000 to Serono in accordance with this agreement for
the years 2003 and 2002, respectively.



In March 1999, the Company entered into
a license and supply agreement with Mipharm SpA under which Mipharm SpA will be the exclusive marketer of the Companys previously unlicensed womens healthcare products in Italy, Portugal, Greece and Ireland with a right of first refusal
for Spain. Under the terms of the agreement, the Company has received $540,000, net of expenses, and expects to receive future milestone payments as products are made available by the Company.



Effective May 5, 2000, the Company sold various tangible and intangible assets related to the
U.S. rights for Replens, to Lil Drug Store Products Inc. for a total of $4.5 million cash. Additionally, the purchaser agreed to buy up to $500,000 of Replens inventory from the Company and to pay future royalties of up to $2 million equal to
10% of future U.S. sales of Replens. Additionally, effective May 5, 2000, the Company licensed its Legatrin PM, Legatrin GCM, Vaporizer in a Bottle and Diasorb brands to the same purchaser mentioned above. Legatrin GCM and Diasorb are no longer sold
by LilDrug Store Products, Inc. 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 has a five-year term with provisions for renewal and contains
options that allow the licensee to acquire these brands from the Company. On December 29, 2000, Lil Drug Store Products, Inc. acquired the Vaporizer in a Bottle brand for $201,800.



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, will provide 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, Columbia Laboratories, Inc. and Quintiles Transnational Corp. announced an agreement to commercialize Columbias Striant testosterone buccal bioadhesive product in the United
States. Under the terms of the agreement, Quintiles commercialization unit, Innovex, will provide 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 dedicated to exclusively promoting the Companys womens healthcare products and Striant. The restructured sales force would be made up of nine Columbia district managers as well as 80 sales representatives divided evenly between Columbia and Innovex. Under the terms of this
restructuring, Innovex will accelerate the transfer of responsibility for management of the sales force to Columbia, but would continue to provide half the sales representatives. Effective immediately, Columbia would take responsibility for all
field sales management, all sales force support and will hire one-half of the field sales representatives. Columbia will take full responsibility for the remaining Sales Representatives by October 2005. The restructuring of the Innovex agreement
will have no effect on the product royalty agreements between Columbia and Quintiles subsidiary, PharmaBio Development, Inc.



On October 16, 2002, the Company and Ardana Bioscience, Ltd. (Ardana) entered into a license and supply agreement for the Companys Striant testosterone buccal mucoadhesive product in 18
European countries (excluding Italy). Under the terms of the agreement, Ardana will market, distribute and sell Striant. In exchange for the license, the Company will receive total payments of $8 million, including $4 million in signature and



F-16



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##### Table of Contents

milestone fees received in the fourth quarter of 2002. Initial regulatory approval of the U.K. application will be the
basis for mutual recognition applications to be filed in the rest of Europe. Additional milestone payments totaling $2 million are due upon marketing approvals in major European countries included in the agreement. A performance payment of $2
million is also 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 shall continue for a period of the later of 10 years from the first
commercial sale of the finished product by Ardana or the date of expiration or lapse of the last to expire or lapse Companys patent rights in the territory, determined on a country by country basis. The Company will recognize the license
revenue on this agreement over a 10-year period and accordingly has recognized revenue of $401,681 in 2003 and $50,141 in 2002 in the accompanying consolidated statements of operations. The remaining $3,548,178 is shown as deferred revenue in the
accompanying consolidated balance sheets.



In May 2003, the Company and Mipharm
S.p.A. entered into an agreement, under which Mipharm will market, distribute and sell Striant in Italy. In exchange for these rights, Columbia will receive payments of $1.4 million, including the immediate reimbursement of $350,000 in development costs. A mutual recognition
application for marketing in Italy will be filed based on initial regulatory approval of the pending application in the United Kingdom. Mipharm will provide additional performance payments upon achievement of certain levels of sales in Italy, and
Columbia will receive a percentage markup on the cost of goods for each unit sold. Mipharm is Columbias manufacturer for Striant under a May 2002 agreement. The Company will recognize revenue on this agreement over a 132-month period and accordingly has recognized revenue of
$18,560 in 2003 in the accompanying consolidated statements of operations. The remaining $331,440 is shown as deferred revenue in the accompanying consolidated balance sheets.



