**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **FORM
        10-Q**
 
 QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
 
 **For
        the quarterly period ended September 30, 2007**
 Commission
        file number 000-04217
 
 
 **ACETO
        CORPORATION**
 (Exact
        name of registrant as specified in its charter)
 
 
 New
                  York
              11-1720520(State
                  or other jurisdiction of incorporation or organization)
              (I.R.S.
                  Employer Identification Number)
 
 One
                  Hollow Lane, Lake Success, NY 11042(Address
                  of principal executive offices)
 
 (516)
        627-6000
 (Registrant's
        telephone number, including area code)
 
 www.aceto.com
 (Registrant’s
        website address)
 
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 Yes x  No
o
 
 Indicate
        by check mark whether the Registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer” and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.  (Check one):
  Large
        accelerated filer o                                                                Accelerated
        filer x                                                      Non-accelerated
        filer o
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 
 Yes o  No
x
 
 The
        Registrant has 24,345,785 shares of common stock outstanding as of November
        5,
        2007.
  
 
 **ACETO
        CORPORATION AND SUBSIDIARIES**
 **QUARTERLY
        REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2007**
 
 **TABLE
        OF CONTENTS**
 
 
 PART
                    I.  FINANCIAL INFORMATIONItem
                    1.
                Financial
                    StatementsCondensed
                    Consolidated Balance Sheets – September 30, 2007 (unaudited) and June
                    30, 2007
                3Condensed
                    Consolidated Statements of Income – Three Months Ended
                    September 30, 2007 and 2006 (unaudited)
                4Condensed
                    Consolidated Statements of Cash Flows – Three Months Ended
                    September 30, 2007 and 2006 (unaudited)
                5Notes
                    to Condensed Consolidated Financial Statements (unaudited)
                6Report
                    of Independent Registered Public Accounting Firm
                11Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition
                    and Results of Operations
                12Item
                    3.
                Quantitative
                    and Qualitative Disclosures about Market
                    Risk
                18Item
                    4.
                Controls
                    and Procedures
                19PART
                    II.  OTHER INFORMATION
                19Item
                    1A.
                Risk
                    Factors
                19Item
                    6.
                Exhibits
                20Signatures
                
                21Exhibits
 
 **PART
        I. FINANCIAL INFORMATION**
 **Item
        1.  Financial Statements**
 
 **ACETO
                  CORPORATION AND SUBSIDIARIES**
                **CONDENSED
                  CONSOLIDATED BALANCE SHEETS**
                (in
                  thousands, except per-share amounts)September
                  30,
                2007
              
              
              June
                  30,
                2007(unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              37,416
              
              
              $
              32,320Investments
              
              
              3,098
              
              
              
              3,036Trade
                  receivables, less allowance for doubtfulaccounts
                  (September, $413, June $491)
              
              
              56,120
              
              
              
              58,206Other
                  receivables
              
              
              5,036
              
              
              
              3,123Inventory
              
              
              59,759
              
              
              
              60,679Prepaid
                  expenses and other current assets
              
              
              1,369
              
              
              
              1,128Deferred
                  income tax benefit, net
              
              
              2,564
              
              
              
              2,541Total
                  current assets
              
              
              165,362
              
              
              
              161,033Long-term
                  notes receivable
              
              
              424
              
              
              
              449Property
                  and equipment, net
              
              
              4,235
              
              
              
              4,406Property
                  held for sale
              
              
              5,268
              
              
              
              5,268Goodwill
              
              
              1,877
              
              
              
              1,820Intangible
                  assets, net
              
              
              5,750
              
              
              
              5,817Deferred
                  income tax benefit, net
              
              
              4,313
              
              
              
              5,958Other
                  assets
              
              
              4,013
              
              
              
              3,727TOTAL
                  ASSETS
              
              $
              191,242
              
              
              $
              188,478LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              28,796
              
              
              $
              32,539Short-term
                  bank loans
              
              
              -
              
              
              
              25Note
                  payable – related party
              
              
              500
              
              
              
              500Accrued
                  expenses
              
              
              16,929
              
              
              
              14,154Deferred
                  income tax liability
              
              
              885
              
              
              
              885Total
                  current liabilities
              
              
              47,110
              
              
              
              48,103Long-term
                  liabilities
              
              
              6,688
              
              
              
              6,684Environmental
                  remediation liability
              
              
              5,816
              
              
              
              5,816Deferred
                  income tax liability
              
              
              2,592
              
              
              
              2,746Minority
                  interest
              
              
              320
              
              
              
              302Total
                  liabilities
              
              
              62,526
              
              
              
              63,651Commitments
                  and contingencies (Note 7)Shareholders’
                  equity:Common
                  stock, $.01 par value, 40,000 shares authorized; 25,644 shares
                  issued;  24,346 and 24,330 shares outstanding at September 30,
                  2007 and June 30, 2007, respectively
              
              
              256
              
              
              
              256Capital
                  in excess of par value
              
              
              56,885
              
              
              
              56,854Retained
                  earnings
              
              
              75,713
              
              
              
              74,419Treasury
                  stock, at cost, 1,298 and 1,314 shares at September 30, 2007 and
                  June 30,
                  2007, respectively
              
              
              (12,542
              )
              
              
              (12,693
              )Accumulated
                  other comprehensive income
              
              
              8,404
              
              
              
              5,991Total
                  shareholders’ equity
              
              
              128,716
              
              
              
              124,827TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              191,242
              
              
              $
              188,478
 
 See
        accompanying notes to condensed consolidated financial statements and
        accountants’ review report.
  3
  **ACETO
                  CORPORATION AND SUBSIDIARIES**
                **CONDENSED
                  CONSOLIDATED STATEMENTS OF INCOME**
                (unaudited
                  and in thousands, except per-share amounts)Three
                  Months Ended
                September
                  30,2007
              
              
              2006Net
                  sales
              
              $
              79,528
              
              
              $
              74,725Cost
                  of sales
              
              
              64,965
              
              
              
              62,164Gross
                  profit
              
              
              14,563
              
              
              
              12,561Selling,
                  general and administrative expenses
              
              
              10,786
              
              
              
              9,155Research
                  and development expenses
              
              
              172
              
              
              
              6Operating
                  income
              
              
              3,605
              
              
              
              3,400Other
                  income (expense):Interest
                  expense
              
              
              (15
              )
              
              
              (13
              )Interest
                  and other income, net
              
              
              327
              
              
              
              288312
              
              
              
              275Income
                  before income taxes
              
              
              3,917
              
              
              
              3,675Provision
                  for income taxes
              
              
              2,623
              
              
              
              1,213Net
                  income
              
              $
              1,294
              
              
              $
              2,462Net
                  income per common share
              
              $
              0.05
              
              
              $
              0.10Diluted
                  net income per common share
              
              $
              0.05
              
              
              $
              0.10Weighted
                  average shares outstanding:Basic
              
              
              24,336
              
              
              
              24,282Diluted
              
              
              24,851
              
              
              
              24,581
 
 See
        accompanying notes to condensed consolidated financial statements and
        accountants’ review report.
  4
 
