<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
                        Commission file number 000-04217
                                               ---------

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


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

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

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

                                  www.aceto.com
                                  -------------
                         (Registrant's website address)


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

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __X__ No _____

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes _____ No __X__

The Registrant has 24,299,374 shares of common stock outstanding as of November
4, 2005.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
            QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2005

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets - September 30, 2005 (unaudited) and
         June 30, 2005

         Consolidated Statements of Income - Three Months
         Ended September 30, 2005 and 2004 (unaudited)

         Consolidated Statements of Cash Flows - Three Months
         Ended September 30, 2005 and 2004 (unaudited)

         Notes to Consolidated Financial Statements (unaudited)

         Report of Independent Registered Public Accounting Firm

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

Item 3.  Quantitative and Qualitative Disclosures about
         Market Risk

Item 4.  Controls and Procedures

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 6.  Exhibits

Signatures

Exhibits

<PAGE>
<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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


                                                                                     September 30,        June 30,
                                                                                         2005               2005
                                                                                     -------------      -------------
                                                                                      (unaudited)
<S>                                                                                  <C>                <C>
ASSETS
Current assets:
   Cash in banks                                                                     $      22,312      $      19,950
   Investments                                                                               5,064              5,068
   Trade receivables, less allowance for doubtful
           accounts (September, $429, June $427)                                            50,965             49,636
   Other receivables                                                                         1,266              1,421
   Inventory                                                                                50,972             51,722
   Prepaid expenses and other current assets                                                 1,576                821
   Assets held for sale                                                                          -                242
   Deferred income tax benefit, net                                                          2,799              2,780
                                                                                     -------------      -------------
         Total current assets                                                              134,954            131,640

Long-term notes receivable                                                                     607                624
Property and equipment, net                                                                  5,479              5,543
Goodwill                                                                                     1,720              1,720
Intangible assets, net                                                                       3,159              3,153
Deferred income tax benefit, net                                                             2,623              3,626
Other assets                                                                                 2,730              2,722
                                                                                     -------------      -------------

TOTAL ASSETS                                                                         $     151,272      $     149,028
                                                                                     =============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Drafts and acceptances payable                                                    $       2,879      $       2,462
   Short term bank loans                                                                         -                126
   Accounts payable                                                                         24,307             24,783
   Note payable - related party                                                                500                500
   Accrued expenses                                                                          9,704              9,474
   Liabilities relating to assets held for sale                                                  -                 46
                                                                                     -------------      -------------
         Total current liabilities                                                          37,390             37,391

Long-term liabilities                                                                        3,951              3,811
Minority interest                                                                              178                171
                                                                                     -------------      -------------
         Total liabilities                                                                  41,519             41,373

Commitments and contingencies (Note 14)

Shareholders' equity:
   Common stock, $.01 par value, 40,000 shares authorized; 25,644 shares
       issued;  24,296 and 24,282 shares outstanding at September 30, 2005
       and June 30, 2005, respectively                                                         256                256
   Capital in excess of par value                                                           56,840             56,903
   Retained earnings                                                                        64,838             62,864
   Treasury stock, at cost, 1,348 and 1,362 shares at September 30, 2005 and
       June 30, 2005, respectively                                                         (13,368)           (13,505)
   Accumulated other comprehensive income                                                   1,187               1,137
                                                                                     -------------      -------------
         Total shareholders' equity                                                        109,753            107,655
                                                                                     -------------      -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                           $     151,272      $     149,028
                                                                                     =============      =============


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

                                                          3
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                            Three Months Ended
                                                                                              September 30,
                                                                                         2005                2004
                                                                                     -------------      -------------
<S>                                                                                  <C>                <C>
Net sales                                                                            $      74,993      $      80,449
Cost of sales                                                                               62,490             66,934
                                                                                     -------------      -------------
   Gross profit                                                                             12,503             13,515

Selling, general and administrative expenses                                                10,362              9,430
                                                                                     -------------      -------------
   Operating income                                                                          2,141              4,085

Other income (expense):
   Interest expense                                                                            (24)               (20)
   Interest and other income, net                                                              783                548
                                                                                     -------------      -------------
                                                                                               759                528
                                                                                     -------------      -------------

Income from continuing operations before income taxes                                        2,900              4,613
Provision for income taxes                                                                     899              1,245
                                                                                     -------------      -------------
Income from continuing operations                                                            2,001              3,368
(Loss) income from discontinued operations, net of income taxes (Note 3)                       (27)                 7
                                                                                     -------------      -------------
Net income                                                                           $       1,974      $       3,375
                                                                                     =============      =============

Basic income per common share:
   Income from continuing operations                                                 $        0.08      $        0.14
   (Loss) income from discontinued operations                                        $           -      $           -
                                                                                     -------------      -------------

    Net income                                                                       $        0.08      $        0.14

Diluted income per common share:
   Income from continuing operations                                                 $        0.08      $        0.14
   (Loss) income from discontinued operations                                        $           -      $           -
                                                                                     -------------      -------------

    Net income                                                                       $        0.08      $        0.14

Weighted average shares outstanding:
   Basic                                                                                    24,287             24,127
   Diluted                                                                                  24,634             24,657


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

                                                          4
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                            Three Months Ended
                                                                                              September 30,
                                                                                         2005                2004
                                                                                     -------------      -------------
<S>                                                                                  <C>                <C>
Operating activities:
   Net income                                                                        $       1,974      $       3,375
   Loss (income) from discontinued operations                                                   27                 (7)
   Adjustments to reconcile net income to net cash (used in) provided
      by operating activities:
         Depreciation and amortization                                                         344                339
         Provision for doubtful accounts                                                         -                 40
         Non-cash stock compensation                                                            46                 81
         Deferred income taxes                                                                 984                711
         Gain on sale of CDC product lines                                                     (66)                 -
         Income tax benefit on exercise of stock options                                         -                 18
         Changes in assets and liabilities:
           Investments - trading securities                                                    (38)                21
           Trade accounts receivable                                                        (1,263)               527
           Other receivables                                                                    98                306
           Inventory                                                                           831                416
           Prepaid expenses and other current assets                                          (756)              (550)
           Other assets                                                                       (152)              (268)
           Drafts and acceptances payable                                                      390                509
           Accounts payable                                                                   (505)            (7,212)
           Accrued compensation                                                               (639)              (549)
           Accrued environmental remediation                                                   (43)               (52)
           Income taxes receivable                                                               -                 85
           Other accrued expenses and long-term liabilities                                  1,251                718
                                                                                     -------------      -------------
Net cash (used in) provided by operating activities                                          2,483             (1,492)
                                                                                     -------------      -------------

Investing activities:
     Payments received on notes receivable                                                      13                 23
     Purchases of property and equipment                                                      (136)              (391)
       Proceeds from the sale of certain CDC product lines                                      75                  -
       Purchase of intangible asset                                                            (25)                 -
                                                                                     -------------      -------------
Net cash used in investing activities                                                          (73)              (368)
                                                                                     -------------      -------------

Financing activities:
     Proceeds from exercise of stock options                                                    19                 87
     Income tax benefit on exercise of stock options                                             7                  -
     Borrowings (payments) of short-term bank loans                                           (126)               271
                                                                                     -------------      -------------
     Net cash provided by (used in) financing activities                                      (100)               358
                                                                                     -------------      -------------

     Net cash provided by (used in) discontinued operations                                     75                 (8)
                                                                                     -------------      -------------

     Effect of exchange rate changes on cash                                                   (23)               106
                                                                                     -------------      -------------

Net increase (decrease) in cash                                                              2,362             (1,404)
Cash at beginning of period                                                                 19,950             32,330
                                                                                     -------------      -------------
Cash at end of period                                                                $      22,312      $      30,926
                                                                                     =============      =============


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

                                                          5
<PAGE>

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


(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 U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses reported in those financial statements. These judgments can be
subjective and complex, and consequently actual results could differ from those
estimates and assumptions. The Company's most critical accounting policies
relate to revenue recognition; allowance for doubtful accounts; inventories;
goodwill and other intangible assets; environmental and other contingencies; and
income taxes.