The Company has also entered into strategic alliance agreements with various pharmaceutical companies for the foreign marketing and
distribution of Replens, RepHresh and Advantage-S.



(3) PRODUCT RECALL:



On April 5, 2001, the Company announced
that it had requested its licensee, Serono, to voluntarily recall a number of batches of Crinone, a progesterone vaginal gel used in the treatment of infertile women. The recall was initiated due to an application problem of the gel in the recalled
batches. The Company estimated that the direct out-of-pocket costs related to the recall would cost approximately $1.5 million, which was recorded in the first quarter of 2001. The Companys original estimate of the expenses necessary to
complete the product recall exceeded the actual expense by approximately $449,000. This amount is shown as a reduction in 2002 operating expenses in the consolidated statements of operations.



(4) NOTES PAYABLE:



Notes payable consist of the following:



|                                                            |  |              |            |      |   |            |  
|----------------------------------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                                            |  | December 31, |           
|                                                            |  | 2003         |            | 2002 |  
|7.125% convertible subordinated note payabledue March 2005 |  | $            | 10,000,000 |      | $ | 10,000,000 |  
|9.00% note payable - payable in monthly installments        |  |              |           |      |   | 586,667    |  
|                                                            |  |              |            |      |   |            |  
|                                                            |  |              | 10,000,000 |      |   | 10,586,667 |  
|Less: current portion                                       |  |              |           |      |   | (586,667   | )
|                                                            |  |              |            |      |   |            |  
|                                                            |  | $            | 10,000,000 |      | $ | 10,000,000 |  
|                                                            |  |              |            |      |   |            |  



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##### Table of Contents

On March 16, 1998, the Company issued to an institutional investor a $10 million convertible subordinated note due March
15, 2005. The note is subordinate to other senior securities of the Company and bears interest at 7.125% which is payable semiannually on March 15 and September 15. The note is convertible into 662,032 shares of Common Stock at a price equal to
$15.105 per share.



As part of the settlement with Serono in June 2002, the
Company issued to Serono a promissory note payable in the original amount of $3,960,000 with interest on the unpaid balance at the fixed rate of 9.00% per annum. Principal and interest were paid in equal monthly installments of $220,000 of principal
plus accrued interest. Pursuant to the note, the Company was obligated to pay down the note by an amount equal to one-third of the proceeds from the sale by the Company of its equity securities. The Company paid $1,833,333 (one-third of the
$5,500,000 raised by the Company through the sale of its Common Stock in July 2002). The payment was applied in reverse order of payments due. The note was paid in full in March 2003.



The carrying amount of the Companys note payable approximates fair value using the Companys estimated incremental borrowing
rate.



(5) FINANCING AGREEMENTS:



In an agreement dated July 31, 2002, Quintiles strategic investment group, PharmaBio
Development, agreed to pay $4.5 million, to be paid in four equal quarterly installments commencing third quarter 2002 for the right to receive a 5% royalty on the net sales of the Companys womens healthcare products in the United States
for five years beginning in the first quarter of 2003. The royalty payments are subject to minimum ($8 million) and maximum ($12 million) amounts and because the minimum amount exceeds $4.5 million, the Company has recorded the amounts received as
liabilities. The excess of the minimum ($8 million) to be paid by the Company over the $4.5 million received by the Company is being recognized as interest expense over the five-year term of the agreement, assuming an interest rate of 12.51%.
$498,369 was recorded as interest expense for the year ended December 31, 2003. The agreement calls for a catch-up payment, if by February 28, 2005, the Company has not made $2,750,000 in royalty payments to PharmaBio. The Company paid PharmaBio
$350,351 in 2003.



In an agreement dated March 5, 2003, Quintiles
strategic investment group, PharmaBio Development, agreed to pay $15 million, to be paid in five quarterly installments commencing with the signing of this agreement. In return, Quintiles 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 for the 2003 third quarter and are subject to minimum ($30 million) and maximum ($55
million) amounts. Because the minimum amount exceeds the $15 million to be received, the Company has recorded the amounts received through December 31, 2003, as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the
$15 million to be received by the Company is being recognized as interest expense over the seven-year term of the agreement, assuming an interest rate of 10.67%. $586,704 was recorded as interest expense for the year ended December 31, 2003. The
Company has received $12.0 million through December 31, 2003. The agreement calls for a catch-up payment, if by June 30, 2006, the Company has not made $13,000,000 in royalty payments to PharmaBio. The Company paid PharmaBio $259,162 in 2003.



