<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 June 30, 2001

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

                         Commission File Number 0-21185

                                 AAIPHARMA INC.
             (Exact name of Registrant as specified in its charter)

                     DELAWARE                                04-2687849
         (State or other jurisdiction of                  (I.R.S. employer
          incorporation or organization)                identification no.)

                2320 SCIENTIFIC PARK DRIVE, WILMINGTON, NC 28405
               (Address of principal executive office) (Zip code)

                                 (910) 254-7000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___

The number of shares of the Registrant's common stock outstanding, as of August
7, 2001, was 17,928,057 shares.



<PAGE>   2


                                 AAIPHARMA INC.
                                Table of Contents



The terms "Company", "Registrant" or "aaiPharma" in this Form 10-Q include
aaiPharma Inc. and its subsidiaries, except where the context may indicate
otherwise. Any item which is not applicable or to which the answer is negative
has been omitted.


                                                                     Page No.
                                                                     --------
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (unaudited)
         Consolidated Statements of Operations                          3
         Consolidated Balance Sheets                                    4
         Consolidated Statements of Cash Flows                          5
         Notes to Consolidated Financial Statements                     6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS                           10

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK                                                   14

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                             15

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           15

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                              16

SIGNATURES                                                             17

EXHIBIT INDEX                                                          18



                                       2
<PAGE>   3

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                 AAIPHARMA INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months Ended               Six Months Ended
                                                                       June 30,                         June 30,
                                                              -----------------------------------------------------------
                                                                2001             2000             2001             2000
                                                              --------         --------         --------         --------
<S>                                                           <C>              <C>              <C>              <C>

Net revenues                                                  $ 29,884         $ 27,959         $ 60,081         $ 53,048
                                                              --------         --------         --------         --------

Operating costs and expenses:
   Direct costs                                                 15,159           12,624           30,608           24,979
   Selling                                                       2,891            3,140            5,729            6,018
   General and administrative                                    6,382            7,375           14,125           13,503
   Direct pharmaceutical start-up costs                          1,037               --            1,681               --
   Research and development                                      1,883            2,699            4,225            5,337
                                                              --------         --------         --------         --------

                                                                27,352           25,838           56,368           49,837
                                                              --------         --------         --------         --------

Income from operations                                           2,532            2,121            3,713            3,211

Other income (expense):
   Interest, net                                                  (327)            (543)            (710)          (1,040)
   Other                                                          (963)             140             (687)             254
                                                              --------         --------         --------         --------

                                                                (1,290)            (403)          (1,397)            (786)
                                                              --------         --------         --------         --------

Income before income taxes and cumulative
    effect of accounting change                                  1,242            1,718            2,316            2,425
Provision for income taxes                                         228               --              486               --
                                                              --------         --------         --------         --------

Income before cumulative effect of
   accounting change                                             1,014            1,718            1,830            2,425

Cumulative effect of a change in accounting principle,
   net of a tax benefit of $495                                     --               --               --             (961)
                                                              --------         --------         --------         --------

Net income                                                    $  1,014         $  1,718         $  1,830         $  1,464
                                                              ========         ========         ========         ========

Basic earnings (loss) per share
   Income before cumulative effect                            $   0.06         $   0.10         $   0.10         $   0.14
   Cumulative effect of accounting change                           --               --               --            (0.06)
                                                              --------         --------         --------         --------
Net income                                                    $   0.06         $   0.10         $   0.10         $   0.08
                                                              ========         ========         ========         ========
Weighted average shares outstanding                             17,721           17,473           17,687           17,381
                                                              ========         ========         ========         ========

Diluted earnings (loss) per share
   Income before cumulative effect                            $   0.06         $   0.10         $   0.10         $   0.14
   Cumulative effect of accounting change                           --               --               --            (0.06)
                                                              --------         --------         --------         --------
Net income                                                    $   0.06         $   0.10         $   0.10         $   0.08
                                                              ========         ========         ========         ========
Weighted average shares outstanding                             18,177           17,737           17,936           17,726
                                                              ========         ========         ========         ========
</TABLE>

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


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<PAGE>   4

                                 AAIPHARMA INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   June 30,         December 31,
                                                                     2001               2000
                                                                   ---------         ---------
<S>                                                                <C>               <C>
     ASSETS                                                       (Unaudited)
Current assets:
   Cash and cash equivalents                                       $   1,993         $   1,225
   Accounts receivable, net                                           34,433            29,447
   Work-in-progress                                                   11,827            11,459
   Prepaid and other current assets                                   12,261            12,746
                                                                   ---------         ---------
      Total current assets                                            60,514            54,877
Property and equipment, net                                           37,759            42,161
Goodwill and other intangibles, net                                   10,160            11,266
Other assets                                                           3,065             3,847
                                                                   ---------         ---------
      Total assets                                                 $ 111,498         $ 112,151
                                                                   =========         =========