These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
U.S. generally accepted accounting principles. Accordingly, these statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended June 30, 2005.

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

(2)     STOCK-BASED COMPENSATION

Prior to July 1, 2005, the Company accounted for stock-based employee
compensation under the intrinsic value method as outlined in the provisions of
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations while disclosing pro-forma net income and net income per share
as if the fair value method had been applied in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under the intrinsic value method, no compensation expense was
recognized if the exercise price of the Company's employee stock options equaled
or exceeded the market price of the underlying stock on the date of grant. Since
the Company had issued all stock option grants with exercise prices equal to, or
greater than, the market value of the common stock on the date of grant, through
June 30, 2005 no compensation cost was recognized in the consolidated statements
of income. Effective July 1, 2005, the Company adopted SFAS No. 123(R),
"Share-based Payment." SFAS No. 123(R) replaces SFAS No. 123 and supersedes APB
Opinion No. 25. SFAS 123(R) requires that all stock-based compensation be
recognized as an expense in the financial statements and that such costs be
measured at the fair value of the award. This statement was adopted using the
modified prospective method, which requires the Company to recognize
compensation expense on a prospective basis. Therefore, prior period financial
statements have not been restated. Under this method, in addition to reflecting
compensation expense for new share-based payment awards, expense is also
recognized to reflect the remaining vesting period of awards that had been
included in pro-forma disclosures in prior periods. Since all options
outstanding as of June 30, 2005 were fully vested, there was no compensation
expense recognized for those options in the consolidated statement of income for
the three months ended September 30, 2005. SFAS 123(R) also requires that tax
benefits related to stock option exercises be reflected as financing cash
inflows instead of operating cash inflows. For the three months ended September
30, 2005, this new treatment resulted in increased cash flows from financing
activities of $7, which reduced cash flows from operating activities by the same
amount. The Company's policy is to satisfy stock-based compensation awards with
treasury shares.


                                       6
<PAGE>

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


The following table illustrates the effect on net income and net income per
common share for the three months ended September 30, 2004 as if the Company had
consistently measured the compensation cost for the Company's stock option
programs under the fair value method adopted in fiscal 2006:

<TABLE>
<CAPTION>
                                                                       Three months ended
                                                                          September 30,
                                                                              2004
                                                                              ----
<S>                                                                         <C>
Net income - as reported                                                    $  3,375
Add:  Stock-based compensation included in reported net income                    81
Deduct:  Total stock-based employee compensation expense determined
     under fair value method for all awards, net of related tax
     effects                                                                  (4,646)
                                                                            --------
Net loss - pro forma                                                        $ (1,190)
                                                                            ========

Net income (loss) per share:
     Basic - as reported                                                    $   0.14
     Basic - pro forma                                                      $  (0.05)

     Diluted - as reported                                                  $   0.14
     Diluted - pro forma                                                    $  (0.05)
</TABLE>

Stock-based employee compensation expense under the fair value method for the
three months ended September 30, 2004, includes $6,046, which represents the
entire fair value of 1,322 options granted to employees and 61 options granted
to directors in September 2004, all of which had an exercise price equal to or
greater than the market value of the common stock on the date of grant, as those
options were fully vested as of their date of grant.

(3)     SALE OF INSTITUTIONAL SANITARY SUPPLIES SEGMENT

During June 2005, the Company entered into an agreement to sell the majority of
the product lines formulated and marketed by CDC Products Corp. ("CDC"), which
is one of the two subsidiaries forming part of the Institutional Sanitary
Supplies segment. The sale of certain product lines of CDC was completed on
August 24, 2005 for $75 and a note receivable of $44 due in April 2006, which
resulted in a pre-tax gain of $66, included in other income in the statement of
income for the three months ended September 30, 2005. Excluded from the sale of
CDC's product lines was Anti-Clog, an EPA-registered biocide that has a unique
delivery system and is used in commercial air-conditioning systems. As a result
of management's decision to retain the Anti-Clog product, CDC's operating
results are included in continuing operations in the consolidated statements of
income for the three months ended September 30, 2005 and 2004.

On September 6, 2005, the Company completed the sale of certain assets of Magnum
Research Corp. for $81, of which $45 was received as of September 30, 2005, the
remaining subsidiary forming part of the Institutional Sanitary Supplies
segment, the operating results of which are included in discontinued operations
in the consolidated statements of income. The Company plans to discontinue the
use of the leased space previously occupied by CDC and Magnum Research Corp. and
may incur a related charge for the lease, which expires in December 2009, upon
the anticipated exit from the facility in the second quarter of fiscal 2006.

Assets held for sale of the disposal group included in the accompanying
consolidated balance sheet as of June 30, 2005, consist of current assets
(primarily accounts receivable and inventory) of $217, and goodwill of $25.
Liabilities related to the assets held for sale reported in the accompanying
consolidated balance sheet as of June 30, 2005, consist of accounts payable and
accrued expenses of $46.

Net sales from discontinued operations for the three months ended September 30,
2005 and 2004 were $154 and $371, respectively. The net loss from discontinued
operations for the three months ended September 30, 2005 of $27 includes a loss
on the sale of assets of Magnum Research Corp of $22, net of income taxes.


                                       7
<PAGE>

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


The presentation in the consolidated statement of income and the statement of
cash flows for the three months ended September 30, 2004 has been reclassified
to reflect the discontinued operations.

(4)     INVESTMENTS

A summary of short-term investments were as follows:

<TABLE>
<CAPTION>
                                              September 30, 2005               June 30, 2005
                                              ------------------               -------------
                                         Fair Value       Cost Basis     Fair Value       Cost Basis
                                         ----------       ----------     ----------       ----------
<S>                                        <C>              <C>            <C>              <C>
Trading securities
------------------
Corporate equity securities                $   695          $   152        $   657          $   152

Available for sale securities
-----------------------------
Corporate bonds                              1,182          $ 1,210          1,194          $ 1,210
Government and agency securities             3,187          $ 3,253          3,217          $ 3,253
                                           -------                -        -------
                                           $ 5,064                         $ 5,068
                                           =======                         =======
</TABLE>

The gains (losses) on trading securities were $38 and $(21) for the three months
ended September 30, 2005 and 2004, respectively.

(5)     GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets subject to amortization as of September 30, 2005 and June 30,
2005 were as follows:

<TABLE>
<CAPTION>
                                       Gross Carrying     Accumulated       Net Book
                                           Value          Amortization        Value
                                           -----          ------------        -----
<S>                                        <C>              <C>              <C>
         September 30, 2005
         ------------------

         Customer relationships            $2,645           $   666          $1,979
         Customer lists                       600               540              60
         Non-compete agreements               641               498             143
         EPA Registration                     150                 -             150
                                           ------           -------          ------

                                           $4,036           $ 1,704          $2,332
                                           ======           =======          ======

         June 30, 2005
         -------------

         Customer relationships            $2,648           $   567          $2,081
         Customer lists                       600               510              90
         Non-compete agreements               641               486             155
                                           ------           -------          ------
                                           $3,889           $ 1,563          $2,326
                                           ======           =======          ======
</TABLE>

Amortization expense for intangible assets subject to amortization amounted to
$141 and $143 for the three months ended September 30, 2005 and 2004,
respectively. The estimated aggregate amortization expense for intangible assets
subject to amortization for each of the succeeding years ended September 30 are
as follows: 2006: $497; 2007: $437; 2008: $437; 2009: $404; 2010: $393; 2011:
$164.

