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 December 31, 2009


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 has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).





Yes o  No o


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
accelerated filer o                          Accelerated
filer x





Non-accelerated
filer o                            Smaller
reporting company 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 had 25,284,907 shares of common stock outstanding as of February 2,
2010.





ACETO
CORPORATION AND SUBSIDIARIES


QUARTERLY
REPORT FOR THE PERIOD ENDED DECEMBER 31, 2009





TABLE
OF CONTENTS


PART
      I. FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                3Condensed
      Consolidated Balance Sheets – December 31, 2009 (unaudited) and June 30,
      2009
                3Condensed
      Consolidated Statements of Operations – Six Months Ended December 31, 2009
      and 2008 (unaudited)
                4Condensed
      Consolidated Statements of Operations – Three Months Ended December 31,
      2009 and 2008 (unaudited)
                5Condensed
      Consolidated Statements of Cash Flows – Six Months Ended December 31, 2009
      and 2008 (unaudited)
                6Notes
      to Condensed Consolidated Financial Statements (unaudited)
                7Report
      of Independent Registered Public Accounting Firm
                16Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                17Item
      3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                28Item
      4.
                Controls
      and Procedures
                29PART
      II. OTHER INFORMATIONItem
      1A.
                Risk
      Factors
                29Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                30Item
      6.
                Exhibits
                31Signatures
                32Exhibits


PART
I. FINANCIAL INFORMATION


Item
1.  Financial Statements





ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED BALANCE SHEETS
              (in
      thousands, except per-share amounts)December
      31,
              2009
            
            
            June
      30,
              2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            46,971
            
            
            $
            57,761Investments
            
            
            615
            
            
            
            541Trade
      receivables, less allowance for doubtfulaccounts
      (December $986; June, $976)
            
            
            47,473
            
            
            
            46,996Other
      receivables
            
            
            11,785
            
            
            
            9,361Inventory
            
            
            69,776
            
            
            
            54,402Prepaid
      expenses and other current assets
            
            
            2,970
            
            
            
            1,006Deferred
      income tax asset, net
            
            
            1,652
            
            
            
            1,579Total
      current assets
            
            
            181,242
            
            
            
            171,646Long-term
      notes receivable
            
            
            1,000
            
            
            
            1,000Property
      and equipment, net
            
            
            4,086
            
            
            
            4,249Property
      held for sale
            
            
            3,752
            
            
            
            3,752Goodwill
            
            
            1,882
            
            
            
            1,861Intangible
      assets, net
            
            
            10,841
            
            
            
            11,518Deferred
      income tax asset, net
            
            
            2,919
            
            
            
            2,366Other
      assets
            
            
            9,323
            
            
            
            9,072TOTAL
      ASSETS
            
            $
            215,045
            
            
            $
            205,464LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            34,432
            
            
            $
            25,126Accrued
      expenses
            
            
            23,062
            
            
            
            20,739Deferred
      income tax liability
            
            
            1,071
            
            
            
            1,072Total
      current liabilities
            
            
            58,565
            
            
            
            46,937Long-term
      liabilities
            
            
            7,762
            
            
            
            9,017Environmental
      remediation liability
            
            
            7,451
            
            
            
            7,451Deferred
      income tax liability
            
            
            517
            
            
            
            491Total
      liabilities
            
            
            74,295
            
            
            
            63,896Commitments
      and contingencies (Note 7)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares
      issued;  25,284 and 24,771 shares outstanding at December 31,
      2009 and June 30, 2009, respectively
            
            
            256
            
            
            
            256Capital
      in excess of par value
            
            
            54,037
            
            
            
            56,767Retained
      earnings
            
            
            81,423
            
            
            
            85,450Treasury
      stock, at cost, 360 and 873 shares at December 31, 2009 and June 30, 2009,
      respectively
            
            
            (3,480
            )
            
            
            (8,430
            )Accumulated
      other comprehensive income
            
            
            8,514
            
            
            
            7,525Total
      shareholders’ equity
            
            
            140,750
            
            
            
            141,568TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            215,045
            
            
            $
            205,464




See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.


3




ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
              (unaudited
      and in thousands, except per-share amounts)Six
      Months Ended
              December
      31,2009
            
            
            2008Net
      sales
            
            $
            141,519
            
            
            $
            168,054Cost
      of sales
            
            
            118,923
            
            
            
            137,372Gross
      profit
            
            
            22,596
            
            
            
            30,682Selling,
      general and administrative expenses
            
            
            24,380
            
            
            
            22,616Operating
      (loss) income
            
            
            (1,784
            )
            
            
            8,066Other
      (expense) income:Interest
      expense
            
            
            (86
            )
            
            
            (62
            )Interest
      and other (expense) income, net
            
            
            (126
            )
            
            
            728(212
            )
            
            
            666(Loss)
      income before income taxes
            
            
            (1,996
            )
            
            
            8,732Income
      tax (benefit) provision
            
            
            (498
            )
            
            
            3,089Net
      (loss) income
            
            $
            (1,498
            )
            
            $
            5,643Net
      (loss) income per common share
            
            $
            (0.06
            )
            
            $
            0.23Diluted
      net (loss) income per common share
            
            $
            (0.06
            )
            
            $
            0.23Weighted
      average shares outstanding:Basic
            
            
            24,719
            
            
            
            24,402Diluted
            
            
            24,719
            
            
            
            24,940





See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.


4




ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
              (unaudited
      and in thousands, except per-share amounts)Three
      Months Ended
              December
      31,2009
            
            
            2008Net
      sales
            
            $
            70,910
            
            
            $
            74,215Cost
      of sales
            
            
            60,130
            
            
            
            62,470Gross
      profit
            
            
            10,780
            
            
            
            11,745Selling,
      general and administrative expenses
            
            
            14,240
            
            
            
            10,431Operating
      (loss) income
            
            
            (3,460
            )
            
            
            1,314Other
      (expense) income:Interest
      expense
            
            
            (35
            )
            
            
            (53
            )Interest
      and other (expense) income, net
            
            
            (134
            )
            
            
            359(169
            )
            
            
            306(Loss)
      income before income taxes
            
            
            (3,629
            )
            
            
            1,620Income
      tax (benefit) provision
            
            
            (1,128
            )
            
            
            528Net
      (loss) income
            
            $
            (2,501
            )
            
            $
            1,092Net
      (loss) income per common share
            
            $
            (0.10
            )
            
            $
            0.04Diluted
      net (loss) income per common share
            
            $
            (0.10
            )
            
            $
            0.04Weighted
      average shares outstanding:Basic
            
            
            24,848
            
            
            
            24,435Diluted
            
            
            24,848
            
            
            
            25,015





See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.


5





ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
              (unaudited
      and in thousands)Six
      Months Ended
              December
      31,2009
            
            
            2008Operating
      activities:Net
      (loss) income
            
            ($
            1,498
            )
            
            $
            5,643Adjustments
      to reconcile net (loss) income to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            1,227
            
            
            
            849Provision
      for doubtful accounts
            
            
            8
            
            
            
            520Non-cash
      stock compensation
            
            
            690
            
            
            
            819Non-cash
      inventory write-down
            
            
            859
            
            
            
            -Deferred
      income taxes
            
            
            (604
            )
            
            
            965Unrealized
      (gain) loss on trading securities
            
            
            (67
            )
            
            
            195Changes
      in assets and liabilities:Trade
      accounts receivable
            
            
            (147
            )
            
            
            5,867Other
      receivables
            
            
            (2,113
            )
            
            
            (3,154
            )Inventory
            
            
            (15,943
            )
            
            
            (8,232
            )Prepaid
      expenses and other current assets
            
            
            (1,955
            )
            
            
            (454
            )Other
      assets
            
            
            (238
            )
            
            
            (81
            )Accounts
      payable
            
            
            9,165
            
            
            
            (10,406
            )Other
      accrued expenses and liabilities
            
            
            125
            
            
            
            (1,027
            )Net
      cash used in operating activities
            
            
            (10,491
            )
            
            
            (8,496
            )Investing
      activities:Purchase
      of noncontrolling interest
            
            
            (460
            )
            