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##### Table of Contents

Liabilities from financing agreements consist of the following:



|                                  |  |              |            |      |   |          
|--------------------------------- |  | ------------ | ---------- | ---- | - | ---------
|                                  |  | December 31,
|                                  |  | 2003         |            | 2002
|July 31, 2002 financing agreement |  | $            | 4,648,018  |      | $ | 2,250,000
|March 5, 2003 financing agreement |  |              | 12,327,542 |      |   |         
|                                  |  |              |            |      |   |          
|                                  |  |              | 16,975,560 |      |   | 2,250,000
|Less: current portion             |  |              | 1,228,865  |      |   | 900,000  
|                                  |  |              |            |      |   |          
|                                  |  | $            | 15,746,695 |      | $ | 1,350,000
|                                  |  |              |            |      |   |          



(6) STOCKHOLDERS EQUITY
(DEFICIENCY):



Preferred Stock-



In August 1991, the Company completed a private placement of 150,000 shares of Series B
Convertible Preferred Stock (Series B Preferred Stock). Each share of Series B Preferred Stock is convertible into 20.57 shares of Common Stock.



Upon liquidation of the Company, the holders of the Series B Preferred Stock are entitled to $100 per share. The Series B Preferred Stock will be automatically converted
into Common Stock upon the occurrence of certain events. Holders of the Series B Preferred Stock are entitled to one vote for each share of Common Stock into which the preferred stock is convertible.



In April 2002, 500 shares of the Series B Preferred Stock were converted into 10,285 shares
of the Common Stock. In June 2003, 1,000 shares of the Series B Preferred Stock were converted into 20,570 shares of the Common Stock.



In January 1999, the Company raised approximately $6.4 million, net of expenses from the issuance and sale of Series C Convertible Preferred Stock (Series C
Preferred Stock). The Series C Preferred Stock, sold to 24 accredited investors, has a stated value of $1,000 per share. The Series C Preferred Stock is convertible into common stock at the lower of: (i) $3.50 per common share or (ii) 100% of
the average of the closing prices during the three trading days immediately preceding the conversion notice. The Series C Preferred Stock pays a 5% dividend, payable quarterly in arrears on the last day of the quarter. In 2003, 500 shares of the
Series C Preferred Stock were converted into 142,857 shares of the Common Stock.



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



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##### Table of Contents

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.



Common Stock-



Effective as of February
6, 2001, the Company entered into the Amended and Restated Common Stock Purchase Agreement with an institutional investor to sell up to $16.5 million of the Common Stock, under the Registration Statement, the Prospectus and the related Prospectus
Supplement dated February 6, 2001 and amended on April 13, 2001. Pursuant to the Purchase Agreement, the Company may, from time to time over the two-year term of the Purchase Agreement and at its sole discretion, issue and sell to the institutional
investor up to $16.5 million of the Common Stock, subject to certain conditions, at a price per share based on the daily volume weighted-average price of the Common Stock over a certain period of time less a discount ranging from 5% to 7%. In
addition, during the period in which the Company elects to issue and sell shares of the Common Stock to the institutional investor, the Company may also, at its sole discretion, grant the institutional investor a call option at the same discount for
the applicable period to purchase additional shares of the Common Stock up to the applicable amount being sold by the Company in such period, subject to the overall limit of $16.5 million described above. The Company and the institutional investor
have agreed to extend the term of the Agreement until February 6, 2005. All other terms remain the same. At December 31, 2003, $9 million may be sold under the Agreement subject to the filing of a registration relating to the amendment becoming
effective.



During 2002, the Company issued 2,691,012 shares of its common
stock to several institutional investors, which resulted in the Company receiving $11,962,067 after expenses. $6,500,000 of the gross proceeds was received pursuant to the Purchase Agreement described in the preceding paragraph.



