<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended DECEMBER 31, 2003
                          Commission file number 0-4217


                                ACETO CORPORATION
             (Exact name of registrant as specified in its charter)

            New York                                            11-1720520
            --------                                            ----------
 (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                         Identification Number)

 One Hollow Lane, Lake Success, NY                                 11042
 ---------------------------------                                 -----
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:  (516) 627-6000

Registrant's website address:               www.aceto.com
                                            -------------

                                 Not Applicable
                                 --------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


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 15,855,155 shares of common stock, par value $.01,
outstanding as of February 9, 2004.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003

                                Table of Contents



PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets - As of December 31, 2003 (unaudited) and
         June 30, 2003

         Consolidated Statements of Income (unaudited) - For the Six Months
         Ended December 31, 2003 and 2002

         Consolidated Statements of Income (unaudited) - For the Three Months
         Ended December 31, 2003 and 2002

         Consolidated Statements of Cash Flows (unaudited) - For the Six Months
         Ended December 31, 2003 and 2002

         Notes to Consolidated Financial Statements (unaudited)

         Independent Accountants' Review Report

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 4.  Submission of Matters to a Vote of Securities Holders

Item 6.  Exhibits and Reports on Form 8-K

         Signatures

         Certifications

         Index to Exhibits


<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  Consolidated Financial Statements


                       ACETO CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        (In thousands, except share data)


                                                        Dec. 31,       June 30,
                                                         2003            2003
                                                         ----            ----
                                                      (Unaudited)

ASSETS
------

Current assets:
 Cash and cash equivalents                              $ 31,927      $ 20,263
 Short-term investments                                      994           877
 Receivables:
   Trade, less allowance for doubtful accounts
   (Dec., $724; June, $939):                              47,375        43,841
   Other                                                   1,945         1,320
                                                        --------      --------
                                                          49,320        45,161

 Inventory                                                41,083        41,696
 Prepaid expenses and other current assets                 1,257         1,015
 Income taxes receivable                                      --           939
 Deferred income tax benefit, net                            301           301
                                                        --------      --------
     Total current assets                                124,882       110,252

Long-term notes receivable                                   795         1,017

Property and equipment:
 Machinery and equipment                                   1,378         1,244
 Leasehold improvements                                    1,163         1,143
 Computer equipment and software                           2,745         2,540
 Furniture and fixtures                                      698           667
 Automobiles                                                 407           362
 Land and land improvements                                  326           326
                                                        --------      --------
                                                           6,717         6,282
Less accumulated depreciation and amortization             4,077         3,681
                                                        --------      --------
                                                           2,640         2,601


Goodwill                                                  10,766         7,783
Deferred income tax benefit                                1,107         1,107
Other assets                                                 637           759
                                                        --------      --------

Total assets                                            $140,827      $123,519
                                                        ========      ========


See accompanying notes to consolidated financial statements.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        (In thousands, except share data)


                                                        Dec. 31,       June 30,
                                                         2003            2003
                                                         ----            ----
                                                      (Unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Drafts and acceptances payable                      $   1,712       $   1,315
  Short-term bank loans                                   1,130           3,286
  Accounts payable                                       21,458          17,372
  Accrued merchandise purchases                           6,973           4,048
  Accrued compensation                                    3,900           4,117
  Accrued environmental remediation                       1,550           1,550
  Accrued income taxes                                    1,333              --
  Other accrued expenses                                  9,566           7,262
                                                      ---------       ---------
          Total current liabilities                      47,622          38,950


Shareholders' equity:
  Common stock,$.01 par value:
     Authorized:  Dec., 40,000,000 shares
                  June, 20,000,000 shares
     Issued:      Dec., 17,570,579 shares
                  June, 17,570,579 shares
     Outstanding: Dec., 15,845,975 shares
                  June, 15,564,070 shares                   176             176
  Capital in excess of par value                         57,278          57,047
  Retained earnings                                      50,867          46,142
  Treasury stock, at cost:
     Dec., 1,724,604 shares
     June, 2,006,509 shares                             (17,048)        (19,836)
  Accumulated other comprehensive income                  1,932           1,040
                                                      ---------       ---------

          Total shareholders' equity                     93,205          84,569
                                                      ---------       ---------

Commitments and contingencies

Total liabilities and shareholders' equity            $ 140,827       $ 123,519
                                                      =========       =========


See accompanying notes to consolidated financial statements.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)


                                                            Six Months Ended
                                                                Dec. 31,
                                                                --------
                                                              (Unaudited)

                                                           2003            2002
                                                           ----            ----

Net sales                                             $ 141,539       $ 132,655
Cost of sales                                           116,271         110,404
                                                      ---------       ---------
   Gross profit                                          25,268          22,251

Selling, general and administrative
   expenses                                              17,458          15,316
                                                      ---------       ---------
   Operating income                                       7,810           6,935

Other income (expense):
   Interest expense                                         (68)           (142)
   Interest and other income (expense)                      888              (3)
                                                      ---------       ---------

                                                            820            (145)
                                                      ---------       ---------
Income before income taxes and cumulative
  effect of accounting change                             8,630           6,790
Provision for income taxes                                2,548           2,139
                                                      ---------       ---------
Income before cumulative effect of
   accounting change                                      6,082           4,651

Cumulative effect of accounting change (a)                   --           1,873
                                                      ---------       ---------
Net income                                            $   6,082       $   2,778
                                                      =========       =========

Basic income per common share (b):
   Income before accounting change                    $    0.39       $    0.32
   Cumulative effect of accounting change                  --              0.13
                                                      ---------       ---------
   Net income                                         $    0.39       $    0.19
                                                      =========       =========

Diluted income per common share (b):
   Income before accounting change                    $    0.38       $    0.31
   Cumulative effect of accounting change                  --              0.12
                                                      ---------       ---------
   Net income                                         $    0.38       $    0.19
                                                      =========       =========
Weighted average shares outstanding (b):
   Basic                                                 15,711          14,729
   Diluted                                               16,125          14,856


   (a)     SFAS 142 impairment loss recognized as a cumulative effect of an
           accounting change in the first interim reporting period (note 10).

   (b)     The number of shares outstanding and the per share information have
           been adjusted for a 3-for-2 stock dividend accounted for as a stock
           split, paid January 2, 2004 (note 4).


See accompanying notes to consolidated financial statements.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)


                                                           Three Months Ended
                                                                Dec. 31,
                                                                --------
                                                              (Unaudited)

                                                           2003            2002
                                                           ----            ----

Net sales                                              $ 69,202        $ 64,633
Cost of sales                                            56,258          53,627
                                                       --------        --------
   Gross profit                                          12,944          11,006

Selling, general and administrative
   expenses                                               9,331           7,655
                                                       --------        --------
   Operating income                                       3,613           3,351

Other income (expense):
    Interest expense                                        (48)            (64)
    Interest and other income                               511             113
                                                       --------        --------
                                                            463              49
                                                       --------        --------

Income before income taxes                                4,076           3,400
Provision for income taxes                                1,113           1,072
                                                       --------        --------

Net income                                             $  2,963        $  2,328
                                                       ========        ========

Income per common share (a):
  Basic                                                $   0.19        $   0.16
                                                       ========        ========
  Diluted                                              $   0.19            0.16
                                                       ========        ========

Weighted average shares outstanding (a):
         Basic                                           15,648          14,756
         Diluted                                         16,002          14,931


  (a)    The number of shares outstanding and the per share information have
         been adjusted for a 3-for-2 stock dividend accounted for as a stock
         split, paid January 2, 2004 (note 4).


