UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the quarterly period ended March 31, 2008
 Commission
file number 000-04217
 
 
 ACETO
CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 
 New
      York
              11-1720520(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification Number)
   One Hollow Lane, Lake
      Success, NY 11042(Address
      of principal executive offices)
 
 (516)
627-6000
 (Registrant's
telephone number, including area code)
 
 www.aceto.com
 (Registrant’s
website address)
 
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 
 Yes x  No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large
      accelerated filer o
              Accelerated
      filer xNon-accelerated
      filer o
              Smaller
      reporting company o
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes o  No x
 
 The
Registrant has 24,440,188 shares of common stock outstanding as of May 5,
2008.
  
 
 ACETO
CORPORATION AND SUBSIDIARIES
 QUARTERLY
REPORT FOR THE PERIOD ENDED MARCH 31, 2008
 
 TABLE
OF CONTENTS
 
 
 
 PART
      I.
              FINANCIAL
      INFORMATION
              3Item
      1.
              
              Financial
      Statements
              3Condensed
      Consolidated Balance Sheets – March 31, 2008 (unaudited) and June 30,
      2007
              3Condensed
      Consolidated Statements of Income – Nine Months Ended March 31, 2008 and
      2007 (unaudited)
              4Condensed
      Consolidated Statements of Income – Three Months Ended March 31, 2008 and
      2007 (unaudited)
              5Condensed
      Consolidated Statements of Cash Flows –  Nine Months Ended March
      31, 2008 and 2007 (unaudited)
              6Notes
      to Condensed Consolidated Financial Statements (unaudited)
              7Report
      of Independent Registered Public Accounting Firm
              15Item
      2.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              16Item
      3.
              
              Quantitative
      and Qualitative Disclosures about Market Risk
              25Item
      4.
              
              Controls
      and Procedures
              26PART
      II.
              OTHER
      INFORMATION
              27Item
      1A.
              
              Risk
      Factors
              27Item
      6.
              
              Exhibits
              28Signatures
              
              29Exhibits
 
 2
 
 PART
I. FINANCIAL INFORMATION
 Item
1.  Financial Statements
  ACETO
      CORPORATION AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED BALANCE SHEETS
                (in
      thousands, except per-share amounts)March
      31,
                2008
              
              
              June
      30,
                2007(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              32,239
              
              
              $
              32,320Investments
              
              
              1,169
              
              
              
              3,036Trade
      receivables, less allowance for doubtfulaccounts
      (March, $441, June $491)
              
              
              72,357
              
              
              
              58,206Other
      receivables
              
              
              4,160
              
              
              
              3,123Inventory
              
              
              63,332
              
              
              
              60,679Prepaid
      expenses and other current assets
              
              
              1,074
              
              
              
              1,128Deferred
      income tax benefit, net
              
              
              2,726
              
              
              
              2,541Total
      current assets
              
              
              177,057
              
              
              
              161,033Long-term
      notes receivable
              
              
              373
              
              
              
              449Property
      and equipment, net
              
              
              4,308
              
              
              
              4,406Property
      held for sale
              
              
              5,268
              
              
              
              5,268Goodwill
              
              
              1,987
              
              
              
              1,820Intangible
      assets, net
              
              
              5,581
              
              
              
              5,817Deferred
      income tax benefit, net
              
              
              4,618
              
              
              
              5,958Other
      assets
              
              
              4,224
              
              
              
              3,727TOTAL
      ASSETS
              
              $
              203,416
              
              
              $
              188,478LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              35,061
              
              
              $
              32,539Short-term
      bank loans
              
              
              -
              
              
              
              25Note
      payable – related party
              
              
              500
              
              
              
              500Accrued
      expenses
              
              
              17,043
              
              
              
              14,154Deferred
      income tax liability
              
              
              885
              
              
              
              885Total
      current liabilities
              
              
              53,489
              
              
              
              48,103Long-term
      liabilities
              
              
              6,960
              
              
              
              6,684Environmental
      remediation liability
              
              
              5,816
              
              
              
              5,816Deferred
      income tax liability
              
              
              2,888
              
              
              
              2,746Minority
      interest
              
              
              304
              
              
              
              302Total
      liabilities
              
              
              69,457
              
              
              
              63,651Commitments
      and contingencies (Note 9)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares
      issued;  24,435 and 24,330 shares outstanding at March 31, 2008
      and June 30, 2007, respectively
              
              
              256
              
              
              
              256Capital
      in excess of par value
              
              
              56,614
              
              
              
              56,854Retained
      earnings
              
              
              76,248
              
              
              
              74,419Treasury
      stock, at cost, 1,209 and 1,314 shares at March 31, 2008 and June 30,
      2007, respectively
              
              
              (11,684
              )
              
              
              (12,693
              )Accumulated
      other comprehensive income
              
              
              12,525
              
              
              
              5,991Total
      shareholders’ equity
              
              
              133,959
              
              
              
              124,827TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              203,416
              
              
              $
              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)Nine
      Months Ended
                March
      31,2008
              
              
              2007Net
      sales
              
              $
              254,888
              
              
              $
              226,290Cost
      of sales
              
              
              211,803
              
              
              
              188,291Gross
      profit
              
              
              43,085
              
              
              
              37,999Selling,
      general and administrative expenses
              
              
              32,924
              
              
              
              28,722Research
      and development expenses
              
              
              632
              
              
              
              11Operating
      income
              
              
              9,529
              
              
              
              9,266Other
      (expense) income:Interest
      expense
              
              
              (63
              )
              
              
              (83
              )Interest
      and other income, net
              
              
              596
              
              
              
              366533
              
              
              
              283Income
      before income taxes
              
              
              10,062
              
              
              
              9,549Provision
      for income taxes
              
              
              4,566
              
              
              
