UNITED
STATES


SECURITIES AND
EXCHANGE COMMISSION
 WASHINGTON, D.C.
20549
 
 FORM
10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d)
 OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the quarterly
period ended December 31, 2007
 Commission file number000-04217
 
 
 ACETO CORPORATION
 (Exact name of registrant as specified
in its charter)
 
 
 New
      York
                11-1720520(State or other jurisdiction
      of
                  incorporation or
      organization)
                (I.R.S. Employer
      Identification
                  Number)
  One
      Hollow Lane, Lake Success, NY 11042(Address of principal executive
      offices)
 
 (516) 627-6000
 (Registrant's telephone number,
including area code)
  www.aceto.com
 (Registrant’s website
address)
 
  Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
 
 Yes x  No o
 
 Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer.  See definition of “accelerated filer” and
large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check
one):
  Large accelerated filer o
              Accelerated filer x
              Non-accelerated filer o
 
 Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
 
 Yes o  No x
 
 The Registrant has 24,433,614 shares of
common stock outstanding as of February 5, 2008.
  
 
 ACETO CORPORATION
AND SUBSIDIARIES
 QUARTERLY REPORT FOR
THE PERIOD ENDED DECEMBER 31, 2007
 
 TABLE OF
CONTENTS
 
 
 
 PART I.  FINANCIAL
      INFORMATION
  Item 1.
              Financial
      Statements
              3
  Condensed Consolidated Balance
      Sheets – December 31, 2007 (unaudited) and June 30,
      2007
              3
  Condensed Consolidated Statements
      of Income – Six Months Ended December 31, 2007 and 2006
      (unaudited)
              4
  Condensed Consolidated Statements
      of Income – Three Months Ended December 31, 2007 and 2006
      (unaudited)
              5
  Condensed Consolidated Statements
      of Cash Flows –  Six Months Ended December 31, 2007 and 2006
      (unaudited)
              6
  Notes to Condensed Consolidated
      Financial Statements (unaudited)
              7
  Report of Independent Registered
      Public Accounting Firm
              14
  Item 2.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
              15
  Item 3.
              Quantitative and Qualitative
      Disclosures about Market Risk
              24
  Item 4.
              Controls and
      Procedures
              25
  PART II.  OTHER
      INFORMATION
  Item 1A.
              Risk
    Factors
              25
  Item 4.
              Submission of Matters to a Vote
      of Security Holders
              27
  Item 6.
              Exhibits
              27
  Signatures
              
              28
  Exhibits
 
 2
 
 PART I. FINANCIAL
INFORMATION
 Item
1.  Financial Statements
 ACETO
      CORPORATION AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED BALANCE SHEETS
                (in thousands, except per-share
      amounts)December 31,
                2007
              
              
              June 30,
                2007(unaudited)ASSETSCurrent
      assets:Cash and cash
      equivalents
              
              $
              39,030
              
              
              $
              32,320Investments
              
              
              3,125
              
              
              
              3,036Trade receivables, less allowance
      for doubtfulaccounts (December, $415, June
      $491)
              
              
              57,611
              
              
              
              58,206Other
      receivables
              
              
              4,292
              
              
              
              3,123Inventory
              
              
              65,536
              
              
              
              60,679Prepaid expenses and other
      current assets
              
              
              1,237
              
              
              
              1,128Deferred income tax benefit,
      net
              
              
              2,681
              
              
              
              2,541Total current
      assets
              
              
              173,512
              
              
              
              161,033Long-term notes
      receivable
              
              
              399
              
              
              
              449Property and equipment,
      net
              
              
              4,473
              
              
              
              4,406Property held for
      sale
              
              
              5,268
              
              
              
              5,268Goodwill
              
              
              1,910
              
              
              
              1,820Intangible assets,
      net
              
              
              5,614
              
              
              
              5,817Deferred income tax benefit,
      net
              
              
              4,387
              
              
              
              5,958Other
    assets
              
              
              4,114
              
              
              
              3,727TOTAL
    ASSETS
              
              $
              199,677
              
              
              $
              188,478LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              34,638
              
              
              $
              32,539Short-term bank
      loans
              
              
              -
              
              
              
              25Note payable – related
      party
              
              
              500
              
              
              
              500Accrued
      expenses
              
              
              18,875
              
              
              
              14,154Deferred income tax
      liability
              
              
              885
              
              
              
              885Total current
      liabilities
              
              
              54,898
              
              
              
              48,103Long-term
      liabilities
              
              
              6,797
              
              
              
              6,684Environmental remediation
      liability
              
              
              5,816
              
              
              
              5,816Deferred income tax
      liability
              
              
              2,654
              
              
              
              2,746Minority
      interest
              
              
              327
              
              
              
              302Total
      liabilities
              
              
              70,492
              
              
              
              63,651Commitments and contingencies
      (Note 9)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares
      issued;24,432 and 24,330 shares
      outstanding at December 31, 2007 and June 30, 2007,
      respectively
              
              
              256
              
              
              
              256Capital in excess of par
      value
              
              
              56,371
              
              
              
              56,854Retained
      earnings
              
              
              74,178
              
              
              
              74,419Treasury stock, at cost, 1,212
      and 1,314 shares at December 31, 2007 and June 30, 2007,
      respectively
              
              
              (11,710
              )
              
              
              (12,693
              )Accumulated other comprehensive
      income
              
              
              10,090
              
              
              
              5,991Total shareholders’
      equity
              
              
              129,185
              
              
              
              124,827TOTAL LIABILITIES AND
      SHAREHOLDERS’ EQUITY
              
              $
              199,677
              
              
              $
              188,478
 
 See accompanying notes to condensed
consolidated financial statements and accountants’ review
report.
  3
 
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
                (unaudited and in thousands,
      except per-share amounts)Six Months
      Ended
                December
    31,2007
              
              
              2006Net sales
              
              $
              156,633
              
              
              $
              150,411Cost of
    sales
              
              
              129,591
              
              
              
              125,288Gross
    profit
              
              
              27,042
              
              
              
              25,123Selling, general and
      administrative expenses
              
              
              21,364
              
              
              
              18,995Research and development
      expenses
              
              
              353
              
              
              
              6Operating
      income
              
              
              5,325
              
              
              
              6,122Other (expense)
      income:Interest
      expense
              
              
              (31
              )
              
              
              (81
              )Interest and other (expense)
      income, net
              
              
              (14
              )
              
              
              256(45
              )
              
              
              175Income before income
      taxes
              
              
              5,280
              
              
              
              6,297Provision for income
      taxes
              
              
              3,078
              
              
              
              2,091Net income
              
              $
              2,202
              
              
              $
              4,206Net income per common
      share
              
              $
              0.09
              
              
              $
              0.17Diluted net income per common
      share
              
              $
              0.09
              
              
              $
              0.17Weighted average shares
      outstanding:Basic
              
              
              24,341
              
              
              
              24,288Diluted
              
              
              24,834
              
              
              
              24,625
 
 See accompanying notes to condensed
consolidated financial statements and accountants’ review
report.
  4
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
                (unaudited and in thousands,
      except per-share amounts)Three Months
      Ended
                December
    31,2007
              
              
              2006Net sales
              
              $
              77,105
              
              
              $
              75,686Cost of
    sales
              
              
              64,626
              
              
              
              63,124Gross
    profit
              
              
              12,479
              
              
              
              12,562Selling, general and
      administrative expenses
              
              
              10,578
              
              
              
              9,840Research and development
      expenses
              
              
              181
              
              
              
              -Operating
      income
              
              
              1,720
              
              
              
              2,722Other (expense)
      income:Interest
      expense
              
              
              (16
              )
              
              
              (68
              )Interest and other (expense)
      income, net
              
              
              (341
              )
              
              
              (32
              )(357
              )
              
              
              (100
              )Income before income
      taxes
              
              
              1,363
              
              
              
              2,622Provision for income
      taxes
              
              
              455
              
              
              
              878Net income
              
              $
              908
              
              
              $
              1,744Net income per common
      share
              
              $
              0.04
              
              
              $
              0.07Diluted net income per common
      share
              
              $
              0.04
              
              
              $
              0.07Weighted average shares
      outstanding:Basic
              
              
              24,346
              
              
              
              24,293Diluted
              
              
              24,817
              
              
              
              24,670
 
 See accompanying notes to condensed
consolidated financial statements and accountants’ review
report.
  5
 
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
                (unaudited and in
      thousands)Six Months
      Ended
                December
    31,2007
              
              
              2006Operating
      activities:Net income
              
              $
              2,202
              
              
              $
              4,206Adjustments to reconcile net
      income to net cash providedby operating
      activities:Depreciation and
      amortization
              
              
              1,202
              
              
              