            
            -Payments
      received on notes receivable
            
            
            602
            
            
            
            404Purchases
      of property and equipment, net
            
            
            (239
            )
            
            
            (292
            )Purchases
      of investments
            
            
            -
            
            
            
            (10,243
            )Payments
      for intangible assets
            
            
            (2,154
            )
            
            
            -Net
      cash used in investing activities
            
            
            (2,251
            )
            
            
            (10,131
            )Financing
      activities:Proceeds
      from exercise of stock options
            
            
            1,178
            
            
            
            755Excess
      tax benefit on stock option exercises and restricted stock
            
            
            351
            
            
            
            145Payment
      of note payable-related party
            
            
            -
            
            
            
            (500
            )Borrowings
      of short-term bank loans
            
            
            -
            
            
            
            -Net
      cash provided by financing activities
            
            
            1,529
            
            
            
            400Effect
      of exchange rate changes on cash
            
            
            423
            
            
            
            (2,784
            )Net
      decrease in cash
            
            
            (10,790
            )
            
            
            (21,011
            )Cash
      at beginning of period
            
            
            57,761
            
            
            
            46,515Cash
      at end of period
            
            $
            46,971
            
            
            $
            25,504





Non-Cash
Item





The
Company had a non-cash item excluded from the Condensed Consolidated Statements
of Cash Flows during the six months ended December 31, 2009 and December 31,
2008 of $2,529 and $2,473, respectively, related to dividends declared but not
paid.





See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.


6


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 (U.S.
GAAP).  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, 2009.





Certain
reclassifications have been made to the prior period condensed consolidated
financial statements to conform to the current year presentation.





In
accordance with U.S. GAAP, the Company has evaluated subsequent events through
the date and time the financial statements were issued on February 5,
2010.





(2)  Goodwill
and Other Intangible Assets





Goodwill
of $1,882 and $1,861 as of December 31, 2009 and June 30, 2009, 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 with respect to
the Health Sciences Segment.





(3)  Stock-Based
Compensation





In
December 2008, the Company granted 222 options to employees at an exercise price
equal to the market value of the common stock on the date of
grant.  These options vest over one year and have a term of ten years
from the date of grant.  Compensation expense was determined using the
Black-Scholes option pricing model. Total compensation expense related to stock
options for the six months ended December 31, 2009 and 2008 was $363 and $365,
respectively and $187 and $191 for the three months ended December 31, 2009 and
2008, respectively.





In
December 2009, the Company granted 51 shares of restricted common stock to its
non-employee directors, which vest over one year.  In December 2008,
the Company granted 97 shares of restricted common stock and 23 restricted stock
units. These shares of restricted common stock and restricted stock units vest
over three years.  The Company granted 41 shares of restricted common
stock and 3 restricted stock units in September 2008, which vested in September
2009.


7




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)




Compensation
expense is recognized on a straight-line basis over the employee’s vesting
period or to the employee’s retirement eligibility date, if earlier, for
restricted stock awards.   For the three and six months ended
December 31, 2009, the Company recorded stock-based compensation expense of
approximately $149 and $305, respectively, related to restricted common stock
and restricted stock units. For the three and six months ended December 31,
2008, the Company recorded stock-based compensation expense of approximately
$345 and $421, respectively, related to restricted common stock and restricted
stock units. As of December 31, 2009, the total unrecognized compensation cost
related to restricted stock awards is $767.





The
Company’s policy is to satisfy stock-based compensation awards with treasury
shares, to the extent available.





(4)  Common Stock





On
December 10, 2009, the Company’s board of directors declared a regular
semi-annual cash dividend of $0.10 per share which was paid on January 15, 2010
to shareholders of record on December 24, 2009.  The amount paid for
the cash dividend of $2,529 was included in accrued expenses at December 31,
2009.








(5)  Net
(Loss) Income Per Common Share





Basic
(loss) income per common share is based on the weighted average number of common
shares outstanding during the period.  Diluted (loss) income per
common share includes the dilutive effect of potential common shares
outstanding.  The following table sets forth the reconciliation of
weighted average shares outstanding and diluted weighted average shares
outstanding:




Six
      months ended
              December
      31,
            
            
            Three
      months ended
              December
      31,2009
            
            
            2008
            
            
            2009
            
            
            2008Weighted
      average shares outstanding
            
            
            24,719
            
            
            
            24,402
            
            
            
            24,848
            
            
            
            24,435Dilutive
      effect of stock options and restricted stock awards and
    units
            
            
            -
            
            
            
            538
            
            
            
            -
            
            
            
            580Diluted
      weighted average shares outstanding
            
            
            24,719
            
            
            
            24,940
            
            
            
            24,848
            
            
            
            25,015





The
effect of approximately 262 common equivalent shares for the three months ended
December 31, 2009 were excluded from the diluted weighted average shares
outstanding due to a net loss for the period. There were 1,830 and 1,471 common
equivalent shares outstanding as of December 31, 2009 and 2008, respectively,
that were not included in the calculation of diluted income per common share for
the six months ended December 31, 2009 and 2008, respectively, because their
effect would have been anti-dilutive.  There were 1,682 and 1,380
common equivalent shares outstanding as of December 31, 2009 and 2008,
respectively, that were not included in the calculation of diluted income per
common share for the three months ended December 31, 2009 and 2008,
respectively, because their effect would have been anti-dilutive.


8




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)





(6)  Comprehensive
(Loss) Income





Comprehensive
(loss) 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 (loss)
income were as follows:





Six
      months ended
              December
      31,
            
            
            Three
      months ended
              December
      31,2009
            
            
            2008
            
            
            2009
            
            
            2008Comprehensive
      (loss) income:Net
      (loss) income
            
            $
            (1,498
            )
            
            $
            5,643
            
            
            $
            (2,501
            )
            
            $
            1,092Foreign
      currency translationadjustment
            
            
            989
            
            
            
            (5,459
            )
            
            
            (836
            )
            
            
            (1,050
            )Total
            
            $
            (509
            )
            
            $
            184
            
            
            $
            (3,337
            )
            
            $
            42





The
financial statements of the Company’s foreign subsidiaries are translated into
U.S. dollars in accordance with generally accepted accounting principles. Where
the functional currency of a foreign subsidiary is its local currency, balance
sheet accounts are translated at the current exchange rate on the balance sheet
date and income statement items are translated at the average exchange rate for
the period.   Exchange gains or losses resulting from the
translation of financial statements of foreign operations are accumulated in
other comprehensive income.  Where the local currency of a foreign
subsidiary is not its functional currency, financial statements are translated
at either current or historical exchange rates, as
appropriate.   The foreign currency translation adjustment for
the three and six months ended December 31, 2009 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.





(7)  Commitments,
Contingencies and Other Matters





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 fiscal
years 2009, 2008 and 2007, 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 $1,700 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 and thus believes that, at most, it is a de minimus contributor to
the site contamination.  Accordingly, the Company believes that the
settlement offer is unreasonable. 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.


9





ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


The
Company has environmental remediation obligations in connection with Arsynco,
Inc. (Arsynco), a subsidiary formerly involved in manufacturing chemicals
located in Carlstadt, New Jersey, which was closed in 1993 and is currently held
for sale.  During fiscal 2009, based on continued monitoring of the
contamination at the site and the approved plan of remediation, the Company
received an estimate from an environmental consultant stating that the costs of
remediation could be between $8,400 and $10,200.  As of December 31,
2009 and June 30, 2009, a liability of $8,400, is included in the accompanying
condensed consolidated balance sheet for this matter.  In accordance
with generally accepted accounting principles, management believes that the
majority of costs incurred to remediate the site will be capitalized in
preparing the property which is currently classified as held for
sale.  An appraisal of the fair value of the property by a third-party
appraiser supports the assumption that the expected fair value after the
remediation is in excess of the amount required to be capitalized. 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, in July
2009, the Company entered into a settlement agreement with BASF Corporation
(BASF), the former owners of the Arsynco property. According to the settlement
agreement, BASF will pay for a portion of the prior remediation costs and going
forward, will co-remediate the property with the Company. The contract states
that BASF, within twenty days of establishing a Trust Account, will pay the
Company $550 related to past response costs and pay a proportionate share of the
future remediation costs. Accordingly, the Company had recorded a gain of $550
for the year ended June 30, 2009. This $550 gain relates to the partial
reimbursement of costs of approximately $1,200 that the Company had previously
expensed. The Company also recorded an additional receivable from BASF, with an
offset against property held for sale, for $3,780, representing its estimated
portion of the future remediation costs, which is included in the accompanying
condensed consolidated balance sheet as of December 31, 2009 and June 30,
2009.