During 2003, the Company issued 2,764,612 shares of its common stock to a group of
institutional investors, which resulted in the Company receiving $28,805,091 after expenses. Also in 2003, outstanding options and warrants were exercised resulting in the issuance of 1,318,190 shares of common stock and the receipt of $6,994,115 by
the Company.



During 2001, the Company issued 2,146,459 shares of its common
stock, which resulted in the Company receiving $8,962,936 after expenses. $1 million of the gross proceeds were received pursuant to the Amended and Restated Common Stock Purchase Agreement described above.



Warrants-



As of December 31, 2003, the Company had warrants outstanding for the purchase of 921,475
shares of Common Stock. Information on outstanding warrants is as follows:



|               |  |        
|-------------- |  | -------
|Exercise Price |  |        
|$3.50          |  | 132,475
|4.81           |  | 200,000
|5.85           |  | 100,000
|7.06           |  | 386    
|7.50           |  | 75,000 
|8.35           |  | 350,000
|               |  |        
|               |  | 857,861
|               |  |        



During 2001, a warrant to purchase
350,000 shares of Common Stock at an exercise price of $8.35 was issued pursuant to an employment agreement with the Companys new President and Chief Executive Officer. A warrant to purchase 100,000 shares of Common Stock at an exercise price
of $5.85 per share was issued to an officer and director of the Company. As of December 31, 2003, 682,861 warrants were exercisable.



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##### Table of Contents

Stock Option Plans-



All employees, officers, directors and consultants of the Company or any subsidiary were eligible to participate in the Columbia
Laboratories, Inc. 1988 Stock Option Plan, as amended (the Plan). Under the Plan, a total of 5,000,000 shares of Common Stock were authorized for issuance upon exercise of the options. As of October 1996, no further options were granted
pursuant to this Plan.



In October 1996, the Company adopted the 1996 Long-term
Performance Plan (Performance Plan) which provides for the grant of stock options, stock appreciation rights and restricted stock to certain designated employees of the Company, non-employee directors of the Company and certain other
persons performing significant services for the Company as designated by the Compensation/Stock Option Committee of the Board of Directors. Pursuant to the Performance Plan, an aggregate of 6,000,000 shares of Common Stock have been reserved for
issuance.



A summary of the status of the Companys two stock option plans
as of December 31, 2003, 2002 and 2001 and changes during the years ending on those dates is presented below:



|                                 |  |            |   |      |                               |      |        |           |   |                               |   |        |  |           |                               |  |   |     
|-------------------------------- |  | ---------- | - | ---- | ----------------------------- | ---- | ------ | --------- | - | ----------------------------- | - | ------ |  | --------- | ----------------------------- |  | - | ----
|                                 |  | 2003       |   | 2002 |                               | 2001
|                                 |  | Shares     |   |      | Weighted-AverageExercisePrice |      | Shares |           |   | Weighted-AverageExercisePrice |   | Shares |  |           | Weighted-AverageExercisePrice
|Outstanding at beginning of year |  | 6,783,143  |   |      | $                             | 8.23 |        | 6,218,643 |   |                               | $ | 8.69   |  | 5,550,143 |                               |  | $ | 9.06
|Granted                          |  | 667,175    |   |      |                               | 6.04 |        | 692,500   |   |                               |   | 4.18   |  | 761,000   |                               |  |   | 5.94
|Exercised                        |  | (1,260,268 | ) |      |                               | 5.39 |        |          |   |                               |   |       |  | (7,500    | )                             |  |   | 5.50
|Forfeited                        |  | (103,000   | ) |      |                               | 8.47 |        | (128,000  | ) |                               |   | 8.67   |  | (85,000   | )                             |  |   | 8.99
|                                 |  |            |   |      |                               |      |        |           |   |                               |   |        |  |           |                               |  |   |     
|Outstanding at end of year       |  | 6,087,050  |   |      |                               | 8.57 |        | 6,783,143 |   |                               |   | 8.23   |  | 6,218,643 |                               |  |   | 8.69
|                                 |  |            |   |      |                               |      |        |           |   |                               |   |        |  |           |                               |  |   |     
|Options exercisable at year end  |  | 4,628,000  |   |      |                               |      |        | 5,566,943 |   |                               |   |        |  | 5,420,043 |                               |  |   |     
|                                 |  |            |   |      |                               |      |        |           |   |                               |   |        |  |           |                               |  |   |     