See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>

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


                                                                   Six Months Ended
                                                                     December 31,
                                                                     ------------
                                                                  2003          2002
                                                                  ----          ----
                                                                     (Unaudited)
<S>                                                             <C>           <C>
Operating activities:
  Net income                                                    $  6,082      $  2,778
  Adjustments to reconcile net income to net
    cash provided by operating activities:
         Cumulative effect of accounting change                       --         1,873
         Depreciation and amortization                               490           500
         Provision for doubtful accounts, net of recoveries          112           299
         Foreign currency translation adjustment                     892           420
         Gain on sale of assets                                       --          (291)
         Income tax benefit on exercise of stock options             948            65
         Changes in assets and liabilities:
           Investments - trading securities                         (117)          148
           Trade accounts receivable                              (2,692)         (896)
           Other receivables                                        (324)        2,474
           Inventory                                               2,527        (6,143)
           Income taxes receivable                                   939          --
           Prepaid expenses and other current assets                (242)          (74)
           Other assets                                               93            60
           Drafts and acceptances payable                            397        (2,217)
           Accounts payable                                        2,265          (179)
           Accrued merchandise purchases                           2,925           143
           Accrued compensation                                     (494)          450
           Accrued income taxes                                      963           392
           Other accrued expenses                                     98         1,791
                                                                --------      --------
Net cash provided by operating activities                         14,862         1,593
                                                                --------      --------

Investing activities:
  Acquisition of Pharma Waldhof, net of cash acquired             (2,934)           --
  Payments received on notes receivable                              228            44
  Proceeds from sale of property, net of closing costs                --           173
  Purchases of property and equipment                               (407)         (311)
                                                                --------      --------
Net cash used in investing activities                             (3,113)          (94)
                                                                --------      --------

Financing activities:
  Payments of short-term bank loans                               (2,156)       (1,171)
  Payments of current installments of long-term
    liabilities                                                       --          (272)
  Proceeds from exercise of stock options                          1,945           565
  Payments for purchases of treasury stock                            --           (39)
  Issuance of treasury stock to employees                            126            62
                                                                --------      --------
  Net cash used in financing activities                              (85)         (855)
                                                                --------      --------

Net increase in cash                                              11,664           644
Cash at beginning of period                                       20,263        14,255
                                                                --------      --------
Cash at end of period                                           $ 31,927      $ 14,899
                                                                ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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

NOTE 1:  BASIS OF PRESENTATION
The consolidated financial statements of Aceto Corporation and subsidiaries
("Aceto" or the "Company") included herein have been prepared by the Company and
reflect all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented. Interim results are not necessarily
indicative of results which may be achieved for the full year.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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; environmental
matters; income taxes and other contingencies.

These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America.
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/A for the year ended June 30, 2003.

NOTE 2:  EMPLOYEE STOCK BASED COMPENSATION
Prior to fiscal 2004, the Company had established a number of share incentive
programs as discussed in more detail in our annual report on Form 10-K/A for the
year ended June 30, 2003. The Company applies the intrinsic value method as
outlined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting for stock
options and share units granted under these programs. Under the intrinsic value
method, no compensation expense is recognized if the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant. Since the Company has issued all stock grants at
market value, no compensation cost has been recognized. Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation",
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. The Company adopted during fiscal 2003 the disclosure
portion of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" requiring quarterly SFAS No. 123 pro forma disclosure. The
following table illustrates the effect on net income and 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:

<PAGE>

                                     Six Months Ended         Three Months Ended
                                       December 31               December 31
                                     2003       2002           2003      2002
                                     ----       ----           ----      ----

Net income, as reported             $6,082     $2,778         $2,963    $2,328
Deduct:  Total stock-based
  employee compensation expense
  determined under fair value
  method for all awards, net of
  related tax effects                 (534)      (367)          (278)     (184)
                                     -----      -----          -----     -----
Net income - Pro forma              $5,548     $2,411         $2,685    $2,144
                                     =====      =====          =====     =====

Income per common share:
  Basic - as reported               $ 0.39     $ 0.19         $ 0.19    $ 0.16
  Basic - pro forma                 $ 0.35     $ 0.17         $ 0.17    $ 0.15

  Diluted - as reported             $ 0.38     $ 0.19         $ 0.19    $ 0.16
  Diluted - pro forma               $ 0.34     $ 0.17         $ 0.17    $ 0.14

NOTE 3: BUSINESS ACQUISITION
On December 31, 2003, the Company, through its wholly owned subsidiary Aceto
Holding GmbH ("Aceto Holding"), acquired from Corange Deutschland Holding GmbH,
a corporation formed under the laws of Germany (the "Seller"), 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.

Based in Dusseldorf, Germany, Pharma Waldhof GmbH & Co. KG distributes
biologically and chemically derived active pharmaceutical ingredients (APIs)
currently used in therapeutic and diagnostic products. It is a worldwide
provider of a patent-protected, biologically derived API used for a widely used
diagnostic and therapeutic heart medication. Its primary customers include
worldwide ethical and generic pharmaceutical companies.

The purchase price for the capital stock of Pharma Waldhof was $30. The purchase
price for the partnership interest of Pharma Waldhof GmbH & Co. KG was $2,970.
These payments were made at the end of December 2003. Additionally, the
Registrant is to pay the Seller an amount equal to certain acquired accounts
receivable, other receivables, inventory, inventory in transit, and cash on hand
less certain accounts payable and other liabilities which approximates $321 and
is recorded in other accrued expenses on the accompanying consolidated balance
sheet as of December 31, 2003.

The Company will account for the transaction under the purchase method of
accounting for business combinations. The assets and liabilities of Pharma
Waldhof are included in the consolidated balance sheet as of December 31, 2003.
Pharma Waldhof's transactions on December 31, 2003 were not deemed material and
therefore are not included in the consolidated statements of income for the
three and six months ended December 31, 2003.

The purchase price was allocated to the acquired assets and assumed liabilities
based on the fair values as of the date of the acquisition. The excess of the
fair value of the net identifiable assets acquired over the purchase price paid
represented goodwill of approximately $3,100. The amount allocated to goodwill
is preliminary, principally pending the completion of the independent valuation
of the identifiable intangible assets acquired.

<PAGE>

The preliminary purchase price was allocated as follows (in thousands):

Goodwill ............................................................  $  3,065
Accounts receivable .................................................       954
Inventory............................................................     1,914
Cash.................................................................       387
Other receivables....................................................       307
Fixed assets.........................................................        11
                                                                          -----

Total assets.........................................................     6,638
Less liabilities assumed.............................................    (3,317)
                                                                          -----
Cash paid............................................................  $  3,321
                                                                          =====

The following unaudited pro forma financial information presents a summary of
our consolidated results of operations for the three and six month periods ended
December 31, 2003 and 2002, assuming the Pharma Waldhof acquisition had taken
place as of October 1, 2003 and 2002, respectively and July 1, 2003 and 2002,
respectively:

                                    Six Months Ended         Three Months Ended
                                       December 31,              December 31,
                                     2003       2002           2003      2002
                                     ----       ----           ----      ----

Revenues                           $146,093   $136,777       $71,460   $66,875
Income before cumulative
 effect of accounting change       $  7,123   $  5,302       $ 3,463   $ 2,721
Net income                         $  7,123   $  3,429       $ 3,463   $ 2,721
Basic and diluted income per
 share before extraordinary
 items and cumulative effect
 of accounting change              $   0.45   $   0.36       $  0.22   $  0.18
                                     ======     ======        ======    ======

Basic and diluted income
 per share                         $   0.44   $   0.23       $  0.22   $  0.18
                                     ======     ======        ======    ======

The unaudited condensed pro forma financial information has been prepared for
comparative purposes only and reflects the historical unaudited results of
Pharma Waldhof. The pro forma financial information includes adjustments to our
historical results to reflect reduced interest income generated from cash that
was used for the acquisition and related income tax adjustments. The pro forma
information does not include amortization of identifiable intangible assets as
they have not yet been quantified. 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 dates indicated or the results that may be
obtained in the future.

NOTE 4:  COMMON STOCK
On December 4, 2003, the Board of Directors of the Company declared a 3-for-2
stock dividend accounted for as a stock split that was paid January 2, 2004, to
shareholders of record on December 17, 2003. The Company transferred $53 to
common stock from capital in excess of par value, representing the aggregate par
value of the shares issued.

All references to the number of common shares and the per common share amounts
have been restated to give retroactive effect to the above stock split for all
periods presented.

<PAGE>

On December 4, 2003, the shareholders of the Company approved an increase in the
Company's authorized common stock to 40,000 shares.

NOTE 5:  SEGMENT INFORMATION
The Company, prior to fiscal 2003, was organized into five reportable segments,
organized by product. Effective for the fiscal year ended June 30, 2003, the two
segments formerly known as Pharmaceuticals, Biochemicals & Nutritionals and
Pharmaceutical Intermediates & Custom Manufacturing were combined into a segment
called Health Sciences. The amounts previously reported for the former segments
have been combined accordingly.

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

     (1)  Agrochemicals, whose products include herbicides, fungicides and
          insecticides, as well as a sprout inhibitor for potatoes, (2)
          Chemicals and Colorants, whose products include a variety of specialty
          chemicals used in plastics, resins, adhesives, coatings, food, flavor,
          fragrance, cosmetics, metal finishing, electronics and many other
          areas in addition to dye and pigment intermediates used in the
          color-producing industries like textiles, inks, paper and coatings, as
          well as intermediates used in the production of agrochemicals; (3)
          Health Sciences, which include the active ingredients for generic
          pharmaceuticals, vitamins and nutritional supplements, as well as
          products used in preparation of pharmaceuticals, primarily by major
          innovative drug companies and (4) Institutional Sanitary Supplies &
          Other, whose products include cleaning solutions, fragrances and
          deodorants used by commercial and industrial establishments. The
          Company does not allocate assets by segment. The Company's chief
          decision maker evaluates performance of the segments based on net
          sales and gross profit.