              3,543Net
      income
              
              $
              5,496
              
              
              $
              6,006Net
      income per common share
              
              $
              0.23
              
              
              $
              0.25Diluted
      net income per common share
              
              $
              0.22
              
              
              $
              0.24Weighted
      average shares outstanding:Basic
              
              
              24,344
              
              
              
              24,298Diluted
              
              
              24,806
              
              
              
              24,683
 
 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
                March
      31,2008
              
              
              2007Net
      sales
              
              $
              98,255
              
              
              $
              75,879Cost
      of sales
              
              
              82,212
              
              
              
              63,003Gross
      profit
              
              
              16,043
              
              
              
              12,876Selling,
      general and administrative expenses
              
              
              11,560
              
              
              
              9,727Research
      and development expenses
              
              
              279
              
              
              
              5Operating
      income
              
              
              4,204
              
              
              
              3,144Other
      (expense) income:Interest
      expense
              
              
              (32
              )
              
              
              (2
              )Interest
      and other income, net
              
              
              610
              
              
              
              110578
              
              
              
              108Income
      before income taxes
              
              
              4,782
              
              
              
              3,252Provision
      for income taxes
              
              
              1,488
              
              
              
              1,452Net
      income
              
              $
              3,294
              
              
              $
              1,800Net
      income per common share
              
              $
              0.14
              
              
              $
              0.07Diluted
      net income per common share
              
              $
              0.13
              
              
              $
              0.07Weighted
      average shares outstanding:Basic
              
              
              24,348
              
              
              
              24,318Diluted
              
              
              24,745
              
              
              
              24,800
 
 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)Nine
      Months Ended
                March
      31,2008
              
              
              2007Operating
      activities:Net
      income
              
              $
              5,496
              
              
              $
              6,006Adjustments
      to reconcile net income to net cash providedby
      operating activities:Depreciation
      and amortization
              
              
              1,935
              
              
              
              1,298Provision
      for doubtful accounts
              
              
              15
              
              
              
              132Non-cash
      stock compensation
              
              
              672
              
              
              
              326Deferred
      income taxes
              
              
              1,297
              
              
              
              1,495Unrealized
      loss (gain) on trading securities
              
              
              84
              
              
              
              (42
              )Changes
      in assets and liabilities:Investments-trading
      securities
              
              
              325
              
              
              
              -Trade
      accounts receivable
              
              
              (10,854
              )
              
              
              (3,905
              )Other
      receivables
              
              
              (580
              )
              
              
              (2,119
              )Inventory
              
              
              (295
              )
              
              
              (10,873
              )Prepaid
      expenses and other current assets
              
              
              88
              
              
              
              (96
              )Other
      assets
              
              
              (720
              )
              
              
              (450
              )Accounts
      payable
              
              
              1,224
              
              
              
              8,672Other
      accrued expenses and liabilities
              
              
              1,480
              
              
              
              2,185Net
      cash provided by operating activities
              
              
              167
              
              
              
              2,629Investing
      activities:Issuance
      of notes receivable
              
              
              -
              
              
              
              (75
              )Payments
      received on notes receivable
              
              
              73
              
              
              
              127Purchases
      of property and equipment, net
              
              
              (1,000
              )
              
              
              (446
              )Purchases
      of investments
              
              
              -
              
              
              
              (6,268
              )Maturities
      of investments
              
              
              1,000
              
              
              
              3,279Sales
      of investments
              
              
              500
              
              
              
              -Purchase
      of intangible asset
              
              
              (25
              )
              
              
              (437
              )Net
      cash provided by (used in) investing activities
              
              
              548
              
              
              
              (3,820
              )Financing
      activities:Proceeds
      from exercise of stock options
              
              
              74
              
              
              
              217Excess
      tax benefit on exercise of stock options
              
              
              14
              
              
              
              24Payment
      of cash dividends
              
              
              (3,665
              )
              
              
              (1,823
              )Payments
      of short-term bank loans
              
              
              (25
              )
              
              
              -Net
      cash used in financing activities
              
              
              (3,602
              )
              
              
              (1,582
              )Effect
      of exchange rate changes on cash
              
              
              2,806
              
              
              
              815Net
      decrease in cash
              
              
              (81
              )
              
              
              (1,958
              )Cash
      at beginning of period
              
              
              32,320
              
              
              
              33,732Cash
      at end of period
              
              $
              32,239
              
              
              $
              31,774
 
 See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.
 6
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
  (1)  Basis of
Presentation
 
 The
condensed consolidated financial statements of Aceto Corporation and
subsidiaries (“Aceto” or the “Company”) included herein have been prepared by
the Company and reflect all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for all periods presented.  Interim results
are not necessarily indicative of results which may be achieved for the full
year.
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements.  These judgments can be
subjective and complex, and consequently actual results could differ from those
estimates and assumptions.  The Company’s most critical accounting
policies relate to revenue recognition; allowance for doubtful accounts;
inventories; goodwill and other indefinite-lived intangible assets; long-lived
assets; environmental and other contingencies; income taxes; and stock-based
compensation.
 
 These
condensed consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
U.S. generally accepted accounting principles.  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.
 
 In the
third quarter of 2008, the Company changed the functional currency of its
Chinese subsidiaries from the Chinese Renminbi to the U.S. Dollar, since these
subsidiaries primarily generate and expend cash in the U.S.
Dollar.  As a result, the Company recorded a correction of an error in
the third quarter of 2008, which resulted in additional interest and other
income, net of approximately $559, which represented approximately $389 after
tax profit. The Company did not deem this adjustment to be material to any prior
quarters in fiscal 2008 based upon both quantitative and qualitative
factors.  In addition, this adjustment does not impact the 2008
year-to-date reported results. This matter was not corrected for periods prior
to June 30, 2007 due to the immateriality of the effects of this in earlier
years.
 
