<PAGE>

                                  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 MARCH 31, 2005
                        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                (I.R.S. Employer Identification
 incorporation or organization)                             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)


Name of each exchange on which registered:  The Nasdaq National Market.

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____

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes __X__  No____

The Registrant has 24,269,522 shares of common stock outstanding as of May 2,
2005.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

                                Table of Contents



PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets - March 31, 2005 (unaudited) and
         June 30, 2004

         Consolidated Statements of Income - Nine Months
         Ended March 31, 2005 and 2004 (unaudited)

         Consolidated Statements of Income - Three Months
         Ended March 31, 2005 and 2004 (unaudited)

         Consolidated Statements of Cash Flows - Nine Months
         Ended March 31, 2005 and 2004 (unaudited)

         Notes to Unaudited Consolidated Financial Statements

         Report of Independent Registered Public Accounting Firm

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

Item 3.  Quantitative and Qualitative Disclosures About
         Market Risk

Item 4.  Controls and Procedures


PART II. OTHER INFORMATION

Item 6.  Exhibits

Signatures

Exhibits

<PAGE>
<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                                  ACETO CORPORATION AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                               (in thousands, except per-share amounts)


                                                                            March 31,       June 30,
                                                                              2005            2004
                                                                            --------        --------
                                                                          (unaudited)
<S>                                                                         <C>             <C>
ASSETS

Current assets:
     Cash and cash equivalents                                              $ 20,855        $ 23,330
     Investments                                                               5,009           9,888
     Receivables:
           Trade, less allowance for doubtful accounts (March, $400;
             June, $1,033)                                                    55,220          53,084
           Other                                                               1,543           1,504
                                                                            --------        --------
                                                                              56,763          54,588

     Inventory                                                                48,122          41,784
     Prepaid expenses and other current assets                                 2,080           1,165
     Assets held for sale                                                      1,437            --
     Income taxes receivable                                                     148             606
     Deferred income tax benefit, net                                          2,119           1,613
                                                                            --------        --------
                  Total current assets                                       136,533         132,974

Long-term notes receivable                                                       671             747

Property and equipment                                                         9,170           7,044
Less accumulated depreciation and amortization                                 3,796           4,390
                                                                            --------        --------
                                                                               5,374           2,654

Goodwill                                                                       2,295           3,179
Intangible assets, net                                                         3,512           3,701
Deferred income tax benefit, net                                               2,774           4,579
Other assets                                                                   2,363           1,863
                                                                            --------        --------

Total assets                                                                $153,522        $149,697
                                                                            ========        ========


See accompanying notes to consolidated financial statements and accountants' review report.
</TABLE>

                                                  3

<PAGE>
<TABLE>
<CAPTION>

                             ACETO CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED BALANCE SHEETS
                          (in thousands, except per-share amounts)


                                                               March 31,         June 30,
                                                                 2005               2004
                                                               ---------         ---------
                                                              (unaudited)
<S>                                                            <C>               <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Drafts and acceptances payable                              $   4,623         $   4,610
   Accounts payable                                               25,173            31,292
   Note payable - related party                                      500             1,000
   Accrued compensation                                            2,202             2,836
   Accrued environmental remediation                               1,240             1,326
   Other accrued expenses                                          7,952             6,070
    Liabilities relating to assets held for sale                     494                --
                                                               ---------         ---------
         Total current liabilities                                42,184            47,134

Long-term liabilities                                              3,151             2,140
Minority interest                                                    215               157
                                                               ---------         ---------
         Total liabilities                                        45,550            49,431

Commitments and contingencies (Note 14)

Shareholders' equity:
   Common stock, $.01 par value (Note 7):
       (40,000 shares authorized; 25,644 shares issued;
       24,248 and 24,118 shares outstanding at
       March 31, 2005 and June 30, 2004, respectively)               256               256
   Capital in excess of par value                                 57,157            57,111
   Retained earnings                                              61,893            56,490
   Treasury stock, at cost:
       (1,396 and 1,526 shares at March
        31, 2005 and June 30, 2004, respectively)                (13,848)          (15,135)
   Accumulated other comprehensive income                          2,514             1,544
                                                               ---------         ---------

         Total shareholders' equity                              107,972           100,266
                                                               ---------         ---------

Total liabilities and shareholders' equity                     $ 153,522         $ 149,697
                                                               =========         =========


See accompanying notes to consolidated financial statements and accountants' review report.
</TABLE>

                                             4

<PAGE>
<TABLE>
<CAPTION>

                                 ACETO CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF INCOME
                                            (unaudited)
                             (in thousands, except per-share amounts)


                                                                            Nine Months Ended
                                                                                March 31,
                                                                          2005              2004
                                                                       ---------         ---------
<S>                                                                    <C>               <C>
Net sales                                                              $ 236,745         $ 217,154
Cost of sales                                                            196,416           178,796
                                                                       ---------         ---------
   Gross profit                                                           40,329            38,358

Selling, general and administrative expenses                              28,518            25,030
                                                                       ---------         ---------
   Operating income                                                       11,811            13,328

Other income (expense):
   Interest expense                                                         (115)              (98)
   Interest and other income, net                                            948             1,116
                                                                       ---------         ---------
                                                                             833             1,018
                                                                       ---------         ---------

Income from continuing operations before income taxes                     12,644            14,346
Provision for income taxes                                                 3,759             4,175
                                                                       ---------         ---------
Income from continuing operations                                          8,885            10,171
Loss from discontinued operations, net of income taxes (Note 3)           (1,662)             (379)
                                                                       ---------         ---------
Net income                                                             $   7,223         $   9,792
                                                                       =========         =========

Basic income per common share (a):
   Income from continuing operations                                   $    0.37         $    0.43
   Loss from discontinued operations                                   $   (0.07)        $   (0.02)
    Net income                                                         $    0.30         $    0.41

Diluted income per common share (a):
   Income from continuing operations                                   $    0.36         $    0.42
   Loss from discontinued operations                                   $   (0.07)        $   (0.02)
    Net income                                                         $    0.29         $    0.40

Weighted average shares outstanding (a):
   Basic                                                                  24,193            23,863
   Diluted                                                                24,708            24,482


(a)  The number of shares outstanding and the per-share information have been adjusted for a
     3-for-2 stock split effected in the form of a dividend, paid January 10, 2005.

See accompanying notes to consolidated financial statements and accountants' review report.
</TABLE>


                                                 5

<PAGE>
<TABLE>
<CAPTION>

                                ACETO CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF INCOME
                                           (unaudited)
                            (in thousands, except per-share amounts)


                                                                           Three Months Ended
                                                                               March 31,
                                                                         2005             2004
                                                                       --------         --------
<S>                                                                    <C>              <C>
Net sales                                                              $ 81,578         $ 78,264
Cost of sales                                                            67,420           63,809
                                                                       --------         --------
   Gross profit                                                          14,158           14,455

Selling, general and administrative expenses                             10,138            9,359
                                                                       --------         --------
   Operating income                                                       4,020            5,096

Other income (expense):
   Interest expense                                                         (75)             (30)
   Interest and other income, net                                            93              228
                                                                       --------         --------
                                                                             18              198
                                                                       --------         --------

Income from continuing operations before income taxes                     4,038            5,294
Provision for income taxes                                                1,292            1,458
                                                                       --------         --------
Income from continuing operations                                         2,746            3,836
Loss from discontinued operations, net of income taxes (Note 3)            (851)            (126)
                                                                       --------         --------
Net income                                                             $  1,895         $  3,710
                                                                       ========         ========

Basic income per common share (a):
   Income from continuing operations                                   $   0.11         $   0.16
   Loss from discontinued operations                                   $  (0.03)        $  (0.01)
    Net income                                                         $   0.08         $   0.15

Diluted income per common share (a):
    Income from continuing operations                                  $   0.11         $   0.16
    Loss from discontinued operations                                  $  (0.03)        $  (0.01)
    Net income                                                         $   0.08         $   0.15

Weighted average shares outstanding (a):
   Basic                                                                 24,235           23,969
   Diluted                                                               24,690           24,584


(a)  The number of shares outstanding and the per-share information have been adjusted for a
     3-for-2 stock split, effected in the form of a dividend, paid January 10, 2005.

See accompanying notes to consolidated financial statements and accountants' review report.
</TABLE>


                                                6
<PAGE>
<TABLE>
<CAPTION>

                              ACETO CORPORATION AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (unaudited)
                                       (in thousands)


                                                                       Nine Months Ended
                                                                          March 31,
                                                                     2005             2004
                                                                   --------         --------
<S>                                                                <C>              <C>
Operating activities:
   Net income                                                      $  7,223         $  9,792
   Loss from discontinued operations                                  1,662               --
                                                                   --------         --------
   Net income from continuing operations                              8,885            9,792
   Adjustments to reconcile net income to net cash provided
       by continuing operations:
         Depreciation and amortization                                  924              811
         Provision for doubtful accounts                                270              231
         Non-cash stock compensation                                    183              190
         Deferred income taxes                                        1,851               --
         Income tax benefit on exercise of stock options                266            1,095
         Changes in assets and liabilities:
           Investments - trading securities                              (4)             (76)
           Trade accounts receivable                                 (2,129)          (9,197)
           Other receivables                                            122              (79)
           Inventory                                                 (6,794)           6,171
           Prepaid expenses and other current assets                   (955)            (217)
           Other assets                                                (578)            (548)
           Drafts and acceptances payable                               (56)           3,169
           Accounts payable                                          (6,047)           3,576
           Accrued compensation                                        (549)              26
           Accrued environmental remediation                            (86)              --
           Income taxes receivable                                      924            1,265
           Other accrued expenses and long-term liabilities           1,368             (429)
                                                                   --------         --------
Net cash (used in) provided by operating activities                  (2,405)          15,780
                                                                   --------         --------