<PAGE>
<TABLE>
<CAPTION>

                                             Six Months Ended December 31, 2003 and 2002

                                                                                            Institutional
                                                                                            Sanitary
                          Agro-                  Chemicals &            Health              Supplies &           Consolidated
                          Chemicals              Colorants              Sciences            Other                Totals
                          ---------              ---------              --------            -------------        ------------
<S>                          <C>                    <C>                   <C>                     <C>                <C>
   2003
   ----
   Net sales                 $7,625                 44,188                87,078                  2,648              $141,539
   Gross profit               2,582                  7,176                16,442                    975                27,175
   Unallocated
   Cost of sales (1)                                                                                                    1,907
                                                                                                                     --------
   Net gross profit                                                                                                  $ 25,268
                                                                                                                     ========

   2002
   ----
   Net sales                 $5,878                 45,141                78,949                  2,687              $132,655
   Gross profit               1,662                  6,778                14,628                  1,105                24,173
   Unallocated
   cost of sales (1)                                                                                                    1,922
                                                                                                                     --------
   Net gross profit                                                                                                  $ 22,251
                                                                                                                     ========

                                            Three Months Ended December 31, 2003 and 2002


                                                                                            Institutional
                                                                                            Sanitary
                          Agro-                  Chemicals &            Health              Supplies &           Consolidated
                          Chemicals              Colorants              Sciences            Other                Totals
                          ---------              ---------              --------            -------------        ------------

   2003
   ----
   Net sales                 $4,837                 21,047                42,070                  1,248              $ 69,202
   Gross profit               1,902                  3,723                 7,694                    388                13,707
   Unallocated
   cost of sales (1)                                                                                                      763
                                                                                                                     --------
   Net gross profit                                                                                                  $ 12,944
                                                                                                                     ========

   2002
   ----
   Net sales                 $4,269                 22,822                36,325                  1,217              $ 64,633
   Gross profit               1,339                  3,461                 6,924                    445                12,169
   Unallocated
   cost of sales (1)                                                                                                    1,163
                                                                                                                     --------
   Net gross profit                                                                                                  $ 11,006
                                                                                                                     ========
</TABLE>

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

<PAGE>

Net sales and gross profit of each location for the six months ended December
31, 2003 and 2002 and long-lived assets of each location as of December 31, 2003
and June 30, 2003 were as follows:

                               Net Sales                    Gross Profit
                               ---------                    ------------

                            Six Months Ended              Six Months Ended
                                Dec. 31,                      Dec. 31,
                           2003          2002            2003           2002
                           ----          ----            ----           ----

United States            $ 84,984      $ 87,957        $ 15,893       $ 14,554
Germany                    20,342        14,655           3,619          2,479
The Netherlands             4,678         4,659             846          1,084
France                      4,659         5,033             744            845
Asia-Pacific               26,876        20,351           4,166          3,289
                         --------      --------        --------       --------

Total                    $141,539      $132,655        $ 25,268       $ 22,251
                         ========      ========        ========       ========



                             Long-Lived Assets, Net
                             ----------------------


                           Dec. 31,          June 30,
                            2003               2003
                            ----               ----

United States              $1,697             $1,783
Germany                       571                556
The Netherlands               150                113
France                        141                 61
Asia-Pacific                   81                 88
                           ------             ------

Total                      $2,640             $2,601
                           ======             ======

The long-lived assets of each location do not include goodwill of $10,766 and
$7,783 as of December 31, 2003 and June 30, 2003, respectively, as the Company's
goodwill has not been allocated to the various locations.

NOTE 6: INVENTORY

Inventory consists of the following:

                           Dec. 31,          June 30,
                            2003               2003
                            ----               ----

Finished goods            $40,541            $41,221
Work in process               150                157
Raw materials                 392                318
                          -------            -------
         Total            $41,083            $41,696
                          =======            =======

<PAGE>

NOTE 7:  NET INCOME PER COMMON SHARE
A reconciliation between the numerators and denominators of the basic and
diluted income per common share computation for net income follows:

<TABLE>
<CAPTION>
                                            Six Months Ended            Three Months Ended
                                              December 31,                 December 31,
                                           2003           2002          2003          2002
                                           ----           ----          ----          ----
<S>                                      <C>            <C>           <C>           <C>
Income before cumulative effect
  of accounting change                   $  6,082       $  4,651      $  2,963      $  2,328
Cumulative effect of accounting
  change                                        -          1,873             -             -
                                         --------       --------      --------      --------
Net income available for common
  shareholders                           $  6,082       $  2,778      $  2,963      $  2,328
                                         ========       ========      ========      ========

Weighted average common shares
 (basic)(a)                                15,711         14,729        15,648        14,756
Effect of dilutive securities:
  Stock options (a)                           414            127           354           175
                                         --------       --------      --------      --------
Weighted average common and
  potential common shares
  outstanding (diluted)(a)                 16,125         14,856        16,002        14,931
                                         ========       ========      ========      ========

Basic income per common
  share (a):
Income before cumulative effect
  of accounting change                   $   0.39       $   0.32      $   0.19      $   0.16
Cumulative effect of accounting
  change (b)                                    -           0.13             -             -
                                         --------       --------      --------      --------
Net income                               $   0.39       $   0.19      $   0.19      $   0.16
                                         ========       ========      ========      ========

Diluted income per common
  share (a):
Income before cumulative effect
  of accounting change                   $   0.38       $   0.31      $   0.19      $   0.16
Cumulative effect of accounting
  change (b)                                    -           0.12             -             -
                                         --------       --------      --------      --------
Net income                               $   0.38       $   0.19      $   0.19      $   0.16
                                         ========       ========      ========      ========
</TABLE>

(a) Share and per share information have been adjusted for a 3-for-2 stock
dividend accounted for as a stock split, paid January 2, 2004 (note 4).

(b) SFAS 142 impairment loss recognized as a cumulative effect of an accounting
change in the first interim reporting period of fiscal 2003 (note 10).

Employee stock options of 7 and 14 for the six and three months ended December
31, 2003, respectively, were not included in the diluted income per common share
calculation because their effect would have been anti-dilutive. Employee stock
options of 719 and 1,010 for the six and three months ended December 31, 2002,
respectively, were not included in the diluted income per common share
calculation because their effect would have been anti-dilutive.

<PAGE>

NOTE 8:  COMPREHENSIVE INCOME
The components of comprehensive income were as follows:

                                 Six Months Ended           Three Months Ended
                                   December 31,                  December 31,
                                 2003        2002           2003          2002
                                 ----        ----           ----          ----
Comprehensive income:
 Net income                     $6,082      $2,778         $2,963        $2,328
Foreign currency
 translation adjustment            892         420            823           522
                                ------      ------         ------        ------

         Total                  $6,974      $3,198         $3,786        $2,850
                                ======      ======         ======        ======

NOTE 9:  RECLASSIFICATIONS
Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current presentation.

NOTE 10:  BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted the provisions of SFAS 141 and 142 as of July 1, 2002. The
Company has evaluated its existing goodwill that was acquired in prior purchase
business combinations and has determined that no adjustment or reclassification
to intangible assets at July 1, 2002 is required in order to conform to the new
criteria in SFAS 141 for recognition apart from goodwill.

As of December 31, 2003 and June 30, 2003, the Company had intangible assets
subject to amortization of $1,020 and $1,020, respectively, and related
accumulated amortization of $719 and $608, respectively, which pertained to
customer lists and covenants not to compete and have been included in other
assets on the accompanying consolidated balance sheets. Amortization expense for
intangible assets subject to amortization amounted to $111 and $131 for the six
months ended December 31, 2003 and 2002, respectively. The estimated aggregate
amortization expense for intangible assets subject to amortization for each of
the succeeding years ended December 31, 2004 through December 31, 2006 are as
follows: 2004: $151; 2005: $120; 2006: $30.

As required by SFAS 142, the Company performed impairment tests on goodwill as
of July 1, 2002. As a result of the impairment tests, the Company recorded a
goodwill impairment charge of $1,873 which has been included as a cumulative
effect of an accounting change in the accompanying consolidated statement of
income for the six months ended December 31, 2002. Under SFAS 142, goodwill
impairment exists if the net book value of a reporting unit exceeds its
estimated fair value. The Company estimated the fair value of its reporting
units by using a combination of discounted cash flow analyses and comparisons
with the market values of similar publicly-traded companies.