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term debt and short-term debt        $  15,553         $  16,884
   Accounts payable                                                    7,601             8,850
   Customer advances                                                  12,048            11,920
   Accrued wages and benefits                                          3,279             2,710
   Other accrued liabilities                                           3,580             3,955
                                                                   ---------         ---------
      Total current liabilities                                       42,061            44,319
Long-term debt, less current portion                                     238               509
Other liabilities                                                      1,009             1,602
Stockholders' equity:
   Common stock                                                           18                18
   Paid-in capital                                                    71,476            70,361
   Accumulated deficit                                                  (832)           (2,662)
   Accumulated other comprehensive losses                             (2,463)           (1,974)
   Stock subscriptions receivable                                         (9)              (22)
                                                                   ---------         ---------
      Total stockholders' equity                                      68,190            65,721
                                                                   ---------         ---------
      Total liabilities and stockholders' equity                   $ 111,498         $ 112,151
                                                                   =========         =========
</TABLE>

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



                                       4
<PAGE>   5

                                 AAIPHARMA INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               Six Months Ended
                                                                   June 30,
                                                           -----------------------
                                                             2001            2000
                                                           -------         -------
<S>                                                        <C>             <C>
Cash flows from operating activities:
  Net income                                               $ 1,830         $ 1,464
  Adjustments to reconcile net income to net cash
      provided by operating activities:
    Depreciation and amortization                            3,588           3,603
    Issuance of stock for services                              --             225
    Other                                                      869             (12)
    Changes in assets and liabilities:
      Trade and other receivables                           (5,568)            324
      Work-in-progress                                        (588)          1,192
      Prepaid and other assets, net                          1,186          (1,381)
      Accounts payable                                      (1,116)          2,183
      Customer advances                                        285          (2,095)
      Other accrued liabilities                                215          (1,958)
                                                           -------         -------
Net cash provided by operating activities                      701           3,545
                                                           -------         -------

Cash flows from investing activities:
  Proceeds from sales of property and equipment              3,050             287
  Purchases of property and equipment                       (2,561)         (2,374)
  Other                                                       (104)            485
                                                           -------         -------
Net cash provided by (used in) investing activities            385          (1,602)
                                                           -------         -------

Cash flows from financing activities:
  Net payments on short-term debt                           (1,102)           (633)
  Payments on long-term borrowings                            (336)           (389)
  Issuance of common stock                                   1,115             189
  Other                                                         13               2
                                                           -------         -------
Net cash used in financing activities                         (310)           (831)
                                                           -------         -------

Net increase in cash and cash equivalents                      776           1,112
Effect of exchange rate changes on cash                         (8)            (15)
Cash and cash equivalents, beginning of period               1,225           1,988
                                                           -------         -------
        Cash and cash equivalents, end of period           $ 1,993         $ 3,085
                                                           =======         =======

Supplemental information, cash paid for:
  Interest                                                 $   562         $ 1,005
  Income taxes                                                   9               6
</TABLE>

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



                                       5
<PAGE>   6

                                 AAIPHARMA INC.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.       BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and applicable
Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial information as of December 31,
2000 has been derived from audited financial statements; certain amounts from
the three and six months ended June 30, 2000 have been reclassified for
consistent presentation with current year financial statements. It is presumed
that users of this interim financial information have read or have access to the
audited financial statements for the preceding fiscal year. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included in these interim
financial statements. Operating results for the interim periods presented are
not necessarily indicative of the results that may be expected for the full
year.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 specifically addresses revenue recognition issues related
to certain upfront payments or fees. Under SAB 101, certain upfront fees and
payments recognized as income in prior periods are required to be deferred and
are being amortized into revenue over the terms of the relevant agreements or as
the on-going services are performed. Although the Company implemented SAB 101 in
the fourth quarter of 2000, the cumulative effect of a change in accounting
principle has been retroactively adopted as of the beginning of the first
quarter of 2000. For the year 2000, the Company recorded a charge of $1,456,000
($961,000 after tax) for the cumulative effect of this change in accounting
principle. For the three and six months ended June 30, 2001, the Company
recognized $105,000 and $333,000 of revenue related to the amortization of these
deferred amounts, respectively. For the three and six months ended June 30,
2000, the Company recognized $183,000 and $367,000 of revenue, respectively.



                                       6
<PAGE>   7

2. EARNINGS PER SHARE

The following table sets forth the computation of basic and fully diluted
earnings per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                           Three Months Ended               Six Months Ended
                                                                                June 30,                        June 30,
                                                                       ---------------------------     ---------------------------
                                                                          2001           2000             2001           2000
                                                                       ------------   ------------     ------------   ------------
<S>                                                                        <C>            <C>              <C>            <C>
 Numerator:
    Net income (1)                                                         $ 1,014        $ 1,718          $ 1,830        $ 1,464
                                                                       ============   ============     ============   ============
 Denominator:
    Denominator for basic earnings per share -
      weighted average shares                                               17,721         17,473           17,687         17,381
    Effect of dilutive securities:
      Employee stock options                                                   456            264              249            345
                                                                       ------------   ------------     ------------   ------------
 Denominator for fully diluted earnings per share -
      weighted average shares                                               18,177         17,737           17,936         17,726
                                                                       ============   ============     ============   ============

 Basic earnings per share                                                    $0.06          $0.10            $0.10          $0.08
 Diluted earnings per share                                                  $0.06          $0.10            $0.10          $0.08
</TABLE>


(1)      Numerator for both basic and diluted earnings per share.

3. COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
following table presents the components of the Company's comprehensive income
(in thousands):

<TABLE>
<CAPTION>
                                                        Three Months Ended              Six Months Ended
                                                             June 30,                       June 30,
                                                    ---------------------------    ---------------------------
                                                        2001          2000            2001           2000
                                                    ---------------------------    ---------------------------
<S>                                                      <C>           <C>             <C>            <C>
                                                          (In thousands)                 (In thousands)

Net income                                               $ 1,014       $ 1,718         $ 1,830        $ 1,464
Currency translation adjustments                           (315)            32         (1,080)          (328)
Reclassification adjustment of realized loss
    on available for sale securities                         523             -             591              -
                                                    -------------  ------------    ------------   ------------

    Comprehensive income                                 $ 1,222       $ 1,750         $ 1,341        $ 1,136
                                                    =============  ============    ============   ============
</TABLE>


                                       7
<PAGE>   8

4. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA (IN THOUSANDS):

<TABLE>
<CAPTION>
                                  Three Months Ended                  Six Months Ended
                                        June 30,                         June 30,
                               -------------------------         -------------------------
                                 2001             2000             2001             2000
                               --------         --------         --------         --------
<S>                            <C>              <C>              <C>              <C>

NET REVENUES:
Research revenues:
   Non-clinical                $ 14,282         $ 15,160         $ 30,167         $ 29,885
   Clinical                       6,957            6,068           13,725           11,721
                               --------         --------         --------         --------
                                 21,239           21,228           43,892           41,606
Product sales                     3,693            2,010            7,506            4,559
Product development               4,952            4,721            8,683            6,883
                               --------         --------         --------         --------
                               $ 29,884         $ 27,959         $ 60,081         $ 53,048
                               ========         ========         ========         ========

United States                  $ 26,581         $ 22,843         $ 53,445         $ 43,091
Non-U.S                           4,566            6,135            8,638           11,788
Less inter-geographic            (1,263)          (1,019)          (2,002)          (1,831)
                               --------         --------         --------         --------
                               $ 29,884         $ 27,959         $ 60,081         $ 53,048
                               ========         ========         ========         ========

INCOME FROM OPERATIONS:
Research revenues:
  Non-clinical                 $    685         $  4,232         $  3,321         $  7,933
  Clinical                          399               85              516              375
                               --------         --------         --------         --------
                                  1,084            4,317            3,837            8,308
Product sales                       266               39              513               16
Product development               3,109            1,612            4,561              784
Corporate                        (1,927)          (3,847)          (5,198)          (5,897)
                               --------         --------         --------         --------
                               $  2,532         $  2,121         $  3,713         $  3,211
                               ========         ========         ========         ========

United States                  $  1,996         $   (356)        $  2,959         $ (1,514)
Non-U.S                             536            2,477              754            4,725
                               --------         --------         --------         --------
                               $  2,532         $  2,121         $  3,713         $  3,211
                               ========         ========         ========         ========
</TABLE>



                                       8
<PAGE>   9

5. TRANSACTIONS WITH RELATED PARTIES

The Company has work-in-progress and receivables due from Aesgen, Inc.
("Aesgen") and Endeavor Pharmaceuticals, Inc. ("Endeavor"). Both Endeavor and
Aesgen were organized by aaiPharma and its principal shareholders, and continue
to be related parties. The total amount of work-in-progress and receivables at
June 30, 2001 related to Aesgen was approximately $625,000 and the amount
related to Endeavor was approximately $326,000. Revenues recognized from Aesgen
and Endeavor totaled $108,000 and $230,000 for the three and six months ended
June 30, 2001, and were $102,000 and $383,000 for the three and six months ended
June 30, 2000.

6. DEBT

The following table presents the components of current maturities of long-term
and short-term debt (in thousands):

<TABLE>
<CAPTION>
                                                                June 30,       December 31,
                                                                  2001             2000
                                                                --------         --------
<S>                                                             <C>              <C>
U.S. revolving credit facility                                  $ 15,103         $  9,403
U.S. bank debt                                                        --            5,250
German revolving credit facility                                      --            1,716
Current maturities of long-term debt                                 450              515
                                                                --------         --------
Current maturities of long-term debt and short-term debt        $ 15,553         $ 16,884
                                                                ========         ========


                                                                June 30,       December 31,
                                                                  2001             2000
                                                                --------         --------

U.S. bank term loans                                            $    688         $  1,024
Less current maturities of long-term debt                           (450)            (515)
                                                                --------         --------
Total long-term debt due after one year                         $    238         $    509
                                                                ========         ========
</TABLE>

In 1996, the Company entered into a revolving credit agreement with a U.S. bank,
as amended, which expires in September 2001. The agreement provides for
borrowings of up to $27.2 million, based upon a borrowing base consisting of
portions of fixed assets and accounts receivable. The credit agreement provides
for variable interest rates based on the 30-day LIBOR and is secured by a
security interest on substantially all assets of the Company. At the end of the
revolving credit period, any outstanding balances under this facility must be
repaid. The agreement requires the payment of certain commitment fees based on
the unused portion of the line of credit. At June 30, 2001, the Company
qualified for the entire $27.2 million borrowing base of the facility; actual
borrowings totaled $15.1 million.