As of September 30, 2005 and June 30, 2005, the Company also had $827 of
intangible assets pertaining to trademarks which are not subject to
amortization.

Goodwill of $1,720 as of September 30, 2005 and June 30, 2005, relates to the
Health Sciences Segment.

Changes in goodwill and the gross carrying value of certain intangible assets
are attributable to changes in foreign currency exchange rates used to translate
the financial statements of foreign subsidiaries.

                                       8
<PAGE>

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


(6)     ACCRUED EXPENSES

The components of accrued expenses as of September 30, 2005 and June 30, 2005
were as follows:

                                                 September 30,     June 30,
                                                     2005            2005
                                                     ----            ----

     Accrued compensation                          $  1,915        $  2,566
     Accrued environmental remediation costs          1,152           1,195
     Other accrued expenses                           6,637           5,713
                                                   --------        --------
                                                   $  9,704        $  9,474
                                                   ========        ========

(7)  COMMON STOCK

On December 2, 2004, the Board of Directors of the Company declared a 3-for-2
stock split, effected in the form of a dividend, that was paid January 10, 2005,
to shareholders of record on December 24, 2004. The Company transferred $80 to
common stock from capital in excess of par value, representing the aggregate par
value of the 8,073 shares issued.

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, effected
in the form of a dividend, for all periods presented.

(8)     NET INCOME PER COMMON SHARE

Basic income per common share is based on the weighted average number of common
shares outstanding during the period. Diluted income per common share includes
the dilutive effect of potential common shares outstanding. The Company's only
potential common shares outstanding are stock options, which resulted in a
dilutive effect of 347 and 530 shares for the three months ended September 30,
2005, and 2004, respectively. There were 1,646 and 1,388 stock options
outstanding as of September 30, 2005, and 2004, respectively, that were not
included in the calculation of diluted income per common share for the three
months ended September 30, 2005, and 2004, respectively because their effect
would have been anti-dilutive.

(9)     COMPREHENSIVE INCOME

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

                                                        Three months
                                                            ended
                                                        September 30,
                                                     2005           2004
                                                     ----           ----
    Comprehensive income:
        Net income                                   1,974          3,375
        Foreign currency translation
        Adjustment                                     183            459
        Unrealized gain (loss) on available
           for sale securities                         (42)           120
        Change in fair value of cross
           currency interest rate swaps                (91)          (168)
                                                    ------         ------
    Total                                           $2,024         $3,786
                                                    ======         ======

                                       9
<PAGE>

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


The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. Exchange gains or losses
resulting from the translation of financial statements of foreign operations are
accumulated in other comprehensive income. The currency translation adjustments
are not adjusted for income taxes as they relate to indefinite investments in
non-US subsidiaries.

(10)    DEFERRED INCOME TAXES

The decrease in the deferred income tax assets of $984 during the quarter ended
September 30, 2005 related to the reduction of taxes payable due to the
utilization of foreign net operating loss carryforwards.

(11)    SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes for the three months ended September 30,
2005 and 2004 was as follows:

                                            2005         2004
                                            ----         ----
     Interest                             $     9      $     8
     Income taxes, net of refunds             279          512

(12)    STOCK BASED COMPENSATION PLANS

In September 2002, the Company adopted the Aceto Corporation 2002 Stock Option
Plan (2002 Plan), which was ratified by the Company's shareholders in December
2002. Under the 2002 Plan, options or restricted stock to purchase up to 1,688
shares of the Company's common stock may be granted by the Company to officers,
directors, employees and agents of the Company. The exercise price per share
shall not be less than the market value of Aceto common stock on the date of
grant and each option may not become exercisable less than six months from the
date it is granted. Restricted stock may be granted to an eligible participant
in lieu of a portion of any annual cash bonus earned by such participant. Such
award may include additional shares of restricted stock (premium shares) greater
than the portion of bonus paid in restricted stock. The restricted stock award
is vested at issuance and the restrictions lapse ratably over a period of years
as determined by the Board of Directors, generally three years. The premium
shares vest when all the restrictions lapse, provided that the participant
remains employed by the Company at that time. As of September 30, 2005, there
were 272 shares of common stock available for grant as either options or
restricted stock under the 2002 Plan.

In December 1998, the Company adopted the Aceto Corporation 1998 Omnibus Equity
Award Plan (1998 Plan). In accordance with the 1998 Plan the Company's Board of
Directors (Board) may grant up to 1,688 shares of common stock in the form of
stock options or restricted stock to eligible participants. The exercise price
per share, determined by the Board, for options granted cannot be less than the
market value of the stock on the date of grant. The options vest as determined
by the Board and expire no later than ten years from the date of grant.
Restricted stock may be granted to an eligible participant in lieu of a portion
of any annual cash bonus earned by such participant. Such restricted stock award
may include premium shares greater than the portion of bonus paid in restricted
stock. The restricted stock award is vested at issuance and the restrictions
lapse ratably over a period of years as determined by the Board. The premium
shares vest when the restrictions lapse, provided that the participant remains
employed by the Company at that time. Under the 1998 Plan, there were 94 shares
of common stock available for grant as either options or restricted stock at
September 30, 2005.

Under the terms of the Company's 1980 Stock Option Plan, as amended (1980 Plan),
options may be issued to officers and key employees. The exercise price per
share can be greater or less than the market value of the stock on the date of
grant. The options vest either immediately or over a period of years as
determined by the Board of Directors and expire no later than five or ten years
from the original date they are fully vested. The 1980 Plan expired in September
2005. Outstanding options survive the expiration of the 1980 Plan.


                                       10
<PAGE>

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


The following summarizes the shares of common stock under option for all plans
at September 30, 2005 and June 30, 2005, and the activity with respect to
options for the three months ended September 30, 2005:

                                                               Weighted average
                                           Shares subject to  exercise price per
                                                 option             share
                                           -------------------------------------
Balance at June 30, 2005                          2,764             $ 7.65
Granted                                               -                  -
Exercised                                            (5)              4.02
Forfeited                                            (5)             10.95
--------------------------------------------------------------------------------
Balance at September 30, 2005                     2,754               7.65

Summarized information about stock options outstanding and exercisable at
September 30, 2005, is as follows:


    Exercise Price        Number of
         Range             Options      Average Life      Average
                         Outstanding         (1)         Price (2)
                             and
                         Exercisable
---------------------------------------------------------------------
      $2.67 - 4.28          1,108           7.61           $3.56
      8.21 - 10.81            348           7.93            8.39
         10.95              1,298           8.95           10.95
                            -----
                            2,754
                            =====

(1) Weighted-average contractual life remaining, in years.
(2) Weighted-average exercise price.

(13)    RELATED PARTY TRANSACTIONS

Certain directors of the Company are affiliated with law firms which serve as
counsel to the Company on various corporate matters. During the three months
ended September 30, 2005 and 2004, the Company incurred legal fees of $114 and
$34, respectively, for services rendered to the Company by these law firms.

(14)    COMMITMENTS AND CONTINGENCIES

As of September 30, 2005, the Company had outstanding purchase obligations
totaling $28,585 to acquire certain products for resale to third party
customers.