              867Provision for doubtful
      accounts
              
              
              9
              
              
              
              59Non-cash stock
      compensation
              
              
              415
              
              
              
              246Deferred income
      taxes
              
              
              1,339
              
              
              
              802Unrealized gain on trading
      securities
              
              
              (54
              )
              
              
              (65
              )Changes in assets and
      liabilities:Trade accounts
      receivable
              
              
              2,080
              
              
              
              (4,808
              )Other
      receivables
              
              
              (921
              )
              
              
              (1,450
              )Inventory
              
              
              (3,504
              )
              
              
              (3,219
              )Prepaid expenses and other
      current assets
              
              
              (147
              )
              
              
              (259
              )Other
    assets
              
              
              (635
              )
              
              
              (373
              )Accounts
      payable
              
              
              893
              
              
              
              5,838Other accrued expenses and
      liabilities
              
              
              2,590
              
              
              
              1,162Net cash provided by operating
      activities
              
              
              5,469
              
              
              
              3,006Investing
      activities:Payments received on notes
      receivable
              
              
              49
              
              
              
              34Purchases of property and
      equipment, net
              
              
              (586
              )
              
              
              (339
              )Purchases of
      investments
              
              
              -
              
              
              
              (6,222
              )Purchase of intangible
      asset
              
              
              -
              
              
              
              (401
              )Net cash used in investing
      activities
              
              
              (537
              )
              
              
              (6,928
              )Financing
      activities:Proceeds from exercise of stock
      options
              
              
              70
              
              
              
              151Excess tax benefit on exercise of
      stock options
              
              
              13
              
              
              
              24Payments of short-term bank
      loans
              
              
              (25
              )
              
              
              -Net cash provided by financing
      activities
              
              
              58
              
              
              
              175Effect of exchange rate changes
      on cash
              
              
              1,720
              
              
              
              623Net increase in
      cash
              
              
              6,710
              
              
              
              (3,124
              )Cash at beginning of
      period
              
              
              32,320
              
              
              
              33,732Cash at end of
      period
              
              $
              39,030
              
              
              $
              30,608
  Non-Cash
Item
 
 The Company had a non-cash item
excluded from the Condensed Consolidated Statements of Cash Flows during the six
months ended December 31, 2007 and December 31, 2006 of $2,443 and $1,823,
respectively, related to dividends declared but not paid.
 
 See accompanying notes to condensed
consolidated financial statements and accountants’ review
report.
  6
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 (1)Basis of
Presentation
 
 The condensed consolidated financial
statements of Aceto Corporation and subsidiaries (“Aceto” or the “Company”)
included herein have been prepared by the Company and reflect all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows for all periods
presented.  Interim results are not necessarily indicative of results
which may be achieved for the full year.
 
 The preparation of financial statements
in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses reported in those financial
statements.  These judgments can be subjective and complex, and
consequently actual results could differ from those estimates and
assumptions.  The Company’s most critical accounting policies relate
to revenue recognition; allowance for doubtful accounts; inventories; goodwill
and other indefinite-lived intangible assets; long-lived assets; environmental
and other contingencies; income taxes; and stock-based
ompensation.
 
 These condensed consolidated financial
statements do not include all disclosures associated with consolidated financial
statements prepared in accordance with U.S. generally accepted accounting
principles.  Accordingly, these statements should be read in
conjunction with the Company’s consolidated financial statements and notes
thereto contained in the Company’s Form 10-K for the year ended June 30,
2007.
 
 Certain reclassifications have been
made to the prior condensed consolidated financial statements to conform to the
current presentation.
 
 (2) Investments
 
 A summary of short-term investments
were as follows:
 
 December
      31, 2007
              
              
              June
      30, 2007Fair
      Value
              
              
              Cost
      Basis
              
              
              Fair
      Value
              
              
              Cost
      BasisTrading
      securitiesCorporate equity
      securities
              
              $
              931
              
              
              $
              152
              
              
              $
              877
              
              
              $
              152Available
      for sale securitiesCorporate
      bonds
              
              
              1,195
              
              
              $
              1,203
              
              
              
              1,187
              
              
              $
              1,203Government and agency
      securities
              
              
              999
              
              
              $
              1,000
              
              
              
              972
              
              
              $
              1,000$
              3,125
              
              
              
              
              
              
              $
              3,036
  The Company has classified all
investments with maturity dates of greater than three months as current since it
has the ability to redeem them within the year and is available for current
operations.
 
 Unrealized gains on trading securities
were $13 and $63 for the three months ended December 31, 2007 and 2006,
respectively.   Unrealized gains on trading securities were $54
and $65 for the six months ended December 31, 2007 and 2006,
respectively.
 
 (3)Goodwill and Other
Intangible Assets
 
 Goodwill of $1,910 and $1,820 as of
December 31, 2007 and June 30, 2007, relates to the Health Sciences
Segment.
 
 Changes in goodwill are attributable to
changes in foreign currency exchange rates used to translate the financial
statements of foreign subsidiaries.
 
 7
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   (4) Stock-Based
Compensation
 
 The Company accounts for share-based
compensation cost in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 123(R), “Share-Based Payment.”
 
 At the annual meeting of shareholders
of the Company held December 6, 2007, the shareholders approved the Aceto
Corporation 2007 Long-Term Performance Incentive Plan (the "Plan"). The Company
has reserved 700 shares of common stock for issuance under the Plan to the
Company’s employees and non-employee directors. There are five types of awards
that may be granted under the Plan-options to purchase common stock, stock
appreciation rights, restricted stock, restricted stock units and performance
incentive units.
 
 In December 2007, the Company granted
239 options to non-employee directors and employees at an exercise price equal
to the market value of the common stock on the date of grant.  These
options vest over one year and will expire ten years from the date of
grant.  Compensation expense of $718, as determined using the
Black-Scholes option pricing model, will be charged over the vesting period for
these options. Total compensation expense related to stock options for the six
months ended December 31, 2007 and 2006 was $180 and $213, respectively and $119
and $116 for the three months ended December 31, 2007 and 2006,
respectively.
 
 In order to determine the fair value of
stock options on the date of grant, the Company uses the Black-Scholes
option-pricing model, including an estimate of forfeiture rates.  Inherent
in this model are assumptions related to expected stock-price volatility,
risk-free interest rate, expected life and dividend yield.  Expected
stock-price volatility is based on the historical daily price changes of the
underlying stock which are obtained from public data sources. The risk-free
interest rate is based on U.S. Treasury issues with a term equal to the expected
life of the option. The Company uses historical data to estimate expected
dividend yield, expected life and forfeiture rates. In fiscal 2007, the Company
utilized the “simplified” method prescribed in SEC Staff Accounting Bulletin No.
107 to estimate the expected life. The fair values of the options granted were
estimated based on the following weighted average
assumptions:
 
 Six months
      ended
                December
    31,2007
              
              2006Expected
    life
              
              5.6 years
              
              5.5
  yearsExpected
      volatility
              
              
              46.0
              %
              
              
              57.0
              %Risk-free interest
      rate
              
              
              3.55
              %
              
              
              4.40
              %Dividend
    yield
              
              
              2.50
              %
              
              
              1.82
              %
 
 In December 2007, the Company granted
86 shares of restricted common stock and 20 restricted stock units. These shares
of restricted common stock and restricted stock units vest over three years and
will result in remaining stock-based compensation expense of approximately
$654.  In accordance with SFAS No. 123(R), compensation expense is
recognized on a straight-line basis over the employee's vesting period or to the
employee's retirement eligibility date, if earlier, for restricted stock
awards.  For the three and six months ended December 31, 2007, the
Company recorded stock-based compensation expense of approximately $199 for
these shares of restricted common stock and restricted stock units, of which
$186 of compensation expense related to retiree
eligibility.  Therefore, the compensation expense for the quarter
ended December 31, 2007 is not representative of the compensation expense for
the entire fiscal year.
 