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 PRPs 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 PRPs and their financial
strength.  Based on prior practice in similar situations, it is
possible that the State may assert a claim for natural resource damages with
respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages
in connection with Berry’s Creek; any such claim with respect to Berry’s Creek
could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site.  Any claim for natural
resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. Since an amount of the
liability cannot 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.


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 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 several such task force groups, which requires payments for such
memberships. In addition, in connection with our crop protection business, the
Company plans to acquire product registrations and related data filed with the
United States Environmental Protection Agency to support such registrations and
other supporting data for five products. The acquisition of these product
registrations and related data filed with the United States Environmental
Protection Agency as well as payments to various task force groups could
approximate $6,700 through fiscal 2011, of which $3,236 and $5,300 has been
accrued as of December 31, 2009 and June 30, 2009, respectively.


10




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


During
the second quarter ended December 31, 2009, the Company recorded approximately
$2,587 of one-time costs associated with the separation of its former Chairman
of the Board of Directors and CEO, principally for salary and other related
compensation, as specified in his severance agreement, including a charge of $68
for stock-based compensation expense related to the modification of certain
stock options. The modification of the stock options was recorded as an increase
to capital in excess of par value. As of December, 31, 2009, approximately
$1,227 has been paid and approximately $1,292 remains accrued related to the
separation of the Company’s former Chairman and CEO, which is required to be
paid through the third quarter of fiscal 2012.  In addition, the
Company completed a rationalization review of both SG&A and certain
inventory by product line and has recorded charges of approximately $2,074 in
the second quarter of fiscal 2010. The $2,074 consists of $1,215 one-time charge
for personnel related costs in conjunction with its cost reduction efforts and
an $859 non-cash charge, included in cost of sales, relating to the write-down
of certain Health Sciences and Specialty Chemicals inventories to its estimated
net realizable value. The entire $1,215 for personnel-related costs is accrued
as of December 31, 2009 and is anticipated to be paid through June 30,
2011.


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 $21 and $185 as of December
31, 2009 and June 30, 2009, 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)
Fair Value Measurements





In
accordance with U.S. GAAP, the fair value hierarchy for instruments measured at
fair value is distinguished between assumptions based on market data (observable
inputs) and the Company’s assumptions (unobservable inputs).  The
hierarchy consists of three levels:




Level
1 –   Quoted market prices in active markets for identical assets
or liabilities;




Level
2 –   Inputs other than Level 1 inputs that are either directly
or indirectly observable; and




Level
3 –   Unobservable inputs that are not corroborated by market
data.





On a
recurring basis, Aceto measures at fair value certain financial assets and
liabilities, which consist of cash equivalents, investments and foreign currency
contracts. The Company classifies cash equivalents and investments within Level
1 if quoted prices are available in active markets.  Level 1 assets
include instruments valued based on quoted market prices in active markets which
generally include corporate equity securities publicly traded on major
exchanges.  Time deposits are very short-term in nature and are
accordingly valued at cost plus accrued interest, which approximates fair value,
and are classified within Level 2 of the valuation hierarchy. The Company uses
foreign currency forward contracts (futures) to minimize the risk caused by
foreign currency fluctuation on its foreign currency receivables and payables by
purchasing futures with one of its financial institutions.  Futures
are traded on regulated U.S. and international exchanges and represent
commitments to purchase or sell a particular foreign currency at a future date
and at a specific price.   Aceto’s foreign currency derivative
contracts are classified within Level 2 as the fair value of these hedges is
primarily based on observable forward foreign exchange rates. At December 31,
2009, the Company had foreign currency contracts outstanding that had a notional
amount of $29,423. Unrealized gains on hedging
activities for the six months ended December 31, 2009 and 2008 was $72 and
$173, respectively, and are included in interest and other (expense)
income, net, in the condensed consolidated statements of operations. The
contracts have varying maturities of less than one year.


11




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)





The
following table summarizes the valuation of the Company’s investments and the
financial instruments which were determined by using the following inputs at
December 31, 2009:


Fair Value Measurements at December 31, 2009
      UsingQuoted
      Pricesin Active Markets (Level 1)
              
              
              SignificantOtherObservableInputs
      (Level 2)
              
              
              SignificantUnobservableInputs
                (Level
      3)
              
              
              TotalCash
      equivalents:Time
      deposits
              
              
              -
              
              
              $
              6,307
              
              
              
              -
              
              
              $
              6,307Investments:Trading
      securities
              
              $
              401
              
              
              
              -
              
              
              
              -
              
              
              
              401Time
      deposits
              
              
              -
              
              
              
              214
              
              
              
              -
              
              
              
              214Foreign
      currency contracts-assets (1)
              
              
              -
              
              
              
              170
              
              
              
              -
              
              
              
              170Foreign
      currency contracts-liabilities (2)
              
              
              -
              
              
              
              99
              
              
              
              -
              
              
              
              99




(1)
            Included
      in “Other receivables” in the accompanying Condensed Consolidated Balance
      Sheet as of December 31, 2009.(2)
            Included in “Accrued
      expenses” in the accompanying Condensed Consolidated Balance Sheet as of
      December 31, 2009.




Fair
      Value Measurements at June 30, 2009 UsingQuoted
      Pricesin ActiveMarkets(Level 1)
              
              
              SignificantOtherObservableInputs
      (Level 2)
              
              
              SignificantUnobservableInputs
                (Level
      3)
              
              
              TotalCash
      equivalents:Time
      deposits
              
              
              -
              
              
              $
              2,442
              
              
              
              -
              
              
              $
              2,442Investments:Trading
      securities
              
              $
              334
              
              
              
              -
              
              
              
              -
              
              
              
              334Time
      deposits
              
              
              -
              
              
              
              207
              
              
              
              -
              
              
              
              207Foreign
      currency contracts-assets (3)
              
              
              -
              
              
              
              1,183
              
              
              
              -
              
              
              
              1,183Foreign
      currency contracts-liabilities (4)
              
              
              -
              
              
              
              455
              
              
              
              -
              
              
              
              455




(3)
              Included
      in “Other receivables” in the accompanying Condensed Consolidated Balance
      Sheet as of June 30, 2009.(4)
              Included in “Accrued
      expenses” in the accompanying Condensed Consolidated Balance Sheet as of
      June 30, 2009.




The
Company did not hold financial assets and liabilities which were recorded at
fair value in the Level 3 category as of December 31, 2009 and June 30,
2009.


12





ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)




The
portion of FASB Accounting Standards Codification (ASC) 820-10 corresponding to
the guidance in FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”
delayed the effective date of fair value measurements and disclosures under the
remainder of ASC 820-10 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until the
beginning of the Company’s first quarter beginning July 1, 2009. These include
goodwill and other non-amortizable intangible assets and long-lived assets. The
end of the delay for any required fair value measurements of the Company’s
non-financial assets and liabilities until July 1, 2009, did not have a
significant impact on its consolidated financial statements.





The
carrying values of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.  The difference between the fair value
of long-term notes receivable and their carrying value at both December 31, 2009
and June 30, 2009 was not material.  The fair value of the Company’s
notes receivable was based upon current rates offered for similar financial
instruments to the Company.





(9)  Other
Recent Accounting Pronouncements





ASC
105-10 (SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162”) establishes only two levels of U.S. GAAP, authoritative and
nonauthoritative. ASC 105-10 is the exclusive source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with GAAP, except for
rules and interpretive releases of the Securities and Exchange Commission (SEC),
which are sources of authoritative GAAP, for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
is nonauthoritative. ASC 105-10 became effective in the first quarter of 2010
and as ASC 105-10 was not intended to change or alter existing GAAP, it did not
have any impact on the Company’s consolidated financial statements.