 **ACETO
                  CORPORATION AND SUBSIDIARIES**
                **CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS**
                (unaudited
                  and in thousands)Three
                  Months Ended
                September
                  30,2007
              
              
              2006Operating
                  activities:Net
                  income
              
              $
              1,294
              
              
              $
              2,462Adjustments
                  to reconcile net income to net cash provided
                by
                  operating activities:Depreciation
                  and amortization
              
              
              639
              
              
              
              381Provision
                  for doubtful accounts
              
              
              (30
              )
              
              
              35Non-cash
                  stock compensation
              
              
              83
              
              
              
              114Deferred
                  income taxes
              
              
              1,468
              
              
              
              662Unrealized
                  gain on trading securities
              
              
              (41
              )
              
              
              (5
              )Changes
                  in assets and liabilities:Trade
                  accounts receivable
              
              
              3,048
              
              
              
              (3,016
              )Other
                  receivables
              
              
              (1,725
              )
              
              
              (707
              )Inventory
              
              
              1,651
              
              
              
              1,850Prepaid
                  expenses and other current assets
              
              
              (225
              )
              
              
              (315
              )Other
                  assets
              
              
              (359
              )
              
              
              (301
              )Accounts
                  payable
              
              
              (4,233
              )
              
              
              582Other
                  accrued expenses and liabilities
              
              
              2,437
              
              
              
              2,839Net
                  cash provided by operating activities
              
              
              4,007
              
              
              
              4,581Investing
                  activities:Payments
                  received on notes receivable
              
              
              19
              
              
              
              8Purchases
                  of property and equipment, net
              
              
              (98
              )
              
              
              (149
              )Purchases
                  of investments
              
              
              -
              
              
              
              (2,001
              )Purchase
                  of intangible asset
              
              
              -
              
              
              
              (42
              )Net
                  cash used in investing activities
              
              
              (79
              )
              
              
              (2,184
              )Financing
                  activities:Proceeds
                  from exercise of stock options
              
              
              70
              
              
              
              13Excess
                  tax benefit on exercise of stock options
              
              
              13
              
              
              
              4Payments
                  of short-term bank loans
              
              
              (25
              )
              
              
              -Net
                  cash provided by financing activities
              
              
              58
              
              
              
              17Effect
                  of exchange rate changes on cash
              
              
              1,110
              
              
              
              115Net
                  increase in cash
              
              
              5,096
              
              
              
              2,529Cash
                  at beginning of period
              
              
              32,320
              
              
              
              33,732Cash
                  at end of period
              
              $
              37,416
              
              
              $
              36,261
 
 See
        accompanying notes to condensed consolidated financial statements and
        accountants’ review report.
  5
  **ACETO
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited
          and in thousands, except per-share amounts)
  **(1)****Basis
        of Presentation**
 
 The
        condensed consolidated financial statements of Aceto Corporation and
        subsidiaries (“Aceto” or the “Company”) included herein have been prepared by
        the Company and reflect all adjustments (consisting solely of normal recurring
        adjustments) necessary to present fairly the financial position, results
        of
        operations and cash flows for all periods presented.  Interim results
        are not necessarily indicative of results which may be achieved for the full
        year.
 
 The
        preparation of financial statements in conformity with U.S. generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets, liabilities, revenues and expenses
        reported in those financial statements.  These judgments can be
        subjective and complex, and consequently actual results could differ from
        those
        estimates and assumptions.  The Company’s most critical accounting
        policies relate to revenue recognition; allowance for doubtful accounts;
        inventories; goodwill and other indefinite-lived intangible assets; long-lived
        assets; environmental and other contingencies; income taxes; and stock-based
        compensation.
 
 These
        condensed consolidated financial statements do not include all disclosures
        associated with consolidated financial statements prepared in accordance
        with
        U.S. generally accepted accounting principles.  Accordingly, these
        statements should be read in conjunction with the Company’s consolidated
        financial statements and notes thereto contained in the Company’s Form 10-K for
        the year ended June 30, 2007.
 
 Certain
        reclassifications have been made to the prior condensed consolidated financial
        statements to conform to the current presentation.
 
 **(2) Investments**
 
 A
        summary
        of short-term investments were as follows:
 
 September
                  30, 2007
              
              
              June
                  30, 2007Fair
                  Value
              
              
              Cost
                  Basis
              
              
              Fair
                  Value
              
              
              Cost
                  BasisTrading
                  securitiesCorporate
                  equity securities
              
              $
              918
              
              
              $
              152
              
              
              $
              877
              
              
              $
              152Available
                  for sale securitiesCorporate
                  bonds
              
              
              1,190
              
              
              $
              1,203
              
              
              
              1,187
              
              
              $
              1,203Government
                  and agency securities
              
              
              990
              
              
              $
              1,000
              
              
              
              972
              
              
              $
              1,000$
              3,098
              
              
              
              
              
              
              $
              3,036
 The
        Company has classified all investments with maturity dates of greater than
        three
        months as current since it has the ability to redeem them within the year
        and is
        available for current operations.
 
 Unrealized
        gains on trading securities were $41 and $5 for the three months ended September
        30, 2007 and 2006, respectively.
 
 **(3) Goodwill
        and
        Other Intangible Assets**
 
 Goodwill
        of $1,877 and $1,820 as of September 30, 2007 and June 30, 2007, relates
        to the
        Health Sciences Segment.
 
 Changes
        in goodwill are attributable to changes in foreign currency exchange rates
        used
        to translate the financial statements of foreign subsidiaries.
 
 6
 
 **ACETO
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited
          and in thousands, except per-share amounts)
  **(4) Net
        Income
        Per Common Share**
 
 Basic
        income per common share is based on the weighted average number of common
        shares
        outstanding during the period.  Diluted income per common share
        includes the dilutive effect of potential common shares
        outstanding.  The Company’s only potential common shares outstanding
        are stock options, which resulted in a dilutive effect of 515 and 299 shares
        for
        the three months ended September 30, 2007, and 2006,
        respectively.  There were 1,204 and 1,692 stock options outstanding as
        of September 30, 2007, and 2006, respectively, that were not included in
        the
        calculation of diluted income per common share for the three months ended
        September 30, 2007, and 2006, respectively because their effect would have
        been
        anti-dilutive.
 
 **(5) Comprehensive
        Income**
 
 Comprehensive
        income consists of net income and other gains and losses affecting shareholders’
equity that, under generally accepted accounting principles, are excluded
        from
        net income.  The components of comprehensive income were as
        follows:
 Three
                  months ended
                September
                  30,2007
              
              
              2006Comprehensive
                  income:Net
                  income
              
              
              1,294
              
              
              
              2,462Foreign
                  currency translation
                adjustment
              
              
              2,391
              
              
              
              365Unrealized
                  gain on available
                for
                  sale securities
              
              
              21
              
              
              
              34Change
                  in fair value of cross
                currency
                  interest rate swaps
              
              
              1
              
              
              
              90Total
              
              $
              3,707
              
              
              $
              2,951
 
 The
        financial statements of the Company's foreign subsidiaries are measured using
        the local currency as the functional currency.  Exchange gains or
        losses resulting from the translation of financial statements of foreign
        operations are accumulated in other comprehensive income.  The foreign
        currency translation adjustment for the three months ended September 30,
        2007
        primarily relates to the fluctuation of the conversion rate of the Euro.
        The
        currency translation adjustments are not adjusted for income taxes as they
        relate to indefinite investments in non-US subsidiaries.
 