 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:
 
 March 31, 2008
              
              
              June 30, 2007Fair Value
              
              
              Cost Basis
              
              
              Fair Value
              
              
              Cost BasisTrading
      securitiesCorporate
      equity securities
              
              $
              469
              
              
              $
              14
              
              
              $
              877
              
              
              $
              152Available for sale
      securitiesCorporate
      bonds
              
              
              700
              
              
              $
              700
              
              
              
              1,187
              
              
              $
              1,203Government
      and agency securities
              
              
              -
              
              
              $
              -
              
              
              
              972
              
              
              $
              1,000$
              1,169
              
              
              
              
              
              
              $
              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
losses on trading securities were $138 and $26 for the three months ended March
31, 2008 and 2007, respectively.   Unrealized (losses) gains on
trading securities were ($84) and $42 for the nine months ended March 31, 2008
and 2007, respectively.
 
 7
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 (3)  Goodwill
and Other Intangible Assets
 
 Goodwill
of $1,987 and $1,820 as of March 31, 2008 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.
 
 (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 nine months ended March 31, 2008 and 2007 was $364 and
$266, respectively and $184 and $54 for the three months ended March 31, 2008
and 2007, 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:
 
 Nine
      months ended
                March
      31,2008
              
              
              2007Expected
      life
              
              5.6
      years
              
              
              5.5
      yearsExpected
      volatility
              
              
              46.0
              %
              
              
              57.0
              %Risk-free
      interest rate
              
              
              3.55
              %
              
              
              4.40
              %Dividend
      yield
              
              
              2.50
              %
              
              
              1.83
              %
 
 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 $590.  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 nine
months ended March 31, 2008, the Company recorded stock-based compensation
expense of approximately $64 and $263, respectively for these shares of
restricted common stock and restricted stock units, of which $186 of
compensation expense for the nine months ended March 31, 2008 related to retiree
eligibility.
  8
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 The
Company’s policy is to satisfy stock-based compensation awards with treasury
shares, to the extent available.
 (5)  Common Stock
 
 On May 8,
2008, the Company's board of directors declared a semi-annual cash dividend of
$0.10 per share to be distributed on June 27, 2008 to shareholders of record as
of June 16, 2008.
 
 On
February 7, 2008, the Company's board of directors declared a special dividend
of $0.05 per share, in which $1,222 was paid on March 7, 2008 to shareholders of
record as of February 22, 2008.
 
 On
December 6, 2007, the Company’s board of directors declared a regular
semi-annual cash dividend of $0.10 per share in which $2,443 was paid on January
11, 2008 to shareholders of record on December 21, 2007.
 
 (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:
 
 Nine
      months ended
                March
      31,
              
              
              Three
      months ended
                March
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Weighted
      average shares outstanding
              
              
              24,344
              
              
              
              24,298
              
              
              
              24,348
              
              
              
              24,318Dilutive
      effect of stock options and restricted stock awards and
    units
              
              
              462
              
              
              
              385
              
              
              
              397
              
              
              
              482Diluted
      weighted average shares outstanding
              
              
              24,806
              
              
              
              24,683
              
              
              
              24,745
              
              
              
              24,800
 
 There
were 1,465 and 1,500 common equivalent shares outstanding as of March 31, 2008
and 2007, respectively, that were not included in the calculation of diluted
income per common share for the nine months ended March 31, 2008 and 2007,
respectively, because their effect would have been
anti-dilutive.  There were 1,763 and 1,211 common equivalent shares
outstanding as of March 31, 2008 and 2007, respectively, that were not included
in the calculation of diluted income per common share for the three months ended
March 31, 2008 and 2007, respectively, because their effect would have been
anti-dilutive.
 
 9
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 (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:
 
 Nine
      months ended
                March
      31,
              
              
              Three
      months ended
                March
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Comprehensive
      income:Net
      income
              
              $
              5,496
              
              
              
              6,006
              
              
              $
              3,294
              
              
              $
              1,800Foreign
      currency translationadjustment
              
              
              6,512
              
              
              
              2,222
              
              
              
              2,462
              
              
              
              498Unrealized
      gain on availablefor
      sale securities
              
              
              42
              
              
              
              54
              
              
              
              5
              
              
              
              18Change
      in fair value of crosscurrency
      interest rate swaps
              
              
              (20
              )
              
              
              106
              
              
              
              (32
              )
              
              
              8Total
              
              $
              12,030
              
              
              $
              8,388
              
              
              $
              5,729
              
              
              $
              2,324
 
 The
financial statements of the Company’s foreign subsidiaries are translated into
U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation."
Where the functional currency of a foreign subsidiary is its local currency,
balance sheet accounts are translated at the current exchange rate and income
statement items are translated at the average exchange rate for the
period.   Exchange gains or losses resulting from the translation
of financial statements of foreign operations are accumulated in other
comprehensive income.  Where the local currency of a foreign
subsidiary is not its functional currency, financial statements are translated
at either current or historical exchange rates, as
appropriate.   The foreign currency translation adjustment for
the three and nine months ended March 31, 2008 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.
 
 (8)  Income
Taxes
 
 The
decrease in the net deferred income tax assets of $1,297 for the nine months
ended March 31, 2008 related primarily to German tax reform which was enacted in
August 2007 that reduces the corporate headline 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 became 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
nine months ended March 31, 2008.
 
 The
decrease in the net deferred income tax assets of $1,598 for the nine months
ended March 31, 2007 related to the reduction of taxes payable due to the
utilization of foreign net operating loss carryforwards.
 
