SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For
the quarterly period ended June 30, 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)



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



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



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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. YesX  No



Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)    Yes [X] No [    ]



Number of shares of the Common Stock of Columbia Laboratories, Inc. issued and outstanding as of August 1, 2003: 39,305,706





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PART 1FINANCIAL INFORMATION



Item 1.    Financial Statements



The following unaudited, condensed consolidated financial statements of the Company have been prepared in accordance with
the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the six months ended June 30, 2003 are not
necessarily indicative of the results for the year ending December 31, 2003.



Except for historical information contained herein, the matters discussed in this document are forward looking statements made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Such statements involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Companys operations, markets, products and prices, and other factors discussed elsewhere
in this report.



2



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                            |  | June 30, 2003 |              |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ---------------- | -
|                                                                                                                                            |  | (Unaudited)   |              |   |                  |  
|ASSETS                                                                                                                                      |  |               |              |   |                  |  
|Current assets-                                                                                                                             |  |               |              |   |                  |  
|Cash and cash equivalents                                                                                                                   |  | $             | 6,908,362    |   |                  | $
|Accounts receivable, net                                                                                                                    |  |               | 4,421,658    |   |                  |  
|Inventories                                                                                                                                 |  |               | 2,734,820    |   |                  |  
|Prepaid expenses                                                                                                                            |  |               | 541,817      |   |                  |  
|Loans receivable, related party                                                                                                             |  |               |             |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|Total current assets                                                                                                                        |  |               | 14,606,657   |   |                  |  
|Property and equipment, net                                                                                                                 |  |               | 964,678      |   |                  |  
|Intangible assets, net                                                                                                                      |  |               | 1,018,335    |   |                  |  
|Other assets                                                                                                                                |  |               | 139,785      |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|TOTAL ASSETS                                                                                                                                |  | $             | 16,729,455   |   |                  | $
|                                                                                                                                            |  |               |              |   |                  |  
|                                                                                                                                            |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                                                                           |  |               |              |   |                  |  
|Current liabilities-                                                                                                                        |  |               |              |   |                  |  
|Notes payablecurrent portion                                                                                                               |  | $             |             |   |                  | $
|Accounts payable                                                                                                                            |  |               | 3,804,685    |   |                  |  
|Accrued expenses                                                                                                                            |  |               | 4,296,219    |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|Total current liabilities                                                                                                                   |  |               | 8,100,904    |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|Notes payablelong-term                                                                                                                     |  |               | 10,000,000   |   |                  |  
|Deferred revenue                                                                                                                            |  |               | 4,221,367    |   |                  |  
|Other long-term liabilities                                                                                                                 |  |               | 8,081,663    |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|TOTAL LIABILITIES                                                                                                                           |  |               | 30,403,934   |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|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                            |  |               | 1            |   |                  |  
|Series C Convertible Preferred Stock, 3,500 and 3,750 shares issued and outstanding in 2003 and 2002                                        |  |               | 35           |   |                  |  
|Common stock, $.01 par value; 100,000,000 authorized 36,333,305 and 35,453,722 shares issued and outstanding in 2003 and 2002,
respectively |  |               | 363,333      |   |                  |  
|Capital in excess of par value                                                                                                              |  |               | 130,366,714  |   |                  |  
|Accumulated deficit                                                                                                                         |  |               | (144,567,873 | ) |                  |  
|Accumulated other comprehensive income                                                                                                      |  |               | 163,311      |   |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|TOTAL STOCKHOLDERS EQUITY (DEFICIENCY)                                                                                                     |  |               | (13,674,479  | ) |                  |  
|                                                                                                                                            |  |               |              |   |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                                                                     |  | $             | 16,729,455   |   |                  | $
|                                                                                                                                            |  |               |              |   |                  |  