 The Company’s policy is to satisfy
stock-based compensation awards with treasury shares, to the extent
available.
  8
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 (5)Common
Stock
 
 On December 6, 2007, the Company’s
board of directors declared a regular semi-annual cash dividend of $0.10 per
share which was paid on January 11, 2008 to shareholders of record on December
21, 2007.  The amount paid for the cash dividend of $2,443 was
included in other accrued expenses at December 31, 2007.
  On
February 7, 2008, the Company's board of directors declared a special dividend
of $0.05 per share to be distributed on March 7, 2008 to shareholders of record
as of February 22, 2008.
  (6) 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 following table sets
forth the reconciliation of weighted average shares outstanding and diluted
weighted average shares outstanding:
 
 Six months
      ended
                December
    31,
              
              
              Three months
      ended
                December
    31,2007
              
              
              2006
              
              
              2007
              
              
              2006Weighted average shares
      outstanding
              
              
              24,341
              
              
              
              24,288
              
              
              
              24,346
              
              
              
              24,293Dilutive effect of stock options
      and restricted stock awards and units
              
              
              493
              
              
              
              337
              
              
              
              471
              
              
              
              377Diluted weighted average shares
      outstanding
              
              
              24,834
              
              
              
              24,625
              
              
              
              24,817
              
              
              
              24,670
 
  There were 1,316 and 1,645 common
shares outstanding as of December 31, 2007 and 2006, repectively, that were not
included in the calculation of diluted income per common share for the six
months ended December 31, 2007 and 2006, respectively, because their effect
would have been anti-dilutive. There were 1,427 and 1,599 common
shares outstanding as of December 31, 2007 and 2006, respectively, that were not
included in the calculation of diluted income per common share for the three
months ended December 31, 2007 and 2006, respectively, because their effect
would have been anti-dilutive.
 
 (7) 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:
  Six months
      ended
                December
    31,
              
              
              Three months
      ended
                December
    31,2007
              
              
              2006
              
              
              2007
              
              
              2006Comprehensive
      income:Net income
              
              $
              2,202
              
              
              
              4,206
              
              
              $
              908
              
              
              $
              1,744Foreign currency translationadjustment
              
              
              4,050
              
              
              
              1,724
              
              
              
              1,659
              
              
              
              1,359Unrealized gain on availablefor sale
      securities
              
              
              37
              
              
              
              36
              
              
              
              16
              
              
              
              2Change in fair value of crosscurrency interest rate
      swaps
              
              
              12
              
              
              
              98
              
              
              
              11
              
              
              
              8Total
              
              $
              6,301
              
              
              $
              6,064
              
              
              $
              2,594
              
              
              $
              3,113
 
 The financial statements of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency.  Exchange gains or losses resulting from the
translation of financial statements of foreign operations are accumulated in
other comprehensive income.  The foreign currency translation
adjustment for the three and six months ended December 31, 2007 primarily
relates to the fluctuation of the conversion rate of the Euro. The currency
translation adjustments are not adjusted for income taxes as they relate to
indefinite investments in non-US subsidiaries.
  9
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   (8) Income
Taxes
 
 The decrease in the net deferred income
tax assets of $1,339 for the six months ended December 31, 2007 related
primarily to German tax reform which was enacted in August 2007 that reduces the
corporate tax rate for businesses from 40% to 30%, as well as implementing a cap
on interest deductions and tightening the tax basis for trade tax income. This
tax rate reduction becomes effective for tax years ending after January 1, 2008.
Due to the reduction in the overall German tax rate, the deferred income tax
asset was revalued during the month of enactment of the tax reform and therefore
was reduced by approximately $1,429, which is reflected in the condensed
consolidated financial statements for the six months ended December 31,
2007.
 
 The decrease in the net deferred income
tax assets of $802 for the six months ended December 31, 2006 related to the
reduction of taxes payable due to the utilization of foreign net operating loss
carry forwards.
 
 In June 2006, the FASB issued FASB
Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement 109”. FIN 48 prescribes a comprehensive model
for recognizing, measuring, presenting and disclosing in the financial
statements tax positions taken or expected to be taken on a tax return. FIN 48
is effective for fiscal years beginning after December 15, 2006. The Company
adopted FIN No. 48 on July 1, 2007 and determined that the adoption of FIN No.
48 did not have a material impact on its consolidated financial statements. In
addition, there are no unrecognized tax benefits included in the consolidated
balance sheet that would, if recognized, have a material effect on the Company’s
effective tax rate. The Company is continuing its practice of recognizing
interest and penalties related to income tax matters in income tax expense. The
total accrual for interest and penalties related to uncertain tax positions was
approximately $69 as of December 31, 2007. The Company did not recognize
interest or penalties related to income taxes during the three and six months
ended December 31, 2007. The Company files U.S. federal, U.S. state, and foreign
tax returns, and is generally no longer subject to tax examinations for fiscal
years prior to 2003 (in the case of certain foreign tax returns, calendar year
2001).
 
 (9) Commitments and
Contingencies
 
 The Company and its subsidiaries are
subject to various claims which have arisen in the normal course of
business.  The impact of the final resolution of these matters on the
Company’s results of operations in a particular reporting period is not
known.  Management is of the opinion, however, that the ultimate
outcome of such matters will not have a material adverse effect upon the
Company’s financial condition or liquidity.
 
 In fiscal 2008 and 2007, the Company
received letters from the Pulvair Site Group, a group of potentially responsible
parties ("PRP Group") who are working with the State of Tennessee (the "State")
to remediate a contaminated property in Tennessee called the Pulvair site. The
PRP Group has alleged that Aceto shipped hazardous substances to the site which
were released into the environment.   The State had begun
administrative proceedings against the members of the PRP group and Aceto with
respect to the cleanup of the Pulvair site and the group has begun to undertake
cleanup. The PRP Group is seeking a settlement of approximately $2,100 from the
Company for its share to remediate the site contamination. Although the Company
acknowledges that it shipped materials to the site for formulation over twenty
years ago, the Company believes that the evidence does not show that the
hazardous materials sent by Aceto to the site have significantly contributed to
the contamination of the environment. Accordingly, the Company believes that the
settlement offer is unreasonable. Alternatively, counsel to the PRP Group has
proposed that Aceto join it as a participating member and pay 3.16% of the PRP
Group's cost.  The Company believes that this percentage is high
because it is based on the total volume of materials that Aceto sent to the
site, most of which were non-hazardous substances and as such, believes that, at
most, it is a de minimus contributor to the site contamination. The impact of
the resolution of this matter on the Company's results of operations in a
particular reporting period is not known.  However, management
believes that the ultimate outcome of this matter will not have a material
adverse effect on the Company's financial condition or
liquidity.
  10
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 The Company has environmental
remediation obligations in connection with Arsynco’s former manufacturing
facility located in Carlstadt, New Jersey, which was closed in 1993 and is
currently held for sale.  During fiscal 2007, based on continued
monitoring of the contamination at the site and the current proposed plan of
remediation, the Company estimated that the costs of remediation could be
between $6,136 and $7,611.  As of December 31, 2007 and June 30, 2007
a liability of $6,136 is included in the accompanying condensed consolidated
balance sheets.   However, these matters, if resolved in a manner
different from those assumed in current estimates, could have a material adverse
effect on the Company’s financial condition, operating results and cash flows
when resolved in a future reporting period.
 
 In connection with the environmental
remediation obligation for Arsynco, the Company has filed a claim against BASF
Corporation (BASF), the former owners of the Arsynco property. The Company
alleges that BASF is liable for a portion of the cost to remediate, however,
since collection is uncertain at this time, no asset has been
recorded.
 
 In March 2006, Arsynco received notice
from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the
Berry’s Creek Study Area.   Arsynco is one of over 150 PRP’s
which have potential liability for the required investigation and remediation of
the site.  The estimate of the potential liability is not quantifiable
for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require.  In
addition, any estimate of liability must also consider the number of other PRP’s
and their financial strength.  Since an amount of the liability can
not be reasonably estimated at this time, no accrual is recorded for these
potential future costs.  The impact of the resolution of this matter
on the Company’s results of operations in a particular reporting period is not
known.  However, management believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company’s financial
condition or liquidity.
 
 A subsidiary of the Company markets
certain agricultural chemicals which are subject to the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided
to the Environmental Protection Agency (EPA) to register, obtain and maintain
approved labels for pesticide products. The EPA requires that follow-on
registrants of these products compensate the initial registrant for the cost of
producing the necessary test data on a basis prescribed in the FIFRA
regulations. Follow-on registrants do not themselves generate or contract for
the data. However, when FIFRA requirements mandate that new test data be
generated to enable all registrants to continue marketing a pesticide product,
often both the initial and follow-on registrants establish a task force to
jointly undertake the testing effort. The Company is presently a member of three
such task force groups and historically, payments have been in the range of $250
- $500 per year.  The Company may be required to make additional
payments in the future.
 
 In June 2006, the Company negotiated a
lease termination with its landlord for the facility previously occupied by CDC
and Magnum.  In connection with the lease termination, the landlord
and a third party entered into a long-term lease for which the Company
guaranteed the rental payments by the third party through September 30,
2009.  As of December 31, 2007, the aggregate future rental payments
of the third party that are guaranteed by the Company are $532 and the fair
value of this guarantee is deemed to be insignificant.
 