The following table summarizes
information about stock options outstanding at December 31, 2003:



|                         |  |                                        |  |                                                      |  |                                  |       |                                         |           |                                  |   |      
|------------------------ |  | -------------------------------------- |  | ---------------------------------------------------- |  | -------------------------------- | ----- | --------------------------------------- | --------- | -------------------------------- | - | -----
|                         |  | Options Outstanding                    |  | Options Exercisable                                 
|Range of Exercise Prices |  | Number Outstandingat December 31, 2003 |  | Weighted- Average Remaining Contractual Life (Years) |  | Weighted- Average Exercise Price |       | Number Exercisable at December 31, 2003 |           | Weighted- Average Exercise Price
|$2.97 - $4.00            |  | 704,050                                |  | 8.09                                                 |  | $                                | 3.32  |                                         | 173,750   |                                  | $ | 3.36 
|$4.06 - $7.90            |  | 2,489,000                              |  | 5.32                                                 |  |                                  | 5.47  |                                         | 1,700,750 |                                  |   | 5.38 
|$8.06 - $12.13           |  | 1,707,000                              |  | 4.22                                                 |  |                                  | 10.77 |                                         | 1,613,500 |                                  |   | 10.76
|$12.25 - $18.63          |  | 1,187,000                              |  | 3.41                                                 |  |                                  | 15.04 |                                         | 1,140,000 |                                  |   | 15.12
|                         |  |                                        |  |                                                      |  |                                  |       |                                         |           |                                  |   |      
|$2.97 - $18.63           |  | 6,087,050                              |  | 4.96                                                 |  |                                  | 8.57  |                                         | 4,628,000 |                                  |   | 9.58 
|                         |  |                                        |  |                                                      |  |                                  |       |                                         |           |                                  |   |      



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##### Table of Contents

(7) LOSS PER COMMON AND POTENTIAL COMMON SHARE:



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



|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                     |  | 2003 |             |   | 2002 |   |             | 2001 | 
|Net loss                                             |  | $    | (21,151,019 | ) |      | $ | (16,849,789 | )    |  | $ | (15,845,627 | )
|Less: Preferred stock dividends                      |  |      | (178,125    | ) |      |   | (187,500    | )    |  |   | (201,663    | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Net loss applicable to common stock                  |  | $    | (21,329,144 | ) |      | $ | (17,037,289 | )    |  | $ | (16,047,290 | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Basic and diluted                                    |  |      |             |   |      |   |             |      |  |   |             |  
|Weighted-average number of common shares outstanding |  |      | 37,440,270  |   |      |   | 34,392,060  |      |  |   | 31,243,307  |  
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Basic and diluted net loss per common share          |  | $    | (0.57       | ) |      | $ | (0.50       | )    |  | $ | (0.51       | )
|                                                     |  |      |             |   |      |   |             |      |  |   |             |  



(8) 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, apartments and office equipment under noncancelable operating leases. Lease expense for each of the three years ended December 31, 2003, 2002 and 2001 totaled $392,222, $323,977 and
$450,550, respectively. Future minimum lease payments as of December 31, 2003 are as follows:



|     |  |        
|---- |  | -------
|2004 |  | 278,782
|2005 |  | 212,128
|2006 |  | 201,097
|2007 |  | 125,216



Royalties-



In 1989, the Company purchased the assets of Bio-Mimetics, Inc. which consisted of the
patents underlying the Companys Bioadhesive Delivery System, other patent applications and related technology, for $2,600,000, in the form of 9% convertible debentures which were converted into 500,000 shares of Common Stock during 1991, and
$100,000 in cash. In addition, Bio-Mimetics, Inc. receives a royalty equal to 2% of the net sales of products based on the Bioadhesive Delivery System up to an aggregate amount of $7,500,000. In addition, beginning in March 1995, the Company agreed
to prepay a portion of the remaining royalty obligation if certain conditions are met. The Company may not assign the patents underlying the Bioadhesive Delivery System without the prior written consent of Bio-Mimetics, Inc. until the aggregate
royalties have been paid.