Investing activities:
     Purchases of investments                                        (4,465)         (10,000)
     Sale of investments                                              9,348               --
     Payments received on notes receivable                               70              253
     Acquisition of Pharma Waldhof, net of cash acquired                 --           (4,408)
     Purchases of property and equipment                             (3,875)            (461)
                                                                   --------         --------
Net cash provided by (used in) investing activities                   1,078          (14,616)
                                                                   --------         --------

Financing activities:
     Proceeds from exercise of stock options                            927            2,538
     Payment of note payable - related party                           (500)              --
     Payment of cash dividends                                       (1,820)          (1,357)
     Payments of short-term bank loans                                   --           (2,134)
                                                                   --------         --------
     Net cash used in financing activities                           (1,393)            (953)
                                                                   --------         --------

Net cash used in discontinued operations                                (28)              --
                                                                   --------         --------

Effect of exchange rate changes on cash                                 273              297
                                                                   --------         --------

Net (decrease) increase in cash and cash equivalents                 (2,475)             508
Cash and cash equivalents at beginning of period                     23,330           20,263
                                                                   --------         --------
Cash and cash equivalents at end of period                         $ 20,855         $ 20,771
                                                                   ========         ========


See accompanying notes to consolidated financial statements and accountants' review report.
</TABLE>

                                              7
<PAGE>

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

(1)     BASIS OF PRESENTATION

The consolidated financial statements of Aceto Corporation and subsidiaries (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
that 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; inventory;
goodwill and other intangible assets; pension benefits; income taxes; and
environmental matters and other contingencies.

These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
U.S. generally accepted accounting principles. Accordingly, these statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended June 30, 2004.

Certain reclassifications have been made to the prior consolidated financial
statements to conform to the current presentation. Auction rate notes of $9,000
were reclassified from cash and cash equivalents to available for sale
investments at June 30, 2004.

(2)     STOCK-BASED COMPENSATION

The Company applies the intrinsic value method as outlined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in determining the compensation cost of
stock options and other stock-based awards while disclosing pro forma net income
and income per share as if the fair value method had been applied in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation."

Under the intrinsic value method, no compensation expense is recognized if the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant. Since the Company has
issued all stock option grants with exercise prices equal to, or greater than,
the market value of the common stock on the date of grant, no compensation cost
has been recognized. SFAS No. 123 requires that the Company provide pro forma
information regarding net income and net income per common share as if
compensation cost for the Company's stock option programs had been determined in
accordance with the fair value method prescribed therein.


                                        8
<PAGE>

The following table illustrates the effect on net income and net income per
common share as if the Company had measured the compensation cost for the
Company's stock option programs under the fair value method in each period
presented:

<TABLE>
<CAPTION>
                                              Nine months ended           Three months ended
                                                   March 31,                    March 31,
                                             2005           2004           2005        2004
                                             ----           ----           ----        ----
<S>                                        <C>            <C>            <C>         <C>
Net income - as reported                   $ 7,223        $ 9,792        $ 1,895     $ 3,710
Deduct:  Total stock-based employee
     compensation expense determined
     under fair value method for all
     awards, net of related tax
     effects                                (4,301)          (832)           (22)       (298)
                                           -------        -------        -------     -------
Net income - pro forma                     $ 2,922        $ 8,960        $ 1,873     $ 3,412
                                           =======        =======        =======     =======

Net income per share:
     Basic - as reported                   $  0.30        $  0.41        $  0.08     $  0.15
     Basic - pro forma                     $  0.12        $  0.38        $  0.08     $  0.14

     Diluted - as reported                 $  0.29        $  0.40        $  0.08     $  0.15
     Diluted - pro forma                   $  0.12        $  0.37        $  0.08     $  0.14
</TABLE>

Stock-based employee compensation expense under the fair value method for the
nine months ended March 31, 2005, includes $6,046, which represents the entire
fair value of 1,322 options granted to employees and 61 options granted to
directors in September 2004, all of which had an exercise price equal to or
greater than the market value of the common stock on the date of grant, as those
options were vested as of their date of grant.

(3)     ASSETS HELD FOR SALE

On December 31, 2004, the Company committed to a plan to divest its non-core
Institutional Sanitary Supplies ("ISS") segment. The Company decided to sell its
ISS segment to focus on its core segments and its new patent-pending landfill
odor-control product. The Company anticipates that a sale of the ISS segment
will be completed by December 2005.

Assets held for sale of the disposal group included in the accompanying
consolidated balance sheet as of March 31, 2005, consist of current assets
(primarily accounts receivable and inventory) of $1,263, property and equipment
of $64, and goodwill of $110. Liabilities related to the assets held for sale
reported in the accompanying consolidated balance sheet as of March 31, 2004,
consist of accounts payable and accrued expenses of $494.

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations of the ISS segment have been
recorded as discontinued operations in the accompanying consolidated statements
of income. Operating results of discontinued operations were as follows:

<TABLE>
<CAPTION>
                                              Nine months ended           Three months ended
                                                   March 31,                    March 31,
                                             2005           2004           2005        2004
                                             ----           ----           ----        ----
<S>                                        <C>            <C>            <C>         <C>

Net sales                                  $ 3,940         $4,075         $1,195      $1,427
                                           -------         ------         ------      ------

Loss from operations of
discontinued business                       (1,227)          (632)          (642)       (210)
Benefit for income taxes                       466            253            244          84

Non-cash impairment charge                  (1,453)             -           (730)          -
Benefit for income taxes                       552              -            277           -
                                           -------         ------         ------      ------

Loss from discontinued operations          $(1,662)        $(379)         $ (851)     $ (126)
                                           ========        ======         ======      ======
</TABLE>

                                        9

<PAGE>

The presentation in the consolidated statements of income for the three and nine
months ended March 31, 2004, have been reclassified to reflect the discontinued
operations. The consolidated balance sheet as of June 30, 2004 and the statement
of cash flows for the nine months ended March 31, 2004 have not been
reclassified to reflect the discontinued operations.

(4)     BUSINESS ACQUISITIONS

On December 31, 2003, the Company, through its wholly owned subsidiary Aceto
Holding GmbH ("Aceto Holding"), acquired from Corange Deutschland Holding GmbH
("Corange"), all of the capital stock of Pharma Waldhof Beteiligungs GmbH
("Pharma Waldhof"), and all of the partnership interest of Pharma Waldhof GmbH &
Co. KG. Pharma Waldhof is the general partner of Pharma Waldhof GmbH & Co. KG.

The following unaudited pro forma financial information summarizes the Company's
consolidated results of operations for the nine months ended March 31, 2004,
assuming the Pharma Waldhof acquisition had taken place as of July 1, 2003:


                                                Nine months ended
                                                    March 31,
                                                       2004
                                                       ----
      Net sales                                      $221,708
      Net income                                     $ 11,069

      Net income per common share:
           Basic                                     $   0.46
           Diluted                                   $   0.45

The unaudited pro forma financial information has been prepared for comparative
purposes only and reflects the addition of the historical unaudited results of
Pharma Waldhof. The pro forma financial information includes adjustments to the
Company's historical results to reflect reduced interest income generated from
cash that was used for the acquisition, depreciation and amortization expenses
and related income tax adjustments. The pro forma information does not purport
to be indicative of operating results that would have been achieved had the
acquisition taken place on the date indicated or the results that may be
obtained in the future.

(5)     INVESTMENTS

Investments at March 31, 2005, consist of governmental agency securities of
$3,191, corporate bonds of $1,184 and corporate equity securities of $634. The
governmental agency securities and corporate bonds are classified as available
for sale. The corporate equity securities are classified as trading securities.
The difference between the fair value of the available for sale investments and
their cost at March 31, 2005 was $(90).

(6)     GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill of $2,295 and $2,234 as of March 31, 2005 and June 30, 2004, relates to
the Health Sciences segment. Goodwill at June 30, 2004, also includes $945
related to the discontinued ISS segment, which was written down to its fair
value of $110, in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets," and is included in assets held for sale at March 31, 2005.


                                       10
<PAGE>

Intangible assets subject to amortization as of March 31, 2005, and June 30,
2004, were as follows:

                                  Gross Carrying    Accumulated       Net Book
                                      Value         Amortization        Value
                                      -----         ------------        -----
        MARCH 31, 2005

        Customer relationships        $2,835           $   506         $2,329
        Customer lists                   600               480            120
        Non-compete agreements           657               480            177
                                      ------           -------         ------
                                      $4,092           $ 1,466         $2,626
                                      ======           =======         ======

        JUNE 30, 2004

        Customer relationships        $2,644           $   189         $2,455
        Customer lists                   600               390            210
        Non-compete agreements           643               442            201
                                      ------           -------         ------
                                      $3,887           $ 1,021         $2,866
                                      ======           =======         ======

Amortization expense for intangible assets subject to amortization amounted to
$444 and $273 for the nine months ended March 31, 2005 and 2004, respectively.
The estimated aggregate amortization expense for intangible assets subject to
amortization for each of the succeeding years ended March 31 are as follows:
2006: $572; 2007: $452; 2008: $452; 2009: $440; 2010: $405; 2011: $305.

As of March 31, 2005 and June 30, 2004, the Company also had $886 and $835,
respectively, of intangible assets pertaining to trademarks which are not
subject to amortization.

The changes in the Health Sciences segment's goodwill and the gross carrying
value of intangible assets is attributable to foreign currency exchange rates
used to translate the financial statements of foreign subsidiaries.

