---



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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 March 31, 2004



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



COLUMBIA LABORATORIES, INC.

(Exact
name of Company as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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



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 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 May 1, 2004: 39,751,934



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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 three months ended March 31, 2004 are not necessarily indicative of the
results for the year ending December 31, 2004.



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.



Page 2 of 18



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                            |  |               |              |   |                  |   |              |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                            |  | March 31,2004 |              |   | December 31,2003 |  
|                                                                                                                                            |  | (Unaudited)   |              |   |                  |  
|ASSETS                                                                                                                                      |  |               |              |   |                  |   |              |  
|Current assets-                                                                                                                             |  |               |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                   |  | $             | 27,777,426   |   |                  | $ | 30,965,517   |  
|Accounts receivable, net                                                                                                                    |  |               | 4,660,010    |   |                  |   | 4,780,921    |  
|Inventories                                                                                                                                 |  |               | 3,369,351    |   |                  |   | 2,469,224    |  
|Prepaid expenses and other current liabilities                                                                                              |  |               | 1,420,613    |   |                  |   | 2,240,920    |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|Total current assets                                                                                                                        |  |               | 37,227,400   |   |                  |   | 40,456,582   |  
|Property and equipment, net                                                                                                                 |  |               | 903,597      |   |                  |   | 961,995      |  
|Intangible assets, net                                                                                                                      |  |               | 896,667      |   |                  |   | 920,418      |  
|Other assets                                                                                                                                |  |               | 139,827      |   |                  |   | 140,654      |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|TOTAL ASSETS                                                                                                                                |  | $             | 39,167,491   |   |                  | $ | 42,479,649   |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |  |               |              |   |                  |   |              |  
|Current liabilities-                                                                                                                        |  |               |              |   |                  |   |              |  
|Note payable                                                                                                                                |  | $             | 10,000,000   |   |                  | $ |             |  
|Current portion of financing agreements                                                                                                     |  |               | 3,634,434    |   |                  |   | 1,228,865    |  
|Accounts payable                                                                                                                            |  |               | 3,088,342    |   |                  |   | 2,806,236    |  
|Accrued expenses                                                                                                                            |  |               | 1,027,329    |   |                  |   | 2,731,692    |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|Total current liabilities                                                                                                                   |  |               | 17,750,105   |   |                  |   | 6,766,793    |  
|Notes payable - long-term                                                                                                                   |  |               |             |   |                  |   | 10,000,000   |  
|Deferred revenue                                                                                                                            |  |               | 4,662,737    |   |                  |   | 3,879,618    |  
|Long-term portion of financing agreements                                                                                                   |  |               | 16,744,402   |   |                  |   | 15,746,695   |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|TOTAL LIABILITIES                                                                                                                           |  |               | 39,157,244   |   |                  |   | 36,393,106   |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|Stockholders equity-                                                                                                                       |  |               |              |   |                  |   |              |  
|Preferred stock, $.01 par value; 1,000,000 shares authorized:                                                                               |  |               |              |   |                  |   |              |  
|Series B Convertible Preferred Stock, 130 shares issued and outstanding in 2004 and 2003                                                    |  |               | 1            |   |                  |   | 1            |  
|Series C Convertible Preferred Stock, 3,250 shares issued and outstanding in 2004 and 2003                                                  |  |               | 32           |   |                  |   | 32           |  
|Common stock, $.01 par value; 100,000,000 authorized 39,751,934 and 39,679,381 shares issued and outstanding in 2004 and 2003,
respectively |  |               | 397,519      |   |                  |   | 396,794      |  
|Capital in excess of par value                                                                                                              |  |               | 162,334,898  |   |                  |   | 162,146,561  |  
|Accumulated deficit                                                                                                                         |  |               | (162,903,043 | ) |                  |   | (156,648,214 | )
|Accumulated other comprehensive income                                                                                                      |  |               | 180,840      |   |                  |   | 191,369      |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                  |  |               | 10,247       |   |                  |   | 6,086,543    |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  |  | $             | 39,167,491   |   |                  | $ | 42,479,649   |  
|                                                                                                                                            |  |               |              |   |                  |   |              |  