See notes to condensed
consolidated financial statements





3



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                      |  | Six Months Ended June 30, |            |   | Three Months Ended June 30, |  
|----------------------------------------------------- |  | ------------------------- | ---------- | - | --------------------------- | -
|                                                      |  | 2003                      |            |   | 2002                        |  
|NET SALES                                             |  | $                         | 8,525,346  |   |                             | $
|COST OF GOODS SOLD                                    |  |                           | 3,814,715  |   |                             |  
|                                                      |  |                           |            |   |                             |  
|Gross profit (loss)                                   |  |                           | 4,710,631  |   |                             |  
|                                                      |  |                           |            |   |                             |  
|OPERATING EXPENSES:                                   |  |                           |            |   |                             |  
|Selling and distribution                              |  |                           | 8,541,471  |   |                             |  
|General and administrative                            |  |                           | 2,980,288  |   |                             |  
|Research and development                              |  |                           | 1,589,998  |   |                             |  
|Litigation settlement expense                         |  |                           |           |   |                             |  
|Product recall costs                                  |  |                           |           |   |                             |  
|                                                      |  |                           |            |   |                             |  
|Total operating expenses                              |  |                           | 13,111,757 |   |                             |  
|                                                      |  |                           |            |   |                             |  
|Loss from operations                                  |  |                           | (8,401,126 | ) |                             |  
|                                                      |  |                           |            |   |                             |  
|OTHER INCOME (EXPENSE):                               |  |                           |            |   |                             |  
|Interest income                                       |  |                           | 11,448     |   |                             |  
|Interest expense                                      |  |                           | (725,215   | ) |                             |  
|Other, net                                            |  |                           | 44,215     |   |                             |  
|                                                      |  |                           |            |   |                             |  
|                                                      |  |                           | (669,552   | ) |                             |  
|                                                      |  |                           |            |   |                             |  
|Net loss                                              |  | $                         | (9,070,678 | ) |                             | $
|                                                      |  |                           |            |   |                             |  
|NET LOSS PER COMMON SHARE:                            |  |                           |            |   |                             |  
|Basic and diluted                                     |  | $                         | (0.26      | ) |                             | $
|                                                      |  |                           |            |   |                             |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |  |                           |            |   |                             |  
|Basic and diluted                                     |  |                           | 35,619,030 |   |                             |  
|                                                      |  |                           |            |   |                             |  





See notes to condensed consolidated financial statements





4



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)



|                                         |  | Six Months Ended June 30, |            |   | Three Months Ended June 30, |  
|---------------------------------------- |  | ------------------------- | ---------- | - | --------------------------- | -
|                                         |  | 2003                      |            |   | 2002                        |  
|NET LOSS                                 |  | $                         | (9,070,678 | ) |                             | $
|Other comprehensive income (loss):       |  |                           |            |   |                             |  
|Foreign currency translation, net of tax |  |                           | 80,450     |   |                             |  
|                                         |  |                           |            |   |                             |  
|Comprehensive loss                       |  | $                         | (8,990,228 | ) |                             | $
|                                         |  |                           |            |   |                             |  



See notes to condensed
consolidated financial statements





5



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  | Six Months Ended June 30, |           
|--------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                            |  | 2003                      |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                           |           
|Net loss                                                                    |  | $                         | (9,070,678
|Adjustments to reconcile net loss to net cash used in operating activities- |  |                           |           
|Depreciation and amortization                                               |  |                           | 247,025   
|Provision for doubtful accounts                                             |  |                           | 30,350    
|Provision for returns and allowances                                        |  |                           | 90,072    
|Writedown of inventories                                                    |  |                           | 143,240   
|Interest amortization of PharmaBio Development                              |  |                           | 341,690   
|Changes in assets and liabilities-                                          |  |                           |           
|(Increase) decrease in:                                                     |  |                           |           
|Accounts receivable                                                         |  |                           | (2,343,899
|Inventories                                                                 |  |                           | (552,850  
|Prepaid expenses                                                            |  |                           | 284,016   
|Loans receivable, related parties                                           |  |                           | 17,885    
|Other assets                                                                |  |                           | 12,035    
|Increase (decrease) in:                                                     |  |                           |           
|Accounts payable                                                            |  |                           | 315,567   
|Accrued expenses                                                            |  |                           | 704,795   
|Deferred revenue                                                            |  |                           | 271,508   
|                                                                            |  |                           |           
|Net cash used in operating activities                                       |  |                           | (9,509,244
|                                                                            |  |                           |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                           |           
|Purchase of property and equipment                                          |  |                           | (192,891  
|                                                                            |  |                           |           
|Net cash used in investing activities                                       |  |                           | (192,891  
|                                                                            |  |                           |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                           |           
|Proceeds from issuance of common stock, net                                 |  |                           | 2,467,364 
|Exercise of options and warrants                                            |  |                           | 1,530,313 
|Issuance of note payable                                                    |  |                           |          
|Payment of note payable                                                     |  |                           | (586,667  
|Proceeds from PharmaBio Development                                         |  |                           | 8,250,000 
|Payments to PharmaBio Development                                           |  |                           | (54,209   
|Dividends paid                                                              |  |                           | (93,750   
|                                                                            |  |                           |           
|Net cash provided by financing activities                                   |  |                           | 11,513,051
|                                                                            |  |                           |           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                     |  |                           | 79,081    
|                                                                            |  |                           |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        |  |                           | 1,889,997 
|CASH AND CASH EQUIVALENTS, Beginning of period                              |  |                           | 5,018,365 
|                                                                            |  |                           |           
|CASH AND CASH EQUIVALENTS, End of period                                    |  | $                         | 6,908,362 
|                                                                            |  |                           |           
|NON-CASH INVESTING AND FINANCING ACTIVITIES                                 |  |                           |           
|Related party loan repaid with common stock                                 |  | $                         | 193,237   
|                                                                            |  |                           |           