(7)     STOCKHOLDERS' EQUITY

On December 2, 2004, the Company's board of directors declared a 3-for-2 stock
split effected in the form of a dividend and a cash dividend of $0.15 per share,
to be paid semi-annually. The stock split and semi-annual cash dividend, in the
amount of $0.075 per share or $1,820 in the aggregate were paid January 10,
2005, to shareholders of record on December 24, 2004. The Company transferred
$80 to common stock from capital in excess of par value, representing the
aggregate par value of the 8,073 shares issued for the stock split. All
references to the number of common shares and per-common-share amounts have been
restated to give retroactive effect to the stock split for all periods
presented.

On May 5, 2005 the Company's board of directors declared a semi-annual cash
dividend of $0.075 per share to be distributed on June 30, 2005 to shareholders
of record as of June 20, 2005.

(8)     NET INCOME PER COMMON SHARE

Basic income per common share is based on the weighted average number of common
shares outstanding during the period. Diluted income per common share includes
the dilutive effect of potential common shares outstanding. The Company's only
potential common shares outstanding are stock options, which resulted in a
dilutive effect of 455 shares and 615 shares for three months ended March 31,
2005 and 2004, respectively. Stock options resulted in a dilutive effect of 515
shares and 619 shares for the nine months ended March 31, 2005 and 2004,
respectively. There were 1,344 stock options outstanding at March 31, 2005 that
were not included in the calculation of diluted income per common share for the
three months ended March 31, 2005 because their effect would have been
anti-dilutive.


                                       11
<PAGE>

(9)  COMPREHENSIVE INCOME

Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles, are
excluded from net income. The components of comprehensive income were as
follows:

<TABLE>
<CAPTION>
                                              Nine months ended           Three months ended
                                                   March 31,                    March 31,
                                             2005           2004           2005         2004
                                             ----           ----           ----         ----
<S>                                        <C>            <C>            <C>         <C>
Comprehensive income:
    Net income                             $   7,223     $   9,792       $   1,895    $   3,710
    Foreign currency translation
       adjustment                              1,708         1,081          (1,320)
                                                                                           (205)
    Unrealized (loss) gain on financial
       instruments                               (63)            -              24            -
    Change in fair value of cross
       currency interest rate swaps             (675)         (318)            437           76
                                           ---------     ---------       ---------    ---------
Total                                      $   8,193     $  10,555       $   1,036    $   3,581
                                           =========     =========       =========    =========
</TABLE>

The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. New exchange gains or
losses resulting from translation of financial statements of foreign operations
are accumulated in "other comprehensive income" in the accompanying consolidated
balance sheets. The currency translation adjustments are not adjusted for income
taxes, as they relate to indefinite investments in non-U.S. subsidiaries.

(10)    DEFERRED INCOME TAXES

The decrease in the deferred income tax assets of $1,299 during the nine months
ended March 31, 2005 related to the reduction of taxes payable by $1,851 due to
the utilization of foreign net operating loss carryforwards, partially offset by
a $552 deferred tax asset established for the write-down of goodwill and certain
long-lived assets.

(11)    SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes for the nine months ended March 31, 2005
and 2004 were as follows:

                                                 2005             2004
                                                 ----             ----
Interest                                       $   87           $   71
Income taxes                                    1,344            2,148

(12)    BENEFIT PLANS

To comply with the requirements of the recently enacted American Jobs Creation
Act of 2004, as of December 31, 2004, the Company froze its non-qualified
Supplemental Executive Retirement Plan (the "Old SERP") and will not permit
further deferrals and contributions to the Old SERP after December 31, 2004. All
of the earned benefits of the participants in the Old SERP as of December 31,
2004, will be preserved under the existing plan provisions.

On March 14, 2005, the Company's board of directors adopted the Aceto
Corporation Supplemental Executive Deferred Compensation Plan (the "New SERP").
The New SERP is a non-qualified deferred compensation plan intended to provide
certain qualified executives with supplemental benefits beyond the Company's
401(k) plan, as well as to permit additional deferrals of a portion of their
compensation. The New SERP is intended to comply with the provisions of section
409A of the Internal Revenue Code of 1986, as amended, and is designed to
provide comparable benefits to those under the Old SERP.


                                       12
<PAGE>

(13)    RELATED-PARTY TRANSACTIONS

Certain directors of the Company are affiliated with law firms that serve as
counsel to the Company on various corporate matters. During the nine months
ended March 31, 2005 and 2004, the Company incurred legal fees of $133 and $272,
respectively, for services rendered to the Company by these law firms. The rates
charged by these firms were comparable to rates obtainable from other firms for
similar services.

(14)    COMMITMENTS AND CONTINGENCIES AND SHORT-TERM BORROWINGS

As of March 31, 2005, the Company had outstanding purchase obligations totaling
$16,743 with suppliers to the Company's Germany, Netherlands and Singapore
operations to acquire certain products for resale to customers.

The Company and its subsidiaries are subject to various claims that have arisen
in the normal course of business. The impact of 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 these matters will not have a material adverse effect upon the Company's
financial condition or liquidity.

The Company issues commercial letters of credit in the ordinary course of
business through major domestic banks as requested by certain suppliers. The
Company had open letters of credit of approximately $2,154 and $1,161 as of
March 31, 2005 and June 30, 2004, respectively. The terms of these letters of
credit are all less than one year. The Company does not anticipate incurring any
material losses due to non-performance by the counterparties to these
agreements.

(15)    RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R, "Share-Based Payment," that addresses accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and instead requires that such transactions be
accounted for using a fair-value-based method. This statement is effective for
annual periods beginning after June 15, 2005 (the Company's 2006 fiscal year),
as if all share-based compensation awards granted, modified or settled after
December 15, 1994, had been accounted for using the fair-value-based method of
accounting. The Company has not yet determined the transition method it expects
to select in adopting the provisions of FASB Statement No. 123R, and has not yet
determined whether its adoption will result in amounts in future periods that
are similar to the Company's current pro-forma disclosures under SFAS 123. See
Note 2, "Stock-Based Compensation," for pro-forma information as if the Company
had elected to adopt the requirements of the previously issued SFAS 123.

On October 22, 2004, the President of the United States signed the American Jobs
Creation Act of 2004. This law creates a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of limitations and the FASB
has issued two Staff Positions to provide guidance on how companies should
account for the effects of the American Jobs Creation Act. The Company is
evaluating the repatriation provision of this law to determine whether, and to
what extent, it might repatriate extraordinary dividends, as defined in this
law. Accordingly, it can not reasonably estimate the amounts, if any, of
undistributed earnings that may be repatriated. The Company expects to complete
its evaluation within a reasonable amount of time.

(16)    SEGMENT INFORMATION

The Company's four reportable segments, organized by product, are as follows:

        o       Health Sciences - includes the active ingredients for generic
                pharmaceuticals, vitamins, and nutritional supplements,
                pharmaceutical intermediates, which are products used in
                preparing pharmaceuticals, primarily by major innovative drug
                companies, and biopharmaceuticals.
        o       Chemicals & Colorants - products include a variety of specialty
                chemicals used in plastics, resins, adhesives, coatings, food,
                flavor additives, fragrances, cosmetics, metal finishing,
                electronics and


                                       13
<PAGE>

                many other areas; dye and pigment intermediates used in the
                color-producing industries like textiles, inks, paper, and
                coatings; and intermediates used in the production of
                agrochemicals.
        o       Agrochemicals - products include herbicides, fungicides and
                insecticides, as well as a sprout inhibitor for potatoes.
        o       Institutional Sanitary Supplies & Other - products include
                cleaning solutions, fragrances, and deodorants for commercial
                and industrial customers.

On December 31, 2004, management committed to a plan to sell the ISS segment.
Accordingly, the results of this segment are included in "loss from discontinued
operations" in the accompanying consolidated statements of income.

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.

Nine months ended March 31, 2005 and 2004, for continuing operations:

<TABLE>
<CAPTION>
                                        Health       Chemicals &                     Consolidated
                                       Sciences       Colorants      Agrochemicals      Totals
                                       --------       ---------      -------------      ------
2005
----
<S>                                    <C>              <C>             <C>           <C>
Net sales                              $146,548         $75,282         $14,915       $236,745
Gross profit                             26,349          11,978           5,056         43,383
Unallocated cost of sales (1)                                                           (3,054)
                                                                                      ---------
Net gross profit                                                                      $ 40,329

2004
----
Net sales                              $136,980         $67,731         $12,443       $217,154
Gross profit                             26,267          10,909           4,080         41,256
Unallocated cost of sales (1)                                                           (2,898)
                                                                                      ---------
Net gross profit                                                                      $ 38,358
</TABLE>

Three months ended March 31, 2005 and 2004, for continuing operations:

<TABLE>
<CAPTION>
                                        Health       Chemicals &                     Consolidated
                                       Sciences       Colorants      Agrochemicals      Totals
                                       --------       ---------      -------------      ------
2005
----
<S>                                    <C>              <C>             <C>           <C>
Net sales                               $48,924         $26,736          $5,918       $ 81,578
Gross profit                              8,706           4,325           2,265         15,296
Unallocated cost of sales (1)                                                           (1,138)
                                                                                      ---------
Net gross profit                                                                      $ 14,158

2004
----
Net sales                               $49,904         $23,543          $4,817       $ 78,264
Gross profit                             10,215           3,733           1,498         15,446
Unallocated cost of sales (1)                                                             (991)
                                                                                      ---------
Net gross profit                                                                      $ 14,455
</TABLE>

(1) Certain freight and storage costs are not allocated to the segments, as
those costs are managed on an entity-wide basis and the information to
reasonably allocate those costs is not readily available.