See notes to condensed
consolidated financial statements



Page 3 of 18



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                      |  |                             |            |   |      |   |            |  
|----------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                      |  | Three Months EndedMarch 31, |           
|                                                      |  | 2004                        |            |   | 2003 |  
|NET SALES                                             |  | $                           | 4,539,679  |   |      | $ | 3,605,546  |  
|COST OF GOODS SOLD                                    |  |                             | 1,685,196  |   |      |   | 1,677,348  |  
|                                                      |  |                             |            |   |      |   |            |  
|Gross profit (loss)                                   |  |                             | 2,854,483  |   |      |   | 1,928,198  |  
|                                                      |  |                             |            |   |      |   |            |  
|OPERATING EXPENSES:                                   |  |                             |            |   |      |   |            |  
|Selling and distribution                              |  |                             | 4,872,906  |   |      |   | 3,962,606  |  
|General and administrative                            |  |                             | 1,927,746  |   |      |   | 1,427,816  |  
|Research and development                              |  |                             | 1,616,711  |   |      |   | 931,111    |  
|                                                      |  |                             |            |   |      |   |            |  
|Total operating expenses                              |  |                             | 8,417,363  |   |      |   | 6,321,533  |  
|                                                      |  |                             |            |   |      |   |            |  
|Loss from operations                                  |  |                             | (5,562,880 | ) |      |   | (4,393,335 | )
|                                                      |  |                             |            |   |      |   |            |  
|OTHER INCOME (EXPENSE):                               |  |                             |            |   |      |   |            |  
|Interest income                                       |  |                             | 59,969     |   |      |   | 8,989      |  
|Interest expense                                      |  |                             | (684,181   | ) |      |   | (369,683   | )
|Other, net                                            |  |                             | (67,737    | ) |      |   | 49,959     |  
|                                                      |  |                             |            |   |      |   |            |  
|                                                      |  |                             | (691,949   | ) |      |   | (310,735   | )
|                                                      |  |                             |            |   |      |   |            |  
|Net loss                                              |  | $                           | (6,254,829 | ) |      | $ | (4,704,070 | )
|                                                      |  |                             |            |   |      |   |            |  
|NET LOSS PER COMMON SHARE:                            |  |                             |            |   |      |   |            |  
|Basic and diluted                                     |  | $                           | (0.16      | ) |      | $ | (0.13      | )
|                                                      |  |                             |            |   |      |   |            |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |  |                             |            |   |      |   |            |  
|Basic and diluted                                     |  |                             | 39,751,934 |   |      |   | 35,453,722 |  
|                                                      |  |                             |            |   |      |   |            |  



See notes to condensed
consolidated financial statements



Page 4 of 18



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)



|                                         |  |                             |            |   |      |   |            |  
|---------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                         |  | Three Months EndedMarch 31, |           
|                                         |  | 2004                        |            |   | 2003 |  
|NET LOSS                                 |  | $                           | (6,254,829 | ) |      | $ | (4,704,070 | )
|Other comprehensive income (loss):       |  |                             |            |   |      |   |            |  
|Foreign currency translation, net of tax |  |                             | (10,529    | ) |      |   | 22,202     |  
|                                         |  |                             |            |   |      |   |            |  
|Comprehensive loss                       |  | $                           | (6,265,358 | ) |      | $ | (4,681,868 | )
|                                         |  |                             |            |   |      |   |            |  



See notes to condensed
consolidated financial statements



Page 5 of 18



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                     |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                     |  | Three Months EndedMarch 31, |           
|                                                                                     |  | 2004                        |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |                             |            |   |      |   |            |  
|Net loss                                                                             |  | $                           | (6,254,829 | ) |      | $ | (4,704,070 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities- |  |                             |            |   |      |   |            |  
|Depreciation and amortization                                                        |  |                             | 107,936    |   |      |   | 123,367    |  
|Provision for doubtful accounts                                                      |  |                             |           |   |      |   | 10,000     |  
|Provision for returns and allowances                                                 |  |                             | 25,575     |   |      |   | 18,966     |  
|Writedown of inventories                                                             |  |                             | 100,000    |   |      |   | 50,000     |  
|Interest expense on financing agreements                                             |  |                             | 495,340    |   |      |   | 175,000    |  
|Changes in assets and liabilities-                                                   |  |                             |            |   |      |   |            |  
|(Increase) decrease in:                                                              |  |                             |            |   |      |   |            |  
|Accounts receivable                                                                  |  |                             | 95,336     |   |      |   | (774,486   | )
|Inventories                                                                          |  |                             | (1,000,127 | ) |      |   | (130,089   | )
|Prepaid expenses                                                                     |  |                             | 820,307    |   |      |   | 96,224     |  
|Loans receivable, related parties                                                    |  |                             |           |   |      |   | (2,758     | )
|Other assets                                                                         |  |                             | 827        |   |      |   | 13,774     |  
|Increase (decrease) in:                                                              |  |                             |            |   |      |   |            |  
|Accounts payable                                                                     |  |                             | 282,106    |   |      |   | (860,289   | )
|Accrued expenses                                                                     |  |                             | (1,704,363 | ) |      |   | 1,037,800  |  
|Deferred revenue                                                                     |  |                             | 783,119    |   |      |   | 87,080     |  
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash used in operating activities                                                |  |                             | (6,248,773 | ) |      |   | (4,859,481 | )
|                                                                                     |  |                             |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |  |                             |            |   |      |   |            |  
|Purchase of property and equipment                                                   |  |                             | (25,892    | ) |      |   | (90,132    | )
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash used in investing activities                                                |  |                             | (25,892    | ) |      |   | (90,132    | )
|                                                                                     |  |                             |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |  |                             |            |   |      |   |            |  
|Stock issuance costs                                                                 |  |                             |           |   |      |   | (22,432    | )
|Payment of note payable                                                              |  |                             |           |   |      |   | (586,667   | )
|Proceeds from exercise of warrants                                                   |  |                             | 229,688    |   |      |   |            |  
|Proceeds from financing agreements                                                   |  |                             | 3,000,000  |   |      |   | 4,125,000  |  
|Payments pursuant to financing agreements                                            |  |                             | (92,065    | ) |      |   |            |  
|Dividends paid                                                                       |  |                             | (40,625    | ) |      |   | (46,875    | )
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                  |  |                             | 3,096,998  |   |      |   | 3,469,026  |  
|                                                                                     |  |                             |            |   |      |   |            |  