 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 March 31, 2008.
The Company did not recognize interest or penalties related to income taxes
during the three and nine months ended March 31, 2008.  The
  10
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   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 2005 (in the case
of certain foreign tax returns, calendar year 2002).
  (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.
  Packaging
used for one of the Company’s crop protection products is covered by a patent,
for which the Company had a license that expired in August 2007. The Company has
commenced a lawsuit against the current owner of the patent bringing claims
based on antitrust and related claims.   In December 2007, the
Company’s motion for a preliminary injunction was denied. In May 2008, the
patent owner filed a lawsuit against the Company for patent infringement, among
other claims. The patent owner is suing for unspecified monetary damages and a
permanent injunction. No trial date has been scheduled. In May 2008, the court
granted the patent owner’s motion for a temporary restraining order, which
temporarily restrains Aceto from using or selling product in packaging covered
by the patent until likely a full evidentiary hearing on the motion for a
preliminary injunction takes place.  The Company has asserted that the
claims are unenforceable and believes the claims are without legal merit;
however, it is not possible to determine the outcome. The Company intends to
continue to vigorously defend this matter. However, management believes that an
unfavorable final outcome would not have a material adverse impact on its
financial position or liquidity. For the year end June 30, 2007 and 2006, net
sales from this crop protection product were $3,244 and $4,832, respectively.
The Company’s inventory of products in packaging covered by the patent is
approximately $2,804 as of March 31, 2008.
 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.
 
 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 March 31, 2008 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.
  11
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   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 March 31, 2008, the aggregate
future rental payments of the third party that are guaranteed by the Company are
$457 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 $359 and $702 as of March
31, 2008 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.
 
 In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards” (EITF No. 06-11). EITF  No. 06-11 provides guidance regarding
how an entity should recognize the tax benefit received as a result of dividends
paid to holders of share-based compensation awards and charged to retained
earnings according to SFAS No. 123(R), and will become
  12
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   effective in the first
quarter of 2009. Management does not expect EITF No. 06-11 to have a material
impact on the Company’s consolidated financial statements. 
 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.  The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In March
2008, the FASB issued SFASNo.161, “Disclosures about Derivative Instruments and Hedging
Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161
requires enhanced qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the impact of SFAS No. 161 on its consolidated financial
statements.
  13
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 (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.
 
 Nine
Months Ended March 31, 2008 and 2007:
  Health
                Sciences
              
              
              Chemicals
      & Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
                Totals2008Net
      sales
              
              $
              148,522
              
              
              $
              94,036
              
              
              $
              12,330
              
              
              $
              254,888Gross
      profit
              
              
              27,420
              
              
              
              13,323
              
              
              
              2,342
              
              
              
              43,0852007Net
      sales
              
              $
              124,013
              
              
              $
              87,913
              
              
              $
              14,364
              
              
              $
              226,290Gross
      profit
              
              
              22,835
              
              
              
              11,528
              
              
              
              3,636
              
              
              
              37,999
 
 Three
Months Ended March 31, 2008 and 2007:
  Health
                Sciences
              
              
              Chemicals
      & Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
                Totals2008Net
      sales
              
              $
              58,199
              
              
              $
              35,871
              
              
              $
              4,185
              
              
              $
              98,255Gross
      profit
              
              
              9,963
              
              
              
              5,336
              
              
              
              744
              
              
              
              16,0432007Net
      sales
              
              $
              41,358
              
              
              $
              30,528
              
              
              $
              3,993
              
              
              $
              75,879Gross
      profit
              
              
              7,420
              
              
              
              4,260
              
              
              
              1,196
              
              
              
              12,876
 
 14
 
 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 March 31, 2008 and the related condensed consolidated
statements of income for the three-month and nine-month periods ended March 31,
2008 and 2007, and the related condensed consolidated statements of cash flows
for the nine-month periods ended March 31, 2008 and 2007 included in the
accompanying Securities and Exchange Commission Form 10-Q for the period ended
March 31, 2008.  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
 May 8,
2008
  15
  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 $254,888 for the nine months ended March 31, 2008, which
represents a 12.6% increase from the $226,290 reported in the comparable prior
period.  Gross profit for the nine months ended March 31, 2008 was
$43,085 and our gross margin was 16.9% as compared to gross profit of $37,999
and gross margin of 16.8% in the comparable prior period.  Our
selling, general and administrative costs for the nine months ended March 31,
2008 increased to $32,924, an increase of 14.6% over the $28,722 we reported in
the prior period.  Our net income decreased to $5,496, or $0.22 per
diluted share, a decrease of 8.5% compared to the prior period.
 
 Our
financial position as of March 31, 2008 remains strong, as we had cash of
$32,239, working capital of $123,568, no long-term debt and shareholders’ equity
of $133,959.
 
 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 abbreviated new
drug applications (“ANDAs”). The opportunities that we are looking for are to
supply the APIs for the more mature
  16
  generic drugs where
pricing has stabilized following the dramatic decreases in price that these
drugs experienced after coming off patent.  As is the case in the
generic industry, the entrance into the market of other generic competition
generally has a negative impact on the pricing of the affected
products.
  By
leveraging our worldwide sourcing 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 our raw materials are also used in high-tech products
like high-end electronic parts (circuit boards and computer chips) and binders
for specialized rocket fuels. We are currently responding to the changing needs
of our customers in the color producing industry by taking our resources and
knowledge downstream as a supplier of select organic pigments. 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 we have
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 nine months ended March 31, 2008 and 2007.  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.
  17
 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
 
 Nine
Months Ended March 31, 2008 Compared to Nine Months Ended March 31,
2007
 
 Net
      Sales by Segment
                Nine
      months ended March 31,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007%
      of
              
              
              
              
              
              %
      of
              
              
              $
              
              
              %Segment
              
              Net sales
              
              
              total
              
              
              Net sales
              
              
              total
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              148,522
              
              
              
              58.3
              %
              
              $
              124,013
              
              
              
              54.8
              %
              
              $
              24,509
              
              
              