Under the terms of the revolving credit facility and the stand-by letter of
credit agreement, the Company is required to comply with various covenants
including, but not limited to, those pertaining to maintenance of certain
financial ratios, and incurring additional indebtedness. The Company was in
compliance with the financial covenants at June 30, 2001.



                                       9
<PAGE>   10

7. CONTINGENCIES

The Company currently leases a facility adjacent to the Company's laboratories
from two banks. The facility was built in 1999 in Wilmington, North Carolina.
The Company's operating lease for this facility covers an initial period of
three years, expiring in October 2001, with two one-year renewal periods. At the
end of the initial term, the Company may elect to purchase the facility at fair
market value, extend the lease or the property may be sold.

8. SUBSEQUENT EVENTS

On July 26, 2001, the Company announced an agreement with AstraZeneca to
purchase its pharmaceutical critical care brands for injectable nutrition. The
Company will acquire the products for payments of up to $100 million over three
years. To finance this acquisition, the Company has received a commitment for a
senior secured credit facility of up to $85 million. This facility will replace
the existing credit facility and provide financing for the acquisition.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The Company's quarterly results have been, and are expected to continue to be,
subject to fluctuations. Quarterly results can fluctuate as a result of a number
of factors, including without limitation, the commencement, completion or
cancellation of large contracts, progress of ongoing contracts, achieving
expected levels of licensing and royalty revenues, the timing of start-up
expenses for new facilities, timing and level of research and development
expenditures and changes in the mix of services. Since a large percentage of the
Company's operating costs are relatively fixed, variations in the timing and
progress of large contracts or the recognition of licensing and royalty revenues
(on projects for which associated expense may have been recognized in prior
periods) can materially affect quarterly results. Accordingly, the Company
believes that comparisons of its quarterly financial results may not be
meaningful.

RESULTS OF OPERATIONS:

SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000

Overall net revenues for the second quarter of 2001 grew 7% to $29.9 million,
compared to $28.0 million in the second quarter of 2000. Research revenues
(non-clinical and clinical) were $21.2 million in the second quarter of 2001 and
2000. Non-clinical research revenues were down 6% to $14.3 million in the second
quarter of 2001, from $15.2 million in the same period of 2000. Clinical
research revenues were up 15% to $7.0 million in the second quarter of 2001,
from $6.1 million in the same period of 2000. Clinical research revenues were
higher primarily related to revenue generated from significant new contracts
entered into in the last half of 2000.

Product development revenues (royalties & fees) were $5.0 million in the second
quarter of 2001 compared to $4.7 million in the prior year period. This positive
change reflects an increase in royalties earned. The prior year period included
$2.0 million of revenue from the one-time sale of an approved methimazole
abbreviated new drug application to Jones Pharma Inc. The Company anticipates
that product development revenues will increase in future quarters as additional
agreements are signed, but expects that revenues from these contract signings
will be intermittent until royalty streams exceed the



                                       10
<PAGE>   11

development fees earned. However, there can be no assurance that the Company
will be successful in executing additional product development agreements and
increase its future revenue or that the products developed will be commercially
successful.

Sales of manufactured products were $3.7 million in the second quarter of 2001
compared to $2.0 million in the second quarter of 2000. This increase is
attributable primarily to continued growth in azathioprine, minocycline,
rifampin and other pharmaceutical product sales.

Gross margin dollars were $14.7 million in the second quarter of 2001 compared
to $15.3 million the second quarter of 2000. Gross margin as a percentage of
revenues was approximately 49% for the second quarter of 2001, compared to 55%
for the same period of 2000. The lower gross margin percentage reflects the mix
of revenues, with lower margin product sales and clinical revenues up
significantly, with higher margin Product Life Cycle Management revenues lower
due to the winding down of a significant project as it nears completion.

Selling, general and administrative costs as a percentage of net revenues were
approximately 31% in the second quarter of 2001, compared to 38% for the same
quarter in 2000. In addition, SG&A dollars decreased by approximately 12%,
reflecting lower reserve needs on customer balances in the current period. The
Company expects SG&A costs to remain generally unchanged as a percentage of
revenues over the remainder of the year.

The second quarter of 2001 included $1.0 million of start-up costs related to
the continued build-out of the Company's Neosan Pharmaceutical product marketing
organization with no corresponding costs in the second quarter of 2000.

Research and development expenses were approximately 6% of net revenues in the
second quarter of 2001, compared with approximately 10% of revenues for the same
period in 2000. The Company believes R&D expense for the remainder of 2001 will
increase to more traditional levels of approximately 10% of revenues.

Other expense for the second quarter of 2001 included two special charges. A
write-down of $0.5 million was taken to adjust an equity investment to market
value and a loss provision of $0.4 million was recorded in anticipation of the
sale of a property.