The Company and its subsidiaries are subject to various claims which have arisen
in the normal course of business. The impact of the final resolution of these
matters on the Company's results of operations in a particular reporting period
is not known. Management is of the opinion, however, that the ultimate outcome
of such matters will not have a material adverse effect upon the Company's
financial condition or liquidity.

One of the Company's subsidiaries was a defendant in a legal action alleging
patent infringement. The patent in question covered a particular method of
applying one of the products in the Company's Agrochemicals segment. In
September 2005, shortly before a trial was expected to begin, the parties agreed
in principle to a settlement. As a result, the Company recorded a liability,
included in accrued expenses, at September 30, 2005 and a related charge,
included in SG&A expense of $537 for the three months ended September 30, 2005.

Under the terms of the tentative settlement agreement, if executed, the Company
will be required to make payments totaling $1,375 over the next five years.

Commercial letters of credit are issued by the Company in the ordinary course of
business through major domestic banks as requested by certain suppliers. The
Company had open letters of credit of approximately $1,024 and $1,783 as of
September 30, 2005 and June 30, 2005, respectively. The terms of these letters
of credit are all less than one year. No material loss is anticipated due to
non-performance by the counterparties to these agreements.

                                       11
<PAGE>

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


(15)    RECENT ACCOUNTING PRONOUNCEMENTS

In June 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, "Accounting Changes and Error Corrections," a replacement of APB Opinion
No. 20, "Accounting Changes", and FASB SFAS No. 3, "Reporting Accounting Changes
in Interim Financial Statements." SFAS No. 154 applies to all voluntary changes
in accounting principles, and changes the requirements for accounting for and
reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods' financial statements of a voluntary
change in accounting principle unless it is impracticable. SFAS No. 154 also
requires that a change in method of depreciation, amortization, or depletion for
long-lived, non-financial assets be accounted for as a change in accounting
estimate that is affected by a change in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. Earlier application is permitted for
accounting changes and corrections of errors occurring in fiscal years beginning
after June 1, 2005. SFAS No. 154 does not change the transition provisions of
any existing accounting pronouncements, including those that are in a transition
phase as of the date of SFAS No. 154. The Company does not believe that adoption
of SFAS No. 154 will have a material impact on its financial statements.

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for
Conditional Asset Retirement Obligations - An Interpretation of SFAS No. 143.
The FASB issued FIN 47 to address diverse accounting practices that developed
with respect to the timing of liability recognition for legal obligations
associated with the retirement of a tangible long-lived asset when the timing
and (or ) method of settlement of the obligation are conditional on a future
event. FIN 47 concludes that an entity is required to recognize a liability for
the fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. FIN 47 is effective for the
Company no later than June 30, 2006. The Company is in the process of evaluating
what impact, if any, the adoption of FIN 47 will have on its financial
statements.

(16)    SEGMENT INFORMATION

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

        o       Health Sciences - includes the active ingredients for generic
                pharmaceuticals, vitamins, and nutritional supplements, as well
                as products used in preparing pharmaceuticals, primarily by
                major innovative drug companies, and biopharmaceuticals.

        o       Chemicals & Colorants - products include a variety of specialty
                chemicals used in plastics, resins, adhesives, coatings, food,
                flavor additives, fragrances, cosmetics, metal finishing,
                electronics, air-conditioning systems and many other areas; dye
                and pigment intermediates used in the color-producing industries
                like textiles, inks, paper, and coatings; intermediates used in
                the production of agrochemicals.

        o       Agrochemicals - products include herbicides, fungicides and
                insecticides, as well as a sprout inhibitor for potatoes.

The Institutional Sanitary Supplies segment reported in prior years, which
included cleaning solutions, fragrances and deodorants for commercial and
industrial customers, was successfully divested from the Company's ongoing
business. During June 2005, the Company entered into an agreement to sell the
majority of the product lines formulated and marketed by CDC, which was one of
the two subsidiaries forming the Institutional Sanitary Supplies segment. The
sale of certain product lines of CDC was completed on August 24, 2005. Excluded
from the sale of CDC's product lines was Anti-Clog, an EPA-registered biocide
that has a unique delivery system and is used in commercial air-conditioning
systems, the results of which, commencing July 1, 2005, are included in the
Chemicals & Colorants segment. On September 6, 2005, the Company completed the
sale of certain assets of Magnum Research Corp., the remaining subsidiary
forming part of the former Institutional Sanitary Supplies segment, the
operating results of which are included in discontinued operations in the
consolidated statements of income.

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

                                       12
<PAGE>

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


The Company does not allocate assets by segment. The Company's chief operating
decision maker evaluates performance of the segments based on net sales and
gross profit. The Company does not allocate assets by segment because the chief
operating decision maker does not review the assets by segment to assess the
segments' performance, as the assets are managed on an entity-wide basis.

Three Months Ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                     Institutional
                           Health      Chemicals &                      Sanitary      Consolidated
                          Sciences     Colorants     Agrochemicals      Supplies          Totals
                          --------     ---------     -------------      --------          ------
<S>                       <C>            <C>              <C>                           <C>
2005
----
Net sales                 $ 44,664       $ 26,160         $ 4,169               -       $  74,993
Gross profit                 8,833          4,089             656               -          13,578
Unallocated
Cost of sales (1)                                                                          (1,075)
                                                                                        ---------
Net gross profit                                                                        $  12,503
                                                                                        =========

2004
----
Net sales                 $ 52,239       $ 24,005         $ 3,115         $ 1,090       $  80,449
Gross profit                 9,540          3,893             818             196          14,447
Unallocated
Cost of sales (1)                                                                            (932)
                                                                                        ---------
Net gross profit                                                                        $  13,515
                                                                                        =========
</TABLE>

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

Net sales and gross profit by location for the three months ended September 30,
2005 and 2004 and long-lived assets by location as of September 30, 2005 and
June 30, 2005 were as follows:

<TABLE>
<CAPTION>
                              Net Sales                 Gross Profit            Long-lived Assets
                              ---------                 ------------            -----------------
                          Three months ended         Three months ended                As of
                             September 30,              September 30,      September 30,     June 30,
                          2005         2004          2005         2004          2005           2005
                          ----         ----          ----         ----          ----           ----
<S>                     <C>          <C>           <C>          <C>           <C>             <C>
United States           $46,016      $44,300       $ 6,681      $ 6,624       $1,481          $1,469
Germany                  14,862       14,873         4,037        4,009          496             509
Netherlands               3,165        1,935           461          316          259             285
France                    3,102        2,486           401          298           92              90
Asia-Pacific              7,848       16,855           923        2,268        3,151           3,190
                        -------      -------       -------      -------       ------          ------
Total                   $74,993      $80,449       $12,503      $13,515       $5,479          $5,543
                        =======      =======       ======       =======       ======          ======
</TABLE>

                                       13

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
Aceto Corporation:

We have reviewed the accompanying consolidated balance sheet of Aceto
Corporation and subsidiaries as of September 30, 2005, the related consolidated
statements of income for the three-month periods ended September 30, 2005 and
2004, and the related consolidated statements of cash flows for the three-month
periods ended September 30, 2005 and 2004. These consolidated financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Aceto Corporation and subsidiaries as of June 30, 2005, and the related
consolidated statements of income, shareholders' equity and comprehensive income
and cash flows for the year then ended (not presented herein); and in our report
dated September 8, 2005, 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, 2005, is fairly
stated, in all material aspects, in relation to the consolidated balance sheet
from which it has been derived.