              19.8
              %Chemicals
      & Colorants
              
              
              94,036
              
              
              
              36.9
              
              
              
              87,913
              
              
              
              38.9
              
              
              
              6,123
              
              
              
              7.0Crop
      Protection
              
              
              12,330
              
              
              
              4.8
              
              
              
              14,364
              
              
              
              6.3
              
              
              
              (2,034
              )
              
              
              (14.2
              )Net
      sales
              
              $
              254,888
              
              
              
              100.0
              %
              
              $
              226,290
              
              
              
              100.0
              %
              
              $
              28,598
              
              
              
              12.6
              %Gross
      Profit by Segment
                Nine
      months ended March 31,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007Gross
              
              
              %
      of
              
              
              Gross
              
              
              %
      of
              
              
              $
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              Profit
              
              
              Sales
              
              
              change
              
              
              ChangeHealth
      Sciences
              
              $
              27,420
              
              
              
              18.5
              %
              
              $
              22,835
              
              
              
              18.4
              %
              
              $
              4,585
              
              
              
              20.1
              %Chemicals
      & Colorants
              
              
              13,323
              
              
              
              14.2
              
              
              
              11,528
              
              
              
              13.1
              
              
              
              1,795
              
              
              
              15.6Crop
      Protection
              
              
              2,342
              
              
              
              19.0
              
              
              
              3,636
              
              
              
              25.3
              
              
              
              (1,294
              )
              
              
              (35.6
              )Gross
      Profit
              
              $
              43,085
              
              
              
              16.9
              %
              
              $
              37,999
              
              
              
              16.8
              %
              
              $
              5,086
              
              
              
              13.4
              %
  18
 Net
Sales
 
 Net sales
increased $28,598 or 12.6%, to $254,888 for the nine months ended March 31,
2008, compared with $226,290 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 $24,509 for the nine months ended
March 31, 2008, to $148,522, which represents a 19.8% increase from net sales of
$124,013 for the prior period.  This increase is due to various
factors including increased sales from our foreign operations of $14,455,
specifically our European operations and a $3,744 rise in sales of our
pharmaceutical intermediates. In addition, our domestic generics product group
experienced an increase in sales of $6,801. The domestic sales increase for the
nine months ended March 31, 2008 was due to the volume of re-orders for existing
products as well as realization of new products from our pipeline.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment were $94,036 for the nine months ended
March 31, 2008, which represents a $6,123 or 7.0% increase over the $87,913 for
the prior period.  Our chemical business is diverse in terms of
products, customers and consuming markets.  The increase in sales from
this segment is partially attributable to an increase of $4,425 in sales of
pigment and dye intermediates, $4,109 increase in sales for chemicals used in
aroma products and $1,095 rise in sales of chemicals used to make surface
coatings. This increase is offset in part by $2,633 decline in sales of our
products sold to the food, beverage and cosmetics industries.
 
 Crop
Protection
 
 Net sales
for the Crop Protection segment decreased to $12,330 for the nine months ended
March 31, 2008, a decrease of $2,034, or 14.2%, from net sales of $14,364 for
the prior period.  The decrease over the prior period is primarily
attributed to decreased sales of an herbicide used for sugar cane.
  Gross
Profit
 
 Gross
profit increased $5,086 to $43,085 (16.9% of net sales) for the nine months
ended March 31, 2008, as compared to $37,999 (16.8% of net sales) for the prior
period.
 
 Health
Sciences
 
 Health
Sciences’ gross profit of $27,420 for the nine months ended March 31, 2008 was
$4,585 or 20.1% higher than the prior period.  This increase in gross
profit was attributable to $2,910 increase in gross profit primarily from our
European operations as well as the overall increase in sales volume. Gross
margin for the nine months ended March 31, 2008 increased slightly to 18.5% from
18.4% for the prior period due primarily to favorable product mix in our
nutraceutical products.
 
 Chemicals
& Colorants
 
 Gross
profit for the nine months ended March 31, 2008 increased by $1,795, or 15.6%,
over the prior period. The gross margin was 14.2% for the nine months ended
March 31, 2008 compared to 13.1% for the prior period.  The increase
in the gross profit and gross margin percentage primarily relates to the
increase in sales volume and positive product mix on aroma chemicals. In
addition, there was a $330 settlement of an anti-dumping claim included in the
prior year cost of sales.
 
 Crop
Protection
 
 Gross
profit for the Crop Protection segment decreased to $2,342 for the nine months
ended March 31, 2008, versus $3,636 for the prior period, a decrease of $1,294
or 35.6%.  Gross margin for the quarter was 19.0% compared to
the
  19
  prior period gross margin
of 25.3%. The decrease in the gross profit and gross margin percentage primarily
relates to a decline in sales volume of a particular herbicide as described
above and a decrease in gross profit related to a sprout inhibitor that extends
the storage life of potatoes.
  Selling,
General and Administrative Expenses
  Selling,
general and administrative expenses (“SG&A”) increased $4,202, or 14.6%, to
$32,924 for the nine months ended March 31, 2008 compared to $28,722 for the
prior period.  As a percentage of sales, SG&A increased slightly
to 12.9% for the nine months ended March 31, 2008 versus 12.7% for the prior
period.  The increase in SG&A is partially attributed to an
increase of $1,491 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.  Personnel related costs increased by $1,777, of which
$1,148 relates to our foreign operations and $361 relates to stock-based
compensation. In addition, commission expense increased by $233 due to increased
sales. Additionally, the prior year amount was reduced by $243 of proceeds
received from credit insurance, which there was no comparable amount received
during the nine months ended March 31, 2008.
 