 Commercial letters of credit are issued
by the Company in the ordinary course of business through major domestic banks
as requested by certain suppliers.  The Company had open letters of
credit of approximately $1,350 and $702 as of December 31, 2007 and June 30,
2007, respectively.  The terms of these letters of credit are all less
than one year.  No material loss is anticipated due to non-performance
by the counterparties to these agreements.
 
 (10)  
Recent Accounting
Pronouncements
 
 In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a
common definition for fair value to be applied to US GAAP guidance requiring use
of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007.  In
February 2008, the FASB provided a one-year deferral for the implementation of
SFAS No. 157 for nonfinancial assets and liabilities recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.Management is currently assessing the impact of SFAS No. 157 on the
consolidated financial position and results of operations.
 
 In February 2007, the FASB issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115" (" SFAS No. 159").
SFAS No. 159 allows companies the choice to measure many financial instruments
and certain other items at fair value. Unrealized gains and losses on items for
which the fair value option has been elected will be recognized in earnings at
each subsequent reporting date. The provisions of SFAS No. 159 will be effective
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact of SFAS No. 159 on the consolidated financial position and
results of operations.
  11
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
  In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of Accounting Research Bulletin No 51” (SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, changes in a parent’s
ownership of a noncontrolling interest, calculation and disclosure of the
consolidated net income attributable to the parent and the noncontrolling
interest, changes in a parent’s ownership interest while the parent retains its
controlling financial interest and fair value measurement of any retained
noncontrolling equity investment. SFAS No. 160 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. The
Company must adopt these new requirements in its first quarter of fiscal
2010.  Management is currently evaluating the impact of SFAS No. 160
on the consolidated financial position and results of
operations.
 
 In December 2007, the FASB approved the
issuance of SFAS No. 141 (revised 2007) “Business Combinations” (SFAS No. 141R).
SFAS No. 141R establishes principles and requirements for how the acquirer in a
business combination recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any controlling
interest; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No. 141R applies to
business combinations for which the acquisition date is on or after December 15,
2008. The Company is evaluating the impact of SFAS No. 141R on its results of
operations and financial condition.
 
 (11)  
Segment
Information
  The Company's business is organized
along product lines into three principal segments: Health Sciences, Chemicals
& Colorants and Crop Protection.
  Health
Sciences- includes the
active ingredients for generic pharmaceuticals, vitamins, and nutritional
supplements, as well as products used in preparing pharmaceuticals, primarily by
major innovative drug companies, and biopharmaceuticals.
  Chemicals &
Colorants- includes a
variety of specialty chemicals used in plastics, resins, adhesives, coatings,
food, flavor additives, fragrances, cosmetics, metal finishing, electronics,
air-conditioning systems and many other areas. Dye and pigment intermediates are
used in the color-producing industries such as textiles, inks, paper, and
coatings. Organic intermediates are used in the production of
agrochemicals.
  Crop
Protection- includes
herbicides, fungicides and insecticides that control weed growth as well as
control the spread of insects and other microorganisms that can severely damage
plant growth. The Crop Protection segment also includes a sprout inhibitor for
potatoes and an herbicide for sugar cane. The Company changed the name of this
segment from Agrochemicals to Crop Protection in 2007 to more accurately portray
the markets in which it does business.
  The Company's chief operating decision
maker evaluates performance of the segments based on net sales and gross profit.
The Company does not allocate assets by segment because the chief operating
decision maker does not review the assets by segment to assess the segments'
performance, as the assets are managed on an entity-wide
basis.
 
 12
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 Six Months Ended December 31, 2007 and
2006:
 Health
                Sciences
              
              
              Chemicals
      &
                Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
                Totals2007Net sales
              
              $
              90,323
              
              
              $
              58,165
              
              
              $
              8,145
              
              
              $
              156,633Gross
    profit
              
              
              17,457
              
              
              
              7,987
              
              
              
              1,598
              
              
              
              27,0422006Net sales
              
              $
              82,655
              
              
              $
              57,385
              
              
              $
              10,371
              
              
              $
              150,411Gross
    profit
              
              
              15,415
              
              
              
              7,268
              
              
              
              2,440
              
              
              
              25,123
 
 Three Months Ended December 31, 2007
and 2006:
 Health
                Sciences
              
              
              Chemicals
      &
                Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
                Totals2007Net sales
              
              $
              43,643
              
              
              $
              29,858
              
              
              $
              3,604
              
              
              $
              77,105Gross
    profit
              
              
              7,355
              
              
              
              4,393
              
              
              
              731
              
              
              
              12,4792006Net sales
              
              $
              40,151
              
              
              $
              28,543
              
              
              $
              6,992
              
              
              $
              75,686Gross
    profit
              
              
              7,198
              
              
              
              3,711
              
              
              
              1,653
              
              
              
              12,562
 
 
 13
  Report of
Independent Registered Public Accounting Firm
 
  Board of Directors and
Shareholders
 Aceto Corporation
 
 We have reviewed the condensed
consolidated balance sheet of Aceto Corporation and subsidiaries as of December
31, 2007 and the related condensed consolidated statements of income for the
three-month and six-month periods ended December 31, 2007 and 2006, and the
related condensed consolidated statements of cash flows for the six-month
periods ended December 31, 2007 and 2006 included in the accompanying Securities
and Exchange Commission Form 10-Q for the period ended December 31,
2007.  These interim financial statements are the responsibility of
the Company’s management.
 
 We conducted our review in accordance
with standards of the Public Company Accounting Oversight Board (United
States).  A review of interim financial information consists
principally of applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters.  It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole.  Accordingly, we do not express such an
opinion.
 
 Based on our review, we are not aware
of any material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of
America.
 
 We have previously audited, in
accordance with standards of the Public Company Accounting Oversight Board, the
consolidated balance sheet of Aceto Corporation and subsidiaries as of June 30,
2007, and the related consolidated statements of income, shareholders’ equity
and comprehensive income and cash flows for the year then ended (not presented
herein); and in our report dated September 5, 2007, we expressed an unqualified
opinion on those consolidated financial statements.  In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
June 30, 2007, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
 
 
 /s/ BDO SEIDMAN LLP
 
 Melville, New York
 February 7, 2008
  14
   Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
 CAUTIONARY STATEMENT RELATING TO THE
SAFE HARBOR PROVISIONS OF THE PRIVATE
 SECURITIES LITIGATION REFORM ACT OF
1995
 
 This Quarterly Report on Form 10-Q and
the information incorporated by reference includes “forward-looking statements”
within the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934.  We intend those forward
looking-statements to be covered by the safe harbor provisions for
forward-looking statements.  All statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking
statements.  Any such forward-looking statements are based on current
expectations, estimates and projections about our industry and our
business.  Words such as “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” or variations of those words and similar
expressions are intended to identify such forward-looking
statements.  Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth or implied by any forward-looking statements.  Factors that
could cause actual results to differ materially from forward-looking statements
include, but are not limited to, unforeseen environmental liabilities, uncertain
military, political and economic conditions in the world, the mix of products
sold and the profit margins thereon, order cancellation or a reduction in orders
from customers, the nature and pricing of competing products, the availability
and pricing of key raw materials, dependence on key members of management, risks
of entering into new European markets, continued successful integration of
acquisitions, and economic and political conditions in the United States and
abroad.  We undertake no obligation to update any such forward-looking
statements, other than as required by law.
 
 NOTE REGARDING DOLLAR
AMOUNTS
 
 In this quarterly report, all dollar
amounts are expressed in thousands, except for share prices and per-share
amounts.
 
 The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) is
intended to provide the readers of our financial statements with a narrative
discussion about our business. The MD&A is provided as a supplement to and
should be read in conjunction with our financial statements and the accompanying
notes.
 
 Executive
Summary
 
 We are reporting net sales of $156,633
for the six months ended December 31, 2007, which represents a 4.1% increase
from the $150,411 reported in the comparable prior period.  Gross
profit for the six months ended December 31, 2007 was $27,042 and our gross
margin was 17.3% as compared to gross profit of $25,123 and gross margin of
16.7% in the comparable prior period.  Our selling, general and
administrative costs for the six months ended December 31, 2007 increased to
$21,364, an increase of 12.5% over the $18,995 we reported in the prior
period.  Our net income decreased to $2,202, or $0.09 per diluted
share, a decrease of 47.6% compared to the prior period.
 
 Our financial position as of December
31, 2007 remains strong, as we had cash of $39,030, working capital of $118,614,
no long-term debt and shareholders’ equity of $129,185.
 