 **(6) Income
        Taxes**
 
 The
        decrease in the net deferred income tax assets of $1,468 for the quarter
        ended
        September 30, 2007 related to German tax reform which was enacted in August
        2007
        that reduces the corporate tax rate for businesses from 40% to 30%, as well
        as
        implementing a cap on interest deductions and tightening the tax basis for
        trade
        tax income. This tax rate reduction becomes effective for tax years ending
        after
        January 1, 2008. Due to the reduction in the overall German tax rate, the
        deferred income tax asset as of September 30, 2007 was revalued during the
        month
        of enactment of the tax reform and therefore was reduced by approximately
        $1,429, which is reflected in the condensed consolidated financial statements
        for the three months ended September 30, 2007.
 
 The
        decrease in the net deferred income tax assets of $662 for the quarter ended
        September 30, 2006 related to the reduction of taxes payable due to the
        utilization of foreign net operating loss carryforwards.
 
 In
        June
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48 “Accounting for
        Uncertainty in Income Taxes – an interpretation of FASB Statement 109”. FIN 48
        prescribes a comprehensive model for recognizing, measuring, presenting and
        disclosing in the financial statements tax positions taken or expected to
        be
        taken on a tax return. FIN 48 is effective for fiscal years beginning after
        December 15, 2006. The Company adopted FIN No. 48 on July 1, 2007 and determined
        that the adoption of FIN No. 48 did not have a material impact on its
        consolidated financial statements. In addition, there are no unrecognized
        tax
        benefits included in the consolidated balance sheet that would, if recognized,
        have a material effect on the Company’s effective tax rate. The Company is
        continuing its practice of recognizing interest and penalties related to
        income
        tax matters in income tax expense. The total accrual for interest and penalties
        related to uncertain tax positions was approximately $69 as of September
        30,
        2007. The Company did not recognize interest or penalties related to income
        taxes during the three months ended September 30, 2007. The Company files
        U.S.
        federal, U.S. state, and foreign tax returns, and is generally no longer
        subject
        to tax examinations for fiscal years prior to 2003 (in the case of certain
        foreign tax returns, calendar year 2001).
  7
  **ACETO
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited
          and in thousands, except per-share amounts)
 **(7) Commitments
        and Contingencies**
 
 The
        Company and its subsidiaries are subject to various claims which have arisen
        in
        the normal course of business.  The impact of the final resolution of
        these matters on the Company’s results of operations in a particular reporting
        period is not known.  Management is of the opinion, however, that the
        ultimate outcome of such matters will not have a material adverse effect
        upon
        the Company’s financial condition or liquidity.
 
 In
        May
        2007, February 2007 and September 2006, the Company received letters from
        the
        Pulvair Site Group, a group of potentially responsible parties ("PRP Group")
        who
        are working with the State of Tennessee (the "State") to remediate a
        contaminated property in Tennessee called the Pulvair site. The PRP Group
        has
        alleged that Aceto shipped hazardous substances to the site which were released
        into the environment.   The State had begun administrative proceedings
        against the members of the PRP group and Aceto with respect to the cleanup
        of
        the Pulvair site and the group has begun to undertake cleanup. The PRP Group
        is
        seeking a settlement of approximately $2,100 from the Company for its share
        to
        remediate the site contamination. Although the Company acknowledges that
        it
        shipped materials to the site for formulation over twenty years ago, the
        Company
        believes that the evidence does not show that the hazardous materials sent
        by
        Aceto to the site have significantly contributed to the contamination of
        the
        environment. Accordingly, the Company believes that the settlement offer
        is
        unreasonable. Alternatively, counsel to the PRP Group has proposed that Aceto
        join it as a participating member and pay 3.16% of the PRP Group's cost.
         The Company believes that this percentage is high because it is based on
        the total volume of materials that Aceto sent to the site, most of which
        were
        non-hazardous substances and as such, believes that it is a very minor
        contributor to the site contamination. The impact of the resolution of this
        matter on the Company's results of operations in a particular reporting period
        is not known.  However, management believes that the ultimate outcome of
        this matter will not have a material adverse effect on the Company's financial
        condition or liquidity.
 
 The
        Company has environmental remediation obligations in connection with Arsynco’s
        former manufacturing facility located in Carlstadt, New Jersey, which was
        closed
        in 1993 and is currently held for sale.  During fiscal 2007, based on
        continued monitoring of the contamination at the site and the current proposed
        plan of remediation, the Company received an estimate from an environmental
        consultant stating that the costs of remediation could be between $6,136
        and
        $7,611.  As of September 30, 2007 and June 30, 2007 a liability of
        $6,136 is included in the accompanying condensed consolidated balance
        sheets.   However, these matters, if resolved in a manner
        different from those assumed in current estimates, could have a material
        adverse
        effect on the Company’s financial condition, operating results and cash flows
        when resolved in a future reporting period.
 
 In
        connection with the environmental remediation obligation for Arsynco, the
        Company has filed a claim against BASF Corporation (BASF), the former owners
        of
        the Arsynco property. The Company alleges that BASF is liable for a portion
        of
        the cost to remediate, however, since collection is uncertain at this time,
        no
        asset has been recorded.
 
 In
        March
        2006, Arsynco received notice from the EPA of its status as a PRP under the
        Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
        for a site described as the Berry’s Creek Study Area.   Arsynco
        is one of over 150 PRP’s which have potential liability for the required
        investigation and remediation of the site.  The estimate of the
        potential liability is not quantifiable for a number of reasons, including
        the
        difficulty in determining the extent of contamination and the length of time
        remediation may require.  In addition, any estimate of liability must
        also consider the number of other PRP’s and their financial
        strength.  Since an amount of the liability can not be reasonably
        estimated at this time, no accrual is recorded for these potential future
        costs.  The impact of the resolution of this matter on the Company’s
        results of operations in a particular reporting period is not
        known.  However, management believes that the ultimate outcome of this
        matter will not have a material adverse effect on the Company’s financial
        condition or liquidity.
  8
  **ACETO
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited
          and in thousands, except per-share amounts)
 A
        subsidiary of the Company markets certain agricultural chemicals which are
        subject to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA).
        FIFRA
        requires that test data be provided to the Environmental Protection Agency
        (EPA)
        to register, obtain and maintain approved labels for pesticide products.
        The EPA
        requires that follow-on registrants of these products compensate the initial
        registrant for the cost of producing the necessary test data on a basis
        prescribed in the FIFRA regulations. Follow-on registrants do not themselves
        generate or contract for the data. However, when FIFRA requirements mandate
        that
        new test data be generated to enable all registrants to continue marketing
        a
        pesticide product, often both the initial and follow-on registrants establish
        a
        task force to jointly undertake the testing effort. The Company is presently
        a
        member of three such task force groups and historically, payments have been
        in
        the range of $250 - $500 per year.  The Company may be required to
        make additional payments in the future.
 