(Continued)



Page 6 of 18



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COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



(Continued)



|                                                     |  |                             |            |   |      |   |            |  
|---------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                     |  | Three Months Ended March31, |           
|                                                     |  | 2004                        |            |   | 2003 |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH              |  |                             | (10,424    | ) |      |   | 21,663     |  
|                                                     |  |                             |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  |                             | (3,188,091 | ) |      |   | (1,458,924 | )
|CASH AND CASH EQUIVALENTS,                           |  |                             |            |   |      |   |            |  
|Beginning of period                                  |  |                             | 30,965,517 |   |      |   | 5,018,365  |  
|                                                     |  |                             |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS,                           |  |                             |            |   |      |   |            |  
|End of period                                        |  | $                           | 27,777,426 |   |      | $ | 3,559,441  |  
|                                                     |  |                             |            |   |      |   |            |  



See notes to condensed
consolidated financial statements



Page 7 of 18



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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, 2003.



(2) INVENTORIES:



Inventories consist of the following:



|               |  |               |           |                  |   |          
|-------------- |  | ------------- | --------- | ---------------- | - | ---------
|               |  | March 31,2004 |           | December 31,2003
|Finished goods |  | $             | 2,558,024 |                  | $ | 1,096,785
|Raw materials  |  |               | 811,327   |                  |   | 1,372,439
|               |  |               |           |                  |   |          
|               |  | $             | 3,369,351 |                  | $ | 2,469,224
|               |  |               |           |                  |   |          



(3) NOTES PAYABLE:



Notes payable consist of:



|                                                              |  |               |            |                  |   |           
|------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                                              |  | March 31,2004 |            | December 31,2003
|7.125% convertible subordinated note payable - due March 2005 |  | $             | 10,000,000 |                  | $ | 10,000,000
|Less: current portion                                         |  |               | 10,000,000 |                  |   |          
|                                                              |  |               |            |                  |   |           
|                                                              |  | $             |           |                  | $ | 10,000,000
|                                                              |  |               |            |                  |   |           



(4) 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%. $147,877 and $148,690 were recorded as interest expense for the quarters ended March 31, 2004 and March 31, 2003, respectively. 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 has paid PharmaBio $434,919 through March 31, 2004.



Page 8 of 18



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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, the
Company has recorded the amounts received as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the $15 million received by the Company is being recognized as interest expense over the seven-year term of the
agreement, assuming an interest rate of 10.67%. $347,463 and $26,310 were recorded as interest expense for the quarters ended March 31, 2004 and March 31, 2003, respectively. The Company has received $15.0 million through March 31, 2004. 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 has paid PharmaBio $266,658 through March 31, 2004.