                                       14
<PAGE>

Net sales and gross profit by location for the nine months ended March 31, 2005
and 2004, and long-lived assets by location as of March 31, 2005 and June 30,
2004, for continuing operations were as follows:

<TABLE>
<CAPTION>
                                  Net Sales                      Gross Profit                Long-lived Assets
                                  ---------                      ------------                -----------------
                              Nine months ended               Nine months ended                    As of
                                  March 31,                        March 31,           March 31,        June 30,
                              2005           2004            2005            2004           2005            2004
                              ----           ----            ----            ----           ----            ----
<S>                         <C>            <C>              <C>             <C>            <C>             <C>
United States               $132,956       $122,477         $20,949         $22,074        $ 1,229         $ 1,748
Germany                       49,381         37,766          10,201           8,363            591             585
Netherlands                    6,194          7,054           1,383             899            344             129
France                         9,291          8,062           1,318           1,102            102             119
Asia-Pacific                  38,923         41,795           6,478           5,920          3,108              73
                            --------       --------         -------         -------        -------         -------
Total                       $236,745       $217,154         $40,329         $38,358        $ 5,374         $ 2,654
                            ========       ========         =======         =======        =======         =======
</TABLE>

In November 2004, the Company purchased office space in Shanghai, China for
approximately $3,000.


                                       15
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
Aceto Corporation:

We have reviewed the accompanying consolidated balance sheet of Aceto
Corporation and subsidiaries as of March 31, 2005, the related consolidated
statements of income for the three-month and nine-month periods ended March 31,
2005 and 2004, and the related consolidated statements of cash flows for the
nine-month periods ended March 31, 2005 and 2004. These consolidated financial
statements are the responsibility of the Company's management.

We conducted our reviews 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 (United States), 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 reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Aceto Corporation and subsidiaries as of June 30, 2004, and the related
consolidated statements of income, shareholders' equity and comprehensive income
(loss), and cash flows for the year then ended (not presented herein); and in
our report dated September 9, 2004, 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, 2004, is fairly
stated, in all material aspects, in relation to the consolidated balance sheet
from which it has been derived.

As discussed in note 2 to the June 30, 2004 consolidated financial statements,
Aceto Corporation and subsidiaries adopted the provisions of Statement of
Financial Accounting Standards No. 141, "Business Combinations" and Statement
No. 142, "Goodwill and Other Intangible Assets" as of July 1, 2002.


/s/ KPMG LLP

Melville, New York
May 5, 2005


                                       16
<PAGE>

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

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

This Quarterly Report on Form 10-Q and the information incorporated by reference
includes "forward-looking statements" within the meaning of section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend those forward looking-statements to be covered by the safe harbor
provisions for forward-looking statements. All statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking statements. Any
such forward-looking statements are based on current expectations, estimates and
projections about our industry and our business. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," or variations
of those words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth or implied by any forward-looking statements. Factors that could cause
actual results to differ materially from forward-looking statements include, but
are not limited to, unforeseen environmental liabilities, uncertain military
actions in the world, the mix of products sold and their profit margins, order
cancellation or a reduction in orders from customers, the nature and pricing of
competing products, the availability and pricing of key raw materials,
dependence on key members of management, risks of entering into new European
markets, continued successful integration of acquisitions, and economic and
political conditions in the United States and abroad.

                          NOTE REGARDING DOLLAR AMOUNTS

In this quarterly report, all dollar amounts are expressed in thousands, except
for share prices and per-share amounts.


EXECUTIVE SUMMARY

We are a global distributor of chemically-derived pharmaceuticals,
biopharmaceuticals, specialty chemicals, and agrochemicals. Our offices in
China, Germany, France, the Netherlands, Singapore, India, Poland, Hong Kong,
the United Kingdom and the United States, along with warehouses worldwide,
enable us to respond quickly to global customer demands, assuring that a
consistent, high-quality supply of pharmaceutical, biopharmaceutical, specialty
chemicals and agrochemicals is never far away. We are able to offer our
customers very competitive pricing, continuity of supply, and quality control.
Our 57 years of experience, our reputation for reliability and stability, and
our long-term relationships with our suppliers have fostered loyalty among our
customers.

We remain confident about our short- and long-term business prospects. In the
short-term, we anticipate continued organic growth, including growth resulting
from the introduction of new active pharmaceutical ingredients (APIs), entering
the developing biopharmaceutical market, globalization of our Chemicals &
Colorants business, expansion of our Agrochemicals segment by acquisition of
product lines, continued enhancement of our sourcing operations in China and
India, and steady improvement of our regulatory capabilities.

We believe that new product introductions demonstrate that Aceto has come to be
recognized by the worldwide generic pharmaceutical industry as a reliable
supplier. Our long-term plans involve seeking strategic acquisitions that
enhance our earnings, forming alliances with partners that add to our
capabilities, and establishing significant business operations in Eastern
Europe. We believe Eastern Europe has great potential in the API business, given
that entry of Eastern European countries into the European Union will result in
their being subject to the same strict pharmaceutical regulations as their
Western European counterparts.

We are reporting net sales of $236,745 for the nine months ended March 31, 2005,
which represents a 9.0% increase over the $217,154 reported in the same period
in fiscal 2004. Our income from continuing operations of $8,885, or $0.36 per
diluted share was lower than the $10,171 or $0.42 per diluted share reported in
the same period in fiscal 2004.

Our financial position as of March 31, 2005 remains strong, as we had cash and
investments of $25,864, working capital of $94,349, no long-term debt, and
shareholders' equity of $107,972.


                                       17
<PAGE>

Our continuing business is separated into three principal segments: Health
Sciences, Chemicals & Colorants and Agrochemicals.

The Health Sciences segment is our largest segment in terms of both sales and
gross profits. This segment is comprised of APIs, pharmaceutical intermediates,
diagnostic chemicals and nutritional supplements. APIs comprise about 70% of
this segment's revenues. We typically partner with both customers and suppliers
years in advance of a drug coming off patent to provide the generic equivalent.

We have an extensive pipeline of new generic products 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, as new members join the European
Union, primarily from Eastern Europe, they become subject to the same regulatory
standards as their Western Europe counterparts. We believe that we are well
positioned to take advantage of that opportunity.

The Chemicals & Colorants segment supplies chemicals used in the color-producing
industries such as textiles, ink, paper and coatings, as well as chemicals used
in plastic, resins, adhesives, coatings, food, flavor additives, and the
production of agrochemicals. Our sales of these products are predominantly in
the United States and purchases are primarily from China and Western Europe.

The Agrochemicals segment, while relatively small in terms of sales, provides
the highest gross margin percentages. Our revenues are derived from sales of
herbicides, pesticides, and other Agrochemicals, primarily in the United States
and Western Europe. Our joint venture with Nufarm, which markets Butoxone(R), is
expected to increase our market share of the peanut, soybean and alfalfa
herbicide markets. We believe this will have a marginally positive effect on the
gross margin contribution in this segment.

On December 31, 2004, we committed to a plan to divest our non-core
Institutional Sanitary Supplies segment. A sale will enable us to focus on our
core segments as well as our new patent-pending landfill odor-control product,
Landfill Odorend, which will be integrated into the Chemicals & Colorants
segment.

Aceto's main strengths are sourcing, regulatory support and quality control. We
are currently the largest buyer of pharmaceutical and specialty chemicals for
export from China, purchasing from over 400 different factories.

Among our greatest strengths are our people and their ability to meet the
individual needs of customers. Eighty-five of our approximately 260 employees
have technical degrees and we have 18 employees whose exclusive responsibility
is regulatory compliance. This enables us to dispatch highly skilled
professionals whenever they might be needed.

In this section, we explain our general financial condition and results of
operations, including the following:

        o       factors that affect our business
        o       our earnings and costs in the periods presented
        o       changes in earnings and costs between periods
        o       sources of earnings
        o       the impact of these factors on our overall financial condition

As you read this section, refer to the accompanying consolidated statements of
income, which present the results of our operations for the nine-month and
three-month periods ended March 31, 2005 and 2004. We analyze and explain the
differences between periods in the specific line items of the consolidated
statements of income.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. In preparing
these financial statements, we were required to make estimates and assumptions
that affect the amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We evaluate our
estimates on a regular basis, including those related to bad debts, inventories,
goodwill and intangible assets,


                                       18
<PAGE>

environmental and other contingencies, pension benefits and income taxes. We
base our estimates on various factors, including historical experience,
consultation and advice from third-party subject-matter experts, and on various
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for 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 under different assumptions and
circumstances.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of these
consolidated financial statements.

REVENUE RECOGNITION

We recognize revenue from product sales at the time of shipment and passage of
title and risk of loss to the customer. We have no acceptance or other
post-shipment obligations and we do not offer product warranties or services to
our customers.

Sales are recorded net of returns of damaged goods from customers, which
historically have been immaterial, and sales incentives offered to customers.
Sales incentives consist primarily of volume incentive rebates. We record such
volume incentive rebates as the underlying revenue transactions that result in
progress by the customer in earning the rebate are recorded, in accordance with
Emerging Issues Task Force 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)."

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Allowances for
doubtful accounts are based on historical experience and known factors regarding
specific customers and industries in which the customers operate. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances would be
required.

INVENTORIES

Inventories, which consist principally of finished goods, are stated at the
lower of cost (first-in, first-out method) or market. We write down our
inventories for estimated excess and obsolete goods by an amount equal to the
difference between the carrying cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions. A
significant sudden increase in the demand for our products could result in a
short-term increase in the cost of inventory purchases, while a significant
decrease in demand could result in an increase in the amount of excess inventory
quantities on-hand. Additionally, our estimates of future product demand may
prove to be inaccurate, in which case we may have understated or overstated the
write-down required for excess and obsolete inventory. Although we make every
effort to ensure the accuracy of our forecasts of future product demand, any
significant unanticipated changes in demand could have a significant impact on
the value of our inventory and reported operating results.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is calculated as the excess of the cost of purchased businesses over
the value of their underlying net assets. Other intangible assets principally
consist of customer relationships, trademarks, purchased customer lists, and
covenants not to compete. Goodwill and other intangible assets that have an
indefinite life are not amortized.