 In
        June
        2006, the Company negotiated a lease termination with its landlord for the
        facility previously occupied by CDC and Magnum.  In connection with
        the lease termination, the landlord and a third party entered into a long-term
        lease for which the Company guaranteed the rental payments by the third party
        through September 30, 2009.  The aggregate future rental payments of
        the third party that are guaranteed by the Company are $925 and the fair
        value
        of this guarantee is deemed to be insignificant.
 
 Commercial
        letters of credit are issued by the Company in the ordinary course of business
        through major domestic banks as requested by certain suppliers.  The
        Company had open letters of credit of approximately $656 and $702 as of
        September 30, 2007 and June 30, 2007, respectively.  The terms of
        these letters of credit are all less than one year.  No material loss
        is anticipated due to non-performance by the counterparties to these
        agreements.
 
 **(8) Recent
        Accounting Pronouncements**
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
        No. 157). SFAS No. 157 establishes a common definition for fair value to
        be
        applied to US GAAP guidance requiring use of fair value, establishes a framework
        for measuring fair value, and expands disclosure about such fair value
        measurements. SFAS No. 157 is effective for fiscal years beginning after
        November 15, 2007.  Management is currently assessing the impact of
        SFAS No. 157 on the consolidated financial position and results of
        operations.
 
 In
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities—Including an Amendment of FASB
        Statement No. 115" (" SFAS No. 159"). SFAS No. 159 allows companies the choice
        to measure many financial instruments and certain other items at fair value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected will be recognized in earnings at each subsequent reporting date.
        The
        provisions of SFAS No. 159 will be effective for fiscal years beginning after
        November 15, 2007. Management is currently evaluating the impact of SFAS
        No. 159
        on the consolidated financial position and results of operations.
 
 **(9) Segment
        Information**
  The
        Company's business is organized along product lines into three principal
        segments: Health Sciences, Chemicals & Colorants and Crop
        Protection.
  **Health
        Sciences** - includes the active ingredients for generic pharmaceuticals,
        vitamins, and nutritional supplements, as well as products used in preparing
        pharmaceuticals, primarily by major innovative drug companies, and
        biopharmaceuticals. Health Sciences also includes Aceto branded vaccines
        for
        companion animals and finished dosage form generic drugs.
  **Chemicals
        & Colorants** - includes a variety of specialty chemicals used in
        plastics, resins, adhesives, coatings, food, flavor additives, fragrances,
        cosmetics, metal finishing, electronics, air-conditioning systems and many
        other
        areas. Dye and pigment intermediates are used in the color-producing industries
        such as textiles, inks, paper, and coatings. Organic intermediates are used
        in
        the production of agrochemicals.
  9
  **ACETO
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited
          and in thousands, except per-share amounts)
  **Crop
        Protection** - includes herbicides, fungicides and insecticides that
        control weed growth as well as control the spread of insects and other
        microorganisms that can severely damage plant growth. Also includes a sprout
        inhibitor for potatoes and an herbicide for sugar cane. The Company changed
        the
        name of this segment from Agrochemicals to Crop Protection in 2007 to more
        accurately portray the markets in which it does business.
  The
        Company's chief operating decision maker evaluates performance of the segments
        based on net sales and gross profit. The Company does not allocate assets
        by
        segment because the chief operating decision maker does not review the assets
        by
        segment to assess the segments' performance, as the assets are managed on
        an
        entity-wide basis.
 
 Three
        Months Ended September 30, 2007 and 2006:
  Health
                Sciences
              
              
              Chemicals
                  &
                Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
                Totals2007Net
                  sales
              
              $
              46,680
              
              
              $
              28,307
              
              
              $
              4,541
              
              
              $
              79,528Gross
                  profit
              
              
              10,102
              
              
              
              3,594
              
              
              
              867
              
              
              
              14,5632006Net
                  sales
              
              $
              42,504
              
              
              $
              28,842
              
              
              $
              3,379
              
              
              $
              74,725Gross
                  profit
              
              
              8,217
              
              
              
              3,557
              
              
              
              787
              
              
              
              12,561
 
 
 10
  **Report
        of Independent Registered Public Accounting Firm**
  Board
        of
        Directors and Shareholders
 Aceto
        Corporation
 
 We
        have
        reviewed the condensed consolidated balance sheet of Aceto Corporation and
        subsidiaries as of September 30, 2007 and the related condensed consolidated
        statements of income for the three-month periods ended September 30, 2007
        and
        2006, and the related condensed consolidated statements of cash flows for
        the
        three-month periods ended September 30, 2007 and 2006 included in the
        accompanying Securities and Exchange Commission Form 10-Q for the period
        ended
        September 30, 2007.  These interim financial statements are the
        responsibility of the Company’s management.
 
 We
        conducted our review in accordance with standards of the Public Company
        Accounting Oversight Board (United States).  A review of interim
        financial information consists principally of applying analytical procedures
        and
        making inquiries of persons responsible for financial and accounting
        matters.  It is substantially less in scope than an audit conducted in
        accordance with the standards of the Public Company Accounting Oversight
        Board,
        the objective of which is the expression of an opinion regarding the financial
        statements taken as a whole.  Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our review, we are not aware of any material modifications that should be
        made
        to the condensed consolidated financial statements referred to above for
        them to
        be in conformity with accounting principles generally accepted in the United
        States of America.
 
 We
        have
        previously audited, in accordance with standards of the Public Company
        Accounting Oversight Board, the consolidated balance sheet of Aceto Corporation
        and subsidiaries as of June 30, 2007, and the related consolidated statements
        of
        income, shareholders’ equity and comprehensive income and cash flows for the
        year then ended (not presented herein); and in our report dated September
        5,
        2007, we expressed an unqualified opinion on those consolidated financial
        statements.  In our opinion, the information set forth in the
        accompanying consolidated balance sheet as of June 30, 2007, is fairly stated,
        in all material respects, in relation to the consolidated balance sheet from
        which it has been derived.
 
 
 /s/
        BDO
        SEIDMAN LLP
 
 Melville,
        New York
 November
        7, 2007
  11
  **Item
        2.  Management's Discussion and Analysis of Financial Condition and
        Results of Operations**
  CAUTIONARY
        STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
 SECURITIES
        LITIGATION REFORM ACT OF 1995
 
 This
        Quarterly Report on Form 10-Q and the information incorporated by reference
        includes “forward-looking statements” within the meaning of section 27A of the
        Securities Act of 1933 and Section 21E of the Securities Exchange Act of
        1934.  We intend those forward looking-statements to be covered by the
        safe harbor provisions for forward-looking statements.  All statements
        regarding our expected financial position and operating results, our business
        strategy, our financing plans and the outcome of any contingencies are
        forward-looking statements.  Any such forward-looking statements are
        based on current expectations, estimates and projections about our industry
        and
        our business.  Words such as “anticipates,” “expects,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” or variations of those words and
        similar expressions are intended to identify such forward-looking
        statements.  Forward-looking statements are subject to risks and
        uncertainties that could cause actual results to differ materially from those
        set forth or implied by any forward-looking statements.  Factors that
        could cause actual results to differ materially from forward-looking statements
        include, but are not limited to, unforeseen environmental liabilities, uncertain
        military, political and economic conditions in the world, the mix of products
        sold and the profit margins thereon, order cancellation or a reduction in
        orders
        from customers, the nature and pricing of competing products, the availability
        and pricing of key raw materials, dependence on key members of management,
        risks
        of entering into new European markets, continued successful integration of
        acquisitions, and economic and political conditions in the United States
        and
        abroad.  We undertake no obligation to update any such forward-looking
        statements, other than as required by law.
 