The Company's $1,873 impairment charge was related to the impairment of the
goodwill associated with CDC Products Corp. ("CDC"). CDC was acquired by the
Company during fiscal 1999. Due to an increase in competition from local
sanitary supply companies in the markets CDC operates in, recent operating
profits and cash flows were lower than expected. Based on that trend, the
earnings forecast for the next five years was revised and a goodwill impairment
charge of $1,873 was recognized in the CDC reporting unit. The fair value of
that reporting unit was determined by using a combination of discounted cash
flow analyses and comparisons with the market values of similar publicly-traded
companies. The revised fair value of this unit was allocated to the assets and
liabilities of the business unit to arrive at an implied fair value of goodwill,
based upon known facts and circumstances, as if the acquisition occurred
currently.

During the six months ended December 31, 2003, the Company reduced goodwill in
the amount of $82 as a result of the utilization of certain net operating loss

<PAGE>

carry-forwards that were previously reserved for in purchase accounting. The
Company increased goodwill by $3,065 pursuant to the preliminary purchase
accounting for the acquisition of Pharma Waldhof as detailed in note 3. The
following table displays a roll forward of the carrying amount of goodwill for
the six months ended December 31, 2003, by business segment:

                                             Institutional
                                             Sanitary Supplies &    Consolidated
                        Health Sciences      Other                     Totals
                        ---------------      -----                     ------
Balance at 6/30/03          $6,838           $945                      $7,783

Acquisition of
Pharma Waldhof               3,065              -                       3,065

Adjustment for tax
savings from
acquired NOL                   (82)             -                         (82)
                            ------           ----                     -------

Balance at 12/31/03         $9,821           $945                     $10,766
                            ======           ====                     =======

NOTE 11:  SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the six months ended December 31,
2003 and 2002 was as follows:
                                      2003             2002
                                      ----             ----

          Interest paid              $   70           $  150
          Income taxes paid           1,327            1,605

Non-cash transactions:
During the six months ended December 31, 2002 the Company entered into a
mortgage note in the amount of $412 for the sale of property.

NOTE 12:  PURCHASE COMMITMENTS
As of December 31, 2003, the Company has outstanding purchase obligations
totaling $10,099 with suppliers of the Germany, Netherlands and Singapore
operations to acquire certain products for resale to third party customers. Such
purchase obligations are based on anticipated sales to certain customers through
December 31, 2004.

NOTE 13:  DEFERRED COMPENSATION
Effective December 2003, the Company modified its non-qualified Supplemental
Executive Retirement Plan ("the Plan"). The Plan is a deferred compensation plan
intended to provide certain qualified executives with supplemental retirement
benefits beyond the Company's 401(k) Plan, as well as to permit additional
deferral of a portion of their compensation. All compensation deferred under the
Plan is held by the Company in a grantor trust, which is considered an asset of
the Company. The funds held by the grantor trust amounted to $1,137 as of
December 31, 2003.

NOTE 14:  IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The FASB has determined that stock-based compensation should be recognized as a
cost in the financial statements and that such cost be measured according to the
fair value of the stock options. The FASB has not as yet determined the
methodology for calculating fair value and plans to issue an exposure draft and
final statement in 2004. The Company will continue to monitor communications on
this subject from the FASB in order to determine the impact on the consolidated
financial statements.

In December 2003, the FASB issued Interpretation 46R (FIN 46R), a revision to
Interpretation 46 (FIN 46), CONSOLIDATION OF VARIABLE INTEREST ENTITIES. FIN 46R
clarifies some of the provisions of FIN 46 and exempts certain entities

<PAGE>

from its requirements. Generally, FIN 46R is effective at the end of the first
interim period ending after March 15, 2004. The Company does not believe that
the adoption of FIN 46R will have a material impact to the consolidated
financial statements.

<PAGE>

                     INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Shareholders
Aceto Corporation:

We have reviewed the consolidated balance sheet of Aceto Corporation and
subsidiaries as of December 31, 2003, the related consolidated statements of
income for the three-month and six-month periods ended December 31, 2003 and
2002, and the related consolidated statements of cash flows for the six-month
periods ended December 31, 2003 and 2002. These consolidated financial
statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. 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
auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United
States of America.

As discussed in note 10 to the consolidated financial statements, Aceto
Corporation and subsidiaries adopted Statement of Financial Accounting Standards
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS as of July 1, 2002.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Aceto Corporation and subsidiaries as of June 30, 2003, 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 August 26, 2003, 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, 2003, is fairly
stated, in all material aspects, in relation to the consolidated balance sheet
from which it has been derived.


Melville, New York
February 9, 2004

<PAGE>

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

         (in thousands, except per share amounts)

     CAUTIONARY STATEMENT PURSUANT TO 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 AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY INTENDS THE
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS STRATEGY, ITS FINANCING
PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT ESTIMATES AND PROJECTIONS ABOUT
OUR INDUSTRY AND OUR BUSINESS. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH
WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE 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 THE FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO, UNFORESEEN ENVIRONMENTAL LIABILITIES, THE MIX OF
PRODUCTS SOLD AND THE PROFIT MARGINS THEREON, ORDER CANCELLATION OR A REDUCTION
IN ORDERS FROM CUSTOMERS, COMPETITIVE PRODUCT OFFERINGS AND PRICING ACTIONS, THE
AVAILABILITY AND PRICING OF KEY RAW MATERIALS, DEPENDENCE ON KEY MEMEBERS OF
MANAGEMENT, AND THE UNCERTAIN MILITARY, POLITICAL AND ECONOMIC CONDITIONS IN THE
WORLD. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE PUBLICLY THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE, EXCEPT AS MAY BE REQUIRED BY LAW.

EXECUTIVE SUMMARY
Aceto is reporting net sales of $69,200 for the second fiscal quarter ended
December 31, 2003 which is a 7% increase over the $64,633 reported in the second
quarter of fiscal 2003. The gross profit margin of 18.7% for the quarter,
represents the highest quarterly gross profit margin recorded by the Company.
The strong sales and gross profit margin caused our net income to increase to
$2,963 or $0.19 per diluted share which is 27.3% ahead of last year's second
fiscal quarter. For the six months we are reporting net sales of $141,539
resulting in net income of $6,082 compared to the same period last year's net
sales of $132,655 and net income of $2,778.

Our financial position, as of December 31, 2003, remains strong as we had cash
of $31,927, working capital of $77,260, no long-term debt and shareholders'
equity of $93,205.

Aceto Corporation is a global distributor of pharmaceutical and specialty
chemicals. The Company's 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 customer
demands, assuring that a consistent, high quality supply of pharmaceutical and
specialty chemicals is never far away. Aceto is able to offer its customers very
competitive pricing, continuity of supply, quality control and pricing. Our 56
years of experience, reputation for reliability and longevity, and long-term
relationships with its suppliers has fostered loyalty among our customers.

We are confident about Aceto's short- and long-term business prospects. In the
short-term, we anticipate continued organic growth, including our launching of a
minimum of four new Active Pharmaceutical Ingredients (APIs) per year, the
globalization of our Chemicals & Colorants business, continued enhancement of
our sourcing operations in China and India, and steady improvement of our
regulatory capabilities.

<PAGE>

We believe new product launches and product introductions demonstrate that Aceto
has come to be recognized by the worldwide generic pharmaceutical industry as an
important supplier. Our long-term plans involve seeking strategic and accretive
acquisitions, forming alliances with partners that will add to our capabilities,
and establishing significant business operations in Eastern Europe. We believe
Eastern Europe has great potential in the API business due to its entry into the
common market and compliance with strict pharmaceutical regulations.

Aceto's business is separated into four principal segments: Chemicals and
Colorants, Health Sciences, Agrochemicals and Institutional Sanitary Supplies.

The Health Sciences segment is Aceto's fastest growing segment, comprised of
bulk generic drugs, API's, Pharmaceutical Intermediates, Diagnostic chemicals
and Nutritionals. Bulk generic drugs make up about 70% of this segment's
revenues. Aceto typically partners with both customers and suppliers years in
advance of a drug coming off patent to provide the generic equivalent.

Aceto has 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 and expects to launch several each year. In
addition, as new members join the European Union, primarily from Eastern Europe,
they become subject to the same regulatory environment as their Western Europe
counterparts. Aceto is well positioned to take advantage of that opportunity; in
fact, an office in Poland was opened in January 2004.

The Chemicals & Colorants segment is Aceto's largest, both in sales and gross
margins. This segment supplies chemicals used in the color-producing industries
like textiles, ink, paper and coatings, as well as chemicals used in the
production of agrochemicals. Our sales are predominately in the U.S. and
purchases primarily from China and Western Europe.

The Agrochemicals segment, while relatively small in terms of sales, is Aceto's
most profitable in terms of gross margin percentages. Our revenues are derived
from sales of herbicides, pesticides, etc., primarily in the U.S. and Western
Europe. We expect our joint venture with Nufarm, which will market Butoxone to
increase our market share of the peanut, soybean and alfalfa herbicide. We
believe this will have a marginally positive effect on the gross margins
contribution in this segment.