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##### Table of Contents

In June 2002, as part of the settlement of litigation between Serono and the Company, the Company acquired the right to
market a second brand of its 8% and 4% progesterone gel products under the trade name Prochieve  to a defined audience of obstetricians, gynecologists and primary care physicians in the United States. Under this agreement the Company is required to pay a 30% royalty to Serono
based on net sales of the products.



Geographic Area of
Operations-



Included in the Companys Consolidated Balance sheet at
December 31, 2003 are the net assets of the Companys subsidiaries located in Bermuda, France and the United Kingdom that total approximately $9.6 million.



Employment Agreements-



In March 2001, the Company entered into a three-year employment agreement with an individual to serve as President and Chief Executive Officer of the Company. Pursuant to
his employment agreement, the employee is entitled to a base salary of $450,000 per year plus a minimum 10% bonus. Additionally, the employee was granted options to purchase 500,000 shares of the Companys Common Stock at an exercise price of
$5.85 per share and a warrant to purchase 350,000 shares of the Companys Common Stock at an exercise price of $8.35 per share. The options and warrants vest ratably over a four-year period.



During 1993, the Companys stockholders approved an Incentive Compensation Plan covering
all employees pursuant to which an aggregate of 5% of pretax earnings of the Company for any year will be awarded to designated employees of the Company. No provision was required in 2002 and 2001. In November 2002, the Incentive Compensation Plan
was terminated by the Board of Directors.



Legal
Proceedings-



In August 2001, Ares Trading S.A. (Serono) filed
a lawsuit in the Supreme Court of the State of New York (the Action) naming the Company as defendant. The Action set forth claims for an alleged breach of contract for failure to supply Crinone® in accordance with the supply
agreement between the parties. In November 2001, the Company filed counterclaims against Serono. In June 2002, the Company reached a settlement with Serono. The companies agreed to release all claims against each other in Seronos suit against
the Company and the Companys counterclaims against Serono. Under the terms of the settlement, Columbia has rights to market a second brand of its 8% and 4% progesterone gel products under the trade name Prochieve  to a defined audience of obstetricians,
gynecologists and primary care physicians in the United States. As part of the settlement, Columbia gave Ares a note for $3.96 million, which was paid in full in March 2003 to cover out of pocket costs resulting from the recall. This amount is shown
as litigation settlement expense in Operating Expenses of the Consolidated Statements of Operations.



Other claims and lawsuits have been filed against the Company. Although the results of pending litigation 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 adequate reserves or adequate insurance coverage for any unfavorable outcome resulting from these
actions.



(9) RELATED PARTY
TRANSACTIONS:



During 1993, the Company loaned an individual, who was an
officer, director and stockholder of the Company, an aggregate of $110,350. These notes, bearing interest at 10% per annum and due on or before December 7, 1997, were subsequently extended through December 7, 1999. On June 30, 2003, the notes and
accrued interest totaling $216,637 were paid in full by transferring, to the Company, Columbia stock valued at $193,235 and $23,402 in cash.



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##### Table of Contents

(10) SEGMENT INFORMATION:



The Company and its subsidiaries are engaged in one line of business, the development,
licensing and sale of pharmaceutical products. The following table shows selected information by geographic area:



|                                                |  |           |            |                     |   |             |                    |  |   |           
|----------------------------------------------- |  | --------- | ---------- | ------------------- | - | ----------- | ------------------ |  | - | ----------
|                                                |  | Net Sales |            | Loss fromOperations |   |             | IdentifiableAssets
|As of and for the year ended December 31, 2003- |  |           |            |                     |   |             |                    |  |   |           
|United States                                   |  | $         | 13,573,723 |                     | $ | (20,156,126 | )                  |  | $ | 32,921,720
|Europe                                          |  |           | 8,841,305  |                     |   | 573,953     |                    |  |   | 9,557,929 
|                                                |  |           |            |                     |   |             |                    |  |   |           
|                                                |  | $         | 22,415,028 |                     | $ | (19,582,173 | )                  |  | $ | 42,479,649
|                                                |  |           |            |                     |   |             |                    |  |   |           
|As of and for the year ended December 31, 2002- |  |           |            |                     |   |             |                    |  |   |           
|United States                                   |  | $         | 6,458,323  |                     | $ | (8,190,386  | )                  |  | $ | 5,301,288 
|Europe                                          |  |           | 2,960,226  |                     |   | (7,669,104  | )                  |  |   | 7,465,019 
|                                                |  |           |            |                     |   |             |                    |  |   |           
|                                                |  | $         | 9,418,549  |                     | $ | (15,859,490 | )                  |  | $ | 12,766,307
|                                                |  |           |            |                     |   |             |                    |  |   |           
|As of and for the year ended December 31, 2001- |  |           |            |                     |   |             |                    |  |   |           
|United States                                   |  | $         | 1,019,187  |                     | $ | (8,748,062  | )                  |  | $ | 5,809,982 
|Europe                                          |  |           | 1,134,667  |                     |   | (6,698,109  | )                  |  |   | 2,750,042 
|                                                |  |           |            |                     |   |             |                    |  |   |           
|                                                |  | $         | 2,153,854  |                     | $ | (15,446,171 | )                  |  | $ | 8,560,024 
|                                                |  |           |            |                     |   |             |                    |  |   |           



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



|                               |  |      |            |      |   |           |  |   |          
|------------------------------ |  | ---- | ---------- | ---- | - | --------- |  | - | ---------
|                               |  | 2003 |            | 2002 |   | 2001     
|Ares-Serono                    |  | $    | 8,655,947  |      | $ | 3,878,513 |  | $ | 527,723  
|Lil Drug Store Products, Inc. |  |      | 3,281,034  |      |   | 1,356,343 |  |   | 1,106,758
|Cardinal Healthcare            |  |      | 3,296,865  |      |   | 1,624,556 |  |   |         
|McKesson                       |  |      | 2,890,998  |      |   | 489,585   |  |   |         
|Amerisource Bergen             |  |      | 447,455    |      |   | 599,028   |  |   |         
|ANDA, Inc.                     |  |      |           |      |   | 623,808   |  |   |         
|All others (none over 5%)      |  |      | 3,842,729  |      |   | 846,716   |  |   | 519,373  
|                               |  |      |            |      |   |           |  |   |          
|                               |  | $    | 22,415,028 |      | $ | 9,418,549 |  | $ | 2,153,854
|                               |  |      |            |      |   |           |  |   |          



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##### Table of Contents

(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):



The following table summarizes selected quarterly data for the years ended December 31, 2003
and 2002:



|                                       |  |               |            |   |               |   |            |              |  |   |               |   |  |           |            |   |  |   |             |  
|-------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | ------------ |  | - | ------------- | - |  | --------- | ---------- | - |  | - | ----------- | -
|                                       |  | First Quarter |            |   | SecondQuarter |   |            | ThirdQuarter |  |   | FourthQuarter |   |  | Full Year |           
|2003                                   |  |               |            |   |               |   |            |              |  |   |               |   |  |           |           
|                                       |  |               |            |   |              
|Net sales                              |  | $             | 3,605,546  |   |               | $ | 4,919,800  |              |  | $ | 8,763,957     |   |  | $         | 5,125,725  |   |  | $ | 22,415,028  |  
|Gross profit                           |  |               | 1,928,198  |   |               |   | 2,782,433  |              |  |   | 5,740,598     |   |  |           | 2,181,015  |   |  |   | 12,632,244  |  
|Loss from operations                   |  |               | (4,393,335 | ) |               |   | (4,007,791 | )            |  |   | (3,830,193    | ) |  |           | (7,350,854 | ) |  |   | (19,582,173 | )
|Net loss                               |  |               | (4,704,070 | ) |               |   | (4,366,608 | )            |  |   | (4,254,547    | ) |  |           | (7,825,794 | ) |  |   | (21,151,019 | )
|Basic and diluted lossper common share |  |               | (0.13      | ) |               |   | (0.12      | )            |  |   | (0.11         | ) |  |           | (0.20      | ) |  |   | (0.57       | )
|                                       |  |               |            |   |              
|2002                                   |  |               |            |   |               |   |            |              |  |   |               |   |  |           |           
|                                       |  |               |            |   |              
|Net sales                              |  | $             | 576,811    |   |               | $ | 2,455,149  |              |  | $ | 4,040,534     |   |  | $         | 2,346,055  |   |  | $ | 9,418,549   |  
|Gross profit                           |  |               | (374,470   | ) |               |   | 1,553,401  |              |  |   | 2,124,162     |   |  |           | 886,937    |   |  |   | 4,190,030   |  
|Loss from operations                   |  |               | (3,163,815 | ) |               |   | (4,597,202 | )            |  |   | (1,632,507    | ) |  |           | (6,465,966 | ) |  |   | (15,859,490 | )
|Net loss                               |  |               | (3,380,942 | ) |               |   | (4,855,498 | )            |  |   | (1,879,189    | ) |  |           | (6,734,160 | ) |  |   | (16,849,789 | )
|Basic and diluted lossper common share |  |               | (0.10      | ) |               |   | (0.14      | )            |  |   | (0.05         | ) |  |           | (0.19      | ) |  |   | (0.50       | )