 Our ongoing business is separated into
three segments:  Health Sciences, Chemicals & Colorants and Crop
Protection.
  The Health Sciences segment is our
largest segment in terms of both sales and gross profits. Products that fall
within this segment include active pharmaceutical ingredients (“APIs”),
pharmaceutical intermediates, nutritionals and
biopharmaceuticals.
  We typically partner with both
customers and suppliers years in advance of a drug coming off patent to provide
the generic equivalent.  We believe we have a pipeline of new APIs
poised to reach commercial levels over the coming years as the patents on
existing drugs expire, both in the United States and Europe. In addition, we
continue to explore opportunities to provide a second-source option for existing
generic drugs with approved ANDAs. The opportunities that we are looking for are
to supply the APIs for the more mature generic drugs where pricing has
stabilized following the dramatic decreases in price that these drugs
experienced after coming off patent.  As is the case in the generic
industry, the entrance into the market of other generic competition generally
has a negative impact on the pricing of the affected
products.
  15
  By leveraging our worldwide sourcing
and regulatory capabilities, we believe we can be an alternative lower cost,
second-source provider of existing APIs to generic drug
companies.
  The Chemicals & Colorants segment
is a major supplier to the many different industries that require outstanding
performance from chemical raw materials and additives.  Products that
fall within this segment include intermediates for dyes, pigments and
agrochemicals.  We provide chemicals used to make plastics, surface
coatings, textiles, lubricants, flavors and fragrances. Many of Aceto’s raw
materials are also used in high-tech products like high-end electronic parts
(circuit boards and computer chips) and binders for specialized rocket fuels.
Aceto is currently responding to the changing needs of our customers in the
color producing industry by taking our resources and knowledge downstream as a
supplier of select organic pigments. We expect that continued global Gross
Domestic Product growth will drive higher demand for the chemical industry,
especially in China and other emerging regions of the world. With supply growth
limited, we expect that industry supply/demand balances will remain favorable.
However, continued volatility in energy costs will add uncertainty to our profit
outlook.
  The Crop Protection segment sells
herbicides, fungicides, insecticides, and other agricultural chemicals to
customers, primarily located in the United States and Western Europe. In fiscal
2007, we entered into a multi-year contract with a major agricultural chemical
distributor and launched generic Asulam, an herbicide for sugar cane and the
first generic registration that Aceto has received. Our plan is to develop over
time a pipeline of additional products in a similar manner.
  Our main business strengths are
sourcing, regulatory support, quality control, marketing and distribution. With
a physical presence in ten countries, we distribute over 1,000 chemicals and
pharmaceuticals used principally as raw materials in the pharmaceutical,
agricultural, color, surface coating/ink and general chemical consuming
industries. We believe that we are currently the largest buyer of pharmaceutical
and specialty chemicals for export from China, purchasing from over 500
different manufacturers.
 
 In this MD&A section, we explain
our general financial condition and results of operations, including the
following:
 
 ·
              factors that affect our
      business·
              our earnings and costs in the
      periods presented·
              changes in earnings and costs
      between periods·
              sources of
      earnings·
              the impact of these factors on
      our overall financial
condition
 
 As you read this MD&A section,
refer to the accompanying condensed consolidated statements of income, which
present the results of our operations for the three and six months ended
December 31, 2007 and 2006.  We analyze and explain the differences
between periods in the specific line items of the condensed consolidated
statements of income.
 
 Critical Accounting
Estimates and Policies
 
 As disclosed in our Form 10-K for the
year ended June 30, 2007, the discussion and analysis of our financial condition
and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles.  In preparing these financial statements, we were required
to make estimates and assumptions that affect the amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.  We regularly evaluate our estimates including those
related to allowances for bad debts, inventories, goodwill and other
indefinite-lived intangible assets, long-lived assets, environmental and other
contingencies, income taxes and stock-based compensation.  We base our
estimates on various factors, including historical experience, advice from
outside subject-matter experts, and various assumptions that we believe to be
reasonable under the circumstances, which together form the basis for our making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.  Actual results may differ from
these estimates.
  16
  Since June 30, 2007, there have been no
significant changes to the assumptions and estimates related to those critical
accounting estimates and policies.
 
 RESULTS OF
OPERATIONS
 
 Six Months Ended
December 31, 2007 Compared to Six Months Ended December 31,
2006
 
 Net Sales by
      Segment
                Six months ended December
      31,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under)
      2006% of
              
              
              
              
              
              % of
              
              
              $
              
              
              %Segment
              
              Net
      sales
              
              
              total
              
              
              Net
      sales
              
              
              total
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              90,323
              
              
              
              57.7
              %
              
              $
              82,655
              
              
              
              55.0
              %
              
              $
              7,668
              
              
              
              9.3
              %Chemicals &
      Colorants
              
              
              58,165
              
              
              
              37.1
              
              
              
              57,385
              
              
              
              38.1
              
              
              
              780
              
              
              
              1.4Crop
      Protection
              
              
              8,145
              
              
              
              5.2
              
              
              
              10,371
              
              
              
              6.9
              
              
              
              (2,226
              )
              
              
              (21.5
              )Net sales
              
              $
              156,633
              
              
              
              100.0
              %
              
              $
              150,411
              
              
              
              100.0
              %
              
              $
              6,222
              
              
              
              4.1
              %Gross Profit
      by Segment
                Six months ended December
      31,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under)
      2006Gross
              
              
              % of
              
              
              Gross
              
              
              % of
              
              
              $
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              Profit
              
              
              sales
              
              
              change
              
              
              ChangeHealth
      Sciences
              
              $
              17,457
              
              
              
              19.3
              %
              
              $
              15,415
              
              
              
              18.6
              %
              
              $
              2,042
              
              
              
              13.2
              %Chemicals &
      Colorants
              
              
              7,987
              
              
              
              13.7
              
              
              
              7,268
              
              
              
              12.7
              
              
              
              719
              
              
              
              9.9Crop
      Protection
              
              
              1,598
              
              
              
              19.6
              
              
              
              2,440
              
              
              
              23.5
              
              
              
              (842
              )
              
              
              (34.5
              )Gross
    Profit
              
              $
              27,042
              
              
              
              17.3
              %
              
              $
              25,123
              
              
              
              16.7
              %
              
              $
              1,919
              
              
              
              7.6
              %
  17
  Net
Sales
 
 Net sales increased $6,222 or 4.1%, to
$156,633 for the six months ended December 31, 2007, compared with $150,411 for
the prior period.  We reported sales increases in our Health Sciences
and Chemicals and Colorants segments which were partially offset by a sales
decrease in our Crop Protection segment, as explained below.
 
 Health
Sciences
 
 Net sales for the Health Sciences
segment increased by $7,668 for the six months ended December 31, 2007, to
$90,323, which represents a 9.3% increase from net sales of $82,655 for the
prior period.  This increase is the result of an increase of $3,079 in
the domestic generics product group, which consists of over forty products,
increased sales from our foreign operations of $2,784, specifically our German
operations and $1,504 increase in sales of our pharmaceutical
intermediates.
 
 Chemicals &
Colorants
 
 Net sales for the Chemicals &
Colorants segment were $58,165 for the six months ended December 31, 2007, which
is relatively consistent with $57,385 for the prior period.  Our
chemical business is diverse in terms of products, customers and consuming
markets.  The slight increase of $780, or 1.4%, over the prior period
is partially attributable to an increase of $1,474 in sales of pigment
intermediates and $2,271 increase in sales for chemicals used in aroma products.
This increase is offset in part by $1,618 decline in sales of our products sold
to the food, beverage and cosmetics industries and a $1,244 drop in sales of our
agricultural intermediates.
 
 Crop
Protection
 
 Net sales for the Crop Protection
segment decreased to $8,145 for the six months ended December 31, 2007, a
decrease of $2,226, or 21.5%, from net sales of $10,371 for the prior
period.  The decrease over the prior period is primarily attributed to
decreased sales of an herbicide used for sugar cane as well as decreased sales
related to an insecticide in which the Company is currently involved in an
antitrust matter related to certain licensed technology.
 
 Gross
Profit
 
 Gross profit increased $1,919 to
$27,042 (17.3% of net sales) for the six months ended December 31, 2007, as
compared to $25,123 (16.7% of net sales) for the prior
period.
 
 Health
Sciences
 
 Health Sciences’ gross profit of
$17,457 for the six months ended December 31, 2007 was $2,042 or 13.2% higher
than the prior period.  This increase in gross profit was attributable
to $1,023 increase in gross profit from our foreign operations, primarily
Germany as well as the overall increase in sales volume. Gross margin for the
six months ended December 31, 2007 increased to 19.3% from 18.6% for the prior
period due primarily to favorable product mix in our nutraceutical
products.
 
 Chemicals &
Colorants
 
 Gross profit for the six months ended
December 31, 2007 increased by $719, or 9.9%, over the prior period. The gross
margin was 13.7% for the six months ended December 31, 2007 compared to 12.7%
for the prior period.  The increase in the gross margin primarily
relates to a $330 settlement of an anti-dumping claim included in the prior year
cost of sales as well as positive product mix on aroma
chemicals.
 