Liabilities from financing agreements consist of the following:



|                                  |  |               |            |                  |   |           
|--------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                  |  | March 31,2004 |            | December 31,2003
|July 31, 2002 financing agreement |  | $             | 4,711,327  |                  | $ | 4,648,018 
|March 5, 2003 financing agreement |  |               | 15,667,509 |                  |   | 12,327,842
|                                  |  |               |            |                  |   |           
|                                  |  |               | 20,378,836 |                  |   | 16,975,860
|Less: current portion             |  |               | 3,634,434  |                  |   | 1,228,865 
|                                  |  |               |            |                  |   |           
|                                  |  | $             | 16,744,402 |                  | $ | 15,746,995
|                                  |  |               |            |                  |   |           



(5) 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 three months ended March 31, 2004- |  |           |           |                     |   |            |                    |  |   |           
|United States                                        |  | $         | 2,332,664 |                     | $ | (5,909,748 | )                  |  | $ | 26,160,274
|Europe                                               |  |           | 2,207,015 |                     |   | 346,868    |                    |  |   | 13,007,217
|                                                     |  |           |           |                     |   |            |                    |  |   |           
|                                                     |  | $         | 4,539,679 |                     | $ | (5,562,880 | )                  |  | $ | 39,167,491
|                                                     |  |           |           |                     |   |            |                    |  |   |           
|As of and for the three months ended March 31, 2003- |  |           |           |                     |   |            |                    |  |   |           
|United States                                        |  | $         | 1,441,352 |                     | $ | (4,512,956 | )                  |  | $ | 6,084,033 
|Europe                                               |  |           | 2,164,194 |                     |   | 119,621    |                    |  |   | 5,909,023 
|                                                     |  |           |           |                     |   |            |                    |  |   |           
|                                                     |  | $         | 3,605,546 |                     | $ | (4,393,335 | )                  |  | $ | 11,993,056
|                                                     |  |           |           |                     |   |            |                    |  |   |           



Page 9 of 18



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(6) INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:



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



|                                                     |  |                              |            |   |      |   |            |  
|---------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                     |  | Three Months Ended March 31, |           
|                                                     |  | 2004                         |            |   | 2003 |  
|Net loss                                             |  | $                            | (6,254,829 | ) |      | $ | (4,704,070 | )
|Less: Preferred stock dividends                      |  |                              | (40,625    | ) |      |   | (46,875    | )
|                                                     |  |                              |            |   |      |   |            |  
|Net loss applicable to common stock                  |  | $                            | (6,295,454 | ) |      | $ | (4,750,945 | )
|                                                     |  |                              |            |   |      |   |            |  
|Basic and diluted:                                   |  |                              |            |   |      |   |            |  
|Weighted average number of common shares outstanding |  |                              | 39,740,576 |   |      |   | 35,453,722 |  
|                                                     |  |                              |            |   |      |   |            |  
|Basic and diluted net loss per common share          |  | $                            | (0.16      | ) |      | $ | (0.13      | )
|                                                     |  |                              |            |   |      |   |            |  



(7) 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.



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.



(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, 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.



Page 10 of 18



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(9) 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 three month periods ended March 31,
2004 and 2003 would have been as follows:



|                                                                                                       |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                       |  | Three Months Ended March 31, |           
|                                                                                                       |  | 2004                         |            |   | 2003 |  
|Net loss, as reported                                                                                  |  | $                            | (6,254,829 | ) |      | $ | (4,704,070 | )
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards |  |                              | (485,422   | ) |      |   | (471,693   | )
|                                                                                                       |  |                              |            |   |      |   |            |  
|Pro forma net loss                                                                                     |  | $                            | (6,740,251 | ) |      | $ | (5,175,763 | )
|                                                                                                       |  |                              |            |   |      |   |            |  
|Loss per share - basic and diluted                                                                     |  |                              |            |   |      |   |            |  
|As reported                                                                                            |  | $                            | (0.16      | ) |      | $ | (0.13      | )
|                                                                                                       |  |                              |            |   |      |   |            |  
|Pro forma                                                                                              |  | $                            | (0.17      | ) |      | $ | (0.15      | )
|                                                                                                       |  |                              |            |   |      |   |            |  



Page 11 of 18



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|Item 2. | Managements Discussion 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.



Page 12 of 18



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Accounting For PharmaBio Development 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 decreased from $30,965,517 at December 31, 2003 to $27,777,426 at March 31, 2004. During the quarter ended March 31, 2004 the Company used
$6,248,773 for operations, received $3,000,000 from PharmaBio and $229,688 from the exercise of stock warrants, paid $92,065 to PharmaBio, spent $25,892 on property and equipment and $40,625 for dividends to holders of its 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. As of May 1, 2004, $9 million may be sold under the Agreement subject to the registration statement relating to the amendment becoming
effective.



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 March 31, 2004, the Company has paid approximately $2.7 million in royalty payments.



As of March 31, 2004, the Company has outstanding exercisable options and warrants that, if exercised, would result in approximately $50.1 million of additional capital. However, there can be no assurance that any
such options or warrants will be exercised.



Significant expenditures
anticipated by the Company in the near future are concentrated on research and development related to new products. The Company anticipates it will spend approximately $500,000 on property and equipment in 2004.