The Company recorded a tax provision of $0.2 million in the second quarter of
2001. The effective tax rate of 18% resulted from utilization of tax
loss-carryforwards to shelter the European portion of income.

Based on the above factors, the net income for the second quarter of 2001 was
$1.0 million, or $0.06 per diluted share, compared with a net income of $1.7
million, or $0.10 per diluted share in the same period of 2000.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

Overall net revenues for the six months ended June 30, 2001 grew 13% to $60.1
million, compared to $53.0 million in same period of 2000. Research revenues
(non-clinical and clinical) were $43.9 million, an increase of 6% over the $41.6
million recorded in 2000. Non-clinical research revenues were up 1%



                                       11
<PAGE>   12

to $30.2 million in the six months ended June 30, 2001, from $29.9 million in
the same period of 2000. Clinical research revenues were $13.7 million in the
six months ended June 30, 2001, an increase from the $11.7 million in the same
period of 2000.

Product development revenues were $8.7 million in the six months ended June 30,
2001 compared to $6.9 million in the prior year period. Sales of manufactured
products were $7.5 million compared to $4.6 million in the first six months of
2000, reflecting the continued growth experienced in the first quarter of 2001.

Gross margin dollars were $29.5 million or $1.4 million higher than the six
months ended June 30, 2000, primarily resulting from the increased revenue in
the current period. Gross margin as a percentage of revenues was approximately
49% for the first six months of 2001, compared to 53% for the same period of
2000. The lower gross margin percentage reflects the mix of revenues, with lower
margin product sales and clinical revenues up significantly, and higher margin
Product Life Cycle Management revenues lower.

Selling, general and administrative costs as a percentage of net revenues
decreased to approximately 33% in 2001 compared to 37% for the same period in
2000, reflecting the decreases experienced in the second quarter.

The six months ended June 30, 2001 included $1.7 million of start-up costs
related to the continued build-out of the Company's Neosan Pharmaceutical
product marketing organization with no corresponding costs in 2000.

Research and development expenses were approximately 7% of net revenues in the
six months ended June 30, 2001, compared with approximately 10% of revenues for
the same period in 2000. As discussed in previous reports, the Company has taken
several steps to utilize R&D spending more efficiently.

Income from operations was $3.7 million for the six months ended June 30, 2001
as compared to income of $3.2 million for the same period of 2000. This
turnaround was largely due to higher product development revenues, lower S,G & A
expense and lower R&D spending.

In the first quarter of 2000, the Company recorded $1.0 million in expense (net
of tax) for the cumulative effect adjustment due to the change in accounting
principle related to the implementation of Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 required
certain revenues to be deferred and amortized into revenue in future periods.

Based on the above factors, net income for the six months ended June 30, 2001
was $1.8 million, or $0.10 per diluted share, compared to $1.5 million, or $0.08
per diluted share after the cumulative effect of a change in accounting
principle (SAB 101).

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded its business through operating cash flows
and proceeds from borrowings. Cash provided by operations in the first six
months of 2001 was $0.7 million, compared to cash provided by operating
activities of $3.5 million in the first six months of 2000. The change



                                       12
<PAGE>   13

primarily resulted from an increase in accounts receivable and a decrease in
accounts payable, which are both strongly influenced by the timing of
transactions. Cash payments on borrowings during the first six months of 2001
were approximately $1.4 million.

In March 2001, the Company concluded a sale/leaseback transaction on certain
manufacturing assets, which provided cash of $3.1 million. Capital expenditures
were $2.6 million during the first six months of 2001 compared to $2.4 million
during the same period last year. The Company anticipates total capital
expenditures for 2001 to be less than depreciation expense for the year.

In 1996, the Company entered into a revolving credit agreement with a U.S. bank,
as amended, which expires in September 2001. The agreement provides for
borrowings of up to $27.2 million, based upon a borrowing base consisting of
portions of fixed assets and accounts receivable. The credit agreement provides
for variable interest rates based on the 30-day LIBOR and is secured by a
security interest on substantially all assets of the Company. At the end of the
revolving credit period, any outstanding balances under this facility must be
repaid. The agreement requires the payment of certain commitment fees based on
the unused portion of the line of credit. At June 30, 2001, the Company
qualified for the entire $27.2 million borrowing base of the facility; actual
borrowings totaled $15.1 million.

Under the terms of the revolving credit facility and the stand-by letter of
credit agreement, the Company is required to comply with various financial
covenants including, but not limited to, those pertaining to maintenance of
certain financial ratios, and incurring additional indebtedness. The Company was
in compliance with the financial covenants at June 30, 2001.

On July 26, 2001, the Company announced an agreement with AstraZeneca AB, an
affiliate of AstraZeneca plc, to purchase its pharmaceutical critical care
brands for injectable nutrition. The Company will acquire the products for
payments of up to $100 million over three years. To finance this acquisition,
the Company has received a commitment for a senior secured credit facility of up
to $85 million. This facility will replace the existing credit facility and
provide financing for the acquisition. The Company expects that the acquisition
and financing agreements will be completed in the third quarter of 2001.

aaiPharma expects that near term growth can be accommodated utilizing the new
senior secured credit facility. The Company may seek to supplement cash flow
from operations with the issuance of equity securities and additional
borrowings. At some point in the future there may be other opportunities that
require additional external financing, and the Company may from time-to-time
seek to obtain funds through the public or private issuance of equity or debt
securities. While the Company remains confident that it can secure additional
financing if necessary, there can be no assurances that such financing will be
available or that the terms will be acceptable to the Company.