As required by Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," we test goodwill and other intangible
assets for impairment on at least an annual basis. To determine the fair value
of these intangible assets, there are many assumptions and estimates used that
directly impact the results of the testing. In making these assumptions and
estimates, we use industry-accepted valuation models and set criteria that are
reviewed and approved by various levels of management. Additionally, we use, as
necessary, a


                                       19
<PAGE>

third-party valuation firm to help us evaluate recorded goodwill. If our
estimates or their related assumptions change in the future, we may be required
to record impairment charges for these assets.

ENVIRONMENTAL AND OTHER CONTINGENCIES

We establish accrued liabilities for environmental matters and other
contingencies when it is probable that a liability has been incurred and the
amount of the liability is reasonably estimable. If the contingency is resolved
for an amount greater or less than the accrual, or our share of the contingency
increases or decreases, or other assumptions relevant to the development of the
estimate were to change, we would recognize an additional expense or benefit in
income in the period such determination was made.

PENSION BENEFITS

In addition to our defined contribution plans in the United States, we sponsor
pension plans outside the United States covering 14 employees who meet
eligibility requirements. In calculating the expense and liability related to
the plans, we use several statistical and other factors that attempt to estimate
the probability and magnitude of future events. These factors include
assumptions about the discount rate, expected return on plan assets and rate of
future compensation increases, within certain guidelines. In addition, our
actuarial consultants use subjective factors, such as withdrawal and mortality
rates, to estimate these variables. The actuarial assumptions that we use may
differ materially from actual results, due to changing market and economic
conditions, higher or lower withdrawal rates, or longer or shorter life spans of
participants, among other things. Such differences may significantly affect the
amount of pension expense and liability that we record.

TAXES

We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes", which establishes financial accounting and reporting standards
for the effects of income taxes that result from an enterprise's activities
during the current and preceding years. It requires an asset-and-liability
approach for financial accounting and reporting of income taxes.

Net deferred tax assets have been recorded based on our projecting that we will
have sufficient future earnings to realize these assets, and the net deferred
tax assets have been provided for at currently enacted income tax rates. If we
determine that a deferred tax asset will not be realizable, an adjustment to the
deferred tax asset will result in a reduction of net income at that time.

Deferred taxes have not been provided on undistributed earnings of foreign
subsidiaries since substantially all of these earnings are expected to be
permanently reinvested in our foreign operations. A deferred tax liability will
be recognized if and when we expect to recover those undistributed earnings in a
taxable manner, such as through receipt of dividends or sale of the investments.
Determination of the amount of the unrecognized U.S. income tax liability is not
practical because of the complexities of the hypothetical calculation. In
addition, foreign tax credit carryforwards would be available to reduce a
portion of any such U.S. tax liability.


                                       20
<PAGE>

RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 2005 COMPARED TO NINE MONTHS ENDED MARCH 31, 2004

<TABLE>
<CAPTION>
                                                        NET SALES BY SEGMENT
                                                      Nine months ended March 31,

                                                                                        Comparison 2005
                                          2005                    2004                 Over/(Under) 2004
                                          ----                    ----                 -----------------
                                                 % of                    % of           $              %
Segment                           Net sales     Total     Net sales     total         change         change
-------                           ---------     -----     ---------     -----         ------         ------
<S>                               <C>            <C>      <C>            <C>         <C>                <C>
Health Sciences                   $ 146,548      61.9%    $ 136,980      63.1%       $ 9,568            7.0%
Chemicals & Colorants                75,282      31.8        67,731      31.2          7,551           11.1
Agrochemicals                        14,915       6.3        12,443       5.7          2,472           19.9
                                  ---------     -----     ---------     -----        -------         ------

Net sales                         $ 236,745     100.0%    $ 217,154     100.0%       $19,591            9.0%
                                  =========     =====     =========     =====        =======         ======


                                                        GROSS PROFIT BY SEGMENT
                                                      Nine months ended March 31,

                                                                                        Comparison 2005
                                          2005                    2004                 Over/(Under) 2004
                                          ----                    ----                 -----------------
                                    Gross        % of       Gross        % of           $              %
Segment                             Profit      Sales       Profit      Sales         change         change
-------                           ---------     -----     ---------     -----         ------         ------

Health Sciences                   $  26,349      18.0%    $  26,267      19.2%       $    82            0.3%
Chemicals & Colorants                11,978      15.9        10,909      16.1          1,069            9.8
Agrochemicals                         5,056      33.9         4,080      32.8            976           23.9
                                  ---------     -----     ---------     -----        -------         ------


Segment gross profit                 43,383      18.3        41,256      19.0          2,127            5.2

Freight and storage costs (1)        (3,054)     (1.3)       (2,898)     (1.3)          (156)          (5.4)
                                  ---------     -----     ---------     -----        -------         ------
Gross profit                      $  40,329      17.0%    $  38,358      17.7%       $ 1,971            5.1%
                                  =========     =====     =========     =====        =======         ======
</TABLE>

(1) Represents certain freight and storage costs that are not allocated to a
segment.


                                       21

<PAGE>

NET SALES

Net sales increased $19,591, or 9.0%, to $236,745 for the nine months ended
March 31, 2005, compared with $217,154 for the same period in the prior year. We
reported sales increases in all three segments, as explained below.

HEALTH SCIENCES

Net sales for the Health Sciences segment increased by $9,568 for the nine
months ended March 31, 2005 to $146,548, which represented a 7.0% increase over
net sales of $136,980 for the same period in the prior year. Several factors
contributed to the increase in net sales in the Health Sciences segment. The
Pharma Waldhof business, which was acquired on December 31, 2003, contributed
$5,170 towards the sales increase. Domestic sales of Health Science products
increased $5,065 during the first nine months compared to the same period last
year. Included in the overall domestic sales increase, pharmaceutical
intermediates increased $3,495 or 64.1% compared the same period last year. The
large increase in sales of pharmaceutical intermediates reflects the change in
buying attitude by some of the larger pharmaceutical companies towards securing
a second, lower-cost supplier in Asia. We believe that sales of this product
line will continue to increase. The European and Asian market (excluding Pharma
Waldhof) recorded a net decrease in sales of $667 over the same period last
year. Contributing to the net decline in Asian sales was the $6,940 decrease in
sales of two previously launched API's due to increased competition and their
normal life cycle.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment was $75,282 for the nine months
ended March 31, 2005, compared to $67,731 for the same period in the prior year.
This increase in net sales of $7,551, or 11.1%, over the same period in the
prior year is partially attributable to a steady increase in the number of
products being offered by our foreign subsidiaries. Sales of Chemicals &
Colorants products by our foreign subsidiaries for the nine months ended March
31, 2005, showed an increase of $4,609. Our chemical business is diverse in
terms of products, customers and consuming markets. One customer within our
color-pigment and pigment-intermediate business purchased $3,781 less product in
the first nine months of fiscal 2005. This reduction was more than offset by
increases in sales of our industrial chemical offerings of $6,723 over the same
period last year. Three product lines in particular with increased sales were
polymer additives, aroma chemicals and coatings. We expect a similar trend to
continue in the short term as the U.S. economy recovers.

AGROCHEMICALS

Net sales for the Agrochemical segment increased to $14,915 for the nine months
ended March 31, 2005, an increase of $2,472, or 19.9%, over net sales of $12,443
for the same period in the prior year. The increase in net sales was
attributable to higher sales of our highest-volume product as well as sales of
several new products. We expect this sales trend in the Agrochemical segment to
continue during the balance of fiscal 2005.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) increased $2,127 to $43,383 (18.3% of net sales) for the
nine months ended March 31, 2005, as compared to $41,256 (19.0% of net sales)
for the same period in the prior year.

HEALTH SCIENCES

Health Sciences' gross profit of $26,349 for the nine months ended March 31,
2005, was flat as compared to the same period in the prior year. The gross
margin decreased to 18.0% compared to gross margin of 19.2% for the same period
in the prior year. This decrease is primarily attributed to the
lower-than-normal API gross margins of 8% realized on a relaunched antibiotic
and a shift in product mix to pharmaceutical intermediates, which have lower
margins than APIs. Additionally, two of our larger previously-launched APIs in
Europe and Asia have experienced normal pricing pressures for more mature
products. We expect pricing pressures to continue in the short-term.


                                       22
<PAGE>

CHEMICALS & COLORANTS

Gross profits for the nine months ended March 31, 2005 increased by $1,069, or
9.8%, over the same period last year. Gross profit for fiscal 2004 included a
favorable adjustment of $450 due to the reversal of an accrual for the estimated
loss of a purchase contract. Excluding this adjustment, gross profit would have
increased by $1,519, or 14.5%. Excluding the adjustment, the segment would have
shown improved margins of 15.9% versus 15.4% for the same period last year.
Contributions from categories such as miscellaneous intermediates, polymer
additives and coatings, in addition to improved sales volume and margins in the
European markets, were the primary reasons for this improvement. The increase in
gross margin percentage was caused by a decrease in sales to one major customer
whose sales had generated lower margins than usual, along with an improvement in
margins across other categories due to changes in product mix and, in some
cases, improved product pricing. Future trends are difficult to predict as they
depend on product mix and the introduction of new products.