As of March 31, 2002, the Company had available net operating loss carryforwards of
approximately $59 million to offset its future U.S. taxable income. In accordance with Statement of Financial Accounting Standards No. 109, as of March 31, 2004 and December 31, 2003, other assets in the accompanying consolidated balance sheets
include deferred tax assets of approximately $35 and $32 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.



Page 13 of 18



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Results of Operations - Three Months Ended March 31, 2004 versus Three Months Ended March 31, 2003



Net sales increased by approximately $934,000 from approximately $3,606,000 in 2003 to
approximately $4,540,000 in 2004. Sales of products to wholesalers and chain drugstores were $615,000 in 2004 versus $519,000 in 2003. Sales to the Companys marketing partners were $3,505,000 in 2004 versus $2,687,000 in 2003. Total licensing
fee income, product development fee income and royalty income was $419,000 in 2004 as compared to $400,000 in 2003.



Gross profit as a percentage of net sales was 63% in 2004 as compared to 53% in 2003. The increase in gross profit percentage from 2003 to 2004 was the result of the
introduction of Striant® in the third quarter of
2003. 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 $910,000 in 2004, from approximately $3,963,000 in 2003 to approximately $4,873,000 in 2004. The commencement of sales of Striant® in 2003 accounted for the 2004 increase. Included in the 2004 expenses were sales force costs of approximately $2,793,000, product marketing
expenses of approximately $884,000 and salary costs of approximately $439,000. Expenses in 2003 included approximately $2,063,000 in sales force costs, approximately $1,276,000 in product marketing expenses and approximately $235,000 in salary
costs.



General and administrative expenses increased by approximately $500,000
in 2004 to approximately $1,928,000 in 2004 compared to approximately $1,428,000 in 2003. The higher costs in 2004 were the result of increases in insurance premiums ($204,000), non-legal professional fees ($88,000), office expenses ($56,000) and
the hiring of additional administrative personnel subsequent to the first quarter of 2003 ($74,000).



Research and development expense increased in 2004 by approximately $686,000 from approximately $931,000 in 2003 to $1,617,000 in 2004. The increase is primarily related to the costs associated with the Companys
new Phase III trial for Prochieve® 8% in preventing
pre-term delivery in pregnant women who are at high risk.



Interest expense
increased by approximately $314,000 from approximately $370,000 in 2003 to approximately $684,000 in 2004, 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 2004 and 2003.



As a result, the net loss for the three months ended March 31, 2004 was $6,254,829 or $(.16) per common share as compared to the net loss for the three months ended March
31, 2003 of $4,704,070 or $(.13) 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.



|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



Page 14 of 18



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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.



As of March 31, 2004, the end of the period covered by this report, 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 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.



Page 15 of 18



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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 was fully paid in 2003, 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
|------- | ---------------------------------------------------



None.



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



None.



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



| | A. | Exhibits
| | -- | --------



|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.48 |  |  |  | Employment Agreement dated as of March 16, 2004 between the Company and G. Frederick Wilkinson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      |  |  
|10.49 |  |  |  | The Company has entered into an Indemnification Agreement in substantially the form filed and incorporated by reference to Exhibit 10.46 to the Companys 2003 Form 10-K with each of its
directors and executive officers, who include G. Frederick Wilkinson, James J. Apostolakis, Jean Carvais, M.D., Max Link, Ph.D., Denis M. ODonnell, M.D., Selwyn P. Oskowitz, M.D., Robert C. Strauss, Meg Coogan, George Creasy, M.D., Robert S.
Mills, Michael McGrane, David L. Weinberg, and Susan Witham. A copy of each of these individuals Indemnification Agreements will be provided to the Staff upon request.



Page 16 of 18



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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.50 |  |  |  | The Company has entered into Executive Change of Control Severance Agreements in substantially the form filed and incorporated by reference to Exhibit 10.47 to the Companys 2003 Form
10-K with each of its officers, who include James J. Apostolakis, Meg Coogan, George Creasy, M.D., Robert S. Mills, Michael McGrane, David L. Weinberg, and Susan Witham. A copy of each of these individuals Indemnification Agreements will be
provided to the Staff upon request.
|      |  |  
|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.                                                                                                                                                                                                                                                                                                                                      



| | B. | Reports on Form 8-K
| | -- | -------------------



None



Page 17 of 18



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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: May 10, 2004



Page 18 of 18



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Exhibit Index



|            |  |   |  |                                                                                                                                        
|----------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                            
|            |  |  
|10.48       |  |  |  | Employment Agreement dated as of March 16, 2004 between the Company and G. Frederick Wilkinson                                         
|            |  |  
|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.