FORWARD LOOKING STATEMENTS, RISK FACTORS AND "SAFE HARBOR" LANGUAGE

This quarterly report contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including the statements
pertaining to future product applications of the licensed technology, the
publication and issuance of valuable and enforceable patents, and anticipated
future revenues and commercial success of aaiPharma. These statements involve
risks and uncertainties that could cause



                                       13
<PAGE>   14

actual results to differ materially, including, without limitation, risks and
uncertainties pertaining to aaiPharma's ability to successfully apply its new
technologies to new products; obtain, enforce and license valid and commercially
valuable patents; obtain additional profitable contracts with respect to major
pharmaceutical products; and achieve commercial success of the contemplated
products.

These forward-looking statements include, among others:

o    all statements discussing liquidity; future, planned or targeted
     operational or financial expectations, goals or objectives; future, planned
     or targeted cost reductions and capital expenditures; and continued access
     to financing; and

o    all statements using the words "expect", "may", "believe", "anticipate",
     "estimate", "project", "intend", "will", "plan", "target", "objective",
     "goal", "should" and similar expressions are intended to identify
     forward-looking statements.

Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable, there can be no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks and uncertainties. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions or projections prove
incorrect, actual results, performance or financial condition may vary
materially from those anticipated, estimated or expected.

The Company assumes no obligation to update its forward-looking statements, or
other statements, contained herein. Additional factors that may cause the actual
results to differ materially are discussed in Exhibit 99.1 attached hereto and
incorporated herein by reference, and in the Company's recent filings with the
SEC, including, but not limited to, the Company's registration statement, as
amended, its Annual Report on Form 10-K filed with the SEC on April 2, 2001, its
Quarterly Report on Form 10-Q filed with the SEC on May 15, 2001, including the
exhibits thereof, its Form 8-K's, and its other periodic filings.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, as a result of global operating activities, is exposed to risks
associated with changes in foreign exchange rates. As foreign exchange rates
change, the U. S. dollar equivalent of revenues and expenses denominated in
foreign currencies change and can have an adverse impact on the Company's
operating results. To seek to minimize its risk from foreign exchange movement,
the Company uses local debt to fund its foreign operations. If foreign exchange
rates were to increase by 10%, year to date operating results would have been
lower by $64,000 due to the reduction in reported results from European
operations.

The Company is also exposed to fluctuations in interest rates on its variable
rate debt instruments and leases tied to LIBOR. If interest rates were to
increase by 1%, annual interest expense on variable rate debt and leases tied to
interest rates would increase by approximately $166,000, or $41,500 per quarter.

PART II. OTHER INFORMATION



                                       14
<PAGE>   15

ITEM 1.  LEGAL PROCEEDINGS.

The Company is a party to a number of legal actions with generic drug
manufacturers, all of which have arisen after June 30, 2001, regarding
assertions by such manufacturers of patent invalidity and non-infringement of
patents obtained by the Company and related matters, which are summarized below.

On July 26, 2001, Dr. Reddy's Laboratories Ltd., a pharmaceutical company based
in India, and its U.S. affiliate, Reddy-Cheminor Inc., (collectively, "Reddy")
filed a declaratory judgment action against the Company in United States
District Court for the Southern District of New York, seeking declaratory
judgment that certain products of such companies do not infringe initially two
(and subsequently, through an amendment to its complaint on August 6, 2001,
three) patents issued to the Company by the United States Patent and Trademark
Office in July 2001 (the "omeprazole-related patents") and challenging the
validity of such issued patents. Reddy is also seeking recovery of its
attorney's fees and costs. The Company intends to vigorously defend this action.

On July 26, 2001, Reddy also filed a declaratory judgment action against the
Company in the United States District Court for the District of New Jersey
concerning a patent pertaining to fluoxetine hydrochloride Form A, a compound
found in Prozac(R), a drug sold by Eli Lilly & Company. This patent was issued
to the Company by the United States Patent and Trademark Office on July 10,
2001. The New Jersey proceeding seeks a declaratory judgment that the Company's
fluxetine hydrochloride Form A patent is invalid and that certain Reddy products
do not infringe this patent. Reddy is also seeking recovery of its attorney's
fees and costs. The Company intends to vigorously defend this action.

On August 1, 2001, the Company initiated patent infringement litigation against
several companies selling, or seeking to sell, generic versions of Prozac(R),
including Barr Laboratories, Inc., Dr. Reddy's Laboratories, Reddy-Cheminor
Inc., PAR Pharmaceuticals Inc. and Geneva Pharmaceuticals, Inc., in United
States District Court for the Eastern District of North Carolina seeking a
declaratory judgment that the named generic drug manufacturers are infringing on
the Company's fluoxetine hydrochloride Form A patent, described above, an
injunction to prevent any sale of products infringing on the patent, and
compensatory and punitive monetary damages and attorneys fees. The Company is
vigorously prosecuting this action.