 NOTE
        REGARDING DOLLAR AMOUNTS
 
 In
        this
        quarterly report, all dollar amounts are expressed in thousands, except for
        share prices and per-share amounts.
 
 The
        following Management’s Discussion and Analysis of Financial Condition and
        Results of Operations (“MD&A”) is intended to provide the readers of our
        financial statements with a narrative discussion about our business. The
        MD&A is provided as a supplement to and should be read in conjunction with
        our financial statements and the accompanying notes.
  **Executive
        Summary**
 
 We
        are
        reporting net sales of $79,528 for the three months ended September 30, 2007,
        which represents a 6.4% increase from the $74,725 reported in the comparable
        prior period.  Gross profit for the three months ended September 30,
        2007 was $14,563 and our gross margin was 18.3% as compared to gross profit
        of
        $12,561 and gross margin of 16.8% in the comparable prior period.  Our
        selling, general and administrative costs for the three months ended September
        30, 2007 increased to $10,786, an increase of 17.8% over the $9,155 we reported
        in the prior period.  Our net income decreased to $1,294, or $0.05 per
        diluted share, a decrease of 47.4% compared to the prior period.
 
 Our
        financial position as of September 30, 2007 remains strong, as we had cash
        of
        $37,416, working capital of $118,252, no long-term debt and shareholders’ equity
        of $128,716.
 
 Our
        ongoing business is separated into three segments:  Health Sciences,
        Chemicals & Colorants and Crop Protection.
  The
        Health Sciences segment is our largest segment in terms of both sales and
        gross
        profits. Products that fall within this segment include active pharmaceutical
        ingredients (“APIs”), pharmaceutical intermediates, nutritionals and
        biopharmaceuticals.
  12
  We
        typically partner with both customers and suppliers years in advance of a
        drug
        coming off patent to provide the generic equivalent.  We believe we
        have a pipeline of new APIs poised to reach commercial levels over the coming
        years as the patents on existing drugs expire, both in the United States
        and
        Europe. In addition, we continue to explore opportunities to provide a
        second-source option for existing generic drugs with approved ANDAs. The
        opportunities that we are looking for are to supply the APIs for the more
        mature
        generic drugs where pricing has stabilized following the dramatic decreases
        in
        price that these drugs experienced after coming off patent.  As is the
        case in the generic industry, the entrance into the market of other generic
        competition generally has a negative impact on the pricing of the affected
        products.
  By
        leveraging our worldwide sourcing and regulatory capabilities, we believe
        we can
        be an alternative lower cost, second-source provider of existing APIs to
        generic
        drug companies.
  The
        Chemicals & Colorants segment is a major supplier to the many different
        industries that require outstanding performance from chemical raw materials
        and
        additives.  Products that fall within this segment include
        intermediates for dyes, pigments and agrochemicals.  We provide
        chemicals used to make plastics, surface coatings, textiles, lubricants,
        flavors
        and fragrances. Many of Aceto’s raw materials are also used in high-tech
        products like high-end electronic parts (circuit boards and computer chips)
        and
        binders for specialized rocket fuels. Aceto is currently responding to the
        changing needs of our customers in the color producing industry by taking
        our
        resources and knowledge downstream as a supplier of select organic pigments.
        We
        expect that continued global Gross Domestic Product growth will drive higher
        demand for the chemical industry, especially in China and other emerging
        regions
        of the world. With supply growth limited, we expect that industry supply/demand
        balances will remain favorable. However, continued volatility in energy costs
        will add uncertainty to our profit outlook.
  The
        Crop
        Protection segment sells herbicides, fungicides, insecticides, and other
        agricultural chemicals to customers, primarily located in the United States
        and
        Western Europe. In fiscal 2007, we entered into a multi-year contract with
        a
        major agricultural chemical distributor and launched generic Asulam, an
        herbicide for sugar cane and the first generic registration that Aceto has
        received. Our plan is to develop over time a pipeline of additional products
        in
        a similar manner.
  Our
        main
        business strengths are sourcing, regulatory support, quality control, marketing
        and distribution. With a physical presence in ten countries, we distribute
        over
        1,000 chemicals and pharmaceuticals used principally as raw materials in
        the
        pharmaceutical, agricultural, color, surface coating/ink and general chemical
        consuming industries. We believe that we are currently the largest buyer
        of
        pharmaceutical and specialty chemicals for export from China, purchasing
        from
        over 500 different manufacturers.
 
 In
        this
        MD&A section, we explain our general financial condition and results of
        operations, including the following:
 
 ·
              factors
                  that affect our business
 ·
              our
                  earnings and costs in the periods
                  presented
 ·
              changes
                  in earnings and costs between
                  periods
 ·
              sources
                  of earnings
 ·
              the
                  impact of these factors on our overall financial
                  condition
 
 As
        you
        read this MD&A section, refer to the accompanying condensed consolidated
        statements of income, which present the results of our operations for the
        three
        months ended September 30, 2007 and 2006.  We analyze and explain the
        differences between periods in the specific line items of the condensed
        consolidated statements of income.
 
 **Critical
        Accounting Estimates and Policies**
 
 As
        disclosed in our Form 10-K for the year ended June 30, 2007, the discussion
        and
        analysis of our financial condition and results of operations is based on
        our
        consolidated financial statements, which have been prepared in accordance
        with
        U.S. generally accepted accounting principles.  In preparing these
        financial statements, we were required to make estimates and assumptions
        that
        affect the amounts of assets, liabilities, revenues and expenses, and related
        disclosure of contingent assets and liabilities.  We regularly
        evaluate our estimates including those related to allowances for bad debts,
        inventories, goodwill and other indefinite-lived intangible assets, long-lived
        assets, environmental and other contingencies, income taxes and stock-based
        compensation.  We base our estimates on various factors, including
        historical experience, advice from outside subject-matter experts, and various
        assumptions that we believe to be reasonable under the circumstances, which
        together form the basis for our making judgments about the carrying values
        of
        assets and liabilities that are not readily apparent from other
        sources.  Actual results may differ from these estimates.
  13
  Since
        June 30, 2007, there have been no significant changes to the assumptions
        and
        estimates related to those critical accounting estimates and
        policies.
 