ASC
810-10 (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No 51”) establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, changes in a parent’s ownership of a
noncontrolling interest, calculation and disclosure of the consolidated net
income attributable to the parent and the noncontrolling interest, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest and fair value measurement of any retained noncontrolling equity
investment. ASC 810-10 was effective for the Company on July 1,
2009.  The adoption of this statement did not have any impact on the
Company’s consolidated financial position or results of operations since in July
2009, the Company purchased the remaining noncontrolling interest of S.R.F.A.
for $460, which represents the historical cost of the noncontrolling interest,
and thus owns 100% of this entity.





ASC 805
(SFAS No. 141R, “Business Combinations”) establishes principles and requirements
for how the acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any controlling interest; recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  The
provisions for ASC 805-10 are effective for fiscal years beginning after
December 15, 2008 and are applied prospectively to business combinations
completed on or after that date.  Early adoption is not permitted.
Accordingly, the Company
adopted this statement on July 1, 2009.Because the majority of
the provisions of ASC 805-10 are applicable to future transactions, the adoption
did not have a material impact on the Company’s consolidated financial
statements.





ASC
260-10 (FASB Staff Position EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”)
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method in accordance with U.S. GAAP. The
adoption of ASC 260-10 on July 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.


13





ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)




ASC
825-10-50 (FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments”) requires disclosures about fair value of financial
instruments for interim reporting periods. The guidance is effective for interim
reporting periods ending after June 15, 2009 and does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. As
the guidance provides only disclosure requirements, the adoption of this
standard did not have a material impact on the Company’s financial condition or
operating results.





ASC
810-10 (SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) changes the
consolidation model for variable interest entities (VIEs). ASC 810-10 requires
companies to qualitatively assess the determination of the primary beneficiary
of a VIE based on whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, which for Aceto is fiscal 2011. The
Company is currently evaluating the impact of ASC 810-10 on its results of
operations and financial position.





In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). This update provides amendments to ASC
Topic 820, “Fair Value Measurements and Disclosure” for the fair value
measurement of liabilities when a quoted price in an active market is not
available. The adoption of ASU 2009-05 on October 1, 2009 did not have any
impact on the Company’s consolidated financial statements.





(10)  Segment
Information




The
Company’s business is organized along product lines into three principal
segments: Health Sciences, Specialty Chemicals and Crop Protection.




Health Sciences – includes
APIs, pharmaceutical intermediates, nutraceuticals and
biopharmaceuticals.




Specialty Chemicals- 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. The
Company changed the name of this segment from Chemicals and Colorants to
Specialty Chemicals in 2010 to more accurately reflect the scope of its business
activities.




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. The Crop Protection segment also includes a sprout inhibitor for
potatoes and an herbicide for sugar cane.




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.


14




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


Six
Months Ended December 31, 2009 and 2008:


HealthSciences
            
            
            SpecialtyChemicals
            
            
            Crop
              Protection
            
            
            ConsolidatedTotals2009Net
      sales
            
            $
            83,476
            
            
            $
            51,371
            
            
            $
            6,672
            
            
            $
            141,519Gross
      profit
            
            
            13,819
            
            
            
            7,997
            
            
            
            780
            
            
            
            22,5962008Net
      sales
            
            $
            99,314
            
            
            $
            61,826
            
            
            $
            6,914
            
            
            $
            168,054Gross
      profit
            
            
            20,543
            
            
            
            8,700
            
            
            
            1,439
            
            
            
            30,682




Three
Months Ended December 31, 2009 and 2008:


HealthSciences
            
            
            SpecialtyChemicals
            
            
            Crop
              Protection
            
            
            ConsolidatedTotals2009Net
      sales
            
            $
            44,136
            
            
            $
            23,539
            
            
            $
            3,235
            
            
            $
            70,910Gross
      profit
            
            
            7,122
            
            
            
            3,311
            
            
            
            347
            
            
            
            10,7802008Net
      sales
            
            $
            42,705
            
            
            $
            28,084
            
            
            $
            3,426
            
            
            $
            74,215Gross
      profit
            
            
            7,165
            
            
            
            3,890
            
            
            
            690
            
            
            
            11,745


15





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 December 31, 2009 and the related condensed consolidated
statements of operations for the three-month and six-month periods ended
December 31, 2009 and 2008, and the related condensed consolidated statements of
cash flows for the six-month periods ended December 31, 2009 and 2008 included
in the accompanying Securities and Exchange Commission Form 10-Q for the period
ended December 31, 2009.  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, 2009, 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 11,
2009, 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, 2009, 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


February
5, 2010


16


Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




CAUTIONARY
STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATESECURITIES
LITIGATION REFORM ACT OF 1995





This
Quarterly Report contains forward-looking statements as that term is defined in
the federal securities laws.  The events described in forward-looking
statements contained in this Quarterly Report may not
occur.  Generally, these statements relate to our business plans or
strategies, projected or anticipated benefits or other consequences of our plans
or strategies, financing plans, projected or anticipated benefits from
acquisitions that we may make, or projections involving anticipated revenues,
earnings or other aspects of our operating results or financial position, and
the outcome of any contingencies.  Any such forward-looking statements
are based on current expectations, estimates and projections of
management.   We intend for these forward-looking statements to
be covered by the safe-harbor provisions for forward-looking
statements.  Words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their
opposites and similar expressions are intended to identify forward-looking
statements.  We caution you that these statements are not guarantees
of future performance or events and are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control, that may
influence the accuracy of the statements and the projections upon which the
statements are based.  Factors that could cause actual results to
differ materially from those set forth or implied by any forward-looking
statement include, but are not limited to, unforeseen environmental liabilities,
international military conflicts, the mix of products sold and the profit
margins thereon, order cancellation or a reduction in orders from customers,
competitive product offerings and pricing actions, the availability and pricing
of key raw materials, dependence on key members of management, continued
successful integration of acquisitions, receipt of regulatory approvals, risks
of entering into new European markets, economic and political conditions in the
United States and abroad, our ability to continue strong cost controls, as well
as other risks and uncertainties discussed in our reports filed with the
Securities and Exchange Commission, including, but not limited to, our Annual
Report on Form 10-K for the fiscal year ended June 30, 2009 and other
filings.  Copies of these filings are available at
www.sec.gov.




Any one
or more of these uncertainties, risks and other influences could materially
affect our results of operations and whether forward-looking statements made by
us ultimately prove to be accurate.  Our actual results, performance
and achievements could differ materially from those expressed or implied in
these forward-looking statements.  We undertake no obligation to
publicly update or revise any forward-looking statements, whether from new
information, future events or otherwise.





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





While
there continue to be early signs of economic stabilization, our second quarter
results continue to be impacted by the challenging economic environment that we
operate in.  According to a January 15, 2010 Federal Reserve
statistical release, domestic manufacturing output was down 1.9 % from its year
earlier level.





We are
reporting net sales of $141,519 for the six months ended December 31, 2009,
which represents a 15.8% decrease from the $168,054 reported in the comparable
prior period.  Gross profit for the six months ended December 31, 2009
was $22,596 and our gross margin was 16.0% as compared to gross profit of
$30,682 and gross margin of 18.3% in the comparable prior period.  Our
selling, general and administrative costs (SG&A) for the six months ended
December 31, 2009 increased 7.8%, when compared to $22,616 we reported in the
prior period.  We had a net loss of $1,498 or ($0.06) per diluted
share, compared to net income of $5,643, or $0.23 per diluted share in the prior
period.  The primary reason for the net loss is due to approximately
$2,587 of one-time costs associated with the separation of our former Chairman
of the Board of Directors and CEO, which were recorded in the three months ended
December 31, 2009. In addition, the Company completed an SG&A
rationalization review and review of its inventory by product line and has
recorded one-time charges of approximately $2,074 in the second quarter of
fiscal 2010.


17





Our
financial position as of December 31, 2009 remains strong, as we had cash and
cash equivalents and short-term investments of $47,586, working capital of
$122,677, no long-term debt and shareholders’ equity of $140,750.