/s/ KPMG LLP


Melville, New York
November 9, 2005


                                       14
<PAGE>

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

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

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

                          NOTE REGARDING DOLLAR AMOUNTS

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

EXECUTIVE SUMMARY

We are reporting net sales of $74,993 for the three months ended September 30,
2005. This represents a 6.8% decrease from the $80,449 reported in the
comparable prior period. Gross profit for the three months ended September 30,
2005 was $12,503 and our gross margin was 16.7%. Our selling, general and
administrative costs for the three months ended September 30, 2005 increased to
$10,362, an increase of 9.9% over the $9,430 we reported in the prior period.
Our net income decreased to $1,974, or $0.08 per diluted share, a decrease of
41.5% compared to the prior period.

Our financial position as of September 30, 2005, remains strong, as we had cash
of $22,312, working capital of $97,564, no long-term debt and shareholders'
equity of $109,753.

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

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

We have an extensive pipeline of new generic products poised to reach commercial
levels over the coming years as the patents on existing drugs expire, both in
the United States and Europe. In addition, as new members join the European
Union, primarily from Eastern Europe, they become subject to the same regulatory
standards as their Western European counterparts. Given our regulatory
expertise, we believe that this represents an opportunity for us, and we believe
we are well positioned to take advantage of that opportunity.

The Chemicals & Colorants segment supplies chemicals used in the color-producing
industries such as the textiles, ink, paper and coatings industries, as well as
chemicals used in plastic, resins, adhesives, coatings, food, flavor additives,
air-conditioning systems, and the production of agrochemicals. Our customers for
these products are

                                       15
<PAGE>

predominantly located in the United States, and we purchase the products
primarily from manufacturers located in China and Western Europe.

The Agrochemicals segment sells herbicides, pesticides, and other agricultural
chemicals to customers primarily located in the United States and Western
Europe. Our joint venture with Nufarm, which markets Butoxone (R), is expected
to increase our market share of the peanut, soybean and alfalfa herbicide
markets.

The Institutional Sanitary Supplies segment reported in prior years, which
included cleaning solutions, fragrances and deodorants for commercial and
industrial customers, was successfully divested from our ongoing business.
During June 2005, we entered into an agreement to sell the majority of the
product lines formulated and marketed by CDC Products Corp. ("CDC"), which was
one of the two subsidiaries forming the Institutional Sanitary Supplies segment.
The sale of certain product lines of CDC was completed on August 24, 2005.
Excluded from the sale of CDC's product lines was Anti-Clog, an EPA-registered
biocide that has a unique delivery system and is used in commercial
air-conditioning systems, the results of which, commencing July 1, 2005, are
included in the Chemicals & Colorants segment. On September 6, 2005, we
completed the sale of certain assets of Magnum Research Corp., the remaining
subsidiary forming part of the Institutional Sanitary Supplies segment, the
operating results of which are included in discontinued operations in the
consolidated statements of income. We plan to discontinue the use of the leased
space previously occupied by CDC and Magnum Research Corp. and may incur a
related charge for the lease, which expires in December 2009, upon the
anticipated exit from the facility during the second quarter of fiscal 2006.

Our main business 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 500 different factories.

In this Management's Discussion and Analysis section, we explain our general
financial condition and results of operations, including the following:

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

As you read this Management's Discussion and Analysis section, refer to the
accompanying consolidated statements of income, which present the results of our
operations for the three months ended September 30, 2005 and 2004. We analyze
and explain the differences between periods in the specific line items of the
consolidated statements of income.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

As disclosed in our Form 10-K for the year ended June 30, 2005, the discussion
and analysis of our financial condition and results of operations is based on
our consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. In preparing these financial
statements, we were required to make estimates and assumptions that affect the
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We regularly evaluate our estimates including
those related to allowances for bad debts, inventories, goodwill and intangible
assets, environmental and other contingencies, and income taxes. We base our
estimates on various factors, including historical experience, advice from
outside subject-matter experts, and various assumptions that we believe to be
reasonable under the circumstances, which together form the basis for our making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates.

Since June 30, 2005, there have been no significant changes to the assumptions
and estimates related to those critical accounting estimates and policies.


                                       16
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004

<TABLE>
<CAPTION>
                                                             NET SALES BY SEGMENT
                                                       Three months ended September 30,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                                 % of                    % of         $              %
Segment                           Net sales     total     Net sales      total      change         change
-------                           ---------     -----     ---------      -----      ------         ------
<S>                                 <C>         <C>         <C>          <C>       <C>             <C>
Health Sciences                     $44,664      59.6%      $52,239       64.9%    $ (7,575)        (14.5%)
Chemicals & Colorants                26,160      34.8        24,005       29.8        2,155           9.0
Agrochemicals                         4,169       5.6         3,115        3.9        1,054          33.8
Institutional Sanitary Supplies           -         -         1,090        1.4       (1,090)       (100.0)
                                    -------    ------       -------     ------     --------       -------

Net sales                           $74,993     100.0%      $80,449      100.0%    $ (5,456)         (6.8%)
                                    =======    ======       =======     ======     ========       =======

<CAPTION>

                                                           GROSS PROFIT BY SEGMENT
                                                       Three months ended September 30,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                     Gross      % of        Gross        % of         $              %
Segment                              profit     sales       profit       sales      change         change
-------                              ------     -----       ------       -----      ------         ------
<S>                                 <C>         <C>         <C>          <C>       <C>             <C>
Health Sciences                     $ 8,833      19.8%      $ 9,540       18.3%    $   (707)         (7.4)%
Chemicals & Colorants                 4,089      15.6         3,893       16.2          196           5.0
Agrochemicals                           656      15.7           818       26.3         (162)        (19.8)
Institutional Sanitary Supplies           -         -           196       18.0         (196)       (100.0)
                                    -------    ------       -------     ------     --------       -------

Segment gross profit                 13,578      18.1        14,447       18.0         (869)         (6.0)

Freight and storage costs (1)        (1,075)     (1.4)         (932)      (1.2)        (143)        (15.3)
                                    -------    ------       -------     ------     --------       -------

Gross Profit                        $12,503      16.7%      $13,515       16.8%    $ (1,012)         (7.5)%
                                    =======    ======       =======     ======     ========       =======

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


                                       17
<PAGE>

NET SALES

Net sales decreased $5,456, or 6.8%, to $74,993 for the three months ended
September 30, 2005, compared with $80,449 for the prior period. We reported a
sales decrease in our Health Sciences segment partially offset by sales
increases in our Chemicals & Colorants and Agrochemicals segments, as explained
below.

HEALTH SCIENCES

Net sales for the Health Sciences segment decreased by $7,575 for the three
months ended September 30, 2005, to $44,664, which represents a 14.5% decrease
from net sales of $52,239 for the prior period. The sales decrease from the
prior period is directly attributed to the loss of foreign business of $10,144
from two previously launched APIs due to increased competition. This loss of
business was partially offset by a $2,147 increase in net sales from our other
foreign operations and $422 increase in net sales from our domestic operations
over the prior period.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment were $26,160 for the three
months ended September 30, 2005, compared to $24,005 for the prior period. This
increase of $2,155, or 9.0%, over the prior period is partially attributable to
a steady increase in the number of products being offered by our foreign
subsidiaries. Sales of Chemicals & Colorants products by our foreign
subsidiaries for the three months ended September 30, 2005, showed an increase
of $811 over the prior period. Our chemical business is diverse in terms of
products, customers and consuming markets. One customer within our color-pigment
and pigment-intermediate business purchased $835 less product during the three
months ended September 30, 2005. This reduction was more than offset by a $1,378
increase over the prior period in domestic sales of our chemical and colorants
offerings; in particular products with increased sales were dye intermediates,
agricultural intermediates, and pigment intermediates. In addition, net sales
for this segment includes a $788 increase relating to the CDC business during
the wind-down period and Anti-Clog sales.