See notes to condensed
consolidated financial statements



6



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(1)  SIGNIFICANT ACCOUNTING POLICIES:



The accounting policies followed for quarterly financial reporting are the same as those disclosed in Note (1) of the Notes to Consolidated Financial
Statements included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002.



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



(2)  INVENTORIES:



Inventories consist of the following:



|               |  | June 30,2003 |           | December 31, 2002
|-------------- |  | ------------ | --------- | -----------------
|Finished goods |  | $            | 1,907,517 |                  
|Raw materials  |  |              | 827,303   |                  
|               |  |              |           |                  
|               |  | $            | 2,734,820 |                  
|               |  |              |           |                  



(3)  NOTES PAYABLE:



Notes payable consist of:



|                                                            |  | June 30, 2003 |            | December 31,2002 |  
|----------------------------------------------------------- |  | ------------- | ---------- | ---------------- | -
|7.125% convertible subordinated note payabledue March 2005 |  | $             | 10,000,000 |                  | $
|9.00% note payablepayable in monthly installments (a)      |  |               |           |                  |  
|                                                            |  |               |            |                  |  
|                                                            |  |               | 10,000,000 |                  |  
|Less: current portion                                       |  |               |           |                  |  
|                                                            |  |               |            |                  |  
|                                                            |  | $             | 10,000,000 |                  | $
|                                                            |  |               |            |                  |  



(a) Promissory note
payable in the original amount of $3,960,000 with interest on the unpaid balance at the fixed rate of 9% per annum. Principal and interest was to be paid in equal monthly installments of $220,000 of principal plus accrued interest commencing June
15, 2002. 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. In addition to the monthly payments, the Company paid $1,833,333 in
August 2002 (one-third of the $5,500,000 raised by the Company through the sale of its common stock on July 31, 2002). The payment was applied in reverse order of payments due. At June 30, 2003, the note has been fully paid.



7



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(4)  SEGMENT INFORMATION:



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



|                                                    |  | Net Sales |           | Loss fromOperations |   |            | IdentifiableAssets
|--------------------------------------------------- |  | --------- | --------- | ------------------- | - | ---------- | ------------------
|As of and for the six months ended June 30, 2003-   |  |           |           |                     |   |            |                   
|United States                                       |  | $         | 4,627,546 |                     | $ | (9,003,953 | )                 
|Europe                                              |  |           | 3,897,800 |                     |   | 602,827    |                   
|                                                    |  |           |           |                     |   |            |                   
|                                                    |  | $         | 8,525,346 |                     | $ | (8,401,126 | )                 
|                                                    |  |           |           |                     |   |            |                   
|As of and for the six months ended June 30, 2002-   |  |           |           |                     |   |            |                   
|United States                                       |  | $         | 2,233,873 |                     | $ | (1,826,536 | )                 
|Europe                                              |  |           | 798,087   |                     |   | (5,934,482 | )                 
|                                                    |  |           |           |                     |   |            |                   
|                                                    |  | $         | 3,031,960 |                     | $ | (7,761,018 | )                 
|                                                    |  |           |           |                     |   |            |                   
|As of and for the three months ended June 30, 2003- |  |           |           |                     |   |            |                   
|United States                                       |  | $         | 3,186,194 |                     | $ | (4,490,997 | )                 
|Europe                                              |  |           | 1,733,606 |                     |   | 483,206    |                   
|                                                    |  |           |           |                     |   |            |                   
|                                                    |  | $         | 4,919,800 |                     | $ | (4,007,791 | )                 
|                                                    |  |           |           |                     |   |            |                   
|As of and for the three months ended June 30, 2002- |  |           |           |                     |   |            |                   
|United States                                       |  | $         | 1,936,268 |                     | $ | 1,137      |                   
|Europe                                              |  |           | 518,881   |                     |   | (4,598,339 | )                 
|                                                    |  |           |           |                     |   |            |                   
|                                                    |  | $         | 2,455,149 |                     | $ | (4,597,202 | )                 
|                                                    |  |           |           |                     |   |            |                   