 Crop
Protection
 
 Gross profit for the Crop Protection
segment decreased to $1,598 for the six months ended December 31, 2007, versus
$2,440 for the prior period, a decrease of $842 or 34.5%.  Gross
margin for the quarter was 19.6% compared to the prior period gross margin of
23.5%. The decrease in the gross profit and gross margin percentage primarily
relates to a decline in sales volume of a particular herbicide and insecticide
as described above.
  18
  Selling, General and
Administrative Expenses
 
 Selling, general and administrative
expenses (“SG&A”) increased $2,369, or 12.5%, to $21,364 for the six months
ended December 31, 2007 compared to $18,995 for the prior period.  As
a percentage of sales, SG&A increased to 13.6% for the six months ended
December 31, 2007 versus 12.6% for the prior period.  The increase in
SG&A relates primarily to an increase of $1,334 in legal expenses, the
majority of which has been incurred relating to an antitrust case that the
Company has previously commenced against the owner of certain licensed
technology used with one of our crop protection products.  In
addition, the prior year amount was reduced by $243 of proceeds received from
credit insurance, which there was no comparable amount received during the six
months ended December 31, 2007, as well as $494 of the increase relates to a
rise in personnel related costs for our foreign operations.
 
 Research and
Development Expenses
 
 Research and development expenses
(“R&D”) increased $347 over the prior period to $353 for the six months
ended December 31, 2007. R&D relates to the development of two finished
dosage form generic pharmaceutical products to be distributed in
Europe.
  Operating
Income
 
 For the six months ended December 31,
2007, operating income was $5,325 compared to $6,122 in the prior period, a
decrease of $797 or 13.0%.  This decrease was due to the $2,716
increase in SG&A and R&D expenses offset in part by the overall increase
in gross profit of $1,919.
  Interest and Other
Income, Net
 
 Interest and other (expense) income,
net was ($14) for the six months ended December 31, 2007 versus $256 income for
the prior period.  The increase in the expense is primarily due to
$139 in net foreign currency exchange losses and $115 decrease in other income
related to a government subsidy paid annually for doing business in a free trade
zone in Shanghai, China.
  Provision for Income
Taxes
 
 The effective tax rate for the six
months ended December 31, 2007 increased to 58.3% from 33.2% for the prior
period.  The increase in the effective tax rate was primarily due to
German tax reform, which was enacted in August 2007, that reduces the corporate
tax rate for businesses from 40% to 30%, as well as implementing a cap on
interest deductions and tightening the tax basis for trade tax income. This tax
rate reduction becomes effective for tax years ending after January 1, 2008. Due
to the future reduction in the overall German tax rate, the deferred income tax
asset was revalued during the month of enactment of the tax reform and therefore
was reduced by approximately $1,429, which is reflected in the condensed
consolidated financial statements for the six months ended December 31,
2007.  Without this charge, we expect the fiscal 2008 effective tax
rate to be 30.5% as compared to last year’s effective tax rate of
33.8%.
 
 
 19
  Three Months Ended
December 31, 2007 Compared to Three Months Ended December 31,
2006
 
 Net Sales by
      Segment
                Three months ended December
      31,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under)
      2006% of
              
              
              
              
              
              % of
              
              
              $
              
              
              %Segment
              
              Net
      sales
              
              
              total
              
              
              Net
      sales
              
              
              total
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              43,643
              
              
              
              56.6
              %
              
              $
              40,151
              
              
              
              53.0
              %
              
              $
              3,492
              
              
              
              8.7
              %Chemicals &
      Colorants
              
              
              29,858
              
              
              
              38.7
              
              
              
              28,543
              
              
              
              37.8
              
              
              
              1,315
              
              
              
              4.6Crop
      Protection
              
              
              3,604
              
              
              
              4.7
              
              
              
              6,992
              
              
              
              9.2
              
              
              
              (3,388
              )
              
              
              (48.5
              )Net sales
              
              $
              77,105
              
              
              
              100.0
              %
              
              $
              75,686
              
              
              
              100.0
              %
              
              $
              1,419
              
              
              
              1.9
              %Gross Profit
      by Segment
                Three months ended December
      31,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under)
      2006Gross
              
              
              % of
              
              
              Gross
              
              
              % of
              
              
              $
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              profit
              
              
              sales
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              7,355
              
              
              
              16.9
              %
              
              $
              7,198
              
              
              
              17.9
              %
              
              $
              157
              
              
              
              2.2
              %Chemicals &
      Colorants
              
              
              4,393
              
              
              
              14.7
              
              
              
              3,711
              
              
              
              13.0
              
              
              
              682
              
              
              
              18.4Crop
      Protection
              
              
              731
              
              
              
              20.3
              
              
              
              1,653
              
              
              
              23.6
              
              
              
              (922
              )
              
              
              (55.8
              )Gross
    profit
              
              $
              12,479
              
              
              
              16.2
              %
              
              $
              12,562
              
              
              
              16.6
              %
              
              $
              (83
              )
              
              
              ( 0.7
              %)
  Net
Sales
 
 Net sales increased $1,419, or 1.9%, to
$77,105 for the three months ended December 31, 2007, compared with $75,686 for
the prior period.  We reported sales increases in our Health Sciences
and Chemicals and Colorants segments which were partially offset by a sales
decrease in our Crop Protection segment, as explained below.
 
 Health
Sciences
 
 Net sales for the Health Sciences
segment increased by $3,492 for the three months ended December 31, 2007, to
$43,643, which represents an 8.7% increase from net sales of $40,151 for the
prior period.  This increase is the result of an increase of $1,464 in
sales of our pharmaceutical intermediates, as well as increased sales from our
foreign operations of $1,341, specifically our German
operations.
 
 Chemicals &
Colorants
 
 Net sales for the Chemicals &
Colorants segment were $29,858 for the three months ended December 31, 2007, an
increase of $1,315 from net sales of $28,543 for the prior
period.  Our chemical business consists of a variety of products,
customers and consuming markets.  The increase of 4.6%, over the prior
period is partially attributable to an increase in sales of pigment
intermediates and other intermediates which together increased $1,369, $1,799
increase in sales for chemicals used in aroma products, offset in part by a
decline of $1,865 of sales of our agricultural
intermediates.
 
 20
 
 Crop
Protection
 
 Net sales for the Crop Protection
segment decreased to $3,604 for the three months ended December 31, 2007, a
decrease of $3,388, or 48.5%, from net sales of $6,992 for the prior
period.  The decrease over the prior period is primarily attributed to
decreased sales of an herbicide used for sugar cane as well as decreased sales
related to an insecticide in which the Company is currently involved in an
antitrust matter related to certain licensed technology. In addition, sales
declined due to a decrease in sales of our sprout inhibitor products, which are
utilized on potato crops.
 
 Gross
Profit
 
 Gross profit decreased slightly to
$12,479 (16.2% of net sales) for the three months ended December 31, 2007, as
compared to $12,562 (16.6% of net sales) for the prior
period.
 
 Health
Sciences
 
 Gross profit for the three months ended
December 31, 2007 increased by $157, or 2.2%, over the prior period. The gross
margin was 16.9% for the three months ended December 31, 2007 compared to 17.9%
for the prior period.  The increase in gross profit was attributable
to the overall increase in sales volume. Gross margin decreased due primarily to
an unfavorable product mix in our domestic generics product
group.
 
 Chemicals &
Colorants
 
 Chemicals and Colorants’ gross profit
of $4,393 for the three months ended December 31, 2007 was $682 or 18.4% higher
than the prior period.  The gross margin was 14.7% for the three
months ended December 31, 2007 compared to 13.0% for the prior
period.  The increase in the gross profit and the gross margin
percentage is due to an increase of $439 of gross profit on aroma chemicals due
to increased sales volume as well as a positive product mix on these aroma
chemicals. In addition, gross profit on miscellaneous organic chemicals
increased by $149 over the prior period.
 
 Crop
Protection
 
 Gross profit for the Crop Protection
segment decreased to $731 for the three months ended December 31, 2007, versus
$1,653 for the prior period, a decrease of $922 or 55.8%.  Gross
margin for the quarter was 20.3% compared to the prior period gross margin of
23.6%. The decrease in the gross profit and gross margin percentage primarily
relates to a decline in sales volume of a particular herbicide and insecticide
as described above.
 