AGROCHEMICALS

Net sales for the Agrochemical segment increased to $4,169 for the three months
ended September 30, 2005, an increase of $1,054, or 33.8%, over net sales of
$3,115 for the prior period. The increase in net sales was primarily
attributable to $473 higher sales of the product sold by our joint venture with
Nufarm and an increased demand for a fungicide used on pecans of $477.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) decreased $869 to $13,578 (18.1% of net sales) for the
three months ended September 30, 2005, as compared to $14,447 (18.0% of net
sales) for the prior period.

HEALTH SCIENCES

Health Sciences' gross profit of $8,833 for the three months ended September 30,
2005, was $707 or 7.4% lower than the prior period. This decrease in gross
profit was directly attributed to the loss of business on two larger
previously-launched APIs in Asia of $1,466 due to significant competitive
pressures. This lost gross profit was partially offset by an increase in gross
profit from our operations in Germany of $294 and sales increases from our
domestic pharmaceutical intermediates products of $197 over the prior period.
The gross margin increased to 19.8% compared to a gross margin of 18.3% for the
prior period due primarily to a shift in the product mix of net sales to higher
margin products during the three months ended September 30, 2005.

CHEMICALS & COLORANTS

Gross profit for the three months ended September 30, 2005, increased by $196,
or 5.0%, over the prior period. Contributions from categories such as
agricultural intermediates, dye intermediates and pigment intermediates were the
primary reasons for this improvement. The gross margin percentage was 15.6% for
the three months ended


                                       18
<PAGE>

September 30, 2005 compared to 16.2% for the prior period due to increasing
costs and a shift in product mix to slightly lower margin products.

AGROCHEMICALS

Gross profit for the Agrochemicals segment decreased to $656 for the three
months ended September 30, 2005, versus $818 for the prior period, a decrease of
$162 or 19.8%. Gross margin for the quarter was 15.7% compared to the prior
period gross margin of 26.3%. The primary cause of the decrease in gross profit
was due to higher cost of goods for our largest selling product. We were not
able to pass the increased cost on to our customers which reduced our gross
profit by $133 compared to last year. The gross profits and margins were also
negatively affected by $105 due to higher costs associated with maintaining our
EPA registered products.

Unallocated cost of sales increased $143, to $1,075 for the three months ended
September 30, 2005 compared to $932 in the prior period, representing a 15.3%
increase. The higher costs were mainly a result of higher freight costs due to
rising fuel surcharges on shipments to customers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $932, or 9.9%,
to $10,362 for the three months ended September 30, 2005 compared to $9,430 for
the prior period. As a percentage of sales, SG&A increased to 13.8% for the
three months ended September 30, 2005 versus 11.7% for the prior period. This
increase was primarily due to the inclusion of a charge for a proposed
settlement of legal claims against our Agrochemicals subsidiary for $537, an
increase in fees relating to our audit services and compliance with our
obligations under section 404 of the Sarbanes-Oxley Act of $127 and increased
compensation and related fringe-benefit costs of $99.

OPERATING INCOME

For the three months ended September 30, 2005, operating income was $2,141
compared to $4,085 in the prior period, a decrease of $1,944 or 47.6%. This
decrease was due to the overall decrease in gross profit of $1,012 and the $932
increase in SG&A expenses.

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income was $783 for the three months ended September 30,
2005, which represents an increase of $235 over the prior period. The increase
is primarily attributable to an increase of $101 regarding a government subsidy
paid annually for doing business in a free trade zone in Shanghai, China, bad
debt recoveries of $229 and a gain on the sale of certain assets of $66,
partially offset by a net loss on foreign currency of $217.

PROVISION FOR INCOME TAXES

The effective tax rate for the three months ended September 30, 2005 increased
to 31% from 27% for the prior period. The increase in the effective tax rate was
primarily due to increased earnings in foreign tax jurisdictions with higher tax
rates, primarily Germany, and reduced earnings in foreign tax jurisdictions with
lower tax rates, primarily Shanghai.

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets," the results of operations for one of the subsidiaries
forming part of the Institutional Sanitary Supplies segment have been recorded
as discontinued operations in the accompanying consolidated statements of
income. The net loss from discontinued operations was $27 for the three months
ended September 30, 2005, which includes a loss on the sale of the business of
$22 net of income taxes, compared to net income from discontinued operations of
$7 in the prior period.


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

At September 30, 2005, we had $22,312 in cash, $5,064 in short-term investments
and no short-term bank loans. Working capital was $97,564 at September 30, 2005,
versus $94,249 at June 30, 2005.

Our cash position at September 30, 2005, increased $2,362 from the amount at
June 30, 2005. Operating activities provided cash of $2,483, primarily due net
income of $1,974 and changes in assets and liabilities.

Investing activities used cash of $73, primarily as a result of expenditures for
property and equipment of $136, which was partially offset by proceeds from the
sale of certain CDC product lines of $75.

Financing activities used cash of $100 primarily as a result of payments of
short-term bank loans of $126, which was partially offset by proceeds from the
exercise of stock options of $19.

CREDIT FACILITIES

We have available credit facilities with certain foreign financial institutions.
These facilities provide us with a line of credit of $17,766, which was not
utilized as of September 30, 2005. We are not subject to any financial covenants
under these arrangements.

We have a revolving credit agreement with a domestic financial institution that
expires June 30, 2007, and provides for available credit of $10,000. At
September 30, 2005, we had utilized $1,024 in letters of credit, leaving $8,976
of this facility unused. Under the credit agreement, we may obtain credit
through direct borrowings and letters of credit. Our obligations under the
credit agreement are guaranteed by certain of our subsidiaries and are secured
by 65% of the capital of certain of our non-domestic subsidiaries. There is no
borrowing base on the credit agreement. Interest under the credit agreement is
at LIBOR plus 1.50%. The credit agreement contains several covenants requiring,
among other things, minimum levels of debt service and tangible net worth. We
are also subject to certain restrictive debt covenants, including covenants
governing liens, limitations on indebtedness, limitations on cash dividends,
guarantees, sale of assets, sales of receivables, and loans and investments. We
were in compliance with all covenants at September 30, 2005.

WORKING CAPITAL OUTLOOK

Working capital was $97,564 at September 30, 2005, versus $94,249 at June 30,
2005. The increase in working capital was primarily attributable to net income
during the quarter. We continually evaluate possible acquisitions of or
investments in businesses that are complementary to our own, and such
transactions may require the use of cash. We believe that our cash, other liquid
assets, operating cash flows, borrowing capacity and access to the equity
capital markets, taken together, provide adequate resources to fund ongoing
operating expenditures and the anticipated continuation of semi-annual cash
dividends for the next twelve months. We may obtain additional credit facilities
to enhance our liquidity.