 Research
and Development Expenses
 
 Research
and development expenses (“R&D”) increased $621 over the prior period to
$632 for the nine months ended March 31, 2008. R&D relates to the
development of two finished dosage form generic pharmaceutical products to be
distributed in Europe.
  Operating
Income
  For the
nine months ended March 31, 2008, operating income was $9,529 compared to $9,266
in the prior period, an increase of $263 or 2.8%.  This increase was
due to the overall increase in gross profit of $5,086 offset in part by the
$4,823 increase in SG&A and R&D expenses.
  Interest
and Other Income, Net
  Interest
and other income, net was $596 for the nine months ended March 31, 2008 versus
$366 for the prior period.  The primary reason for this fluctuation is
due to the Company changing the functional currency of its Chinese subsidiaries
from the Chinese Renminbi to the U.S. Dollar, since these subsidiaries primarily
generate and expend cash in the U.S. Dollar.  As a result, the Company
recorded a correction of an error in the third quarter of 2008, which resulted
in additional interest and other income, net of approximately $559, which
represented approximately $389 after tax profit. The Company did not deem this
adjustment to be material to any prior quarters in fiscal 2008 based upon both
quantitative and qualitative factors.  In addition, this adjustment
does not impact the 2008 year-to-date reported results. This matter was not
corrected for periods prior to June 30, 2007 due to the immateriality of the
effects of this in earlier years.  Beginning in 2006, the Chinese
government began to revalue the Chinese Renminbi against other currencies,
including the U.S. Dollar. The decision by the Chinese government to no longer
peg the Renminbi to the U.S. Dollar has caused a reduction in value of dollar
denominated assets held in China, which was particularly experienced in fiscal
2008. The increase in interest and other income, net was partially offset by
$115 decrease in other income related to a government subsidy paid annually for
doing business in a free trade zone in Shanghai, China and $126 increase in
unrealized loss on trading securities.
 
 Provision
for Income Taxes
  The
effective tax rate for the nine months ended March 31, 2008 increased to 45.4%
from 37.1% 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 headline 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 became 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
nine months ended March 31,
  20
  2008.  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%.
  Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007
 
 Net
      Sales by Segment
                Three
      months ended March 31,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007%
      of
              
              
              
              
              
              %
      of
              
              
              $
              
              
              %Segment
              
              Net sales
              
              
              total
              
              
              Net sales
              
              
              total
              
              
              Change
              
              
              changeHealth
      Sciences
              
              $
              58,199
              
              
              
              59.2
              %
              
              $
              41,358
              
              
              
              54.5
              %
              
              $
              16,841
              
              
              
              40.7
              %Chemicals
      & Colorants
              
              
              35,871
              
              
              
              36.5
              
              
              
              30,528
              
              
              
              40.2
              
              
              
              5,343
              
              
              
              17.5Crop
      Protection
              
              
              4,185
              
              
              
              4.3
              
              
              
              3,993
              
              
              
              5.3
              
              
              
              192
              
              
              
              4.8Net
      sales
              
              $
              98,255
              
              
              
              100.0
              %
              
              $
              75,879
              
              
              
              100.0
              %
              
              $
              22,376
              
              
              
              29.5
              %Gross
      Profit by Segment
                Three
      months ended March 31,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007Gross
              
              
              %
      of
              
              
              Gross
              
              
              %
      of
              
              
              $
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              Profit
              
              
              sales
              
              
              Change
              
              
              changeHealth
      Sciences
              
              $
              9,963
              
              
              
              17.1
              %
              
              $
              7,420
              
              
              
              17.9
              %
              
              $
              2,543
              
              
              
              34.3
              %Chemicals
      & Colorants
              
              
              5,336
              
              
              
              14.9
              
              
              
              4,260
              
              
              
              14.0
              
              
              
              1,076
              
              
              
              25.3Crop
      Protection
              
              
              744
              
              
              
              17.8
              
              
              
              1,196
              
              
              
              30.0
              
              
              
              (452
              )
              
              
              (37.8
              )Gross
      profit
              
              $
              16,043
              
              
              
              16.3
              %
              
              $
              12,876
              
              
              
              17.0
              %
              
              $
              3,167
              
              
              
              24.6
              %
 Net
Sales
 
 Net sales
increased $22,376, or 29.5%, to $98,255 for the three months ended March 31,
2008, compared with $75,879 for the prior period.  We reported sales
increases in all of our segments as explained below.
 
 Health
Sciences
 
 Net sales
for the Health Sciences segment increased by $16,841 for the three months ended
March 31, 2008, to $58,199, which represents a 40.7% increase from net sales of
$41,358 for the prior period.  This increase is primarily the result
of increased sales from our foreign operations of $11,671, specifically our
European operations as well as an increase of $3,722 in sales of our domestic
generic products group.  The domestic sales increase for the three
months ended March 31, 2008 was due to the volume of re-orders for existing
products as well as realization of new products from our pipeline.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment were $35,871 for the three months
ended March 31, 2008, an increase of $5,343 from net sales of $30,528 for the
prior period.  Our chemical business consists of a variety of
products, customers and consuming markets.  The increase of 17.5%,
over the prior period is partially attributable to an increase in sales of
agricultural, dye, pigment and other intermediates which together increased
$3,769.  The
  21
  increase was also the
result of $1,837 increase in sales for chemicals used in aroma products and as
well as $1,099 increase in sales of chemicals used in surface
coatings.
 Crop
Protection
 
 Net sales
for the Crop Protection segment were relatively consistent to the prior year
period, increasing by $192 or 4.8%. This segment experienced an increase in
sales of an insecticide offset by a decrease in sales of our sprout inhibitor
products, which are utilized on potato crops.
 
 Gross
Profit
 
 Gross
profit increased to $16,043 (16.3% of net sales) for the three months ended
March 31, 2008, as compared to $12,876 (17.0% of net sales) for the prior
period.
 