8



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(5)  LOSS PER COMMON AND COMMON EQUIVALENT SHARE:



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



|                                                     |  | Six Months Ended June 30, |            |   | Three Months Ended June 30, |   
|---------------------------------------------------- |  | ------------------------- | ---------- | - | --------------------------- | --
|                                                     |  | 2003                      |            |   | 2002                        |   
|Net loss                                             |  | ($                        | 9,070,678  | ) |                             | ($
|Less: Preferred stock dividends                      |  |                           | (93,750    | ) |                             |   
|                                                     |  |                           |            |   |                             |   
|Net loss applicable to common stock                  |  | ($                        | 9,164,428  | ) |                             | ($
|                                                     |  |                           |            |   |                             |   
|Basic and diluted:                                   |  |                           |            |   |                             |   
|Weighted average number of common shares outstanding |  |                           | 35,619,030 |   |                             |   
|                                                     |  |                           |            |   |                             |   
|Basic and diluted net loss per common share          |  | $                         | (0.26      | ) |                             | $ 
|                                                     |  |                           |            |   |                             |   



(6)  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. Under the terms of the settlement, the Company sublicensed 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 has been fully paid, to cover out of pocket
costs resulting from the recall.



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.



(7)  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. 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. As a result of the
settlement of the litigation described in Note 6, 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 Condensed Consolidated Statement of Operations.



9



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(8)  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, which bore interest at 10% per annum and which were due on or before December 7, 1997, were subsequently extended through December 7, 1999. On June 30, 2003, the notes and accrued interest totaling $216,639 were paid in full
by transferring to the Company, Columbia stock valued at $193,237 and $23,402 in cash.



(9)  AGREEMENTS WITH QUINTILES TRANSNATIONAL CORP.:



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. The costs of the sales representatives are included in selling and distribution expenses. In a second 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 in the 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 through December 31, 2002 and June 30,
2003, 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%. $210,142 was recorded as interest expense in the six months ended June 30, 2003. As of December 31, 2002 and June 30, 2003, $900,000 and $811,858, respectively, are recorded as current liabilities and included in accrued expenses and
$1,350,000 and $3,844,075, respectively, are recorded as other long-term liabilities in the accompanying condensed Consolidated Balance Sheets.



On March 5, 2003, the Company and Quintiles 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. The costs of the sales representatives will be included in selling and distribution
expenses. Quintiles strategic investment group, PharmaBio Development, also agreed to pay $15 million to Columbia over a 15-month period commencing with the signing of the 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 will commence with the launch of Striant 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 June 30, 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%. $131,548 was recorded as interest expense in the six months ended
June 30, 2003. The Company has received $6 million through June 30, 2003 and $1,893,960 is recorded as a current liability and included in accrued expenses and $4,237,588 is recorded as a long-term liability in the accompanying condensed
Consolidated Balance Sheet.



10



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(10)  STOCK-BASED COMPENSATION:



The Company has elected to apply APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its stock options and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS No. 123, the Companys net loss and net loss per common share for the six and three month periods ended June 30, 2003 and 2002 would have
been as follows:



|                                                                                                       |  | Six Months Ended June 30, |             |   | Three Months Ended June 30, |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------- | ----------- | - | --------------------------- | -
|                                                                                                       |  | 2003                      |             |   | 2002                        |  
|Net loss, as reported                                                                                  |  | $                         | (9,070,678  | ) |                             | $
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards |  |                           | (971,457    | ) |                             |  
|                                                                                                       |  |                           |             |   |                             |  
|Pro forma net loss                                                                                     |  | $                         | (10,042,135 | ) |                             | $
|                                                                                                       |  |                           |             |   |                             |  
|Loss per sharebasic and diluted                                                                       |  |                           |             |   |                             |  
|As reported                                                                                            |  | $                         | (0.26       | ) |                             | $
|                                                                                                       |  |                           |             |   |                             |  
|Pro forma                                                                                              |  | $                         | (0.28       | ) |                             | $
|                                                                                                       |  |                           |             |   |                             |  



(11)  CAPITAL
TRANSACTION:



On May 9, 2003, the Company sold 510,204
shares of its common stock to an institutional investor at a price of $4.90 per share. Gross proceeds amounted to $2,500,000.