 **RESULTS
        OF OPERATIONS**
 
 **Three
        Months Ended September 30, 2007 Compared to Three Months Ended September
        30,
        2006**
 
 **Net
                  Sales by Segment**
                Three
                  months ended September 30,Comparison
                  20072007
              
              
              2006
              
              
              Over/(Under)
                  2006%
                  of
              
              
              
              
              
              %
                  of
              
              
              $
              
              
              %Segment
              
              Net
                  sales
              
              
              total
              
              
              Net
                  sales
              
              
              total
              
              
              change
              
              
              changeHealth
                  Sciences
              
              $
              46,680
              
              
              
              58.7
              %
              
              $
              42,504
              
              
              
              56.9
              %
              
              $
              4,176
              
              
              
              9.8
              %Chemicals
                  & Colorants
              
              
              28,307
              
              
              
              35.6
              
              
              
              28,842
              
              
              
              38.6
              
              
              
              (535
              )
              
              
              (1.9
              )Crop
                  Protection
              
              
              4,541
              
              
              
              5.7
              
              
              
              3,379
              
              
              
              4.5
              
              
              
              1,162
              
              
              
              34.4Net
                  sales
              
              $
              79,528
              
              
              
              100.0
              %
              
              $
              74,725
              
              
              
              100.0
              %
              
              $
              4,803
              
              
              
              6.4
              %**Gross
                  Profit by Segment**
                Three
                  months ended September 30,Comparison
                  20072007
              
              
              2006
              
              
              Over/(Under)
                  2006Gross
              
              
              %
                  of
              
              
              Gross
              
              
              %
                  of
              
              
              $
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              Profit
              
              
              sales
              
              
              change
              
              
              ChangeHealth
                  Sciences
              
              $
              10,102
              
              
              
              21.6
              %
              
              $
              8,217
              
              
              
              19.3
              %
              
              $
              1,885
              
              
              
              22.9
              %Chemicals
                  & Colorants
              
              
              3,594
              
              
              
              12.7
              
              
              
              3,557
              
              
              
              12.3
              
              
              
              37
              
              
              
              1.0Crop
                  Protection
              
              
              867
              
              
              
              19.1
              
              
              
              787
              
              
              
              23.3
              
              
              
              80
              
              
              
              10.2Gross
                  Profit
              
              $
              14,563
              
              
              
              18.3
              %
              
              $
              12,561
              
              
              
              16.8
              %
              
              $
              2,002
              
              
              
              15.9
              %
  14
 **Net
        Sales**
 
 Net
        sales
        increased $4,803, or 6.4%, to $79,528 for the three months ended September
        30,
        2007, compared with $74,725 for the prior period.  We reported sales
        increases in our Health Sciences and Crop Protection segments which were
        partially offset by a slight sales decrease in our Chemicals & Colorants
        segment, as explained below.
 
 *Health
        Sciences*
 
 Net
        sales
        for the Health Sciences segment increased by $4,176 for the three months
        ended
        September 30, 2007, to $46,680, which represents a 9.8% increase from net
        sales
        of $42,504 for the prior period.  This increase is the result of an
        increase of $2,307 in the domestic generics product group, which consists
        of
        over forty products, as well as increased sales from our foreign operations
        of
        $1,443, specifically our German and Singapore operations.
 
 *Chemicals
        & Colorants*
 
 Net
        sales
        for the Chemicals & Colorants segment were $28,307 for the three months
        ended September 30, 2007, which is relatively consistent with $28,842 for
        the
        prior period.  Our chemical business is diverse in terms of products,
        customers and consuming markets.  The slight decrease of $535, or
        1.9%, over the prior period is partially attributable to a decline in sales
        of
        pigment intermediates and other intermediates which together decreased $937,
        a
        reduction of $1,202 in sales of our products sold to the food and beverage
        industries, offset in part by an increase of $955 of sales of our pigments
        products and a $621 increase in sales of our agricultural
        intermediates.
 
 *Crop
        Protection*
 
 Net
        sales
        for the Crop Protection segment increased to $4,541 for the three months
        ended
        September 30, 2007, an increase of $1,162, or 34.4%, from net sales of $3,379
        for the prior period.  The increase over the prior period is primarily
        attributed to increased sales of our sprout inhibitor products, which are
        utilized on potato crops.
 
 **Gross
        Profit**
 
 Gross
        profit increased $2,002 to $14,563 (18.3% of net sales) for the three months
        ended September 30, 2007, as compared to $12,561 (16.8% of net sales) for
        the
        prior period.
 
 *Health
        Sciences*
 
 Health
        Sciences’ gross profit of $10,102 for the three months ended September 30, 2007
        was $1,885 or 22.9% higher than the prior period.  This increase in
        gross profit was attributable to $1,074 increase in gross profit from our
        foreign operations, primarily Germany and Singapore, as well as the overall
        increase in sales volume. Gross profit as a percentage of sales for the three
        months ended September 30, 2007 increased to 21.6% from 19.3% for the prior
        period due primarily to favorable product mix in our nutraceutical
        products.
 
 *Chemicals
        & Colorants*
 
 Gross
        profit for the three months ended September 30, 2007 increased by $37, or
        1%,
        over the prior period. The gross margin was 12.7% for the three months ended
        September 30, 2007 compared to 12.3% for the prior period.  The
        increase in the gross margin relates to an increase in our foreign
        operations.
 
 *Crop
        Protection*
 
 Gross
        profit for the Crop Protection segment increased to $867 for the three months
        ended September 30, 2007, versus $787 for the prior period, an increase of
        $80
        or 10.2%.  Despite an increase in sales, gross margin for the quarter
        was 19.1% compared to the prior period gross margin of 23.3%. The decrease
        in
        the gross margin percentage primarily relates to lower gross profit on the
        sprout inhibitor products.
 
 15
  **Selling,
        General and Administrative Expenses**
  Selling,
        general and administrative expenses (“SG&A”) increased $1,631, or 17.8%, to
        $10,786 for the three months ended September 30, 2007 compared to $9,155
        for the
        prior period.  As a percentage of sales, SG&A increased to 13.6%
        for the three months ended September 30, 2007 versus 12.3% for the prior
        period.  The increase in SG&A relates primarily to an increase of
        $983 in legal expenses, the majority of which has been incurred relating
        to an
        anti-trust case that the Company has commenced against the owner of certain
        licensed technology used with one of our crop protection products.  We
        expect the legal fees related to this case to decrease once the hearing has
        concluded.  In addition, the prior year amount was reduced by $243 of
        proceeds received from credit insurance, which there was no comparable amount
        received during the three months ended September 30, 2007, as well as $106
        of
        the increase relates to a rise in personnel related costs for our foreign
        operations.
 