Our
business is separated into three principal segments:  Health Sciences,
Specialty Chemicals 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 APIs, pharmaceutical
intermediates, nutraceuticals and biopharmaceuticals.




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 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, quality assurance and regulatory
capabilities, we believe we can be an alternative lower cost, second-source
provider of existing APIs to generic drug companies.




According
to an IMS Health press release on October 7, 2009, while market growth is
expected to remain at historically low levels, the value of the global
pharmaceutical market is expected to grow 4% - 6% in 2010, exceeding $825
billion, driven by stronger near-term growth in the U.S. market. The forecast
predicts that global pharmaceutical market sales will grow at a 4% - 7% compound
annual growth rate through 2013.




The
Specialty Chemicals segment is a major supplier to the many different industries
that require outstanding performance from chemical raw materials and
additives.  Specialty Chemicals include a variety of 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. Many of our 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. We are 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.




According
to the Federal Reserve statistical release described above, the production index
for durable consumer goods, which has an impact on the Specialty Chemicals
segment, was down 3.8% for the fourth quarter of calendar 2009 when compared to
the comparable prior period.




The Crop
Protection segment sells herbicides, fungicides, insecticides, and other
agricultural chemicals to customers, primarily located in the United States and
Western Europe.  In a National Agricultural Statistics Services
release dated June 30, 2009, the total crop acreage planted in 2009 decreased by
1.2% to almost 321 million acres.  The number of peanut acres planted
in 2009 was down sharply; almost 30% from 2008 levels, and sugar cane acreage
was down 1.6% from 2008.




In fiscal
2009, we continued to add products to our Crop Protection portfolio when we
received EPA registrations for Halosulfuron and Glyphosate. Glyphosate is the
largest selling herbicide for both crop and non crop use sold in the United
States.  We plan to begin selling Glyphosate for the 2010 growing
season. In addition, we have four other products that we plan to file for
registrations with the EPA in fiscal years 2010 and 2011. Our plan is to
continue to develop this pipeline and bring to market additional products in a
similar manner.


18




Our main
business strengths are sourcing, quality assurance, regulatory support,
marketing and distribution. In fiscal 2009, we developed an industrial brand for
Aceto called “Enabling Quality Worldwide” and we are marketing this brand
globally. With a physical presence in ten countries, we distribute over 1000
pharmaceuticals and chemicals 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 operations, which present the results of our operations for the
three and six months ended December 31, 2009 and 2008.  We analyze and
explain the differences between periods in the specific line items of the
condensed consolidated statements of operations.





Critical
Accounting Estimates and Policies





As
disclosed in our Form 10-K for the year ended June 30, 2009, 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
relating to critical accounting estimates and policies 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.





Since
June 30, 2009, there have been no significant changes to the assumptions and
estimates related to those critical accounting estimates and
policies.


19





RESULTS
OF OPERATIONS





Six
Months Ended December 31, 2009 Compared to Six Months Ended December 31,
2008





Net
      Sales by Segment
              Six
      months ended December 31,Comparison
      20092009
            
            
            2008
            
            
            Over/(Under) 2008%
      of
            
            
            
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            Net sales
            
            
            total
            
            
            Net sales
            
            
            total
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            83,476
            
            
            
            59.0
            %
            
            $
            99,314
            
            
            
            59.1
            %
            
            $
            (15,838
            )
            
            
            (15.9
            %)Specialty
      Chemicals
            
            
            51,371
            
            
            
            36.3
            
            
            
            61,826
            
            
            
            36.8
            
            
            
            (10,455
            )
            
            
            (16.9
            )Crop
      Protection
            
            
            6,672
            
            
            
            4.7
            
            
            
            6,914
            
            
            
            4.1
            
            
            
            (242
            )
            
            
            (3.5
            )Net
      sales
            
            $
            141,519
            
            
            
            100.0
            %
            
            $
            168,054
            
            
            
            100.0
            %
            
            $
            (26,535
            )
            
            
            (15.8
            %)Gross
      Profit by Segment
              Six
      months ended December 31,Comparison
      20092009
            
            
            2008
            
            
            Over/(Under) 2008Gross
            
            
            %
      of
            
            
            Gross
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            profit
            
            
            sales
            
            
            Profit
            
            
            sales
            
            
            change
            
            
            ChangeHealth
      Sciences
            
            $
            13,819
            
            
            
            16.6
            %
            
            $
            20,543
            
            
            
            20.7
            %
            
            $
            (6,724
            )
            
            
            (32.7
            %)Specialty
      Chemicals
            
            
            7,997
            
            
            
            15.6
            
            
            
            8,700
            
            
            
            14.1
            
            
            
            (703
            )
            
            
            (8.1
            )Crop
      Protection
            
            
            780
            
            
            
            11.7
            
            
            
            1,439
            
            
            
            20.8
            
            
            
            (659
            )
            
            
            (45.8
            )Gross
      Profit
            
            $
            22,596
            
            
            
            16.0
            %
            
            $
            30,682
            
            
            
            18.3
            %
            
            $
            (8,086
            )
            
            
            (26.4
            %)




Net
Sales





Net sales
decreased $26,535, or 15.8%, to $141,519 for the six months ended December 31,
2009, compared with $168,054 for the prior period.  We reported sales
decreases in each of our business segments as explained below.





Health
Sciences





Net sales
for the Health Sciences segment decreased by $15,838 for the six months ended
December 31, 2009, to $83,476, which represents a 15.9% decrease from net sales
of $99,314 for the prior period.  This decrease is due to various
factors, including decreased sales from our foreign operations of $9,521,
specifically our Asian operations, due primarily to weak demand from certain
customers. Sales of domestic pharmaceutical intermediates, which represent key
components used in the manufacture of certain drug products, declined by
$2,731.  Sales in our domestic generics product group decreased by
$3,839, due primarily to a decrease in reorders of existing productsand overall competitive
market pressures, including a general push by governments to lower health care
costs both in the U.S. and overseas. In
addition, as previously mentioned, the market growth for global pharmaceutical
sales is expected to remain at historical low levels.  We expect this
difficult market to continue throughout fiscal 2010.


20





Specialty
Chemicals





Net sales
for the Specialty Chemicals segment were $51,371 for the six months ended
December 31, 2009, a decrease of $10,455 from net sales of $61,826 for the prior
period.  Our Specialty Chemicals business is diverse in terms of
products, customers and consuming markets, including the automotive and housing
markets, and is directly impacted by the overall difficult market conditions we
are facing which resulted in our sales in the Specialty Chemicals segment
declining 16.9% from the prior period. The decrease in sales from this segment
is attributable to a decline in sales of $1,048 in chemicals used in aroma
products, $3,852 in chemicals used to produce surface coatings, and $3,635 of
agricultural dye, pigment and other intermediates. In addition, the prior period
also included a rise in prices in the chemical industry related to increased
demand for chemical products in China, as a direct result of the supplier
interruption in China due to the summer Olympics in August 2008. Aceto was able
to carry more stock in anticipation of the closing of certain factories in China
due to the Olympics.  Leading up to the Olympics, our customers were
willing to pay increased prices to ensure that they had enough raw materials to
finish calendar year 2008 and continued to pay those purchase commitments which
were at higher prices. Once the Olympics were over and the purchase commitments
ended, both demand and sales prices dropped.  In addition, we
experienced a decrease in sales of specialty chemicals from our foreign
operations of $636.





Crop
Protection





Net sales
for the Crop Protection segment remained relatively flat at $6,672 for the six
months ended December 31, 2009, when compared to net sales of $6,914 for the
prior period.





Gross
Profit





Gross
profit decreased to $22,596 (16.0% of net sales) for the six months ended
December 31, 2009, as compared to $30,682 (18.3% of net sales) for the prior
period.  In December 2009, we completed a review of our inventory by
product line and recorded an $859 non-cash inventory write-down to its estimated
net realizable value, included in cost of sales, relating to certain Health
Sciences and Specialty Chemicals inventories.