On August 3, 2001, Andrx Pharmaceuticals, Inc. commenced an action against the
Company in United States District Court for the Southern District of New York
challenging the validity of the three omeprazole-related patents and seeking a
declaratory judgment that a pending Andrx product does not infringe those
patents. These patents cover certain aspects regarding omeprazole, a proton pump
inhibitor found in Prilosec(R), a drug sold by AstraZeneca. Andrx
Pharmaceuticals currently has a generic drug product substitute for Prilosec(R)
pending for marketing approval with U.S. regulatory authorities. The lawsuit
also claims violations of federal and state antitrust laws with respect to
alleged actions by the Company with respect to the licensing of these patents,
seeking injunctive relief and unspecified and treble damages. The Company
intends to vigorously defend this action.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 11,2001, the Company held its annual meeting of stockholders. The total
number of shares outstanding as of the record date, March 22, 2001, was
17,655,001. The matters voted on at the meeting and the results are as follows:

Election of Directors - Terms to expire in 2002:

                             James L. Waters           James G. Martin, Ph.D.
                             ---------------           ----------------------
         Votes For             14,140,854                   14,194,317
         Votes Withheld           257,264                      203,801

Amend the 1997 Stock Option Plan authorizing the issuance of an additional
500,000 options:

         Votes For                         11,346,551
         Votes Against                        950,229
         Abstentions                          996,144



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<PAGE>   16

Approve and adopt the 2000 Stock Option Plan for Non-Employee Directors
authorizing up to 410,000 options:

         Votes For                         11,009,729
         Votes Against                      1,286,101
         Abstentions                          997,094

Ratify the appointment of Ernst and Young LLP as independent auditors for the
Company for the year ending December 31, 2001:

         Votes For                         14,394,986
         Votes Against                          2,982
         Abstentions                              150

No other matters were voted on at the meeting.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS:

A list of the exhibits required to be filed as part of this Report on Form 10-Q
is set forth in the "Exhibit Index", which immediately precedes such exhibits,
and is incorporated herein by reference.

REPORTS ON FORM 8-K:

During the second quarter of 2001, the Company filed the following Form 8-K's:

         o        Dated April 3, 2001, to file an amended Form 8-K to amend the
                  Form 8-K filed on March 30, 2001, which reported the issuance
                  of a patent, approval of an abbreviated new drug application
                  by the Food and Drug Administration and contained information
                  regarding a presentation made by aaiPharma at a healthcare
                  conference.

         o        Dated May 7, 2001, to file a press release reporting the
                  Company's results of operations for the three months ended
                  March 31, 2001.



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<PAGE>   17

                                   SIGNATURES

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

                                      AAIPHARMA INC.

Date:   August 13, 2001               By: /s/ FREDERICK D. SANCILIO
      ---------------------              ---------------------------
                                      Frederick D. Sancilio, Ph.D.
                                      Chairman of the Board and Chief Executive
                                      Officer  (Principal Executive Officer)

Date:   August 13, 2001               By: /s/ WILLIAM L. GINNA, JR.
      ---------------------               ---------------------------
                                      William L. Ginna, Jr.
                                      Executive Vice President and
                                      Chief Financial Officer
                                      (Principal Financial Officer)



                                       17
<PAGE>   18

                                 AAIPHARMA INC.
                                  EXHIBIT INDEX

EXHIBIT
NO.                                  DESCRIPTION

3.1         Amended and Restated Certificate of Incorporation of the Company
            (incorporated by reference to Exhibit 3.1 to the Company's Quarterly
            Report on Form 10-Q for the quarter ended September 30, 1996)

3.2         Amendment to Certificate of Incorporation dated May 24, 2000
            (incorporated by reference to Exhibit 3.2 to the Company's Quarterly
            Report on Form 10-Q for the quarter ended June 30, 2000)

3.3         Amended By-laws of the Company (incorporated by reference to Exhibit
            3.3 to the Company's Quarterly Report on Form 10-Q for the quarter
            ended June 30, 2000)

4.1         Articles Fourth, Seventh, Eleventh and Twelfth of the form of
            Amended and Restated Certificate of Incorporation of the Company
            (included in Exhibit 3.1)

4.2         Article II of the form of Restated By-laws of the Company (included
            in Exhibit 3.2)

4.3         Specimen Certificate for shares of Common Stock, $.001 par value, of
            the Company (incorporated by reference to Exhibit 4.3 to the
            Company's Registration Statement on Form S-1 (Registration No.
            333-5535))

10.1        Employment Agreement dated November 17, 1995 between the Company and
            Frederick D. Sancilio (incorporated by reference to Exhibit 10.1 to
            the Company's Registration Statement on Form S-1 (Registration No.
            333-5535))

10.2        Applied Analytical Industries, Inc. 1995 Stock Option Plan
            (incorporated by reference to Exhibit 10.3 to the Company's
            Registration Statement on Form S-1 (Registration No. 333-5535))