(12)  SUBSEQUENT EVENT:



On July 23, 2003, the Company sold 2,244,783 shares of its common stock to a group of institutional investors at a price of $11.70 per share. The price
per share represented a negotiated discount to the market price and gross proceeds amounted to $26,263,961.



11



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|Item 2. |  | ManagementsDiscussion And Analysis Of Financial Condition 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 Quarterly
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.



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 the Annual Report on Form
10-K, beginning on page F-11. Note that the preparation of this Quarterly Report on Form 10-Q 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.



12



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Accounting For PharmaBio Development Agreements.    On July 31, 2002,
Quintiles Transnational Corp. strategic investment group, PharmaBio Development, agreed to pay $4.5 million, to be paid in four equal quarterly installments commencing in the 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 through December 31, 2002 and June 30, 2003, 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%. $210,142 was recorded as interest expense in the six months ended June 30, 2003. As of December 31, 2002 and June 30, 2003, $900,000
and $811,858, respectively, are recorded as current liabilities and included in accrued expenses and $1,350,000 and $3,844,075, respectively, are recorded as other long-term liabilities in the accompanying condensed Consolidated Balance Sheets. On
March 5, 2003, PharmaBio Development, also agreed to pay $15 million to Columbia over a 15-month period commencing with the signing of the 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 will commence with the launch of Striant 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 June 30, 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%. $131,548 was recorded as interest expense in the six months ended June 30, 2003. The Company has received
$6 million through June 30, 2003 and $1,893,960 is recorded as a current liability and included in accrued expenses and $4,237,588 is recorded as a long-term liability in the accompanying condensed Consolidated Balance Sheet. The accounting for
these agreements have been included in this section because of their significance to the Company.



Liquidity and Capital Resources



Cash and cash equivalents increased from $5,018,365 at December 31, 2002 to $6,908,362 at June 30, 2003. During the period, the Company used $9,509,244 for operating activities. During the period, the Company spent $192,891 on property and
equipment and paid off $586,667 of the note payable to Serono. The Company also paid $ 93,750 for dividends to holders of its Series C preferred stock. On May 9, 2002, the Company sold 510,204 shares (at $4.90 per share), of its Common Stock to
Biotech Value Plus Ltd. The price represented a negotiated discount to the market price and gross proceeds were $2,500,000. The Company received $8,250,000 from PharmaBio Development pursuant to two agreements involving future paybacks based on U.S.
sales of the Companys products. A total of $9,000,000 in three equal installments will be received from PharmaBio by the Company over the third and fourth quarters of 2003 and the first quarter of 2004. The Company also received $1,530,313
from the exercise of outstanding stock options and warrants.



On July 23, 2003, the Company sold 2,244,783 shares of its common stock to a group of institutional investors at a price of $11.70 per share. The price per share represented a negotiated discount to the market price and gross proceeds
amounted to $26,263,961.



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 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 August 1, 2003, $9 million may be sold under the Agreement subject to the
registration statement relating to the amendment becoming effective.



13



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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 June 30, 2003, the Company has paid
approximately $2.3 million in royalty payments.



As of June 30,
2003, the Company has outstanding exercisable options and warrants that, if exercised, would result in approximately $54.1 million of additional capital. There can be no assurance that any options or warrants will be exercised.



The Company anticipates it will spend approximately $1,000,000 on property
and equipment in 2003.



In accordance with Statement of
Financial Accounting Standards No. 109, as of June 30, 2003 and December 31, 2002, other assets in the accompanying consolidated balance sheets include deferred tax assets of approximately $25 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Six Months Ended June 30, 2003 versus Six Months Ended June 30, 2002



Net sales increased by approximately $5,493,000 from approximately $3,032,000 in 2002 to approximately $8,525,000 in 2003.
Sales of Crinone® accounted for approximately
$3,909,000 million in 2003 as compared to approximately $1,709,000 in 2002. 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. Sales of the product Replens were approximately $1,408,000 in
2003 as compared to $659,000 in 2002. New products introduced since the second quarter of 2002, accounted for approximately $2,356,000 of the 2003 net sales.