Health
Sciences





Gross
profit for the six months ended December 31, 2009 decreased by $6,724, or 32.7%,
over the prior period. The gross margin declined to 16.6% for the six months
ended December 31, 2009 compared to 20.7% for the prior period.  The
decrease in gross profit was partially attributable to the overall decline in
sales volume.  The decrease in gross margin primarily related to
unfavorable product mix on both our domestic generics product group, as well as
in our Health Sciences products sold by our foreign operations, specifically
Germany. Gross profit for our domestic generics product group declined by $977
due to the reduction of reorders of existing products that generally yield a
more favorable gross margin. Our foreign operations experienced a drop in gross
profit of $5,226 over the prior period.





Specialty
Chemicals





Specialty
Chemicals’ gross profit of $7,997 for the six months ended December 31, 2009 was
$703 or 8.1% lower than the prior period.  The gross margin at 15.6%
for the six months ended December 31, 2009 was higher than the prior period’s
gross margin of 14.1%.   The decrease in the gross profit is due
to primarily sales volume decline in our domestic operations.





Crop
Protection





Gross
profit for the Crop Protection segment decreased to $780 for the six months
ended December 31, 2009, versus $1,439 for the prior period, a decrease of $659
or 45.8%.  Gross margin for the quarter also decreased to 11.7%
compared to the prior period gross margin of 20.8%. The decrease in the gross
profit and gross margin percentage is primarily attributable to increased
amortization expense related to product registrations and related data filed
with the United States Environmental Protection Agency as well as payments to
various task force groups and lower gross margin on certain sprout inhibitor
products.


21




Selling,
General and Administrative Expenses




SG&A
increased $1,764 or 7.8%, to $24,380 for the six months ended December 31, 2009
compared to $22,616 for the prior period.  As a percentage of sales,
SG&A increased to 17.2% for the six months ended December 31, 2009 versus
13.5% for the prior period. The primary reason for the increase in SG&A is
due to approximately $2,587 of one-time costs associated with the separation of
the Company’s former Chairman of the Board of Directors and CEO, which were
recorded in the three months ended December 31, 2009. In addition, the Company
completed an SG&A rationalization review and has recorded charges of
approximately $1,215 for personnel related costs in conjunction with our cost
reduction efforts. The increase in SG&A is partially offset by a decline of
$732 in personnel related costs due predominantly to decreased accrued bonus
expense as a result of decreased profitability. SG&A also decreased due to a
$383 drop in sales and marketing expenses, which is directly related to the
decline in sales for the first six months of fiscal 2010 and a $516 decrease in
bad debt expense due to additional reserves recorded in the prior period, where
there was no comparable amount in the current period. In addition, in the prior
period, we had $153 in research and development expenses (“R&D”) with no
comparable amount in the six months ended December 31, 2009 due to the
abandonment in fiscal 2009 of R&D related to two finished dosage form
generic pharmaceutical products that were to be distributed in Europe.





Operating
(Loss) Income





For the
six months ended December 31, 2009, operating loss was ($1,784) compared to
income of $8,066 in the prior period, a decrease in operating income of $9,850
or 122.1%.  This decrease was due to the overall decrease in gross
profit of $8,086 and increase in SG&A of $1,764 from the comparable prior
period.




Interest
and Other (Expense) Income, Net





Interest
and other (expense) income, net was ($126) for the six months ended December 31,
2009, which represents an increase of $854 of expense over the $728 of income in
the prior period mainly due to an increase in foreign exchange losses and a
reduction in interest income as a result of lower interest rates plus lower cash
balances. The overall increase in interest and other expense is offset, in part,
by an increase in the market value of trading securities.





Provision
for Income Taxes





The
effective tax rate for the six months ended December 31, 2009 represented a tax
benefit of 24.9% versus an income tax provision of 35.4% for the prior
period.  The benefit rate was reduced by tax charges related to the
reorganization of our Shanghai operations.


22


Three
Months Ended December 31, 2009 Compared to Three Months Ended December 31,
2008





Net
      Sales by Segment
              Three
      months ended December 31,Comparison
      20092009
            
            
            2008
            
            
            Over/(Under) 2008%
      of
            
            
            
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            Net sales
            
            
            total
            
            
            Net sales
            
            
            total
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            44,136
            
            
            
            62.2
            %
            
            $
            42,705
            
            
            
            57.6
            %
            
            $
            1,431
            
            
            
            3.4
            %Specialty
      Chemicals
            
            
            23,539
            
            
            
            33.2
            
            
            
            28,084
            
            
            
            37.8
            
            
            
            (4,545
            )
            
            
            (16.2
            )Crop
      Protection
            
            
            3,235
            
            
            
            4.6
            
            
            
            3,426
            
            
            
            4.6
            
            
            
            (191
            )
            
            
            (5.6
            )Net
      sales
            
            $
            70,910
            
            
            
            100.0
            %
            
            $
            74,215
            
            
            
            100.0
            %
            
            $
            (3,305
            )
            
            
            (4.5
            %)Gross
      Profit by Segment
              Three
      months ended December 31,Comparison
      20092009
            
            
            2008
            
            
            Over/(Under) 2008Gross
            
            
            %
      of
            
            
            Gross
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            profit
            
            
            sales
            
            
            profit
            
            
            sales
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            7,122
            
            
            
            16.1
            %
            
            $
            7,165
            
            
            
            16.8
            %
            
            $
            (43
            )
            
            
            (0.6
            %)Specialty
      Chemicals
            
            
            3,311
            
            
            
            14.1
            
            
            
            3,890
            
            
            
            13.9
            
            
            
            (579
            )
            
            
            (14.9
            )Crop
      Protection
            
            
            347
            
            
            
            10.7
            
            
            
            690
            
            
            
            20.1
            
            
            
            (343
            )
            
            
            (49.7
            )Gross
      profit
            
            $
            10,780
            
            
            
            15.2
            %
            
            $
            11,745
            
            
            
            15.8
            %
            
            $
            (965
            )
            
            
            (8.2
            %)





Net
Sales





Net sales
decreased $3,305, or 4.5%, to $70,910 for the three months ended December 31,
2009, compared with $74,715 for the prior period.  We reported sales
decreases in our Specialty Chemicals and Crop Protection segments, which were
partially offset by a slight sales increase in our Health Sciences
segment.





Health
Sciences





Net sales
for the Health Sciences segment increased $1,431 or 3.4% to $44,136 for the
three months ended December 31, 2009, when compared to the prior period.
Overall, the domestic Health Sciences group had an increase of $637, when
compared to the prior period, which represents increases in both our domestic
generics product group of $1,678 and our domestic nutraceutical products of
$793. The increase in our domestic generics product group is due to the
realization of new products from our pipeline.  The increase in
domestic nutraceutical products, which represent raw materials used in the
production of nutritional supplements, is due to increased customer base and
penetration, as well as working with new suppliers. These increases are offset
in part, by a drop in sales of domestic pharmaceutical intermediates, which
represent key components used in the manufacture of certain drug products, by
$1,976 due to certain customer delays. Sales from our foreign operations
increased $794, particularly from our German operations, due primarily to
re-orders of existing products.


23




Specialty
Chemicals





Net sales
for the Specialty Chemicals segment were $23,539 for the three months ended
December 31, 2009, a decrease of $4,545 from net sales of $28,084 for the prior
period.  Our chemical business consists of a variety of products,
customers and consuming markets, most of which were negatively affected by the
difficult economic conditions.   In particular, sales of our
chemicals used in surface coatings deceased $2,313 from the prior period, as
well as sales of our agricultural and other intermediates declined by $1,818
from the prior period. In addition, the prior period included a rise in prices
in the chemical industry related to increased demand for chemical products in
China, as a direct result of the supplier interruption in China due to the
summer Olympics in August 2008. Aceto was able to carry more stock in
anticipation of the closing of certain factories in China due to the
Olympics.  Leading up to the Olympics, our customers were willing to
pay increased prices to ensure that they had enough raw materials to finish
calendar year 2008 and continued to pay those purchase commitments which were at
higher prices. Once the Olympics were over and the purchase commitments ended,
both demand and sales prices dropped.