AGROCHEMICALS

Gross profit for the Agrochemicals segment increased to $5,056 for the nine
months ended March 31, 2005, versus $4,080 for the same period last year, an
increase of $976 or 23.9%. This increase resulted from a large increase in sales
and royalty income of one existing product and sales from several new products
as well as a price increase in one product.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $3,488, or
13.9%, to $28,518 for the nine months ended March 31, 2005 compared to $25,030
for the same period last year. As a percentage of sales, SG&A increased to 12.0%
versus 11.5% for the same period last year. The SG&A increase is primarily due
to the inclusion of $1,292 of expenses of Pharma Waldhof, which was acquired in
December 2003, additional increases in costs of $724 for new
business-development initiatives (including personnel), increased fees
associated with the planning and pre-implementation efforts of a new ERP system
of $295, increased fees relating to the Company's compliance with its
obligations under section 404 of the Sarbanes-Oxley Act of $446 and increased
compensation and related fringe-benefit costs of $704.

OPERATING INCOME

For the nine months ended March 31, 2005, operating income was $11,811, compared
to $13,328 for the same period last year, a decrease of $1,517, or 11.4%. This
decrease was due to higher SG&A expenses of $3,488, partially offset by the
overall increase in gross profit of $1,971.

INTEREST AND OTHER INCOME, NET

Interest and other income decreased to $948 for the nine months ended March 31,
2005, as compared to $1,116 for the same period last year. The decrease of $168
was primarily attributable to reduced net gains on foreign currency of $307,
partially offset by higher interest income of $26 resulting from higher returns
on investments and an increase in income of $63 from a government subsidy paid
annually for doing business in a free-trade zone in Shanghai, China.

PROVISION FOR INCOME TAXES

The effective tax rate increased to 29.7% as compared to 29.1% for the same
period last year. This increase was due to proportionately higher earnings in
jurisdictions with higher tax rates, primarily Germany.

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations for the Institutional Sanitary
Supplies & Other segment have been recorded as discontinued operations in the
accompanying consolidated statements of income. The net loss from discontinued
operations


                                       23
<PAGE>

was $1,662 and $379 for the nine months ended March 31, 2005 and 2004,
respectively. The net loss from discontinued operations for the nine months
ended March 31, 2005, includes a non-cash write-down of goodwill and certain
long-lived assets, net of an income tax benefit, of $901.


THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

<TABLE>
<CAPTION>

                                                             NET SALES BY SEGMENT
                                                         Three months ended March 31,

                                                                                        Comparison 2005
                                          2005                    2004                 Over/(Under) 2004
                                          ----                    ----                 -----------------
                                                 % of                    % of           $              %
Segment                           Net sales     Total     Net sales     total         change         change
-------                           ---------     -----     ---------     -----         ------         ------
<S>                               <C>            <C>      <C>            <C>         <C>                <C>

Health Sciences                   $  48,924      60.0%    $  49,904      63.8%       $  (980)          (2.0%)
Chemicals & Colorants                26,736      32.8        23,543      30.1          3,193           13.6
Agrochemicals                         5,918       7.2         4,817       6.1          1,101           22.9
                                  ---------     -----     ---------     -----        -------         ------

Net sales                         $  81,578     100.0%    $  78,264     100.0%       $ 3,314            4.2%
                                  =========     =====     =========     =====        =======         ======


                                                           GROSS PROFIT BY SEGMENT
                                                         Three months ended March 31,

                                                                                        Comparison 2005
                                          2005                    2004                 Over/(Under) 2004
                                          ----                    ----                 -----------------
                                    Gross        % of       Gross        % of           $              %
Segment                             Profit      Sales       Profit      Sales         change         change
-------                           ---------     -----     ---------     -----         ------         ------

Health Sciences                   $   8,706      17.8%    $  10,215      20.5%       $(1,509)         (14.8%)
Chemicals & Colorants                 4,325      16.2         3,733      15.9            592           15.9
Agrochemicals                         2,265      38.3         1,498      31.1            767           51.2
                                  ---------     -----     ---------     -----        -------         ------

Segment gross profit                 15,296      18.8        15,446      19.7           (150)          (1.0)

Freight and storage costs (1)        (1,138)     (1.4)         (991)     (1.2)          (147)         (14.8)
                                  ---------     -----     ---------     -----        -------         ------
Gross profit                      $  14,158     17.4%     $  14,455      18.5%       $  (297)          (2.1%)
                                  =========     =====     =========     =====        =======         ======
</TABLE>

(1) Represents certain freight and storage costs that are not allocated to a
segment.


                                       24
<PAGE>

NET SALES

Net sales increased $3,314, or 4.2%, to $81,578 for the three months ended March
31, 2005, compared with $78,264 for the same period in the prior year.

HEALTH SCIENCES

Net sales for the Health Sciences segment decreased to $48,924 for the three
months ended March 31, 2005, which represents a 2.0% decrease from net sales of
$49,904 for the same period in the prior year. This decrease is largely
attributable to a $6,033 decrease in sales in our European and Asian markets
compared to the same period last year. The European and Asian market decrease
included an $8,417 decrease in sales of two previously launched API's compared
to the same period last year. Domestically, Health Sciences sales increased by
$5,053 led by APIs and pharmaceutical intermediates. The net overall increase in
domestic API sales includes $3,043 in sales of a relaunched broad-based
antibiotic. Pharmaceutical intermediates experienced an increase of $1,032, or
48.2%, in sales over the same period in the prior year.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment was $26,736 for the three months
ended March 31, 2005, compared to $23,543 for the same period in the prior year.
This increase in net sales of $3,193, or 13.6% versus the same period in the
prior year, is partially attributable to the steady addition of Chemicals &
Colorants products to our foreign subsidiaries product offerings of $2,045. Our
chemical business is diverse in terms of products, customers and consuming
markets. Increases in sales of pigment intermediates, miscellaneous
intermediates and aroma chemicals also contributed to the overall sales
increase.

AGROCHEMICALS

Net sales for the Agrochemicals segment increased to $5,918 for the three months
ended March 31, 2005, an increase of $1,101, or 22.9%, over net sales of $4,817
for the same period in the prior year. The increase was attributable to higher
sales of our two highest-volume products. We expect this sales trend in the
Agrochemical segment to continue during the balance of fiscal 2005.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) decreased $150 to $15,296 (18.8% of net sales) for the
three months ended March 31, 2005, as compared to $15,446 (19.7% of net sales)
for the same period in the prior year. A decrease in the Health Sciences segment
of $1,509 was partially offset by increases in the Chemicals & Colorants and
Agrochemicals segments.

HEALTH SCIENCES

Health Sciences' gross profit for the three months ended March 31, 2005, was
$8,706, a 14.8% decrease over gross profit of $10,215 for the same period in the
prior year. The gross margin decreased to 17.8% in the second quarter of fiscal
2005 compared to 20.5% for the same period in the prior year. This decrease in
gross profit was attributable to the various revenue factors described above in
"Net Sales" that contributed to an overall sales decrease of $980. Virtually all
of the decrease in the gross margin is attributable to the European and Asia
markets, which saw gross margins decrease on two previously launched API's by
$1,173, as compared to the same period last year, due to decreased volume and
pricing pressures. Domestic gross profit was virtually flat compared to last
year, but gross margins fell to 14.3% versus 20.4% for the same quarter last
year due to a shift in product mix to pharmaceutical intermediates, which have
lower margins than APIs, and the lower contribution from APIs caused by the
lower margins realized on sales of a relaunched broad based antibiotic. We
expect pricing pressures to continue in the short-term.


                                       25
<PAGE>

CHEMICALS & COLORANTS

Gross profit increased by $592, or 15.9%, to $4,325 over the same period last
year, primarily due to increased sales of categories such as miscellaneous
intermediates, in addition to improved sales volume and margins in the European
markets. The increase in gross margin percentage was caused by a decrease in
sales to one major customer whose sales had generated lower than usual margins.
Future trends are difficult to predict as they depend on product mix and the
introduction of new products.

AGROCHEMICALS

Gross profit from the Agrochemicals segment was $2,265 this quarter versus
$1,498 for the same period last year, an increase of $767 or 51.2%. Gross margin
increased to 38.3% this quarter versus 31.1% for the same period last year. A
large increase in sales of our two best-selling products and strong royalty
payments contributed to this increase.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A increased $779, or 8.3%, to $10,138 for the quarter ended March 31, 2005,
compared to $9,359 for the same period last year. As a percentage of sales, SG&A
increased to 12.4% in this quarter versus 12.0% for the same period last year.
The SG&A increase is primarily due to increased fees relating to the Company's
compliance with its obligations under section 404 of the Sarbanes-Oxley Act of
$598 and increased costs of new business-development initiatives (including
personnel) of $209.

OPERATING INCOME

For the quarter ended March 31, 2005, operating income was $4,020 compared to
$5,096 for the same period last year, a decrease of $1,076, or 21.1%. This
decrease was due to higher SG&A expenses of $779 and an overall decrease in
gross profit of $297.

INTEREST AND OTHER INCOME, NET

Interest and other income decreased $135 to $93 for the quarter ended March 31,
2005, as compared to $228 for the same period last year. This decrease was
primarily attributable to a $155 reduction in net gains on foreign currency
compared to the same period last year.

PROVISION FOR INCOME TAXES

The effective tax rate increased to 32.0% from 27.5% for the same period last
year. This increase was due to proportionately higher earnings in jurisdictions
with higher tax rates, primarily Germany.

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations for the Institutional Sanitary
Supplies & Other segment have been recorded as discontinued operations in the
accompanying consolidated statements of income. The net loss from discontinued
operations was $851 and $126 for the three months ended March 31, 2005 and 2004,
respectively. The net loss from discontinued operations for the three months
ended March 31, 2005, includes a non-cash write-down of goodwill and certain
long-lived assets, net of an income tax benefit, of $453.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

At March 31, 2005, we had $20,855 in cash, $5,009 in investments, and no debt.