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



INDEX TO FINANCIAL STATEMENT SCHEDULE



|                                                           |  |     
|---------------------------------------------------------- |  | ----
|                                                           |  | Page
|Report of Independent Certified Public Accountants         |  | F-27
|                                                           | 
|Schedule II-Valuation and Qualifying Accounts and Reserves |  | F-28



F-26



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##### Table of Contents

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders

of Columbia Laboratories, Inc.:



We have audited in accordance with auditing standards generally accepted in the United States of America, the financial statements of
Columbia Laboratories, Inc. and Subsidiaries for each of the three years in the period ended December 31, 2003 included in this Form 10-K and have issued our report thereon dated February 13, 2004. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule II is the responsibility of the Companys management and is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.



GOLDSTEIN GOLUB KESSLER LLP



New York, New York

February 13, 2004



F-27



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##### Table of Contents

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



FOR THE THREE YEARS ENDED DECEMBER 31, 2003



|                                |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|------------------------------- |  | ------------------------------ | ------ | ------------------------------------------- | - | ------- | ---------- |  | ------------------------ | ------ |  | - | -------
|Description                     |  | Balance at beginning of period |        | Charged to (credited to) costs and expenses |   |         | Deductions |  | Balance at end of period
|YEAR ENDED DECEMBER 31, 2003:   |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|Allowance for doubtful accounts |  | $                              | 30,000 |                                             | $ | 133,509 |            |  | $                        | 43,509 |  | $ | 120,000
|                                |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|YEAR ENDED DECEMBER 31, 2002:   |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|Allowance for doubtful accounts |  | $                              | 40,000 |                                             | $ | (1,191  | )          |  | $                        | 8,809  |  | $ | 30,000 
|                                |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|YEAR ENDED DECEMBER 31, 2001:   |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        
|Allowance for doubtful accounts |  | $                              | 23,000 |                                             | $ | 17,000  |            |  | $                        |       |  | $ | 40,000 
|                                |  |                                |        |                                             |   |         |            |  |                          |        |  |   |        



F-28



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##### Table of Contents

EXHIBIT INDEX



|                |  |   |  |                                                                                                                                                                                                             
|--------------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Numbers |  |  
|                |  |  
|10.45           |  |  |  | Amended and Restated Sales Force Work Order #8795 And Termination of Work Order #8872 pursuant to the Master Services Agreement having an effective date of January 26, 2004 between the
Company and Innovex
|                |  |  
|10.46           |  |  |  | Form of Indemnification Agreement for Officers and Directors                                                                                                                                                
|                |  |  
|10.47           |  |  |  | Form of Executive Change of Control Severance Agreement                                                                                                                                                     
|                |  |  
|14              |  |  |  | Code of Ethics of the Company                                                                                                                                                                               
|                |  |  
|21              |  |  |  | Subsidiaries of the Company                                                                                                                                                                                 
|                |  |  
|31.1            |  |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company                                                                                                                            
|                |  |  
|31.2            |  |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the Company                                                                                                                            
|                |  |  
|32.1            |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                     
|                |  |  
|32.2            |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.