Crop
Protection





Net sales
for the Crop Protection segment decreased to $3,235 for the three months ended
December 31, 2009, a decrease of $191, or 5.6%, from net sales of $3,426 for the
prior period.  The decrease over the prior period is due to a decline
in sales of a herbicide which is primarily used on peanuts as the peanut acreage
has decreased from 2008.





Gross
Profit





Gross
profit decreased to $10,780 (15.2% of net sales) for the three months ended
December 31, 2009, as compared to $11,745 (15.8% of net sales) for the prior
period. In December 2009, we completed a review of our inventory by product line
and recorded an $859 non-cash inventory write-down to its estimated net
realizable value, included in cost of sales, relating to certain Health Sciences
and Specialty Chemicals inventories.





Health
Sciences





Gross
profit and gross margin for the three months ended December 31, 2009 remained
relatively consistent at $7,122 and 16.1%, respectively for the three months
ended December 31, 2009, when compared to the prior period of $7,165 and 16.8%,
respectively. The gross profit and gross margin were negatively impacted by a
$595 write-down of certain Health Sciences inventories to its estimated net
realizable value.





Specialty
Chemicals





Specialty
Chemicals’ gross profit of $3,311 for the three months ended December 31, 2009
was $579 or 14.9% lower than the prior period.  The gross margin at
14.1% for the three months ended December 31, 2009 was higher than the prior
period’s gross margin of 13.9%.   The decrease in the gross
profit is due to primarily sales volume decline in our domestic operations, as
well as a $264 write-down of certain Specialty Chemicals inventories to its
estimated net realizable value.





Crop
Protection





Gross
profit for the Crop Protection segment decreased to $347 for the three months
ended December 31, 2009, versus $690 for the prior period, a decrease of $343 or
49.7%.  Gross margin for the quarter also decreased to 10.7% compared
to the prior period gross margin of 20.1%. The decrease in the gross profit and
gross margin percentage is primarily attributable to increased amortization
expense related to product registrations and related data filed with the United
States Environmental Protection Agency as well as payments to various task force
groups and lower gross margin on certain sprout inhibitor products.


24





Selling,
General and Administrative Expenses




SG&A
increased $3,809 or 36.5%, to $14,240 for the three months ended December 31,
2009 compared to $10,431 for the prior period.  As a percentage of
sales, SG&A increased to 20.1% for the three months ended December 31, 2009
versus 14.1% for the prior period. The primary reason for the increase in
SG&A is due to approximately $2,587 of one-time costs associated with the
separation of the Company’s former Chairman of the Board of Directors and CEO,
which were recorded in the three months ended December 31, 2009. In addition,
the Company completed an SG&A rationalization review and has recorded
one-time charges of approximately $1,215 for personnel related costs in
conjunction with our cost reduction efforts.




Operating
(Loss) Income





For the
three months ended December 31, 2009, operating loss was ($3,460) compared to
$1,314 operating income in the prior period, a decrease in operating income of
$4,774 or 363.3%.  This decrease was due to the overall decrease in
gross profit of $965 and increase in SG&A of $3,809 from the comparable
prior period.




Interest
and Other (Expense) Income, Net




Interest
and other (expense) income, net was ($134) for the three months ended December
31, 2009, which represents an increase of $493 of expense over the $359 of
income in the prior period mainly due to an increase in foreign exchange losses
and a reduction in interest income as a result of lower interest rates plus
lower cash balances.





Provision
for Income Taxes





The
effective tax rate for the three months ended December 31, 2009 represented a
tax benefit of 31.1% versus an income tax provision of 32.6% for the prior
period.





Liquidity
and Capital Resources





Cash
Flows





At
December 31, 2009, we had $46,971 in cash and cash equivalents, of which $31,062
was outside the United States, $615 in short-term investments and no outstanding
bank loans.  Working capital was $122,677 at December 31, 2009 versus
$124,709 at June 30, 2009.  The $31,062 of cash held outside of the
United States is fully accessible to meet any liquidity needs of Aceto in the
particular countries outside of the United States in which it operates. The
majority of the cash located outside of the United States is held by our
European operations and can be transferred into the United States. Although
these amounts are fully accessible, transferring these amounts into the United
States or any other countries could have certain tax consequences. A deferred
tax liability would be recognized when we expect that we will recover
undistributed earnings of our foreign subsidiaries in a taxable manner, such as
through receipt of dividends or sale of the investments. A portion of our cash
is held in operating accounts that are with third party financial institutions.
These balances exceed the Federal Deposit Insurance Corporation (FDIC) insurance
limits. While we monitor daily the cash balances in our operating accounts and
adjust the cash balances as appropriate, these cash balances could be impacted
if the underlying financial institutions fail or are subject to other adverse
conditions in the financial markets. To date, we have experienced no loss or
lack of access to cash in our operating accounts.


25




Our cash
position at December 31, 2009 decreased $10,790 from the amount at June 30,
2009.  Operating activities for the six months ended December 31, 2009
used cash of $10,491, for this period, as compared to cash used in operations of
$8,496 for the comparable 2008 period. The $10,491 was comprised of $1,498 in
net loss and $2,113 derived from adjustments for non-cash items less a net
$11,106 decrease from changes in operating assets and liabilities. The non-cash
items included $1,227 in depreciation and amortization expense, $859 non-cash
inventory write-down and $690 in non-cash stock compensation expense.
Inventories and accounts payable increased by approximately $15,943 and $9,165,
respectively, due primarily to purchases of Health Sciences inventories in our
German operations and purchases of domestic Specialty Chemicals,  as a
result of a ramp-up in orders for products to be shipped in the third and fourth
quarters of 2010. Inventories and accounts payable have also increased related
to Crop Protection purchases of Glyphosate and Halosulfuron, for sales
anticipated to occur in the third and fourth quarters of 2010. In addition,
overall inventories have increased as a direct result of the current economic
environment, whereby certain customers are postponing deliveries. Other
receivables increased $2,113 and prepaid expenses and other current assets
increased $1,955 due to increased receivables related to advance payments to
suppliers, an increase in income taxes receivables and VAT taxes receivables in
our European subsidiaries, partially offset by payment received related to
advance payments. Payments on the $1,292 liability at December 31, 2009 related
to the Company’s former Chairman and CEO are required to be made through the
third quarter of fiscal 2012 and payments on the $1,215 accrual at December 31,
2009 for personnel related costs in conjunction with our cost reduction efforts
are anticipated to be made through June 30, 2011.We do not anticipate any
significant impact on our liquidity and capital resources to fund ongoing
operating expenditures and the continuation of semi-annual cash dividends for
the next twelve months due to the decline in our cash position. Our cash
position at December 31, 2008 decreased $21,011 from the amount at June 30,
2008.  Operating activities for the six months ended December 31, 2008
used cash of $8,496, for this period, as compared to cash provided by operations
of $5,469 for the comparable 2007 period. The $8,496 was comprised of $5,643 in
net income and $3,348 derived from adjustments for non-cash items less a net
$17,487 decrease from changes in operating assets and liabilities. The primary
reason for the decrease in cash used during the six months ended December 31,
2008 relates primarily to purchases of inventories in our German operations, in
particular, our Health Ingredients business, as a result of a ramp-up in orders
for products that were shipped in the third and fourth quarters of
2009.





Investing
activities for the six months ended December 31, 2009 used cash of $2,251
primarily related to purchases of noncontrolling interest, property and
equipment and intangible assets, offset by payments received on notes
receivable.  Investing activities for the six months ended December
31, 2008 used cash of $10,131 primarily related to purchases of
investments.





Financing
activities for the six months ended December 31, 2009 provided cash of $1,529
primarily due to proceeds from the exercise of stock
options.  Financing activities for the six months ended December 31,
2008 provided cash of $400 primarily due to proceeds from the exercise of stock
options of $755 offset in part, by a $500 payment of a note
payable.





Credit
Facilities





We have
available credit facilities with certain foreign financial
institutions.  These facilities provide us with lines of credit of
$20,747, as of December 31, 2009.  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 December 31, 2009, we had utilized $21 in letters of
credit leaving $9,979 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, guarantees,
sale of assets, sales of receivables, and loans and investments.  We
were in compliance with all covenants at December 31, 2009.