Value Added/Core Competencies
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 Aceto's greatest strengths are our people and the ability they have to
meet the individual needs of customers. Eighty-five of Aceto's approximately 240
employees have technical degrees and Aceto has eighteen employees whose
exclusive responsibility is regulatory compliance. This enables Aceto to
dispatch highly skilled professionals whenever they might be needed.

In this discussion and analysis, we explain the general financial condition and
the  for Aceto, including the following:

     -   factors that affect our business

     -   our earnings and costs in the periods presented

     -   changes in earnings and costs between periods

     -   sources of earnings

     -   the impact of these factors on our overall financial condition

<PAGE>

As you read this discussion and analysis, refer to our Consolidated Statements
of Income, which present the results of our operations for the three-month
periods and six-month periods ended December 31, 2003 and 2002. We analyze and
explain the differences between periods in the specific line items of the
Consolidated Statements of Income.

SIGNIFICANT TRANSACTIONS IN FISCAL 2004
The Company completed two significant transactions in fiscal 2004. These
transactions are consistent with our strategy of seeking strategic and accretive
acquisitions and forming alliances with partners that will add to our
capabilities.

On December 31, 2003, the Company, through its wholly owned subsidiary Aceto
Holding GmbH ("Aceto Holding"), acquired from Corange Deutschland Holding GmbH,
a corporation formed under the laws of Germany (the "Seller"), 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.

Based in Dusseldorf, Germany, Pharma Waldhof GmbH & Co. KG distributes
biologically and chemically derived active pharmaceutical ingredients (APIs)
currently used in therapeutic and diagnostic products. It is a worldwide
provider of a patent-protected, biologically derived API used for a widely used
diagnostic and therapeutic heart medication. Its primary customers include
worldwide ethical and generic pharmaceutical companies.

The acquisition of Pharma Waldhof adds value for Aceto on several levels by:

     (1)  expected to be immediately accretive to Aceto's earnings;
     (2)  spearheading Aceto's entry into the biopharmaceuticals market;
     (3)  broadening the Company's product offerings in chemically-derived APIs;
     (4)  strengthening the Company's stance as an early participant in the
          generic biopharmaceutical business; and
     (5)  fostering a continuing relationship between Aceto and Roche, whereby
          Roche will continue to manufacture the principal biopharmaceutical
          APIs that Pharma Waldhof distributes and provide certain other
          services.

The purchase price for the capital stock of Pharma Waldhof was $30. The purchase
price for the partnership interest of Pharma Waldhof GmbH & Co. KG was $2,970.
These payments were made at the end of December 2003. Additionally, the
Registrant is to pay the Seller in February 2004 an amount equal to certain
accounts receivable, other receivables, inventory, inventory in transit, and
cash on hand less certain accounts payable and other liabilities which
approximates $321 and is recorded in other accrued expenses on the accompanying
balance sheet as of December 31, 2003.

The purchase price was determined by negotiation between the parties. Aceto
intends to continue the business of Pharma Waldhof and to integrate that
business into Aceto's business.

On November 25, 2003, Aceto Agricultural Chemicals Company ("Aceto
Agricultural"), a wholly-owned subsidiary of the Company, formed a joint venture
with Nufarm Americas Inc. ("Nufarm"), a subsidiary of Australia-based Nufarm
Limited. The joint venture is named S.R.F.A., LLC. Aceto Agricultural and Nufarm
have acquired an EPA label for Butoxone, an herbicide used on peanuts, soybeans
and alfalfa.

Aceto Agricultural previously marketed this herbicide under a different label
(2,4DB). Going forward, Aceto Agricultural and Nufarm intend to market the
herbicide in the United States solely under the Butoxone label, which has
greater market penetration than 2,4DB. Nufarm will continue to formulate the
product. S.R.F.A., LLC was still in the process of formulation as of December
31, 2003 and has not recorded any business activity to date. This joint venture
should have little

<PAGE>

effect on our working capital requirements as we had been selling the same
product under a different EPA label.

This joint venture reflects Aceto's strategy for expanding its agrochemical
business, which is to partner with large agrochemical manufacturers and
distributors to capitalize on the rapid consolidation of the industry. Due to
the consolidation, a limited number of significant manufacturers remain, and the
Company believes there is an impending disintermediation of the traditional
supply channels for crop protection products, leaving the large distributors
with the only option to find alternative sources, which Aceto will supply from
Asian producers.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations is based on its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. The Company evaluates its estimates on a regular basis,
including those related to bad debts, inventories, goodwill and intangible
assets, environmental contingencies and income taxes. The Company bases its
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.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment and
passage of title and risk of loss to the customer. The Company's revenue
recognition policy does not require the Company to make difficult, subjective,
or complex judgments. The Company does not offer product warranties to its
customers.

ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its 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 the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances would be required.

INVENTORY
The Company writes down its inventories for estimated slow moving 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
the Company's 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, the
Company's estimates of future product demand may prove to be inaccurate, in
which case the Company may have understated or overstated the write-down
required for excess and obsolete inventory. Although the Company makes every
effort to ensure the accuracy of its forecasts of future product demand, any
significant unanticipated changes in demand could have a significant impact on
the value of the Company's inventory and its reported operating results.

<PAGE>

GOODWILL
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 purchased customer lists and covenants not to compete. Goodwill and
other intangible assets that have an indefinite life are not amortized.

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142), effective July 1, 2002. As
required by SFAS 142, the Company upon adoption performed impairment tests on
goodwill as of July 1, 2002. As a result of the impairment tests, the Company
recorded a goodwill impairment charge of $1,873, which has been included as a
cumulative effect of an accounting change in the accompanying consolidated
statement of income for the six months ended December 31, 2002. Also required by
SFAS 142, on an annual basis, the Company tests goodwill and other intangible
assets for impairment. 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, the Company uses
industry accepted valuation models and set criteria that are reviewed and
approved by various levels of management. Additionally, the Company utilizes the
assistance of a third-party valuation firm, as necessary, to help evaluate
recorded goodwill. If the estimates or their related assumptions used by the
Company change in the future, the Company may be required to record impairment
charges for these assets.

The recoverability of long-lived assets aggregating $1,709 in the Institutional
Sanitary Supplies & Other segment (including goodwill of $945) is predicated on
the market acceptance of the launch of new products. If the actual revenue and
profit results of these product launches are less than anticipated, the Company
may be required to record an impairment on the long-lived assets (and/or
goodwill) of this segment.

ENVIRONMENTAL AND OTHER CONTINGENCIES
The Company establishes reserves 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 has been accrued, or the Company's share of
the contingency increases or decreases, or other assumptions relevant to the
development of the estimate were to change, the Company would recognize an
additional expense or benefit in income in the period such determination was
made.

TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This Statement 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.

As of December 31, 2003, the Company has current net deferred tax assets of $301
and non-current net deferred tax assets of $1,107. These net deferred tax assets
have been recorded based on the Company having sufficient future earnings in
order to realize these assets, and the net deferred tax assets have been
provided for at currently enacted income tax rates. Included in net deferred tax
assets is a valuation allowance of approximately $5,537, which relates to
foreign tax loss carryforwards not utilized to date. Management believes it is
more likely than not that the deferred tax assets will not be realized in the
relevant jurisdiction. Based on the Company's assessments, no additional
valuation allowance is required. If the Company determines that a deferred tax
asset will not be realizable, an adjustment to the deferred tax asset will
result in a reduction of earnings at that time.

Furthermore, the Company provides reserves for Federal, state and international
tax exposures relating to audits, planning initiatives, and compliance
responsibilities. The development of these reserves requires judgments about tax
issues, potential outcomes and timing, and is a subjective critical estimate.