 Health
Sciences
 
 Gross
profit for the three months ended March 31, 2008 increased by $2,543, or 34.3%,
over the prior period. The gross margin was 17.1% for the three months ended
March 31, 2008 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 $5,336 for the three months ended March 31, 2008
was $1,076 or 25.3% higher than the prior period.  The gross margin
was 14.9% for the three months ended March 31, 2008 compared to 14.0% for the
prior period.  The increase in the gross profit and the gross margin
percentage is due to an increase of $611 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 surface coating chemicals increased by
$337 over the prior period.
 
 Crop
Protection
 
 Gross
profit for the Crop Protection segment decreased to $744 for the three months
ended March 31, 2008, versus $1,196 for the prior period, a decrease of $452 or
37.8%.  Gross margin for the quarter was 17.8% compared to the prior
period gross margin of 30.0%. The decrease in the gross profit and gross margin
percentage primarily relates to a decline in sales volume of our sprout
inhibitor products as described above and a decline in gross margin related to
an herbicide used for sugar cane.
 
 Selling,
General and Administrative Expenses
 
 SG&A
increased $1,833 or 18.8%, to $11,560 for the three months ended March 31, 2008
compared to $9,727 for the prior period.  As a percentage of sales,
SG&A decreased to 11.8% for the three months ended March 31, 2008 versus
12.8% for the prior period. The increase in SG&A relates to $1,331 rise in
personnel related costs including annual salary increases and an increase of
$653 in our foreign operations. SG&A also increased due to a $444 increase
in sales and marketing expenses, which is directly related to the increase in
sales.
 
 Research
and Development Expenses
 
 R&D
increased $274 over the prior period for the three months ended March 31, 2008.
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 March 31, 2008, operating income was $4,204 compared to
$3,144 in the prior period, an increase of $1,060 or 33.7%.  This
increase was due to the overall increase in gross profit of $3,167 offset in
part, by the $2,107 increase in SG&A and R&D expenses.
  22
  Interest
and Other Income, Net
  Interest
and other income, net was $610 for the three months ended March 31, 2008, which
represents an increase of $500 over the prior period.  The primary
reason for this fluctuation is due to the Company changing the functional
currency of its Chinese subsidiaries from the Chinese Renminbi to the U.S.
Dollar, since these subsidiaries primarily generate and expend cash in the U.S.
Dollar.  As a result, the Company recorded a correction of an error in
the third quarter of 2008, which resulted in additional interest and other
income, net of approximately $559, which represented approximately $389 after
tax profit. The Company did not deem this adjustment to be material to any prior
quarters in fiscal 2008 based upon both quantitative and qualitative
factors.  In addition, this adjustment does not impact the 2008
year-to-date reported results. This matter was not corrected for periods prior
to June 30, 2007 due to the immateriality of the effects of this in earlier
years.  Beginning in 2006, the Chinese government began to revalue the
Chinese Renminbi against other currencies, including the U.S. Dollar. The
decision by the Chinese government to no longer peg the Renminbi to the U.S.
Dollar has caused a reduction in value of dollar denominated assets held in
China, which was particularly experienced in fiscal 2008.
 
 Provision
for Income Taxes
 
 The
effective tax rate for the three months ended March 31, 2008 was 31.1%, compared
to 44.6% for the prior period.  The decrease in the effective rate
primarily relates to German tax reform, which was enacted in August 2007, that
reduces the corporate headline 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 became effective for tax years ending
after January 1, 2008.
 
 Liquidity
and Capital Resources
 
 Cash
Flows
 
 At March
31, 2008, we had $32,239 in cash, $1,169 in short-term investments and no
short-term bank loans.  Working capital was $123,568 at March 31, 2008
versus $112,930 at June 30, 2007.
 
 Our cash
position at March 31, 2008 decreased $81 from the amount at June 30,
2007.  Operating activities for the nine months ended March 31, 2008
provided cash of $167, for this period, as compared to cash provided by
operations of $2,629 for the comparable 2007 period. The $167 was comprised of
$5,496 in net income and $4,003 derived from adjustments for non-cash items
offset by a net $9,332 decrease from changes in operating assets and
liabilities. The non-cash items included $1,935 in depreciation and amortization
expense and $1,297 for the deferred income taxes provision. Accounts receivable
increased $10,854 during the nine months ended March 31, 2008, due to increased
sales during the third quarter of 2008 as compared to the fourth quarter of
2007. Inventories increased by approximately $295 and accounts payable increased
by $1,224 due to the increase in the Health Sciences segment for inventory
on-hand related to our European operations.  In addition, the Company
is carrying more stock for an intermediate dye in the Chemicals and Colorants
segment that is purchased from China, due to a possible supplier interruption
related to the Olympics to be held in China in the summer of 2008. Other accrued
expenses and long-term liabilities increased $1,480 during the nine months ended
March 31, 2008, due primarily to 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 expenses related to a joint venture. Other
receivables increased $580 due to an increase in VAT receivables in our European
subsidiaries due to increased sales.  Other assets increased $720 due
primarily to increases in retirement-related assets. Our cash position at March
31, 2007 decreased $1,958 from the amount at June 30, 2006.  Operating
activities for the nine months ended March 31, 2007 provided cash of $2,629, for
this period. The $2,629 was comprised of $6,006 in net income and $3,209 derived
from adjustments for non-cash items, offset by a net $6,586 decrease from
changes in operating assets and liabilities.
 
 Investing
activities for the nine months ended March 31, 2008 provided cash of $548
primarily related to maturities and sales of available for sale investments
offset by the purchases of property and equipment.   Investing
activities for the nine months ended March 31, 2007 used cash of $3,820
primarily related to purchases of investments of $6,268 and purchases of
property and equipment and intangibles of $446 and $437, respectively, offset in
part by $3,279 of maturities of available for sale investments.
  23
 Financing
activities for the nine months ended March 31, 2008 used cash of $3,602
primarily from the payments of dividends of $3,665. Financing activities for the
nine months ended March 31, 2007 used cash of $1,582 primarily from the payments
of dividends of $1,823.
 