 **Research
        and Development Expenses**
 
 Research
        and development expenses (“R&D”) increased $166 over the prior period to
        $172 for the three months ended September 30, 2007. R&D relates to the
        development of two finished dosage form generic pharmaceutical products to
        be
        distributed in Europe.
  **Operating
        Income**
  For
        the
        three months ended September 30, 2007, operating income was $3,605 compared
        to
        $3,400 in the prior period, an increase of $205 or 6.0%.  This
        increase was due to the overall increase in gross profit of $2,002 offset
        by the
        $1,797 increase in SG&A and R&D expenses.
  **Interest
        and Other Income, Net**
  Interest
        and other income, net was $327 for the three months ended September 30, 2007,
        which represents an increase of $39 over the prior period mainly due to
        unrealized gains on trading securities.
  **Provision
        for Income Taxes**
  The
        effective tax rate for the three months ended September 30, 2007 increased
        to
        67.0% from 33.0% for the prior period.  The increase in the effective
        tax rate was primarily due to German tax reform, which was enacted in August
        2007, that reduces the corporate tax rate for businesses from 40% to 30%,
        as
        well as implementing a cap on interest deductions and tightening the tax
        basis
        for trade tax income. This tax rate reduction becomes effective for tax years
        ending after January 1, 2008. Due to the future reduction in the overall
        German
        tax rate, the deferred income tax asset as of September 30, 2007 was revalued
        during the month of enactment of the tax reform and therefore was reduced
        by
        approximately $1,429, which is reflected in the condensed consolidated financial
        statements for the three months ended September 30, 2007.  Without
        this charge, we expect the fiscal 2008 effective tax rate to be 30.5% as
        compared to last year’s effective tax rate of 33.8%.
 
 **Liquidity
        and Capital Resources**
 
 *Cash
        Flows*
 
 At
        September 30, 2007, we had $37,416 in cash, $3,098 in short-term investments
        and
        no short-term bank loans.  Working capital was $118,252 at September
        30, 2007 versus $112,930 at June 30, 2007.
 
 Our
        cash
        position at September 30, 2007 increased $5,096 from the amount at June 30,
        2007.  Operating activities for the three months ended September 30,
        2007 provided cash of $4,007, for this period, as compared to cash provided
        by
        operations of $4,581 for the comparable 2006 period. The $4,007 was comprised
        of
        $1,294 in net income and $2,119 derived from adjustments for non-cash items
        plus
        a net $594 increase from changes in operating assets and liabilities. The
        non-cash items included $639 in depreciation and amortization expense and
        $1,468
        for the deferred income taxes provision. Accounts receivable decreased $3,048
        during the three months ended September 30, 2007, due to decreased sales
        during
        the first quarter of 2008 as compared to the fourth quarter of 2007, as well
        as
        an improvement in days sales outstanding. Inventories decreased by approximately
        $1,651 and accounts payable decreased by $4,233 as a result of orders for
        the
        Health Sciences and Chemicals and Colorants segments that we took in the
        fourth
        quarter of 2007 that did not ship until first quarter of 2008.  Other
        accrued expenses and long-term liabilities increased $2,437 during the three
        months ended September 30, 2007, due primarily to an increase in accrued
        expenses related to a joint venture and an increase in accrued expenses for
        our
        foreign subsidiaries related to increased sales and profitability overseas
        partially offset by a decrease in accrued compensation as performance payments
        were made in September 2007. Other receivables increased $1,725 due to an
        increase in VAT taxes receivables in our European
        subsidiaries.  Operating activities for the three months ended
        September 30, 2006 provided cash of $4,581, primarily due to net income of
        $2,462 and changes in assets and liabilities.
  16
  Investing
        activities for the three months ended September 30, 2007 used cash of $79
        primarily related to purchases of property and equipment. Investing activities
        for the three months ended September 30, 2006 used cash of $2,184, primarily
        as
        a result of purchases of investments of $2,001.
 
 Financing
        activities for the three months ended September 30, 2007 provided cash of
        $58
        primarily as a result of proceeds from the exercise of stock options of $70.
        Financing activities for the three months ended September 30, 2006 provided
        cash
        of $17 primarily as a result of proceeds from the exercise of stock options
        of
        $13.
 
 *Credit
        Facilities*
 
 We
        have
        available credit facilities with certain foreign financial
        institutions.  These facilities provide us with a line of credit of
        $20,641, as of September 30, 2007.  We are not subject to any
        financial covenants under these arrangements.
 
 In
        June
        2007, we amended our revolving credit agreement with a financial institution
        that expires June 30, 2010, and provides for available credit of
        $10,000.  At September 30, 2007, we had utilized $656 in letters of
        credit, leaving $9,344 of this facility unused.  Under the credit
        agreement, we may obtain credit through direct borrowings and letters of
        credit.  Our obligations under the credit agreement are guaranteed by
        certain of our subsidiaries and are secured by 65% of the capital of certain
        of
        our non-domestic subsidiaries.  There is no borrowing base on the
        credit agreement.  Interest under the credit agreement is at LIBOR
        plus 1.50%.  The credit agreement contains several covenants
        requiring, among other things, minimum levels of debt service and tangible
        net
        worth.  We are also subject to certain restrictive debt covenants,
        including covenants governing liens, limitations on indebtedness, limitations
        on
        cash dividends, guarantees, sale of assets, sales of receivables, and loans
        and
        investments.  We were in compliance with all covenants at September
        30, 2007.
 
 *Working
        Capital Outlook*
 
 Working
        capital was $118,252 at September 30, 2007 versus $112,930 at June 30,
        2007.  The increase in working capital was primarily attributable to
        net income, reduction of trade receivables and inventory during the
        quarter.  We continually evaluate possible acquisitions of or
        investments in businesses that are complementary to our own, and such
        transactions may require the use of cash.   In October 2007, the
        Company formed a joint venture in connection with their crop protection
        business.  The joint venture will require us to acquire product
        registration costs and related data filed with the United States Environmental
        Protection Agency, which could approximate $2,100 in fiscal 2008.  We
        believe that our cash, other liquid assets, operating cash flows, borrowing
        capacity and access to the equity capital markets, taken together, provide
        adequate resources to fund ongoing operating expenditures and the anticipated
        continuation of semi-annual cash dividends for the next twelve
        months.  We may obtain additional credit facilities to enhance our
        liquidity.
 
 **Impact
        of New Accounting Pronouncements**
 
 In
        June
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48 “Accounting for
        Uncertainty in Income Taxes – an interpretation of FASB Statement 109”. FIN 48
        prescribes a comprehensive model for recognizing, measuring, presenting and
        disclosing in the financial statements tax positions taken or expected to
        be
        taken on a tax return. FIN 48 is effective for fiscal years beginning after
        December 15, 2006.The Company adopted FIN No. 48 on July 1, 2007 and determined
        that the adoption of FIN No. 48 did not have a material impact on its
        consolidated financial statements. In addition, there are no unrecognized
        tax
        benefits included in our consolidated balance sheet that would, if recognized,
        have a material effect on our effective tax rate. The Company is continuing
        its
        practice of recognizing interest and penalties related to income tax matters
        in
        income tax expense.The total accrual
        for
        interest and penalties related to uncertain tax positions was approximately
        $69
        as of September 30, 2007. The Company did not recognize interest or penalties
        related to income taxes during the three months ended September 30, 2007.
        The
        Company files U.S. federal, U.S. state, and foreign tax returns, and is
        generally no longer subject to tax examinations for fiscal years prior to
        2003
        (in the case of certain foreign tax returns, calendar year 2001).
  17
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
        No. 157). SFAS No. 157 establishes a common definition for fair value to
        be
        applied to US GAAP guidance requiring use of fair value, establishes a framework
        for measuring fair value, and expands disclosure about such fair value
        measurements. SFAS No. 157 is effective for fiscal years beginning after
        November 15, 2007.  We are currently assessing the impact of SFAS No.
        157 on our consolidated financial position and results of
        operations.
  In
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities—Including an Amendment of FASB
        Statement No. 115" (" SFAS No. 159"). SFAS No. 159 allows companies the choice
        to measure many financial instruments and certain other items at fair value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected will be recognized in earnings at each subsequent reporting date.
        The
        provisions of SFAS No. 159 will be effective for fiscal years beginning after
        November 15, 2007. Management is currently evaluating the impact of SFAS
        No. 159
        on the consolidated financial position and results of operations.
 