<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 2003 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2002

<TABLE>
<CAPTION>
                                          Net Sales By Segment
                                     Six Months Ended December 31,
                                         (Dollars in thousands)


                                                                                 Comparison 2003
                                    2003                     2002                Over/(Under) 2002
                                    ----                     ----                -----------------

                                          % of                     % of
Segment                         $         Total          $         Total           $               %
-------                         -         -----          -         -----           -               -

<S>                          <C>            <C>       <C>            <C>         <C>             <C>
Agrochemicals                $ 7,625        5.4%      $ 5,878        4.4%        1,747           29.7

Chemicals &
Colorants                     44,188       31.2        45,141       34.0          (953)          (2.1)

Health Sciences               87,078       61.5        78,949       59.6         8,129           10.3

Institutional
Sanitary
Supplies & Other               2,648        1.9         2,687        2.0           (39)          (1.5)
                            --------      -----       -------      ------       ------

TOTAL NET SALES             $141,539      100.0%     $132,655      100.0%       $ 8,884           6.7%
                            ========      ======     ========      ======       =======


                                        Gross Profit By Segment
                                     Six Months Ended December 31,


                                                                                 Comparison 2003
                                    2003                     2002                Over/(Under) 2002
                                    ----                     ----                -----------------

                                          % of                     % of
Segment                         $         Total          $         Total           $               %
-------                         -         -----          -         -----           -               -

Agrochemicals                $ 2,582        9.5%      $ 1,662        6.9%           920          55.4

Chemicals &
Colorants                      7,176       26.4         6,778       28.1            398           5.9

Health Sciences               16,442       60.5        14,628       60.5          1,814          12.4

Institutional
Sanitary
Supplies & Other                 975        3.6         1,105        4.5           (130)        (11.8)
                            --------      -----       -------      ------       -------

TOTAL GROSS
PROFIT BY
SEGMENT                     $ 27,175      100.0%      $24,173      100.0%       $ 3,002          12.4%
                            ========      ======     =======       ======       =======

UNALLOCATED
COST OF
SALES (1)                      1,907                   1,922
                            --------                 -------

NET GROSS PROFIT             $25,268                 $22,251
                            ========                 =======
</TABLE>

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

SALES AND GROSS PROFIT:

A majority of the increase in revenue in the Health Sciences segment resulted
from follow up shipments of several generic pharmaceutical products which were
launched in fiscal 2003 and sold to companies who had received approval to
market these products. However, much of these increases were offset by a
decrease in sales

<PAGE>

volume of one specific generic pharmaceutical product with sales of $4,400 in
this year's first half versus $13,800 last year. This represents an example of
the life cycle of a generic pharmaceutical product. The product launch period
can be followed by a reduction in volume once the initial distribution channels
are filled. The increase was also attributable to increased sales volume from an
expanded distribution agreement with a major supplier which allows for the sale
of additional products into new markets. Sales of nutritional products were up
22% mainly on the strength of two products whose volume increased significantly.
We believe the sales volume for these two products should continue ahead of last
year's reported sales for the balance of fiscal 2004.

The decrease in revenue in the Chemicals & Colorants segment is attributable to
the inclusion of $900 in last year's sales from a negotiated settlement for lost
gross margin regarding non-performance of a sales contract. Sales were flat at
$44,188 versus $44,241 when this transaction is excluded from last year's sales.
The flat sales performance is a direct result of a sales decline in our color
pigments business which was partially offset by increased sales in other
products and the introduction of new products.

The increase in revenue in the Agrochemicals segment was mainly attributable to
significantly higher volume for two products, a price increase on another
product and sales from a new product in this year's first half.

Gross profit improvement in the Health Sciences segment was mainly attributable
to the sales of several generic pharmaceutical products as described above.
These products provided substantial increases in gross profit dollars at normal
gross margin rates. These increases in gross profit were offset in part by the
lower sales and gross profit attributable to the Company's highest sales volume
product during last year's first half. Gross profit improvement was also
attributable to the increased volume from an expanded distribution agreement
with a major supplier for new products in both existing and new markets. Gross
margin rates for the segment were slightly higher at 18.9% this year versus
18.5% last year. Various factors offset each other resulting in some
improvement. Gross profit dollars for nutritionals were 7% higher this year at
slightly lower margins as a result of the Company's product mix. The gross
margin rates in this segment should be enhanced in the future with the inclusion
of the newly acquired Pharma Waldhof business.

The Chemicals & Colorants segment's gross profit, as a percentage of sales, was
higher at 16.2% versus 15.0% last year. This year's gross profit increased by
$450 due to the reversal of a reserve previously recorded for the estimated loss
on a purchase contract related to a lawsuit brought by a former supplier of the
Company. The lawsuit was dismissed during the quarter ended December 31, 2003.
In last year's period, gross profit of $450 was recorded from the net of a
negotiated settlement for lost gross margin regarding non-performance of a sales
contract and an estimate of a loss on the related purchase contract. Gross
profit dollars and rates excluding the effect of these transactions would be
$6,726 and 15.2% for the current six-month period and $6,328 and 14.3% for last
year's first half. The resulting increase in gross profit dollars of $398 and
the improved margin rates, excluding the two transactions, resulted from
improved sales volume on certain products and lower sales of a particular
customer whose sales are at lower than usual margins. The future gross margins
of this segment will continue to depend on the product mix which is difficult to
predict.

For the Agrochemicals segment, the gross margin for the six months ended
December 31, 2003 was 33.9% versus 28.3% for the same period the previous year.
This increase was due to gross profit contributions from an increase in sales of
several products, a price increase on another product and sales from a new
product. We believe we will continue to report higher gross margin percentages
during the balance of fiscal 2004 when compared to fiscal 2003. Another factor
was the recovery of costs on the sale of previously marked down inventory for
$131. Last year's gross profit was reduced by an unusually large increase in
packaging costs, due to a change in the way a specific product is applied.

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A")increased $2,142 or 14.0%
to $17,458 for the six months ended December 31, 2003 in comparison to last
year's first half of $15,316. As a percentage of sales, SG&A increased to 12.3%
in the first six months of fiscal 2004 versus 11.5% for the comparable period in
fiscal 2003. SG&A increased primarily due to increases in professional fees
related to investor relations ($50), internal control documentation and
assessment as mandated by the Sarbanes-Oxley legislation ($350); legal fees
related to recent business agreements, the dismissal of a lawsuit related to a
former supplier and ongoing litigation ($330); higher R & D costs related to the
development of APIs($250) and increased compensation-related costs primarily due
to additional headcount for foreign operations ($275). The Company sold certain
real estate in July 2002 and realized a net gain on the sale of $291. This gain
reduced the overall SG&A expenses and lowered its SG&A as a percentage of sales.
SG&A, as a percentage of sales, excluding this transaction would have been 11.8%
last year. SG&A grew at a faster rate (14.0%) than sales (6.7%) over the current
year's first half which resulted in the increase in SG&A as a percentage of
sales.

OPERATING INCOME
For the six months ended December 31, 2003 the operating income was $7,810
compared to $6,935, an increase of $875 or 12.6%. This increase was primarily
due to the overall increase in gross profit of $3,017, with the main
contribution of $1,814 coming from the Health Sciences segment, which was
partially offset by higher SG&A expenses of $2,142.

INTEREST AND OTHER INCOME (EXPENSE)
Interest and other income (expense) for the six months ended December 31, 2003
was income of $888 as compared to an expense of ($3) last year. During the first
half, the Company received a payment for $395 versus $34 in the prior year
regarding a government subsidy paid annually for doing business in a free-trade
zone in Shanghai, China. Also, there was an unrealized gain on marketable
securities in the current period of $117 versus an unrealized loss of $148 in
last year's first half. In addition, the Company has recognized gains on foreign
currency on a mark to market basis of $325 this year versus $108 last year.

PROVISION FOR INCOME TAXES
The effective tax rate decreased to 29.5% for the six months ended December 31,
2003 versus 31.5% for the comparable period last year. The decrease in the
effective tax rate is a reflection of increased earnings in lower tax
jurisdictions, especially China.

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
The six months ended December 31, 2002 includes a one-time charge of $1,873, or
$0.13 per diluted share, attributable to the cumulative effect of adopting SFAS
No. 142, "Goodwill and Other Intangible Assets". The Company's $1,873 one-time
charge was related to the impairment of the goodwill associated with CDC
Products Corp. ("CDC") which is part of our Institutional Sanitary Supply
segment. The one-time charge for CDC was primarily due to recent operating
profits and cash flows being lower than expected due to increased competition
from local sanitary supply companies in the markets CDC operates.