                                       20
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS AND CONTINGENCIES

We have no material financial commitments other than those under operating lease
agreements, letters of credit and unconditional purchase obligations. We have
certain contractual cash obligations and other commercial commitments which will
impact our short-term and long-term liquidity. At September 30, 2005, we had no
significant obligations for capital expenditures. At September 30, 2005,
contractual cash obligations and other commercial commitments were as follows:

<TABLE>
<CAPTION>
                                                             Payments Due and/or
                                                            Amount of Commitment
                                                            Expiration Per Period
                                                            ---------------------

                                                  Less Than          1-3            4-5           After
                                    Total           1 Year          Years          Years         5 Years
                                  ---------        --------        -------        -------       ---------
<S>                               <C>              <C>             <C>            <C>           <C>
Operating leases                  $   8,132        $  1,780        $ 3,177        $ 2,573       $     602

Commercial letters of credit          1,024           1,024              -              -               -

Standby letters of credit                78              78              -              -               -

Unconditional purchase
obligations                          28,585          28,508             77              -               -
                                  ---------        --------        -------        -------       ---------

Total                             $  37,819        $ 31,390        $ 3,254        $ 2,573       $     602
                                  =========        ========        =======        =======       ---------
</TABLE>

Other significant commitments and contingencies include the following:

        1.      Our non-qualified deferred compensation plans are intended to
                provide certain executives with supplemental retirement benefits
                beyond our 401(k) plan, as well as to permit additional deferral
                of a portion of their compensation. All compensation deferred
                under the plans is held by us in a grantor trust, which is
                considered our asset. We had a liability under the plan of
                $2,557 and the assets held by the grantor trust amounted to
                $2,326 as of September 30, 2005.

        2.      One of our subsidiaries markets certain agricultural chemicals
                which are subject to the Federal Insecticide, Fungicide and
                Rodenticide Act ("FIFRA"). FIFRA requires that test data be
                provided to the Environmental Protection Agency ("EPA") to
                register, obtain and maintain approved labels for pesticide
                products. The EPA requires that follow-on registrants of these
                products compensate the initial registrant for the cost of
                producing the necessary test data on a basis prescribed in the
                FIFRA regulations. Follow-on registrants do not themselves
                generate or contract for the data. However, when FIFRA
                requirements mandate that new test data be generated to enable
                all registrants to continue marketing a pesticide product, often
                both the initial and follow-on registrants establish a task
                force to jointly undertake the testing effort. We are presently
                a member of two such task force groups and historically, our
                payments have been in the range of $250 - $500 per year. We may
                be required to make additional payments in the future.

        3.      We, together with our subsidiaries, are subject to pending and
                threatened legal proceedings that have arisen in the normal
                course of business. We do not know how the final resolution of
                these matters will affect our results of operations in a
                particular reporting period. Our management is of the opinion,
                however, that the ultimate outcome of such matters will not have
                a material adverse effect upon our financial condition or
                liquidity.

                One of our subsidiaries was a defendant in a legal action
                alleging patent infringement. The patent in question covered a
                particular method of applying one of the products in our
                Agrochemicals segment. In September 2005, shortly before a trial
                was expected to begin, the parties agreed in principle to a
                settlement.


                                       21
<PAGE>

                As a result, the Company recorded a liability, included in
                accrued expenses, at September 30, 2005 and a related charge,
                included in SG&A expense of $537 for the three months ended
                September 30, 2005.

                Under the terms of the tentative settlement agreement, if
                executed, we will be required to make payments totaling $1,375
                over the next five years.

RELATED PARTY TRANSACTIONS

Certain of our directors are affiliated with law firms that serve as our legal
counsel on various corporate matters. For the three months ended September 30,
2005 and 2004, we incurred legal fees of $114 and $34, respectively, for
services rendered to the Company by those law firms. The fees charged by those
firms were at rates comparable to rates obtainable from other firms for similar
services.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, "Accounting Changes and Error Corrections", a replacement of APB Opinion
No. 20, Accounting Changes, and FASB SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 applies to all voluntary changes in
accounting principles and changes the requirements for accounting for and
reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods' financial statements of a voluntary
change in accounting principle unless it is impracticable. SFAS No. 154 also
requires that a change in method of depreciation, amortization, or depletion for
long-lived, non-financial assets be accounted for as a change in accounting
estimate that is affected by a change in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. Earlier application is permitted for
accounting changes and corrections of errors occurring in fiscal years beginning
after June 1, 2005. SFAS No. 154 does not change the transition provisions of
any existing accounting pronouncements, including those that are in a transition
phase as of the date of SFAS No. 154. We do not believe that adoption of SFAS
No. 154 will have a material impact on our financial statements.

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for
Conditional Asset Retirement Obligations - An Interpretation of SFAS No. 143.
The FASB issued FIN 47 to address diverse accounting practices that developed
with respect to the timing of liability recognition for legal obligations
associated with the retirement of a tangible long-lived asset when the timing
and (or ) method of settlement of the obligation are conditional on a future
event. FIN 47 concludes that an entity is required to recognize a liability for
the fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. FIN 47 is effective for the
Company no later than June 30, 2006. The Company is in the process of evaluating
what impact, if any, the adoption of FIN 47 will have on its financial
statements.

RISK FACTORS

You should carefully consider the following risk factors and other information
included in this Quarterly Report. The risks and uncertainties described below
are not the only ones we face. Additionally, risks and uncertainties not
currently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risk factors occur, our business,
financial condition, operating results and cash flows could be materially
adversely affected.

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

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


                                       22
<PAGE>

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

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

We currently have environmental remediation obligations in connection with our
former manufacturing facility in Carlstadt, New Jersey. Estimates of how much it
would cost to remediate environmental contamination at this site have increased
since the facility was closed in 1993, and our environmental consultants
estimated in June 2003 that completing remediation would cost between $1,550 and
$3,200. There have been no significant changes to the estimate of remediation
costs since fiscal 2003. If the actual costs are significantly greater than
estimated, it could have a material adverse effect on our financial condition,
operating results and cash flows.

ASSESSMENTS BY VARIOUS TAX AUTHORITIES MAY BE MATERIALLY DIFFERENT THAN THE
AMOUNTS WE HAVE PROVIDED FOR IN OUR CONSOLIDATED FINANCIAL STATEMENTS.

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

We operate in various tax jurisdictions, and although we believe that we have
provided for income and other taxes in accordance with the relevant regulations,
if the applicable regulations were ultimately interpreted differently by a
taxing authority, we may be exposed to additional tax liabilities.

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

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

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

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


                                       23
<PAGE>

OUR REVENUE IS DIFFICULT TO PREDICT.

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

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

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

FAILURE TO OBTAIN PRODUCTS FROM OUTSIDE MANUFACTURERS COULD ADVERSELY AFFECT OUR
ABILITY TO FULFILL SALES ORDERS TO OUR CUSTOMERS.

We rely on outside manufacturers to supply products for resale to our customers.
Manufacturing problems may occur with these and other outside sources. If such
problems occur, we cannot ensure that we will be able to deliver our products to
our customers profitably or on time.

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

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

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY TERRORIST ACTIVITIES.

Our business depends on the free flow of products and services through the
channels of commerce. Instability due to military, terrorist, political and
economic actions in other countries could materially disrupt our overseas
operations and export sales. In fiscal years 2005 and 2004, approximately 49%
and 50%, respectively, of our revenues were attributable to operations conducted
abroad and to export sales. In addition, in fiscal year 2005, approximately 22%
and 68% of our purchases came from Europe and Asia, respectively. In addition,
in certain countries where we currently operate or export, intend to operate or
export, or intend to expand our operations, we could be subject to other
political, military and economic uncertainties, including labor unrest,
restrictions on transfers of funds and unexpected changes in regulatory
environments.

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

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

WE RELY HEAVILY ON KEY EXECUTIVES FOR OUR FINANCIAL PERFORMANCE.

Our financial performance is highly dependent upon the efforts and abilities of
our key executives. The loss of the services of any of our key executives could
therefore have a material adverse effect upon our financial position and


                                       24
<PAGE>

operating results. None of our key executives has an employment agreement with
us and we do not maintain "key-man" insurance on any of our key executives.