26





Working
Capital Outlook





Working
capital was $122,677 at December 31, 2009 versus $124,709 at June 30,
2009.  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 connection with our crop protection
business, we plan to continue to acquire product registrations and related data
filed with the United States Environmental Protection Agency as well as payments
to various task force groups, which could approximate $6,700 through fiscal
2011.  We continue to believe it is beneficial to us to make advance
inventory purchases of Glyphosate, which will be substantial in fiscal 2010. In
addition, the lease for our general headquarters and sales office expires in
April 2011. We are contemplating a buy versus lease decision with regards to a
new building. If we were to purchase a new facility, the amount expended in the
next year and half could approximate $5,000. 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 are currently looking into
obtaining additional credit facilities to enhance our liquidity.





Impact
of New Accounting Pronouncements





The
portion of FASB Accounting Standards Codification (ASC) 820-10 corresponding to
the guidance in FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”
delayed the effective date of fair value measurements and disclosures under the
remainder of ASC 820-10 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until the
beginning of the our first quarter beginning July 1, 2009. These include
goodwill and other non-amortizable intangible assets and long-lived assets. The
end of the delay for any required fair value measurements of the Company’s
non-financial assets and liabilities until July 1, 2009, did not have a
significant impact on our consolidated financial statements.





ASC
105-10 (SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162”) establishes only two levels of U.S. GAAP, authoritative and
nonauthoritative. ASC 105-10 is the exclusive source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with GAAP, except for
rules and interpretive releases of the Securities and Exchange Commission (SEC),
which are sources of authoritative GAAP, for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
is nonauthoritative. ASC 105-10 became effective in the first quarter of 2010
and as ASC 105-10 was not intended to change or alter existing GAAP, it did not
have any impact on the Company’s consolidated financial statements.





ASC
810-10 (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No 51”) establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, changes in a parent’s ownership of a
noncontrolling interest, calculation and disclosure of the consolidated net
income attributable to the parent and the noncontrolling interest, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest and fair value measurement of any retained noncontrolling equity
investment. ASC 810-10 was effective for the Company on July 1,
2009.  The adoption of this statement did not have any impact on the
Company’s consolidated financial position or results of operations since in July
2009, the Company purchased the remaining noncontrolling interest of S.R.F.A.
for $460, which represents the historical cost of the noncontrolling interest,
and thus owns 100% of this entity.





ASC 805
(SFAS No. 141R, “Business Combinations”) establishes principles and requirements
for how the acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any controlling interest; recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  The
provisions for ASC 805-10 are effective for fiscal years beginning after
December 15, 2008 and are applied prospectively to business combinations
completed on or after that date.  Early adoption is not permitted.
Accordingly, the Company
adopted this statement on July 1, 2009. Because the majority of the provisions
of ASC 805-10 are applicable to future transactions, the adoption did not have a
material impact on the Company’s consolidated financial statements.





ASC
260-10 (FASB Staff Position EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”)
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method in accordance with U.S. GAAP. The
adoption of ASC 260-10 on July 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.


27





ASC
825-10-50 (FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments”) requires disclosures about fair value of financial
instruments for interim reporting periods. The guidance is effective for interim
reporting periods ending after June 15, 2009 and does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. As
the guidance provides only disclosure requirements, the adoption of this
standard did not have a material impact on the Company’s financial condition or
operating results.





ASC
810-10 (SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) changes the
consolidation model for variable interest entities (VIEs). ASC 810-10 requires
companies to qualitatively assess the determination of the primary beneficiary
of a VIE based on whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, which for us is fiscal 2011. We are
currently evaluating the impact of ASC 810-10 on our results of operations and
financial position.





In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). This update provides amendments to ASC
Topic 820, “Fair Value Measurements and Disclosure” for the fair value
measurement of liabilities when a quoted price in an active market is not
available. The adoption of ASU 2009-05 on October 1, 2009 did not have any
impact on the Company’s consolidated financial statements.





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 $615 at December 31, 2009.  Those short-term
investments consisted of time deposits and corporate equity
securities.  Time deposits are short-term in nature and are
accordingly valued at cost plus accrued interest, which approximates fair value.
Corporate equity securities are recorded at fair value and have 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 $40 as of December 31,
2009.  Actual results, however, 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 December 31, 2009, we had foreign currency contracts
outstanding that had a notional amount of $29,423.  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 December 31, 2009, was not material.





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
December 31, 2009, we had translation exposure to various foreign currencies,
with the most significant being the Euro and the Chinese.  The
potential loss as of December 31, 2009, resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates amounted to
$6,408.  Actual results, however, may differ.


28





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 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 December 31, 2009
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 December 31, 2009 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, 2009 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, 2009 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.


29




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





The
Company held an annual meeting of its shareholders on December 10,
2009.  Two matters were voted on at the annual meeting, as
follows:




a.
            The
      election of nominees Vincent G. Miata, Robert A. Wiesen, Stanley H.
      Fischer, Albert L. Eilender, Hans C. Noetzli, William N. Britton and
      Richard P. Randall as directors of the Company until the next annual
      meeting was voted on at the annual
meeting.




The votes
were cast for this matter as follows:





FOR
            WITHHELD/ABSTAINVincent
      G. Miata
            15,490
            5,792Robert
      A. Wiesen
            13,125
            8,157Stanley
      H. Fischer
            14,735
            6,547Albert
      L. Eilender
            18,412
            2,870Hans
      C. Noetzli
            19,088
            2,194William
      N. Britton
            19,098
            2,184Richard
      P. Randall
            19,120
            2,162





Each
nominee was elected a director of the Company.


b.
              Ratification
      of the selection of BDO Seidman, LLP as the Company’s independent
      registered public accounting firm for the current fiscal
    year.


The votes
were cast for this matter as follows:




FOR
            AGAINST
            ABSTAIN20,982
            290
            10




30





Item
6. Exhibits





The
exhibits filed as part of this report are listed below.




3.1
              Restated
      Certificate of Incorporation dated November 18, 19763.2
              Certificate
      of Amendment of Certificate of Incorporation dated February 18,
      19833.3
              Certificate
      of Amendment of Certificate of Incorporation dated February 7,
      19843.4
              Certificate
      of Amendment of Certificate of Incorporation dated December 17,
      19843.5
              Certificate
      of Amendment of Certificate of Incorporation dated November 21,
      19853.6
              Certificate
      of Amendment of Certificate of Incorporation dated December 11,
      19853.7
              Certificate
      of Amendment of Certificate of Incorporation dated December 11,
      19863.8
              Certificate
      of Amendment of Certificate of Incorporation dated December 10,
      19873.9
              Certificate
      of Amendment of Certificate of Incorporation dated February 4,
      19883.10
              Certificate
      of Amendment of Certificate of Incorporation dated March 1,
      19883.11
              Certificate
      of Amendment of Certificate of Incorporation dated January 5,
      19893.12
              Certificate
      of Amendment of Certificate of Incorporation dated February 15,
      19903.13
              Certificate
      of Change of Certificate of Incorporation dated December 18,
      19903.14
              Certificate
      of Amendment of Certificate of Incorporation dated January 4,
      19913.15
              Certificate
      of Amendment of Certificate of Incorporation dated December 15,
      19983.16
              Certificate
      of Amendment of Certificate of Incorporation dated December 3,
      20033.17
              Amended
      and Restated By-Laws, effective as of December 6, 2007 (incorporated by
      reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated
      December 6, 2007)


10.1
            Severance
      Agreement and Release, effective December 16, 2009, between Leonard S.
      Schwartz and Aceto Corporation15.1
            Letter
      re unaudited interim financial information31.1
            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 200231.2
            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 200232.1
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002




31


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
      CORPORATIONDATEFebruary 5,
      2010
            
            BY
            /s/ Douglas
      RothDouglas Roth, Chief
      Financial Officer(Principal Financial
      Officer)DATEFebruary 5,
      2010
            
            BY
            /s/
      Vincent G. MiataVincent G. Miata,
      Chief Executive Officer and President(Principal Executive
      Officer)










32