 Selling, General and
Administrative Expenses
 
 SG&A increased $738 or 7.5%, to
$10,578 for the three months ended December 31, 2007 compared to $9,840 for the
prior period.  As a percentage of sales, SG&A increased to 13.7%
for the three months ended December 31, 2007 versus 13.0% for the prior period.
The increase in SG&A relates primarily to an increase of $385 in legal
expenses, the majority of which has been incurred relating to an anti-trust case
that the Company has previously commenced against the owner of certain licensed
technology used with one of our crop protection products.  In
addition, $389 of the increase relates to a rise in personnel related costs for
our foreign operations.
 
 Research and
Development Expenses
 
 R&D increased $181 over the prior
period for the three months ended December 31, 2007. R&D relates to the
development of two finished dosage form generic pharmaceutical products to be
distributed in Europe.
  Operating
Income
 
 For the three months ended December 31,
2007, operating income was $1,720 compared to $2,722 in the prior period, a
decrease of $1,002 or 36.8%.  This decrease was due to the $919
increase in SG&A and R&D expenses and the overall decrease in gross
profit of $83.
  21
  Interest and Other
(Expense) Income, Net
  Interest and other (expense) income,
net was ($341) for the three months ended December 31, 2007, which represents an
increase of $309 in other expense over the prior period mainly due to $241 in
net foreign currency exchange losses. The foreign currency exchange losses
related primarily to the devaluation of US dollar assets being held by our
Chinese subsidiary.  In fiscal 2006, the Chinese government announced
it would no longer peg the Renminbi to the US dollar.
 
 Provision for Income
Taxes
 
 The effective tax rate for the three
months ended December 31, 2007 was 33.4%, which was relatively consistent to
33.5% for the prior period.
 
 Liquidity and
Capital Resources
 
 Cash
Flows
 
 At December 31, 2007, we had $39,030 in
cash, $3,125 in short-term investments and no short-term bank
loans.  Working capital was $118,614 at December 31, 2007 versus
$112,930 at June 30, 2007.
 
 Our cash position at December 31, 2007
increased $6,710 from the amount at June 30, 2007.  Operating
activities for the six months ended December 31, 2007 provided cash of $5,469,
for this period, as compared to cash provided by operations of $3,006 for the
comparable 2006 period. The $5,469 was comprised of $2,202 in net income and
$2,911 derived from adjustments for non-cash items plus a net $356 increase from
changes in operating assets and liabilities. The non-cash items included $1,202
in depreciation and amortization expense and $1,339 for the deferred income
taxes provision. Accounts receivable decreased $2,080 during the six months
ended December 31, 2007, due to decreased sales during the second quarter of
2008 as compared to the fourth quarter of 2007, as well as an improvement in
days sales outstanding. Inventories increased by approximately $3,504 and
accounts payable increased by $893 due to the increase in the Chemicals and
Colorants segment for an intermediate dye that is purchased from China, whereby
the Company is carrying more stock due to a possible supplier interruption
related to the Olympics to be held in China in the summer of 2008. Inventories
in the Health Sciences segment also increased as a result of orders that did not
ship until early January. Other accrued expenses and long-term liabilities
increased $2,590 during the six months ended December 31, 2007, due primarily to
an increase in accrued expenses related to a joint venture, an increase in
accrued expenses for our foreign subsidiaries related to timing of income tax
payments and VAT (value added tax) offset by a decrease in accrued compensation
as performance payments were made in September 2007. Other receivables increased
$921 due to an increase in VAT receivables in our European
subsidiaries.  Our cash position at December 31, 2006 decreased $3,124
from the amount at June 30, 2006.  Operating activities provided cash
of $3,006, primarily from net income of $4,206, partially offset by a net
decrease caused by changes in assets and liabilities.
 
 Investing activities for the six months
ended December 31, 2007 used cash of $537 primarily related to purchases of
property and equipment.   Investing activities for the six months
ended December 31, 2006 used cash of $6,928 primarily related to purchases of
investments of $6,222 and purchases of property and equipment and intangibles of
$339 and $401, respectively.
 
 Financing activities for the six months
ended December 31, 2007 provided cash of $58 primarily as a result of proceeds
from the exercise of stock options of $70.  Financing activities for
the six months ended December 31, 2006 provided cash of $175 primarily from
exercises of stock options.
 
 Credit
Facilities
 
 We have available credit facilities
with certain foreign financial institutions.  These facilities provide
us with a line of credit of $21,301, as of December 31, 2007.  We are
not subject to any financial covenants under these
arrangements.
  22
  In June 2007, we amended our revolving
credit agreement with a financial institution that expires June 30, 2010, and
provides for available credit of $10,000.  At December 31, 2007, we
had utilized $1,350 in letters of credit, leaving $8,650 of this facility
unused.  Under the credit agreement, we may obtain credit through
direct borrowings and letters of credit.  Our obligations under the
credit agreement are guaranteed by certain of our subsidiaries and are secured
by 65% of the capital of certain of our non-domestic
subsidiaries.  There is no borrowing base on the credit
agreement.  Interest under the credit agreement is at LIBOR plus
1.50%.  The credit agreement contains several covenants requiring,
among other things, minimum levels of debt service and tangible net
worth.  We are also subject to certain restrictive debt covenants,
including covenants governing liens, limitations on indebtedness, guarantees,
sale of assets, sales of receivables, and loans and investments.  We
were in compliance with all covenants at December 31, 2007.
 
 Working Capital
Outlook
 
 Working capital was $118,614 at
December 31, 2007 versus $112,930 at June 30, 2007.  The increase in
working capital was attributable to various factors including net income and a
reduction of trade receivables during the period.  We continually
evaluate possible acquisitions of or investments in businesses that are
complementary to our own, and such transactions may require the use of
cash.   In October 2007, the Company formed a joint venture in
connection with their crop protection business.  The joint venture
will require us to acquire product registration costs and related data filed
with the United States Environmental Protection Agency, which could approximate
$2,100 in fiscal 2008.  In January 2008, the Company paid a cash
dividend of $2,443 to the shareholders of record on December 21, 2007. On
February 7, 2008, the Company's board of directors declared a special dividend
of $0.05 per share to be distributed on March 7, 2008 to shareholders of record
as of February 22, 2008. We believe that our cash, other liquid
assets, operating cash flows, borrowing capacity and access to the equity
capital markets, taken together, provide adequate resources to fund ongoing
operating expenditures and the anticipated continuation of cash dividends for
the next twelve months.  We may obtain additional credit facilities to
enhance our liquidity.
 
 Impact of New
Accounting Pronouncements
 
 In June 2006, the FASB issued FASB
Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement 109”. FIN 48 prescribes a comprehensive model
for recognizing, measuring, presenting and disclosing in the financial
statements tax positions taken or expected to be taken on a tax return. FIN 48
is effective for fiscal years beginning after December 15, 2006.The Company
adopted FIN No. 48 on July 1, 2007 and determined that the adoption of FIN No.
48 did not have a material impact on its consolidated financial statements. In
addition, there are no unrecognized tax benefits included in our consolidated
balance sheet that would, if recognized, have a material effect on our effective
tax rate. The Company is continuing its practice of recognizing interest and
penalties related to income tax matters in income tax expense. The total
accrual for interest and penalties related to uncertain tax positions was
approximately $69 as of December 31, 2007. The Company did not recognize
interest or penalties related to income taxes during the three and six months
ended December 31, 2007. The Company files U.S. federal, U.S.
state, and foreign tax returns, and is generally no longer subject to tax
examinations for fiscal years prior to 2003 (in the case of certain foreign tax
returns, calendar year 2001).
  In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a
common definition for fair value to be applied to US GAAP guidance requiring use
of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. In
February 2008, the FASB provided a one-year deferral for the implementation of
SFAS No. 157 for nonfinancial assets and liabilities recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.We are
currently assessing the impact of SFAS No. 157 on our consolidated financial
position and results of operations.
  In February 2007, the FASB issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115" (" SFAS No. 159").
SFAS No. 159 allows companies the choice to measure many financial instruments
and certain other items at fair value. Unrealized gains and losses on items for
which the fair value option has been elected will be recognized in earnings at
each subsequent reporting date. The provisions of SFAS No. 159 will be effective
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact of SFAS No. 159 on the consolidated financial position and
results of operations.
 
 In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of Accounting Research Bulletin No 51” (SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, changes in a parent’s
ownership of a noncontrolling interest, calculation and disclosure of the
consolidated net income attributable to the parent and the noncontrolling
interest, changes in a parent’s ownership interest while the parent retains its
controlling financial interest and fair value measurement of any retained
noncontrolling equity investment. SFAS No. 160 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. The
Company must adopt these new requirements in its first quarter of fiscal
2010.  Management is currently evaluating the impact of SFAS No. 160
on the consolidated financial position and results of
operations.
  23
  In December 2007, the FASB approved the
issuance of SFAS No. 141 (revised 2007) “Business Combinations” (SFAS No. 141R).
SFAS No. 141R establishes principles and requirements for how the acquirer in a
business combination recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any controlling
interest; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No. 141R applies to
business combinations for which the acquisition date is on or after December 15,
2008. The Company is evaluating the impact of SFAS No. 141R on its results of
operations and financial condition.
 
 Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Market Risk
Sensitive Instruments
 
 The market risk inherent in our
market-risk-sensitive instruments and positions is the potential loss arising
from adverse changes in investment market prices, foreign currency
exchange-rates and interest rates.
 
 Investment Market
Price Risk
 
 We had short-term investments of $3,125
at December 31, 2007.  Those short-term investments consisted of
government and agency securities, corporate bonds and corporate equity
securities, and they were recorded at fair value and had exposure to price
risk.  If this risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in prices quoted by stock
exchanges, the effect of that risk would be $313 as of December 31,
2007.  Actual results may differ.
 
 Foreign Currency
Exchange Risk
 
 In order to reduce the risk of foreign
currency exchange rate fluctuations, we hedge some of our transactions
denominated in a currency other than the functional currencies applicable to
each of our various entities.  The instruments used for hedging are
short-term foreign currency contracts (futures).  The changes in
market value of such contracts have a high correlation to price changes in the
currency of the related hedged transactions.  At December 31, 2007, we
had foreign currency contracts outstanding that had a notional amount of
$15,771.  The difference between the fair market value of the foreign
currency contracts and the related commitments at inception and the fair market
value of the contracts and the related commitments at December 31, 2007, was not
material.
 
 In addition, we enter into cross
currency interest rate swaps to reduce foreign currency exposure on
inter-company transactions.  In May 2003 we entered into a five-year
cross currency interest rate swap transaction for the purpose of hedging
fixed-interest-rate, foreign-currency-denominated cash flows under an
inter-company loan.  Under the terms of the derivative financial
instrument, U.S. dollar fixed principal and interest payments to be received
under the inter-company loan will be swapped for Euro denominated fixed
principal and interest payments.  The change in fair value of the swap
from date of purchase to December 31, 2007, was $(63).  The gains or
losses on the inter-company loan due to changes in foreign currency rates will
be offset by the gains or losses on the swap in the accompanying condensed
consolidated statements of income.  Since our interest rate swap
qualifies as a hedging activity, the change in their fair value, amounting to
$(12) and $(98) for the six months ended December 31, 2007 and 2006,
respectively, is recorded in accumulated other comprehensive income included in
the accompanying condensed 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 December 31, 2007, we had
translation exposure to various foreign currencies, with the most significant
being the Euro and the Chinese Renminbi.  The potential loss as of
December 31, 2007, resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates amounted to $6,389.  Actual results
may differ.
  24
  Interest rate
risk
 
 Due to our financing, investing and
cash-management activities, we are subject to market risk from exposure to
changes in interest rates.  We utilize a balanced mix of debt
maturities along with both fixed-rate and variable-rate debt to manage our
exposure to changes in interest rates.  Our financial instrument
holdings were analyzed to determine their sensitivity to interest rate
changes.  In this sensitivity analysis, we used the same change in
interest rate for all maturities.  All other factors were held
constant.  If there were an adverse change in interest rates of 10%,
the expected effect on net income related to our financial instruments would be
immaterial.  However, there can be no assurances that interest rates
will not significantly affect our results of operations.
 
 Item
4.  Controls and Procedures
 
 Evaluation of
Disclosure Controls and Procedures
  Our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “ExchangeAct”)) are designed to provide
reasonable assurance that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Our disclosure controls and procedures are
alsodesigned to ensure
that information required to be disclosed in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officer, to allow
timely decisions regarding required disclosure. Our chief executive officer and
chief financial officer, with assistance from other members of our management,
have reviewed the effectiveness of our disclosure controls and procedures as of
December 31, 2007 and, based on their evaluation, have concluded that the
disclosure controls and procedures were effectiveas of such date.
  Changes in Internal
Control over Financial Reporting
  There has been no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act) that occurred during our fiscal quarter ended December 31,
2007 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
 
 PART
II.  OTHER INFORMATION
 
 Item
1A.  Risk Factors
 
 There have been no material changes to
the risk factors disclosed under Part I- in “Item 1A. Risk Factors” in our Form
10-K for the year ended June 30, 2007 other than changes to the first two risk
factors set forth below and the addition of the third risk factor set forth
below:
 
 If we are unable to
continue to use licensed technology that we rely on to conduct our crop
protection business, our profitability and financial condition will be adversely
affected.
 
 We cannot assure you that we will be
able to continue to license the technology that we currently rely on in order to
sell certain of our crop protection products. An inability to license this
technology could prevent us from continuing to sell the products and, in turn,
materially adversely affect our profitability and financial condition. We may
also incur substantial costs in seeking enforcement of our rights related to our
licensed technologies.
 
 One of the Company’s crop protection
products is subject to certain licensed technology, which expired in August
2007. The Company has commenced a lawsuit against the owner of the patent
license bringing claims based on antitrust and related claims.   In
December 2007, the Company’s motion for a preliminary injunction was denied. The
Company intends to continue to pursue this matter vigorously in order to
continue to license the technology and sell the particular crop protection
product.  For the year end June 30, 2007 and 2006, net sales from this
crop protection product were $3,244 and $4,832,
respectively.
  25
  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,
including manufacturing delays caused by plant shutdowns related to the 2008
Summer Olympics in Beijing, may occur with these and other outside sources. If
such problems occur, we cannot assure that we will be able to deliver our
products to our customers profitably or on time.
 
 China reduces
tax credits paid to export manufacturers.
 
 The Chinese government recently cut the
tax credits that exporters get on more than 2,200 products, including many of
our products that are manufactured in China. These tax credits were adopted more
than twenty (20) years ago to provide Chinese companies with tax breaks on
revenues derived from exports.  In addition, beginning in 2006, the
Chinese government began to revalue the Chinese Renminbi against other
currencies, including the U.S. dollar. This revaluation and the cut in tax
credits will cause the price of many items that are sourced in China to
increase, which could adversely impact the Company’s profitability. The Company
will attempt to increase selling prices for certain of these products to recover
a portion of the increased cost. However, there can be no assurance that we will
be able to pass along future cost increases, if any, to our customers which
could also have an adverse impact on our results of operations and financial
condition.
  26
 
 Item
4.    Submission of Matters to a Vote of Security
Holders.
 
 The Company held an annual meeting of
its shareholders on December 6, 2007.  Three matters were voted on at
the annual meeting, as follows:
 
 a.
              The election of nominees Leonard
      S. Schwartz, Robert A. Wiesen, Stanley H. Fischer, Albert L. Eilender,
      Hans C. Noetzli and William N. Britton as directors of the Company until
      the next annual meeting was voted on at the annual
      meeting.
  The votes were cast for this
      matter as follows:
 
 
 FOR
              WITHHELD/ABSTAINLeonard S.
      Schwartz
              13,253
              6,147Robert A.
      Wiesen
              11,189
              8,211Stanley H.
      Fischer
              13,192
              6,208Albert L.
      Eilender
              18,563
              837Hans C.
      Noetzli
              17,107
              2,293William N.
      Britton
              18,563
              837
 
 
 Each nominee was elected a
      director of the Company.
  b.
              Ratification of the
      adoption of the Aceto Corporation 2007 Long-Term Performance Incentive
      Plan.
  The votes were cast for this
      matter as follows:
 
 FOR
              AGAINST
              ABSTAIN
              BROKER
      NON-VOTES13,025
              1,889
              130
              4,356
 
 
 c.
              Ratification of the selection of
      BDO Seidman, LLP as the Company’s independent accountants for the current
      fiscal year.
  The votes were cast for this
      matter as follows:
 
 FOR
              AGAINST
              ABSTAIN19,314
              28
              58
 
 Item
6.    Exhibits
 
 The exhibits filed as part of this
report are listed below.
 
 15.1
              Awareness letter from independent
      registered public accounting
firm
  31.1
              Certification pursuant to Rules
      13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
  31.2
              Certification pursuant to Rules
      13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
  32.1
              Certification pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
  32.2
              Certification pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
  27
  SIGNATURES
 
 Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
 
 
 
 ACETO
      CORPORATION
    DATE February 8,
      2008
              BY
              /s/ Douglas
      RothDouglas Roth, Chief Financial
      Officer(Principal Financial
      Officer)DATE February 8,
      2008
              BY
              /s/ Leonard S.
      SchwartzLeonard S. Schwartz,
      Chairman,President and Chief Executive
      Officer(Principal Executive
      Officer)










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