 On May 8,
2008, the Company's board of directors declared a semi-annual cash dividend of
$0.10 per share to be distributed on June 27, 2008 to shareholders of record as
of June 16, 2008.
 
 Credit
Facilities
 
 We have
available credit facilities with certain foreign financial
institutions.  These facilities provide us with a line of credit of
$22,841, as of March 31, 2008.  We are not subject to any financial
covenants under these arrangements.
 
 In June
2007, we amended our revolving credit agreement with a financial institution
that expires June 30, 2010, and provides for available credit of
$10,000.  At March 31, 2008, we had utilized $359 in letters of
credit, leaving $9,641 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 March 31, 2008.
 
 Working
Capital Outlook
 
 Working
capital was $123,568 at March 31, 2008 versus $112,930 at June 30,
2007.  The increase in working capital was attributable to various
factors including net income and an increase in trade receivables during the
period due to increased sales.   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.  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 March 31, 2008. The Company did not recognize interest or penalties
related to income taxes during the three and nine months ended March 31, 2008.
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 2005
(in the case of certain foreign tax returns, calendar year 2002).
  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
  24
  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 June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards” (EITF No. 06-11). EITF  No. 06-11 provides guidance regarding
how an entity should recognize the tax benefit received as a result of dividends
paid to holders of share-based compensation awards and charged to retained
earnings according to SFAS No. 123(R), and will become effective in the first
quarter of 2009. Management does not expect EITF No. 06-11 to have a material
impact on the Company’s consolidated financial statements.
 
 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.   The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161).
SFAS No. 161 requires enhanced qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the impact of SFAS No. 161 on its consolidated financial
statements.
 
 Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Market
Risk Sensitive Instruments
 
 The
market risk inherent in our market-risk-sensitive instruments and positions is
the potential loss arising from adverse changes in investment market prices,
foreign currency exchange-rates and interest rates.
  25
 Investment
Market Price Risk
 
 We had
short-term investments of $1,169 at March 31, 2008.  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 $117 as of March 31,
2008.  Actual results may differ.
 
 Foreign
Currency Exchange Risk
 
 In order
to reduce the risk of foreign currency exchange rate fluctuations, we hedge some
of our transactions denominated in a currency other than the functional
currencies applicable to each of our various entities.  The
instruments used for hedging are short-term foreign currency contracts
(futures).  The changes in market value of such contracts have a high
correlation to price changes in the currency of the related hedged
transactions.  At March 31, 2008, we had foreign currency contracts
outstanding that had a notional amount of $20,685.  The difference
between the fair market value of the foreign currency contracts and the related
commitments at inception and the fair market value of the contracts and the
related commitments at March 31, 2008, 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 March 31, 2008, was $(95).  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
$(20) and $106 for the nine months ended March 31, 2008 and  2007,
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
March 31, 2008, we had translation exposure to various foreign currencies, with
the most significant being the Euro.  The potential loss as of March
31, 2008, resulting from a hypothetical 10% adverse change in quoted foreign
currency exchange rates amounted to $6,902.  Actual results may
differ.
 
 Interest
rate risk
 
 Due to
our financing, investing and cash-management activities, we are subject to
market risk from exposure to changes in interest rates.  We utilize a
balanced mix of debt maturities along with both fixed-rate and variable-rate
debt to manage our exposure to changes in interest rates.  Our
financial instrument holdings were analyzed to determine their sensitivity to
interest rate changes.  In this sensitivity analysis, we used the same
change in interest rate for all maturities.  All other factors were
held constant.  If there were an adverse change in interest rates of
10%, the expected effect on net income related to our financial instruments
would be immaterial.  However, there can be no assurances that
interest rates will not significantly affect our results of
operations.
 
 Item
4.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
  Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are
designed to provide reasonable assurance that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Our disclosure
controls and procedures are also designed to ensure that information required to
be disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our
  26
  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 March 31, 2008
and, based on their evaluation, have concluded that the disclosure controls and
procedures were effective as of such date.
  Changes
in Internal Control over Financial Reporting
  There has
been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our
fiscal quarter ended March 31, 2008 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 patented 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 use the patented technology used
in packaging of certain of our crop protection products.  In May 2008,
after we filed an anti-trust lawsuit against the owner of the patent, the patent
owner filed a separate action for patent infringement, among other claims, and
obtained a temporary restraining order, which will temporarily restrain us from
using or selling product in packaging covered by the patent until likely a full
evidentiary hearing on a motion for preliminary injunction takes
place.  If the patent owner is successful in the actions, we will no
longer be able to use such patented technology which will result in us being
prevented from making future sales of new products that use the patented
technology as well as sales of our current inventory that use this patented
technology.  Accordingly, our inability to continue to sell such
products would have an adverse affect on our profitability.  For the
year end June 30, 2007 and 2006, net sales from this crop protection product
were $3,244 and $4,832, respectively.  Our inventory of products that
use such patented technology is approximately $2,804 as of March 31, 2008. We
may also incur substantial costs in enforcement and defense of our rights
related to our products.
 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.  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.
  27
  Item
6. Exhibits
 
 The
exhibits filed as part of this report are listed below.
 
 15.1
              Awareness
      letter from independent registered public accounting
  firm31.1
              Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
  28
  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
      CORPORATIONDATE
      May 9,
    2008
              BY
              /s/ Douglas
      RothDouglas
      Roth, Chief Financial Officer(Principal
      Financial Officer)DATE
      May 9,
    2008
              BY
              /s/ Leonard S.
      SchwartzLeonard
      S. Schwartz, Chairman,President
      and Chief Executive Officer(Principal
      Executive Officer)








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