THREE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2002

<TABLE>
<CAPTION>

                                       Net Sales By Segment
                                  Three Months Ended December 31


                                                                                 Comparison 2003
                                    2003                     2002                Over/(Under) 2002
                                    ----                     ----                -----------------

                                          % of                     % of
Segment                         $         Total          $         Total           $               %
-------                         -         -----          -         -----           -               -
<S>                          <C>            <C>       <C>            <C>           <C>           <C>
Agrochemicals                $ 4,837        7.0%      $ 4,269        6.6%          568           13.3

Chemicals & Colorants         21,047       30.4        22,822       35.3        (1,775)          (7.8)

Health Sciences               42,070       60.8        36,325       56.2         5,745           15.8

Institutional Sanitary
Supplies & Other               1,248        1.8         1,217        1.9            31            2.6
                             -------      -----       -------      -----       -------

TOTAL NET SALES              $69,202      100.0%      $64,633      100.0%      $ 4,569            7.1%
                             =======      ======      =======      ======      =======
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                     Gross Profit By Segment
                                  Three Months Ended December 31
                                                                                 Comparison 2003
                                    2003                     2002                Over/(Under) 2002
                                    ----                     ----                -----------------

                                          % of                     % of
Segment                         $         Total          $         Total           $               %
-------                         -         -----          -         -----           -               -
<S>                          <C>            <C>       <C>            <C>           <C>           <C>

Agrochemicals                 $1,902       13.9%       $1,339       11.0%          563           42.0

Chemicals & Colorants          3,723       29.2         3,461       28.4           262            7.6

Health Sciences                7,694       56.1         6,924       56.9           770           11.1

Institutional Sanitary
Supplies & Other                 388        2.8           445        3.7           (57)         (12.8)
                             -------      -----       -------      -----       -------          -----

TOTAL GROSS PROFIT BY
SEGMENT                      $13,707      100.0%      $12,169      100.0%      $ 1,538           12.6%
                             =======      ======      =======      ======      =======

UNALLOCATED COST OF SALES
(1)                              763                    1,163
                             -------                    -----

NET GROSS PROFIT             $12,944                  $11,006
                             =======                  =======
</TABLE>

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

SALES AND GROSS PROFIT:
Several factors contributed to the increase in revenue in the Health Sciences
segment. A large portion of the increase resulted from follow up shipments of
several generic products to customers who had received approval to market these
products. The increase was also attributable to increased sales volume from an
expanded distribution agreement with a major supplier which allows for the sale
of additional products into new markets. In addition, several new products made
a contribution in the current quarter helping the revenue increase. Also, the
nutritionals product line contributed to the segment's improvement with a 42%
increase in sales which was mainly attributable to significant volume increases
in two products. We believe the sales volume for these two products should
continue ahead of last year's pace.

The decrease in revenue in the Chemicals & Colorants segment is partially
attributable to lower sales volume from a particular customer in addition to
decreasing sales in the color pigment business. Also, contributing to the
reduction in sales is the inclusion of $900 in last year's second quarter for
the negotiated settlement for lost gross margin regarding the non-performance of
a sales contract.

The increase in revenue in the Agrochemicals segment was attributable to higher
volume for several products, sales realized from a new product and increased
sales due to a price increase on one product.

Gross profit improvement in the Health Sciences segment was attributable to the
various factors as described above. The generic pharmaceutical products provided

<PAGE>

substantial increases in gross profit dollars at similar gross margin rates.
Gross profit improvement was also attributable to the increased volume from an
expanded distribution agreement with a major supplier for new products in both
existing and new markets. Several new products also contributed to the gross
profit improvement. Gross margins of 18.3% versus 19.1% last year for the
segment were a reflection of price erosion on some of the higher volume products
as these products mature during the later stages of their launch period. We
believe the price erosion will be offset by new API launches.

The nutritionals business showed higher gross profit dollars at lower margins
this year as a result of product mix and pricing pressures.

The Chemicals & Colorants segment's gross profit, as a percentage of sales,
increased to 17.7% from 15.2% in last year's second quarter. This year's quarter
benefited by $450 from the reversal of a reserve previously recorded for the
estimated loss on a purchase contract related to a lawsuit brought by a former
supplier of the Company. The lawsuit was dismissed during the quarter ended
December 31, 2003 and no future purchase commitments are owed. Last year's
quarter benefited by $450 from the net of the negotiated settlement discussed
above and an estimate of a loss on the related purchase contract. Gross profit,
excluding these amounts would be $3,273 or 15.6% compared to $3,011 and 13.7%
last year. The increase in gross margin percentage was caused by lower sales to
a high volume customer in which we typically earn a lower gross margin percent-
age and product mix of the remaining sales. The future trends are difficult to
predict as they depend on product mix and the introduction of new products.

Gross margin for the Agrochemicals segment was 39.3% this quarter versus 31.4%
last year. There were gross profit contributions resulting from the large
increase in sales from several products, a price increase on another product,
new product sales as well as $110 from the recovery of costs on the sale of
previously marked down inventory. We expect to continue to report increased
gross margins for this segment over the balance of fiscal 2004 as compared to
last fiscal year. Last year's second quarter gross profit was impacted
negatively by an unusually large increase in packaging costs, due to a change in
the way a specific product is applied.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A")increased $1,676 or 21.9%
to $9,331 for the quarter ended December 31, 2003 in comparison to $7,655 in
last year's second quarter. As a percentage of sales, SG&A increased to 13.5% in
the second quarter of fiscal 2004 versus 11.8% for the comparable period in
fiscal 2003. SG&A increased primarily due to increases in professional fees
related to investor relations ($70), internal control documentation and
assessment as mandated by the Sarbanes-Oxley legislation ($300); legal fees
related to recent business agreements, the dismissal of a lawsuit related to a
former supplier and ongoing litigation ($500); higher R & D costs ($200) and
increased compensation-related costs due to several additions to the staff
($200). SG&A grew at a faster rate (22%) than sales (7%) over the current year's
three months which resulted in the increase in SG&A as a percentage of sales.

OPERATING INCOME
For the quarter ended December 31, 2003 the operating income was $3,613 compared
to $3,351, an increase of $262 or 7.8%. This increase was primarily due to the
overall increase in gross profit of $1,938, with the main contribution of $770
coming from the Health Sciences segment, which was substantially offset by
higher SG&A expenses of $1,676.

INTEREST AND OTHER INCOME (EXPENSE)
Interest and other income was $511 for the quarter ended December 31, 2003 as
compared to $113 last year. During the current quarter, the Company recorded a
mark-to-market gain on foreign currencies of $282 versus $105 in last year's
quarter. Also, an unrealized gain on marketable securities in the current
quarter of $133 was $84 higher than the unrealized gain of $49 in last year's
second quarter.

<PAGE>

PROVISION FOR INCOME TAXES
The effective tax rate decreased from 31.5% in last year's second quarter to
27.3% for the three months ended December 31, 2003. The lower effective tax rate
used in the current quarter is due to proportionally higher earnings in lower
tax jurisdictions, especially China.

LIQUIDITY AND CAPITAL RESOURCES:

CASH FLOWS
----------
At December 31, 2003, the Company had $31,927 in cash, $994 in short-term
investments and $1,130 of short-term bank loans.

The Company's cash position at December 31, 2003 increased $11,664 from the June
30, 2003 level. Operating activities provided cash of $14,862 primarily from net
income of $6,082, a reduction in inventory of $2,527 and an increase in accrued
merchandise purchases and accounts payable of $2,925 and $2,265, respectively,
partially offset by an increase in accounts receivable of $2,692. Better
management of inventory and longer payment terms with suppliers have helped our
working capital position. We believe that this is a temporary situation and
expect this to remain constant or reverse modestly over the next few quarters.

Investing activities used cash of $3,113 primarily from the acquisition of the
Pharma Waldhof business of $2,934. Financing activities used cash of $85
primarily as a result of payments of short-term bank loans of $2,156 offset by
proceeds from the exercise of stock options of $1,945 and the issuance of
treasury stock to employees of $126. The new record prices reached by the
Company's stock during the past six months has contributed to the high level of
stock options exercised by our employees.

CREDIT FACILITIES
-----------------
The Company has credit facilities with two European financial institutions.
These facilities provide the Company with a line of credit of 14,500 Euros
(approximately $18,208) of which $1,130 was utilized as of December 31, 2003.
The Company is not subject to any financial covenants under these arrangements.

Additionally, in May 2002, the Company entered into a $15,000 revolving credit
agreement with a financial institution, which expires June 30, 2004. At December
31, 2003, the Company utilized $1,168 in letters of credit leaving an unused
facility of $13,832. Under the credit agreement, the Company may obtain credit
through direct borrowings and letters of credit. The obligations of the Company
under the credit agreement are guaranteed by certain of the Company's
subsidiaries and is secured by sixty-five percent of the capital of certain
non-domestic subsidiaries which the Company owns. 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. The Company is
also subject to certain restrictive debt covenants including liens, limitations
on indebtedness, guarantees, sale of assets, sales of receivables, and loans and
investments. The Company was in compliance with all covenants at December 31,
2003, after receiving a waiver during the quarter ended December 31, 2003 for a
technical violation of a covenant.

WORKING CAPITAL OUTLOOK
Working capital was $77,260 at December 31, 2003 versus $71,302 at June 30,
2003. The increase in working capital was primarily attributable to cash
generated from operations. The Company continually evaluates possible
acquisitions of or investments in businesses that are complementary to those of
the Company, which transactions may require the use of cash. The Company
believes that its cash, other liquid assets, operating cash flows, borrowing
capacity and access to the equity capital markets, taken together, provide
adequate resources to fund ongoing operating expenditures and the anticipated
continuation of semi-annual cash dividends. Further, the Company may obtain
additional credit facilities to enhance its liquidity.