 **Item
        3.  Quantitative and Qualitative Disclosures About Market
        Risk**
 
 **Market
        Risk Sensitive Instruments**
 
 The
        market risk inherent in our market-risk-sensitive instruments and positions
        is
        the potential loss arising from adverse changes in investment market prices,
        foreign currency exchange-rates and interest rates.
 
 **Investment
        Market Price Risk**
 
 We
        had
        short-term investments of $3,098 at September 30, 2007.  Those
        short-term investments consisted of government and agency securities, corporate
        bonds and corporate equity securities, and they were recorded at fair value
        and
        had exposure to price risk.  If this risk is estimated as the
        potential loss in fair value resulting from a hypothetical 10% adverse change
        in
        prices quoted by stock exchanges, the effect of that risk would be $310 as
        of
        September 30, 2007.  Actual results may differ.
 
 **Foreign
        Currency Exchange Risk**
 
 In
        order
        to reduce the risk of foreign currency exchange rate fluctuations, we hedge
        some
        of our transactions denominated in a currency other than the functional
        currencies applicable to each of our various entities.  The
        instruments used for hedging are short-term foreign currency contracts
        (futures).  The changes in market value of such contracts have a high
        correlation to price changes in the currency of the related hedged
        transactions.  At September 30, 2007, we had foreign currency
        contracts outstanding that had a notional amount of $11,836.  The
        difference between the fair market value of the foreign currency contracts
        and
        the related commitments at inception and the fair market value of the contracts
        and the related commitments at September 30, 2007, was not
        material.
 
 In
        addition, we enter into cross currency interest rate swaps to reduce foreign
        currency exposure on inter-company transactions.  In May 2003 we
        entered into a five-year cross currency interest rate swap transaction for
        the
        purpose of hedging fixed-interest-rate, foreign-currency-denominated cash
        flows
        under an inter-company loan.  Under the terms of the derivative
        financial instrument, U.S. dollar fixed principal and interest payments to
        be
        received under the inter-company loan will be swapped for Euro denominated
        fixed
        principal and interest payments.  The change in fair value of the swap
        from date of purchase to September 30, 2007, was $(75).  The gains or
        losses on the inter-company loan due to changes in foreign currency rates
        will
        be offset by the gains or losses on the swap in the accompanying condensed
        consolidated statements of income.  Since our interest rate swap
        qualifies as a hedging activity, the change in their fair value, amounting
        to
        $(1) and $(90) for the three months ended September 30, 2007 and 2006,
        respectively, is recorded in accumulated other comprehensive income included
        in
        the accompanying condensed consolidated balance sheets.
  18
  We
        are
        subject to risk from changes in foreign exchange rates for our subsidiaries
        that
        use a foreign currency as their functional currency and are translated into
        U.S.
        dollars.  These changes result in cumulative translation adjustments,
        which are included in accumulated other comprehensive income.  On
        September 30, 2007, we had translation exposure to various foreign currencies,
        with the most significant being the Euro and the Chinese
        Renminbi.  The potential loss as of September 30, 2007, resulting from
        a hypothetical 10% adverse change in quoted foreign currency exchange rates
        amounted to $6,153.  Actual results may differ.
 
 **Interest
        rate risk**
 
 Due
        to
        our financing, investing and cash-management activities, we are subject to
        market risk from exposure to changes in interest rates.  We utilize a
        balanced mix of debt maturities along with both fixed-rate and variable-rate
        debt to manage our exposure to changes in interest rates.  Our
        financial instrument holdings at year-end were analyzed to determine their
        sensitivity to interest rate changes.  In this sensitivity analysis,
        we used the same change in interest rate for all maturities.  All
        other factors were held constant.  If there were an adverse change in
        interest rates of 10%, the expected effect on net income related to our
        financial instruments would be immaterial.  However, there can be no
        assurances that interest rates will not significantly affect our results
        of
        operations.
 
 **Item
        4.  Controls and Procedures**
 
 **Evaluation
        of Disclosure Controls and Procedures**
  Our
        disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
        under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are
        designed to provide reasonable assurance that information required to be
        disclosed in the reports that we file or submit under the Exchange Act is
        recorded, processed, summarized and reported within the time periods specified
        in the rules and forms of the Securities and Exchange Commission. Our disclosure
        controls and procedures are also designed to ensure that information required
        to
        be disclosed in the reports that we file or submit under the Exchange Act
        is
        accumulated and communicated to our management, including our principal
        executive and principal financial officer, to allow timely decisions regarding
        required disclosure. Our chief executive officer and chief financial officer,
        with assistance from other members of our management, have reviewed the
        effectiveness of our disclosure controls and procedures as of September 30,
        2007
        and, based on their evaluation, have concluded that the disclosure controls
        and
        procedures were effective as of such date.
  **Changes
        in Internal Control over Financial Reporting**
  There
        has
        been no change in our internal control over financial reporting (as defined
        in
        Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our
        fiscal quarter ended September 30, 2007 that has materially affected, or
        is
        reasonably likely to materially affect, our internal control over financial
        reporting.
  **PART
        II.  OTHER INFORMATION**
 
 **Item
        1A.  Risk Factors**
 
 In
        addition to the other information set forth in this report, you should carefully
        consider the risk factors disclosed under Part I – “Item 1A. Risk Factors” in
        our Form 10-K for the year ended June 30, 2007 which could materially adversely
        affect our business, financial condition, operating results and cash
        flows.  The risks and uncertainties described in our Form 10-K for the
        year ended June 30, 2007 are not the only ones we face.  Additionally,
        risks and uncertainties not currently known to us or that we currently deem
        immaterial also may materially adversely affect our business, financial
        condition, operating results or cash flows.
 
 19
 
 **Item
        6. Exhibits**
 
 The
        exhibits filed as part of this report are listed below.
  15.1
              Awareness
                  letter from independent registered public accounting
                  firm  31.1
              Certification
                  pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
                  and
                  Exchange Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002  31.2
              Certification
                  pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
                  and
                  Exchange Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002  32.1
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002  32.2
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002
 
  20
 
  
 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.
 
 
 ACETO
                CORPORATIONDATE
                November 9, 2007
              
              BY
              /s/
                Douglas RothDouglas
                Roth, Chief Financial Officer(Principal
                Financial and Accounting Officer)DATE
                November 9, 2007
              
              BY
              /s/
                Leonard S. SchwartzLeonard
                S. Schwartz, Chairman,President
                and Chief Executive Officer(Principal
                Executive Officer)
 
  
 21