Gross profit as a percentage of net sales was 55% in 2003 as compared to 39% in 2002. The 55% gross profit percentage in 2003 was the result of the
reintroduction of Crinone® sales and the launches
of Prochieve 8%, Prochieve 4% and Rephresh since the second quarter of 2002. The cost of goods sold for the Prochieve products includes a 30% royalty to Serono on net
sales. Under the Replens® Purchase and License
Agreement dated April 18, 2000, between the Company and Lil Drug Store Products, Inc., the selling price for Replens® to Lil Drug Store Products is equal to the Companys cost of goods and the Company receives a royalty on sales by Lil Drug Store
Products. The 39% gross profit percentage in 2002 resulted from the reduced sales caused by the Crinone® recall and the inability to reduce fixed manufacturing costs.



Selling and distribution expenses increased approximately $7,705,000 in 2003, from approximately $836,000 in 2002 to approximately $8,541,000 in 2003. The
commencement of sales of Prochieve 8% to trade
customers by the Company and the promotion of this product, RepHresh and Advantage-S® to
physicians, in September 2002, and the subsequent introduction of Prochieve 4% in 2003 accounted for the 2003 increase. Included in the 2003 expenses were sales force costs of approximately $4,033,000 and product marketing expenses of approximately $3,199,000. Additionally, the company has
incurred $398,000 in salary expense in 2003.



General and
administrative expenses increased by approximately $704,000 in 2003 to approximately $2,980,000 in 2003 compared to approximately $2,276,000 in 2002. The higher costs in 2003 were the result of increases in insurance premiums ($197,000), patent and
other legal fees ($175,000) and the hiring of additional administrative personnel subsequent to the second quarter of 2002 ($209,000).



14



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Research and development expense decreased in 2003 by approximately $728,000 from approximately
$2,318,000 in 2002 to $1,590,000 in 2003. The decrease is primarily related to the costs associated with the Companys Phase III trials for its male testosterone product which started to conclude in the 2002 first quarter.



Litigation settlement expense 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 2002 represents the reversal of the unused estimate of the Companys direct out-of-pocket costs related to the voluntary
recall of Crinone, which was accrued in the first quarter of 2001.



Interest expense increased by approximately $319,000 from approximately $406,000 in 2002 to approximately $725,000 in 2003, primarily as a result of expensing as interest, the difference between the minimum amounts to be paid to PharmaBio
Development and the amounts to be received. Interest expense related to the convertible subordinated note payable, totaled approximately $356,000 in 2003 and 2002.



As a result, the net loss for the six months ended June 30, 2003 was $9,070,678 or $(.26) per common share as compared to
the net loss for the six months ended June 30, 2002 of $8,236,441 or $(.25) per common share.



Results of OperationsThree Months Ended June 30, 2003 versus Three Months Ended June 30, 2002



Net sales increased by approximately $2,465,000 from approximately $2,455,000 in 2002 to approximately $4,920,000 in 2003. Sales of Crinone® accounted for approximately $1,850,000 million in 2003
as compared to approximately $1,709,000 in 2002. Sales of the product Replens were approximately $980,000 in 2003 as compared to $295,000 in 2002. New products introduced since the second quarter of 2002, accounted for approximately $1,626,000 of
the 2003 net sales.



Gross profit as a percentage of net sales
was 57% in 2003 as compared to 63% in 2002. The 57% gross profit percentage in 2003 was the result of the reintroduction of Crinone® sales and the launches of Prochieve 8%, Prochieve 4% and Rephresh since the second quarter of 2002. The cost of goods sold for the Prochieve products includes a 30% royalty to Serono on net sales. Under the Replens® Purchase and License Agreement dated April 18, 2000, between the Company and Lil Drug Store Products, Inc., the selling price for Replens® to Lil Drug Store Products is equal to the
Companys cost of goods and the Company receives a royalty on sales by Lil Drug Store Products.