10.3        Applied Analytical Industries, Inc. 1997 Stock Option Plan, as
            amended on May 8, 1998, (incorporated by reference to Exhibit 10.4
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 30, 1998)

10.4        Stockholder Agreement dated as of November 17, 1995 among the
            Company, GS Capital Partners II, L.P., GS Capital Partners II
            Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street
            Fund 1995, L.P., Bridge Street Fund 1995, L.P., Noro-Moseley
            Partners III, L.P., Wakefield Group Limited Partnership, James L.
            Waters, Frederick D. Sancilio and the parties listed on Schedule 1
            thereto (incorporated by reference to Exhibit 10.5 to the Company's
            Registration Statement on Form S-1 (Registration No. 333-5535))

10.5        Development Agreement dated as of April 25, 1994 between the Company
            and Endeavor Pharmaceuticals Inc. (formerly, GenerEst, Inc.)
            (incorporated by reference to Exhibit 10.12 to the Company's
            Registration Statement on Form S-1 (Registration No. 333-5535))



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<PAGE>   19

10.6        Development Agreement dated as of April 4, 1995 between the Company
            and Aesgen, Inc. (incorporated by reference to Exhibit 10.13 to the
            Company's Registration Statement on Form S-1 (Registration No.
            333-5535))

10.7        Underwriting Agreement dated September 19, 1996 between the Company
            and Goldman Sachs & Co., Cowen & Company and Lehman Brothers, Inc.,
            as representatives of the underwriters listed on Schedule 1 thereto
            (incorporated by reference to Exhibit 10.17 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            1996)

10.8        Partnership Agreement dated as of October 2, 1998 between the
            Company, First Security Bank, N. A. and the Various Banks and Other
            Lending Institutions Which are Parties Hereto from time to time, as
            the Holders and as the Lenders and NationsBank, N. A. (incorporated
            by reference to Exhibit 10.12 to the Company's Annual Report on Form
            10-K for the year ended December 31, 1998)

10.9        Security Agreement dated as of October 2, 1998 between First
            Security Bank, N. A., and NationsBank, N. A. (incorporated by
            reference to Exhibit 10.13 to the Company's Annual Report on Form
            10-K for the year ended December 31, 1998)

10.10       Amendment No. 1 to the Employment Agreement dated November 17, 1995
            between the Company and Frederick D. Sancilio (incorporated by
            reference to Exhibit 10.14 to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1999)

10.11       Amendment and Forbearance Agreement dated August 26, 1999 between
            the Company and the Bank of America, N.A. (incorporated by reference
            to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for
            the quarter ended September 30, 1999)

10.12       Pledge Agreement dated August 26, 1999 between the Company and the
            Bank of America, N.A. (incorporated by reference to Exhibit 10.16 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 1999)

10.13       Security Agreement dated August 26, 1999 between the Company and the
            Bank of America, N.A. (incorporated by reference to Exhibit 10.17 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 1999)

10.14       Applied Analytical Industries, Inc. 1996 Stock Option Plan, as
            amended on March 27, 2000 (incorporated by reference to exhibit to
            the Company's Annual Report on Form 10-K filed for the year ended
            December 31, 1999)

10.15       Amended and Restated Loan Agreement dated as of November 30, 1999
            between the Company, AAI Applied Analytical Industries Deutschland
            GmbH & Co. KG, certain subsidiaries of the Company and Bank of
            America, N.A. (incorporated by reference to exhibit to the Company's
            Annual Report on Form 10-K filed for the year ended December 31,
            1999)

10.16       First Amendment, dated May 31, 2000, to the Amended and Restated
            Loan Agreement dated as of November 30, 1999 between the Company,
            AAI Applied Analytical Industries Deutschland GmbH & Co. KG, certain
            subsidiaries of the Company and Bank of America, N.A. (incorporated
            by reference to Exhibit 10.16 to the Company's Quarterly Report on
            Form 10-Q for the quarter ended June 30, 2000)



                                       19
<PAGE>   20

10.17       Second Amendment, dated August 31, 2000, to the Amended and Restated
            Loan Agreement dated as of November 30, 1999 between the Company,
            AAI Applied Analytical Industries Deutschland GmbH & Co. KG, certain
            subsidiaries of the Company and Bank of America, N.A. (incorporated
            by reference to Exhibit 10.17 to the Company's Annual Report on Form
            10-K for the year ended December 31, 2000)

10.18       Third Amendment, dated November 30, 2000, to the Amended and
            Restated Loan Agreement dated as of November 30, 1999 between the
            Company, AAI Applied Analytical Industries Deutschland GmbH & Co.
            KG, certain subsidiaries of the Company and Bank of America, N.A.
            (incorporated by reference to Exhibit 10.18 to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2000)

10.19       Fourth Amendment, dated June 29, 2001, to the Amended and Restated
            Loan Agreement dated as of November 30, 1999 between the Company,
            AAI Applied Analytical Industries Deutschland GmbH & Co. KG, certain
            subsidiaries of the Company and Bank of America, N.A.

10.20       Applied Analytical Industries, Inc. 2000 Stock Option Plan for
            Non-Employee Directors

99.1        Risk Factors


                                       20