                                       26
<PAGE>

Our cash position at March 31, 2005 was $2,475 less than what it was at June 30,
2004. Operating activities used cash of $2,405, primarily from an increase in
inventory of $6,794 and a decrease in accounts payable of $6,047, partially
offset by net income from continuing operations of $8,885 and a net increase
caused by changes in assets and liabilities.

Investing activities for the nine months ended March 31, 2005 provided cash of
$1,078 primarily resulting from the sale of investments of $9,348, net of
purchases of $4,465 partially offset by purchases of property and equipment of
$3,875 primarily for office space located in Shanghai, China.

Financing activities for the nine months ended March 31, 2005, used cash of
$1,393, as a result of payment of dividends of $1,820 and payment of a related
party note payable of $500, partially offset by proceeds from stock option
exercises of $927.

CREDIT FACILITIES

We have credit facilities with three foreign financial institutions. These
facilities provide us with a line of credit of approximately $19,031, as of
March 31, 2005. We are not subject to any financial covenants under these
arrangements. There were no outstanding balances under the credit facilities at
March 31, 2005.

In addition, we have a revolving credit facility with a financial institution
that expires June 30, 2007 and provides for available credit of $10,000. Under
the credit agreement, we may obtain credit through direct borrowings and letters
of credit. At March 31, 2005, we had utilized $2,154 in letters of credit,
leaving $7,846 of this facility unused. Our obligations under the credit
agreement are guaranteed by certain of our subsidiaries and are secured by 65%
of the capital of certain of our non-domestic subsidiaries. There is no
borrowing base on the credit agreement. Interest under the credit agreement is
at LIBOR plus 1.50%. The credit agreement contains several covenants requiring,
among other things, minimum levels of debt service and tangible net worth. We
are also subject to certain restrictive debt covenants, including covenants
governing liens, limitations on indebtedness, limitations on cash dividends,
guarantees, sales of assets, sales of receivables, and loans and investments. We
were in compliance with all covenants at March 31, 2005.

WORKING CAPITAL OUTLOOK

Working capital was $94,349 at March 31, 2005, versus $85,840 at June 30, 2004.
This increase was primarily attributable to net income during the period. We
continually evaluate possible acquisitions of or investments in businesses that
are complementary to our own, and such transactions may require us to use cash.
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 continued payment
of our semi-annual cash dividends. Further, we may obtain additional credit
facilities to enhance our liquidity.


                                       27
<PAGE>

OFF-BALANCE-SHEET ARRANGEMENTS AND COMMITMENTS AND CONTINGENCIES

We have no material financial commitments other than those under operating lease
agreements, letters of credit and unconditional purchase obligations. We have
certain contractual cash obligations and other commercial commitments that will
impact our short-term and long-term liquidity. At March 31, 2005, we had no
significant obligations for capital expenditures. At March 31, 2005, contractual
cash obligations and other commercial commitments were as follows:

<TABLE>
<CAPTION>

                                                        Payments Due and/or
                                                       Amount of Commitment
                                                       Expiration Per Period
                                                       ---------------------
                                              Less Than         1-3           4-5             After
                                  Total         1 Year         Years         Years           5 Years
                                  -----         ------         -----         -----           -------
<S>                              <C>           <C>           <C>           <C>              <C>
Operating leases                 $ 9,501       $  1,887      $  3,521      $  2,958         $  1,135

Commercial letters of credit       2,154          2,154             -             -                -

Standby letters of credit             84             84             -             -                -

Unconditional purchase
obligations (a)                   16,743         16,743             -             -                -
                                --------       --------      --------      --------         --------

Total                           $ 28,482       $ 20,868      $  3,521      $  2,958         $  1,135
                                ========       ========      ========      ========         ========
</TABLE>

(a) As of March 31, 2005, we had outstanding purchase obligations totaling
$16,743 with suppliers to our Germany, Netherlands and Singapore operations to
acquire certain products for resale to customers.

Other significant commitments and contingencies included the following:

        (1)     We had a liability of $2,125 as of March 31, 2005, for our
                non-qualified Supplemental Executive Retirement Plan. The
                related funds held by the grantor trust amounted to $1,811 as of
                March 31, 2005.

        (2)     We, together with our subsidiaries, are subject to pending and
                threatened legal proceedings that have arisen in the normal
                course of business. We do not know what impact final resolution
                of these matters will have on our results of operations in a
                particular reporting period, but our management is of the
                opinion that it will not have a material adverse effect on our
                financial condition or liquidity.

RELATED PARTY TRANSACTIONS

Certain of our directors are affiliated with law firms that serve as our counsel
on various corporate matters. During the nine months ended March 31, 2005 and
2004, we incurred legal fees of $133 and $272, respectively, for services
rendered to us by these law firms. The rates charged by these firms were
comparable to rates obtainable from other firms for similar services.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R, "Share-Based Payment," that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and instead requires that such
transactions be accounted for using a fair value based method. This statement is
effective for annual periods beginning after June 15, 2005 (the Company's 2006
fiscal year), as if all share-based compensation awards granted,


                                       28
<PAGE>

modified or settled after December 15, 1994 had been accounted for using the
fair value based method of accounting. The Company has not yet determined the
transition method it expects to select in adopting the provisions of FASB
Statement No. 123R, and has not yet determined whether its adoption will result
in amounts in future periods that are similar to the Company's current pro-forma
disclosures under SFAS 123. See Note 2 "Stock-Based Compensation" for pro-forma
information if the Company had elected to adopt the requirements of the
previously issued SFAS 123.

On October 22, 2004, the President of the United States signed the American Jobs
Creation Act of 2004. This law creates a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of limitations and the FASB
issued two Staff Positions to provide guidance on how companies should account
for the effects of the American Jobs Creation Act. The Company is evaluating the
repatriation provision of this law to determine whether, and to what extent, it
might repatriate extraordinary dividends, as defined in this law. Accordingly,
it can not reasonably estimate the amounts, if any, of undistributed earnings
that may be repatriated. The Company expects to complete its evaluation within a
reasonable amount of time.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION
INCLUDED IN THIS QUARTERLY REPORT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES WE FACE. ADDITIONALLY, RISKS AND UNCERTAINTIES NOT
CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR
BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISK FACTORS OCCUR, OUR BUSINESS,
FINANCIAL CONDITION, OPERATING RESULTS AND CASH FLOWS COULD BE MATERIALLY
ADVERSELY AFFECTED.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR COMPETITORS, MANY OF WHICH HAVE
GREATER MARKET PRESENCE AND RESOURCES THAN US, OUR PROFITABILITY AND FINANCIAL
CONDITION WILL BE ADVERSELY AFFECTED.

Our financial condition and operating results are directly related to our
ability to compete in the intensely competitive worldwide chemical market. We
face intense competition from global and regional distributors of chemical
products, many of which are large chemical manufacturers as well as
distributors. Many of these companies have substantially greater resources than
us, including greater financial, marketing and distribution resources. We cannot
assure you that we will be able to compete successfully with any of these
companies. In addition, increased competition could result in price reductions,
reduced margins and loss of market share for our services, all of which would
adversely affect our business, results of operations and financial condition.

WE MAY INCUR SIGNIFICANT UNINSURED ENVIRONMENTAL AND OTHER LIABILITIES INHERENT
IN THE CHEMICAL DISTRIBUTION INDUSTRY THAT WOULD HAVE A NEGATIVE EFFECT ON OUR
FINANCIAL CONDITION.

The business of distributing chemicals is subject to regulation by numerous
federal, state, local, and foreign governmental authorities. These regulations
impose liability for loss of life, damage to property and equipment, pollution
and other environmental damage that may occur in our business. Many of these
regulations provide for substantial fines and remediation costs in the event of
chemical spills, explosions and pollution. While we believe that we are in
substantial compliance with all current laws and regulations, we can give no
assurance that we will not incur material liabilities that exceed our insurance
coverage or that such insurance will remain available on terms and at rates
acceptable to us. Additionally, if existing environmental and other regulations
are changed, or additional laws or regulations are passed, the cost of complying
with those laws may be substantial, thereby adversely affecting our financial
performance.

We currently have environmental remediation obligations in connection with our
former manufacturing facility in Carlstadt, New Jersey. Estimates of how much it
would costs to remediate environmental contamination at this site have increased
since the facility was closed in 1993, and our consultants currently estimate
that completing remediation would cost between $1,550 and $3,200. If the actual
costs are significantly greater than estimated, it could have a material adverse
effect on our operating results and cash flows.


                                       29
<PAGE>

ASSESSMENTS BY VARIOUS TAX AUTHORITIES MAY BE MATERIALLY DIFFERENT THAN WE HAVE
PROVIDED FOR.

We are regularly audited by federal, state, and foreign tax authorities. From
time to time, these audits may result in proposed assessments. While we believe
that we have adequately provided for any such assessments, future settlements
may be materially different than we have provided for and thereby adversely
affect our earnings.

OUR ACQUISITION STRATEGY IS SUBJECT TO A NUMBER OF INHERENT RISKS, INCLUDING THE
RISK THAT OUR ACQUISITIONS MAY NOT BE SUCCESSFUL.