<PAGE>

FINANCIAL COMMITMENTS
The Company has no material financial commitments other than those under
operating lease agreements, letters of credit and unconditional purchase
obligations. The Company has certain contractual cash obligations and other
commercial commitments which will impact its short and long-term liquidity. At
December 31, 2003, the Company has no significant obligations for capital
expenditures. At December 31, 2003, contractual cash obligations and other
commercial commitments are 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>
Long-term liabilities/
bank loans                      $ 1,130       $1,130         $    -     $    -      $    -

Operating leases                  8,725        1,419          2,610      2,334       2,362

Commercial letters of credit      1,183        1,183              -          -           -

Standby letters of credit           133          133              -          -           -

Unconditional purchase
obligations (a)                  10,099       10,099              -          -           -
                               --------      -------         ------     ------      ------

Total                          $ 21,270      $13,964         $2,610     $2,334      $2,362
                               ========      =======         ======     ======      ======
</TABLE>

(a) As of December 31, 2003, the Company has outstanding purchase obligations
totaling $10,099 with suppliers of the Germany, Netherlands and Singapore
operations to acquire certain products for resale to third party customers. Such
purchase obligations are based on anticipated sales to certain customers through
December 31, 2004.

Other significant commitments and contingencies include the following:

     -    The Board of Directors declared a cash dividend on December 4, 2003 of
          $0.085 per common share to shareholders of record as of December 17,
          2003. The payment of $1,346 in total was made on January 2, 2004.

     -    Effective December 2003, the Company modified its non-qualified
          Supplemental Executive Retirement Plan ("the Plan"). The Plan is a
          deferred compensation plan intended to provide certain executives with
          supplemental retirement benefits beyond the Company's 401(k) Plan, as
          well as to permit additional deferral of a portion of their
          compensation. All compensation deferred under the Plan is held by the
          Company in a grantor trust, which is considered an asset of the
          Company. The funds held by the grantor trust amounted to $1,137 as of
          December 31, 2003.

     -    In connection with the acquisition of the Pharma Waldhof business, the
          parties entered into a Supply & Services Agreement concerning the
          supply of certain products and services to the Company. The Company
          will purchase

<PAGE>

          certain products for reselling to third party customers. Services to
          be provided by the seller include shipping, receiving, warehousing,
          quality control and labeling. The original term of this agreement is
          three years ending on December 31, 2006. There is a provision for an
          extension up to an additional two years if both parties agree.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The FASB has determined that stock-based compensation should be recognized as a
cost in the financial statements and that such cost be measured according to the
fair value of the stock options. The FASB has not as yet determined the
methodology for calculating fair value and plans to issue an exposure draft and
final statement in 2004. The Company will continue to monitor communications on
this subject from the FASB in order to determine the impact on the consolidated
financial statements.

In December 2003, the FASB issued Interpretation 46R (FIN 46R), a revision to
Interpretation 46 (FIN 46), CONSOLIDATION OF VARIABLE INTEREST ENTITIES. FIN 46R
clarifies some of the provisions of FIN 46 and exempts certain entities from its
requirements. Generally, FIN 46R is effective at the end of the first interim
period ending after March 15, 2004. The Company does not believe that the
adoption of FIN 46R will have a material impact to the consolidated financial
statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

The market risk inherent in the Company's 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

Short-term investments at December 31, 2003 of $994, which consists solely of
corporate securities and are recorded at fair value 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 $99 as of December 31, 2003. Actual results may differ.

Foreign Currency Exchange Risk

In order to reduce the risk of foreign currency exchange rate fluctuations, the
Company hedges some of its transactions denominated in a currency other than the
functional currencies applicable to each of its various entities. The
instruments used for hedging are short term foreign currency contracts
(futures). The changes in market value of such contracts have a high correlation
to price changes in the currency of the related hedged transactions. At December
31, 2003, the Company had foreign currency contracts outstanding that have a
notional amount of $2,922. The difference between the fair market value of the
foreign currency contracts and the related commitments at inception and the fair
market value of the contracts and the related commitments at December 31, 2003
was $290.

In addition, the Company also enters into cross currency interest rate swaps to
reduce foreign currency exposure on inter-company transactions. In May 2003, the
Company entered into a five-year cross currency interest rate swap transaction
for the purpose of hedging fixed interest rate, foreign currency denominated
cash flows under an inter-company loan receivable. Under the terms of this
derivative financial instrument, U.S. dollar-fixed principal and interest
payments to be received under an inter-company loan will be swapped for EURO
denominated fixed principal and interest payments. The fair market value of the
swap at December 31, 2003 was $511. The gains or losses on the foreign currency
loan receivable will be offset by the gains or losses on the swap. Because the
Company is receiving fixed interest payments under the swap, it is still subject
to

<PAGE>

fluctuations in value due to changes in Euro and U.S. dollar foreign currency
rates and U.S. dollar interest rates. As of December 31, 2003, the impact of
these fluctuations was not significant. This hedge was deemed to be highly
effective as of December 31, 2003.

The Company is subject to risk from changes in foreign exchange rates for its
subsidiaries that use a foreign currency as their functional currency and are
translated into U.S. dollars. These changes result in cumulative translation
adjustments which are included in accumulated other comprehensive income (loss).
On December 31, 2003, the Company had translation exposure to various foreign
currencies with the most significant being the Euro and Singapore Dollars. The
potential loss resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates, as of December 31, 2003, amounts to $2,552.
Actual results may differ.

Interest Rate Risk

The Company is subject to market risk from exposure to changes in interest rates
based upon its financing, investing and cash management activities. The Company
utilizes a balanced mix of debt maturities along with both fixed-rate and
variable-rate debt to manage its exposure to changes in interest rates. The
Company's financial instrument holdings at year-end were analyzed to determine
their sensitivity to interest rate changes. In this sensitivity analysis, the
Company 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 its results of operations.

ITEM 4.  CONTROLS AND PROCEDURES

As required by Securities and Exchange Commission rules, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report. This
evaluation was carried out under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer. Based on this evaluation, these officers have concluded that
the design and operation of our disclosure controls and procedures are
effective. There were no significant changes to our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

The Company is working closely with its corporate and securities lawyers to
ensure that it maintains compliance with the Sarbanes-Oxley Act of 2002, the SEC
regulations promulgated pursuant to that Act, and any related NASDAQ Stock
Market rules.

<PAGE>


                           PART II. OTHER INFORMATION


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

(1)  The Company held an annual meeting of its shareholders on December 4, 2003
     (the "Annual Meeting")

(2)  Three matters were voted on at the Annual Meeting, as follows:

     (a)  The election of nominees Leonard S. Schwartz, Samuel I. Hendler,
          Robert A. Wiesen, Stanley H. Fischer, Albert L. Eilender, Ira S.
          Kallem and Hans C. Noetzli, as Directors of the Company until the next
          annual meeting.

The votes were cast for this matter as follows:

                                    FOR              WITHHELD/ABSTAIN
Leonard S. Schwartz              6,430,139              2,986,709
Samuel I. Hendler                8,719,119                697,729
Robert A. Wiesen                 6,398,942              3,017,906
Stanley H. Fischer               6,389,924              3,026,924
Albert L. Eilender               8,881,700                553,148
Ira S. Kallem                    8,874,899                541,949
Hans C. Noetzli                  8,880,684                536,164

Each nominee was elected a Director of the Company.

     (b)  To amend the Company's Certificate of Incorporation to increase the
          number of authorized shares of common stock from 20,000,000 to
          40,000,000.

The votes were cast for this matter as follows:

              FOR          AGAINST       ABSTAIN

           8,355,796       997,225       83,827

The amendment of the Company's Certificate of Incorporation was approved.

     (c)  Ratification of the selection of KPMG LLP as the Company's independent
          auditors for the current fiscal year.

The votes were cast for this matter as follows:

              FOR          AGAINST       ABSTAIN

           9,250,224       104,882       61,742

The selection of KPMG LLP as the Company's independent auditors was ratified.

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

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

          31.1 Certification by 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 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.

<PAGE>

          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.

     (b)  Reports on Form 8-K.

               The Company did not file any reports on Form 8-K during the
               quarter ended December 31, 2003.

<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    February 12, 2004               BY (signed) / by Douglas Roth
     ------------------------------       --------------------------------------
                                          Douglas Roth, Chief Financial Officer


DATE    February 12, 2004               BY (signed) / by Leonard S. Schwartz
     ------------------------------       --------------------------------------
                                          Leonard S. Schwartz, Chairman,
                                          President and Chief Executive Officer