Selling and distribution expenses increased approximately $4,110,000 in 2003, from approximately $469,000 in 2002 to approximately $4,579,000 in 2003. The
commencement of sales of Prochieve 8% to trade
customers by the Company and the promotion of this product, RepHresh and Advantage-S® to
physicians, in September 2002, and the subsequent introduction of Prochieve 4% in 2003 accounted for the 2003 increase. Included in the 2003 expenses were sales force costs of approximately $1,970,000 and product marketing expenses of approximately $1,923,000. Additionally, the company has
incurred $227,000 in salary expense in 2003.



General and
administrative expenses increased by approximately $460,000 in 2003 to approximately $1,552,000 in 2003 compared to approximately $1,092,000 in 2002. The higher costs in 2003 were the result of increases in insurance premiums ($107,000), patent and
other legal fees ($326,000) and the hiring of additional administrative personnel subsequent to the second quarter of 2002 ($64,000).



Research and development expense decreased in 2003 by approximately $420,000 from approximately $1,079,000 in 2002 to $659,000 in 2003. The decrease is
primarily related to the costs associated with the Companys Phase III trials for its male testosterone product which started to conclude in the 2002 first quarter.



Litigation settlement expense 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.



15



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Product recall costs in 2002 represents the reversal of the unused estimate of the Companys direct
out-of-pocket costs related to the voluntary recall of Crinone, which was accrued in the first quarter of 2001.



Interest expense increased by approximately $139,000 from approximately $217,000 in 2002 to approximately $356,000 in 2003, primarily as a result of
expensing as interest, the difference between the minimum amounts to be paid to PharmaBio Development and the amounts to be received. Interest expense related to the convertible subordinated note payable, totaled approximately $178,000 in 2003 and
2002.



As a result, the net loss for the three months ended
June 30, 2003 was $4,366,608 or $(.12) per common share as compared to the net loss for the three months ended June 30, 2002 of $4,855,498 or $(.14) per common share.



|Item 3. |  | Quantitative And Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



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.



16



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|Item 4. |  | Disclosure 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Companys management, including the Chief Executive Officer and the Chief
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.



Within 90 days prior to the filing date of this quarterly report on Form
10-Q, the Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective.



17



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PART IIOTHER INFORMATION



|Item 1. |  | 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. Under the terms of the settlement, the Company licensed 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 has been fully paid, to cover out of pocket costs resulting from the recall.



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.



|Item 2. |  | Changes in Securities
|------- |  | ---------------------



None.



|Item 3. |  | Defaults upon Senior Securities
|------- |  | -------------------------------



None.



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



The 2003 annual meeting of shareholders was held on May 15, 2003 for the purpose of electing seven directors. James J. Apostolakis, Jean Carvais, M.D.,
Max Link, Ph.D., Denis ODonnell, M.D., Selwyn Oskowitz, M.D., Robert Strauss and Fred Wilkinson were all elected, with each nominee receiving at least 30,910,657 votes out of a possible 35,453722 votes. Also approved by a majority of those
voting was a proposal to ratify the selection of Goldstein Golub Kessler LLP as independent auditor for the current year.



|Item 5. |  | Other Information
|------- |  | -----------------



None.



18



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



A.    Exhibits



|      | 
|----- | 
|10.43 | 
|      | 
|31.1  | 
|      | 
|31.2  | 
|      | 
|32.1  | 
|      | 
|32.2  | 



B.    Reports on Form 8-K



On
April 16, 2003, the Company filed a form 8-K in which it reported that William Bologna had resigned from his position as chief science officer, effective immediately, and would step down as chairman of the Companys board of directors effective
May 15, 2003.



On May 12, 2003, the Company filed a form 8-K in
which it reported the sale of 510,204 shares of its common stock to Biotech Value Plus, Ltd.



On June 20, 2003, the Company filed a form 8-K in which it reported the approval by the U.S. FDA of Striant, a new treatment form for men with a deficiency or absence of testosterone.



On July 25, 2003, the Company filed a form 8-K in which it reported the sale
of 2,244,783 shares of its common stock at a price of $11.70 to a group of institutional investors.





19



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SIGNATURES



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



COLUMBIA LABORATORIES, INC./s/    DAVID L. WEINBERGDAVID L. WEINBERG, Vice President- Finance and Chief Financial Officer






DATE: August 14, 2003





20



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Exhibit Index



|ExhibitNo. |  | Description                                                                                                                                  
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.43      |  |      License and Supply Agreement dated May 27, 2003, between the Company and Mipharm
S.p.A.                                                
|           | 
|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, filed herewith.
|           | 
|32.2       |  |      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.





1