VIOLATIONS OF CGMP AND OTHER GOVERNMENT REGULATIONS COULD HAVE A MATERIAL
ADVERSE AFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

All facilities and manufacturing techniques used to manufacture products for
clinical use or for commercial sale in the United States must be operated in
conformity with current Good Manufacturing Practices ("cGMP") regulations as
required by the FDA. Our facilities are subject to scheduled periodic regulatory
and customer inspections to ensure compliance with cGMP and other requirements
applicable to such products. A finding that we had materially violated these
requirements could result in one or more of regulatory sanctions, loss of a
customer contract, disqualification of data for client submissions to regulatory
authorities and a mandated closing of our facilities, which in turn could have a
material adverse effect on our business, financial condition and results of
operations.

LITIGATION MAY HARM OUR BUSINESS AND OUR MANAGEMENT AND FINANCIAL RESOURCES.

Substantial, complex or extended litigation could cause us to incur large
expenditures and could distract our management. For example, lawsuits by
employees, stockholders, collaborators, distributors, customers, or end-users of
our products or services could be very costly and substantially disrupt our
business. Disputes from time to time with such companies or individuals are not
uncommon, and we cannot assure you that we will always be able to resolve such
disputes out of court or on favorable terms.

THE MARKET PRICE OF OUR STOCK COULD BE VOLATILE.

The market price of our common stock has been subject to volatility and may
continue to be volatile in the future, due to a variety of factors, including:

        o       quarterly fluctuations in our operating income and earnings per
                share results
        o       technological innovations or new product introductions by us or
                our competitors
        o       economic conditions
        o       disputes concerning patents or proprietary rights
        o       changes in earnings estimates and market growth rate projections
                by market research analysts
        o       sales of common stock by existing holders
        o       loss of key personnel
        o       securities class actions or other litigation

The market price for our common stock may also be affected by our ability to
meet analysts' expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies.

INCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS.

Portions of our operations require the controlled use of hazardous materials.
Although we are diligent in designing and implementing safety procedures to
comply with the standards prescribed by federal, state, and local regulations,
the risk of accidental contamination of property or injury to individuals from
these materials cannot be completely eliminated. In the event of such an
incident, we could be liable for any damages that result, which could adversely
affect our business.


                                       25
<PAGE>

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

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

FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404
OF THE SARBANES-OXLEY ACT COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS AND STOCK
PRICE.

Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the
effectiveness of our internal controls over financial reporting as of the end of
each fiscal year and to include a management report assessing the effectiveness
of our internal controls over financial reporting in our annual report. Section
404 also requires our independent registered public accounting firm to attest
to, and report on, management's assessment of our internal controls over
financial reporting. If we fail to maintain the adequacy of our internal
controls, we cannot assure you that we will be able to conclude in the future
that we have effective internal controls over financial reporting. If we fail to
maintain effective internal controls, we might be subject to sanctions or
investigation by regulatory authorities, such as the Securities and Exchange
Commission or NASDAQ. Any such action could adversely affect our financial
results and the market price of our common stock and may also result in delayed
filings with the Securities and Exchange Commission.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK SENSITIVE INSTRUMENTS

The market risk inherent in our market-risk-sensitive instruments and positions
is the potential loss arising from adverse changes in investment market prices,
foreign currency exchange-rates and interest rates.

INVESTMENT MARKET PRICE RISK

We had short-term investments of $5,064 at September 30, 2005. Those short-term
investments consisted of government and agency securities, corporate bonds and
corporate equity securities, and they were recorded at fair value and had
exposure to price risk. If this risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in prices quoted by stock
exchanges, the effect of that risk would be $506 as of September 30, 2005.
Actual results may differ.

FOREIGN CURRENCY EXCHANGE RISK

In order to reduce the risk of foreign currency exchange rate fluctuations, we
hedge some of our transactions denominated in a currency other than the
functional currencies applicable to each of our various entities. The
instruments used for hedging are short-term foreign currency contracts
(futures). The changes in market value of such contracts have a high correlation
to price changes in the currency of the related hedged transactions. At
September 30, 2005, we had foreign currency contracts outstanding that had a
notional amount of $14,530. The difference between the fair market value of the
foreign currency contracts and the related commitments at inception and the fair
market value of the contracts and the related commitments at September 30, 2005,
was not material.

In addition, we enter into cross currency interest rate swaps to reduce foreign
currency exposure on inter-company transactions. In June 2004 we entered into a
one-year cross currency interest rate swap transaction, which expired in June
2005 when the underlying inter-company loan was repaid, and in May 2003 we
entered into a five-year cross currency interest rate swap transaction, both for
the purpose of hedging fixed-interest-rate, foreign-currency-denominated cash
flows under inter-company loans. Under the terms of these derivative financial
instruments, U.S. dollar fixed principal and interest payments to be received
under inter-company loans will be swapped for Euro denominated fixed principal
and interest payments. The change in fair value of the remaining swap from date
of


                                       26
<PAGE>

purchase to September 30, 2005, was $(369). The gains or losses on the
inter-company loans due to changes in foreign currency rates will be offset by
the gains or losses on the swap in the accompanying consolidated statements of
income. Since our interest rate swaps qualify as hedging activities, the change
in their fair value, amounting to $(91) and $(168) for the three months ended
September 30, 2005 and 2004, respectively, is recorded in accumulated other
comprehensive income included in the accompanying consolidated balance sheets.

We are subject to risk from changes in foreign exchange rates for our
subsidiaries that use a foreign currency as their functional currency and are
translated into U.S. dollars. These changes result in cumulative translation
adjustments, which are included in accumulated other comprehensive income. On
September 30, 2005, we had translation exposure to various foreign currencies,
with the most significant being the Euro, the Chinese Renminbi and the Singapore
dollar. The potential loss as of September 30, 2005, resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates
amounted to $4,449. Actual results may differ.

INTEREST RATE RISK

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

ITEM 4.    CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Our chief executive officer and chief
financial officer, with assistance from other members of our management, have
reviewed the effectiveness of our disclosure controls and procedures as of
September 30, 2005 and, based on their evaluation, have concluded that the
disclosure controls and procedures were effective as of such date.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the first quarter of fiscal 2006 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

NEW ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEM

We are in the process of implementing a new ERP system for our U.S. operations
which will result in changes to business processes and related controls. Once
fully implemented, we believe that one of the benefits of the new ERP system
will be an improvement of our internal controls. We currently expect to
implement the ERP system during the third quarter of fiscal 2006 and believe we
are taking the necessary precautions to ensure that the transition to the new
ERP system will not have a negative impact on our internal control environment
during this transition.


                                       27
<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In April 2004, Aceto Agricultural Chemicals Corp., one of our subsidiaries, was
added as a named defendant in a complaint that was filed in the United States
District Court in the District of Idaho (Case No. CV99-0482-S-ECR) by Darol
Forsythe, John Forsythe, and 1,4Group, Inc.. The plaintiffs claimed that the
defendants had infringed on a patent involving the application of a product sold
in our Agrochemicals segment. The plaintiffs were seeking monetary damages.

We reached a tentative settlement agreement of this claim in September 2005
that, if executed, will require us to make payments totaling $1,375 over the
next five years.

ITEM 6.    EXHIBITS

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

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

        31.1    Certification by 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.

        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.

                                   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    November 9, 2005                  BY /s/ Douglas Roth
     -----------------------------           ----------------
                                          Douglas Roth, Chief Financial Officer


DATE    November 9, 2005                  BY /s/ Leonard S. Schwartz
     -----------------------------           -----------------------
                                          Leonard S. Schwartz, Chairman,
                                          President and Chief Executive Officer


                                       28