We continually seek to expand our business through acquisitions of other
companies that complement our own and through joint ventures, licensing
agreements and other arrangements. Any decision regarding strategic alternatives
would be subject to inherent risks, and we cannot guarantee that we will be able
to identify the appropriate opportunities, successfully negotiate economically
beneficial terms, successfully integrate any acquired business, retain key
employees, or achieve the anticipated synergies or benefits of the strategic
alternative selected. Acquisitions can require significant capital resources and
divert our management's attention from our existing business. Additionally, we
may issue additional shares in connection with a strategic transaction, thereby
diluting the holdings of our existing common shareholders, incur debt or assume
liabilities, become subject to litigation, or consume cash, thereby reducing the
amount of cash available for other purposes.

ANY ACQUISITION THAT WE MAKE COULD RESULT IN A SUBSTANTIAL CHARGE TO OUR
EARNINGS.

We have previously incurred charges to our earnings in connection with acquired
assets, and may continue to experience charges to our earnings for any
acquisitions that we make, including large and immediate write-offs of acquired
assets, or impairment charges. These costs may also include substantial
severance and other closure costs associated with eliminating duplicate or
discontinued products, employees, operations and facilities. These charges could
have a material adverse effect on our results of operations for particular
quarterly periods and they could possibly have an adverse impact on the market
price of our common stock.

OUR REVENUE IS DIFFICULT TO PREDICT.

Our revenue is difficult to predict because it is primarily generated on a
contract-by-contract or purchase order basis, and customers can change their
requirements or cancel orders. Many of our contracts are short-term and may be
cancelled at any time. As a result, much of our revenue is not recurring from
period to period, which contributes to the variability of results from period to
period. We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance.

OUR OPERATING RESULTS MAY FLUCTUATE IN FUTURE QUARTERS, WHICH MAY ADVERSELY
AFFECT THE TRADING PRICE OF OUR COMMON STOCK.

Our operating results will fluctuate on a quarterly basis as a result of a
number of factors, including the timing of contracts, the delay or cancellation
of a contract, and changes in government regulations. Any one of these factors
could have a significant impact on our quarterly results. In some quarters, our
revenue and operating results may fall below the expectations of securities
analysts and investors, which would likely cause the trading price of our common
stock to decline.

OUR POTENTIAL LIABILITY ARISING FROM OUR COMMITMENT TO INDEMNIFY OUR DIRECTORS,
OFFICERS AND EMPLOYEES COULD ADVERSELY AFFECT OUR EARNINGS AND FINANCIAL
CONDITION.

We have committed in our bylaws to indemnify our directors, officers and
employees against the reasonable expenses incurred by these persons in
connection with an action brought against him or her in such capacity, except in
matters as to which he or she is adjudged to have breached a duty to us. The
maximum potential amount of future payments we could be required to make under
this provision is unlimited. While we have a "director and officer" insurance
policy that covers a portion of this potential exposure, we may be adversely
affected if we are required to pay damages or incur legal costs in connection
with a claim above our insurance limits.


                                       30
<PAGE>

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY TERRORIST ACTIVITIES.

Our business depends on the free flow of products and services through the
channels of commerce. Instability due to military, terrorist, political and
economic actions in other countries could materially disrupt our overseas
operations and export sales. In fiscal year 2004, approximately 50% of our
revenues were attributable to operations conducted abroad and to export sales.
In addition, in fiscal 2004, approximately 29% and 59% of our purchases came
from Europe and Asia, respectively. In addition, in certain countries where we
currently operate, export, intend to operate, or intend to expand our
operations; we could be subject to other political, military and economic
uncertainties including labor unrest, restrictions on transfers of funds and
unexpected changes in regulatory environments.

FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.

A substantial portion of our revenue is denominated in currencies other than the
United States dollar because certain of our foreign subsidiaries operate in
their local currencies. Our results of operations and financial condition may
therefore be adversely affected by fluctuations in the exchange rate between
foreign currencies and the United States dollar.

WE RELY ON KEY EXECUTIVES IN LARGE PART FOR OUR FINANCIAL PERFORMANCE.

Our financial performance is highly dependent upon the efforts and abilities of
our key executives. The loss of the services of any of our key executives could
therefore have a material adverse effect upon our financial position and
operating results. None of our key executives has an employment agreement with
us and we do not maintain "key-man" insurance on any of our key executives.

THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND
ASSUMPTIONS USED IN PREPARING FINANCIAL STATEMENTS IN ACCORDANCE WITH ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. ANY CHANGES IN
THE ESTIMATES, JUDGMENTS AND ASSUMPTIONS WE USE COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS.

The consolidated financial statements included in the periodic reports we file
with the SEC are prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). The preparation of financial statements in accordance with
GAAP involves making estimates, judgments and assumptions that affect reported
amounts of assets, liabilities, revenues, expenses and income. Estimates,
judgments and assumptions are inherently subject to change, and any such changes
could result in corresponding changes to the reported amounts.

WHILE WE BELIEVE THAT WE CURRENTLY HAVE ADEQUATE INTERNAL CONTROL PROCEDURES IN
PLACE, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM LEGISLATION REQUIRING
COMPANIES TO EVALUATE CONTROLS UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF
2002.

We are evaluating our internal controls systems in order to allow management to
report on, and our independent registered public accounting firm to attest to,
our internal controls, as required by section 404 of the Sarbanes-Oxley Act. We
are performing the required system and process evaluation and testing in an
effort to comply with the management certification and auditor attestation
requirements of section 404. As a result, we are incurring additional expenses
and a diversion of management's time from other projects. While we anticipate
being able to fully implement the requirements relating to internal controls and
all other aspects of section 404 in a timely fashion, we cannot be certain as to
when we will complete our evaluation, testing and remediation actions or their
impact on our operations. If we are not able to implement the requirements of
section 404 in a timely manner or with adequate compliance, we might be subject
to sanctions or investigation by regulatory authorities, such as the Securities
and Exchange Commission or NASDAQ. Any such action could adversely affect our
financial results and the market price of our common stock and may also result
in delayed filings with the Securities and Exchange Commission.


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<PAGE>

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 market price, foreign
currency exchange rates and interest rates.

MARKET PRICE RISK

At March 31, 2005, we had $5,009 of investments, consisting of corporate
securities, governmental agency securities and corporate bonds. Investments are
recorded at fair value and have exposure to price risk. This risk is estimated
as the potential loss in fair value resulting from a hypothetical 10% adverse
change in prices quoted by stock exchanges and amounts to $501 as of March 31,
2005. Actual results may differ.

FOREIGN CURRENCY EXCHANGE RISK

In order to reduce the risk of foreign currency exchange rate fluctuations, we
hedge some of our transactions denominated in a currency other than the
functional currencies applicable to each of our various entities. The
instruments used for hedging are short-term foreign currency contracts
(futures). The changes in market value of such contracts have a high correlation
to price changes in the currency of the related hedged transactions. At March
31, 2005, we had foreign currency contracts outstanding that had a notional
amount of $1,230. 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 March 31, 2005 was $27.

In addition, we also enter into cross-currency interest-rate swaps to reduce
foreign-currency exposure on inter-company transactions. In June 2004 we entered
into a one-year cross-currency interest-rate swap transaction and in May 2003 we
entered into a five-year cross-currency interest-rate swap transaction, both for
the purpose of hedging fixed-interest rate, foreign-currency denominated cash
flows under inter-company loans. Under the terms of these derivative financial
instruments, U.S. dollar fixed principal and interest payments to be received
under inter-company loans will be swapped for Euro denominated fixed principal
and interest payments. The change in fair value of the swaps from date of
purchase to March 31, 2005 was $(1,184). The gains or losses on the
inter-company loans due to changes in foreign currency rates will be offset by
the gains or losses on the swap in the accompanying consolidated statements of
income.

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 that are included in "accumulated other comprehensive income" in the
accompanying consolidated balance sheets. On March 31, 2005, we had translation
exposure to various foreign currencies, with the most significant being the Euro
and the Singapore dollar. The potential loss as of March 31, 2005, resulting
from a hypothetical 10% adverse change in quoted foreign currency exchange rates
amounted to $4,026. Actual results may differ.

INTEREST RATE RISK

Due to our financing, investing and cash management activities, we are subject
to market risk from exposure to changes in interest rates. We utilize a balanced
mix of debt maturities along with both fixed-rate and variable-rate debt to
manage our exposure to changes in interest rates. Our financial instrument
holdings at year-end were analyzed to determine their sensitivity to interest
rate changes. In this sensitivity analysis, we used the same change in interest
rate for all maturities. All other factors were held constant. If there were an
adverse change in interest rates of 10%, the expected effect on net income
related to our financial instruments would be immaterial. However, there can be
no assurances that interest rates will not significantly affect our results of
operations.

ITEM 4.  CONTROLS AND PROCEDURES

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 ensure 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


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<PAGE>

the time periods specified in the rules and forms of the Securities and Exchange
Commission. 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 March 31, 2005 and, based on
their evaluation, have concluded that the disclosure controls and procedures
were effective as of such date.

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 the third quarter of fiscal 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS

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

15.1    Letter of independent registered public accounting firm re: unaudited
        interim financial information

31.1    Certification by Chairman, President and CEO Leonard S. Schwartz
        pursuant to U.S.C. Section 1350, as adopted pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002.

31.2    Certification by CFO Douglas Roth pursuant to U.S.C. Section 1350, as
        adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1    Certification by Chairman, President and CEO Leonard S. Schwartz
        pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002.

32.2    Certification by CFO Douglas Roth pursuant to U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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<PAGE>

                                   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 CORPORATION


DATE    May 6, 2005                 BY   /s/ Douglas Roth
     -------------------------           ----------------
                                         Douglas Roth, Chief Financial Officer

DATE    May 6, 2005                 BY   /s/ Leonard S. Schwartz
     -------------------------           -----------------------
                                         Leonard S. Schwartz, Chairman,
                                         President and Chief Executive Officer


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