<PAGE>

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

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005
                        Commission file number 000-04217
                                               ---------

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


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

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

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

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


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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer    Accelerated filer  X Non-accelerated filer
                             ---                   ---                      ---

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

The Registrant has 24,230,051 shares of common stock outstanding as of February
7, 2006.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
             QUARTERLY REPORT FOR THE PERIOD ENDED DECEMBER 31, 2005

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

         Consolidated Statements of Income - Six Months
         Ended December 31, 2005 and 2004 (unaudited)

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

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

         Notes to Consolidated Financial Statements (unaudited)

         Report of Independent Registered Public Accounting Firm

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

Item 3.  Quantitative and Qualitative Disclosures About
         Market Risk

Item 4.  Controls and Procedures

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Item 4.  Submission of Matters to a Vote of Security Holders

Item 6.  Exhibits

Signatures

Exhibits

<PAGE>
<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

                                                                                  December 31,      June 30,
                                                                                     2005             2005
                                                                                     ----             ----
                                                                                  (unaudited)
<S>                                                                                <C>             <C>
ASSETS
Current assets:
   Cash in banks                                                                   $  23,561       $  19,950
   Investments                                                                         5,003           5,068
   Trade receivables, less allowance for doubtful
       accounts (December, $432, June $427)                                           50,684          49,636
   Other receivables                                                                   1,254           1,421
   Inventory                                                                          51,930          51,722
   Prepaid expenses and other current assets                                           1,500             821
   Assets held for sale                                                                    -             242
   Deferred income tax benefit, net                                                    2,799           2,780
                                                                                   ---------       ---------
         Total current assets                                                        136,731         131,640

Long-term notes receivable                                                               591             624
Property and equipment, net                                                            5,399           5,543
Goodwill                                                                               1,703           1,720
Intangible assets, net                                                                 3,798           3,153
Deferred income tax benefit, net                                                       2,220           3,626
Other assets                                                                           2,615           2,722
                                                                                   ---------       ---------

TOTAL ASSETS                                                                       $ 153,057       $ 149,028
                                                                                   =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Drafts and acceptances payable                                                  $   2,409       $   2,462
   Short term bank loans                                                                   -             126
   Accounts payable                                                                   23,579          24,783
   Note payable - related party                                                          500             500
   Accrued expenses                                                                   12,845           9,474
   Liabilities relating to assets held for sale                                            -              46
                                                                                   ---------       ---------
         Total current liabilities                                                    39,333          37,391

Long-term liabilities                                                                  4,734           3,811
Minority interest                                                                        157             171
                                                                                   ---------       ---------
         Total liabilities                                                            44,224          41,373

Commitments and contingencies (Note 13)

Shareholders' equity:
   Common stock, $.01 par value, 40,000 shares authorized; 25,644 shares issued;
       24,222 and 24,282 shares outstanding at December 31, 2005 and June 30,
       2005, respectively                                                                256             256
   Capital in excess of par value                                                     56,727          56,903
   Retained earnings                                                                  64,568          62,864
   Treasury stock, at cost, 1,422 and 1,362 shares at December 31, 2005 and
       June 30, 2005, respectively                                                   (13,735)        (13,505)
   Accumulated other comprehensive income                                              1,017           1,137
                                                                                   ---------       ---------
         Total shareholders' equity                                                  108,833         107,655
                                                                                   ---------       ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                         $ 153,057       $ 149,028
                                                                                   =========       =========


See accompanying notes to consolidated financial statements and accountants' review report.

                                                      3
</TABLE>

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


                                                                              Six Months Ended
                                                                                 December 31,
                                                                               2005        2004
                                                                               ----        ----
<S>                                                                          <C>         <C>
Net sales                                                                    $144,460    $157,187
Cost of sales                                                                 120,489     130,390
                                                                             --------    --------
   Gross profit                                                                23,971      26,797

Selling, general and administrative expenses                                   20,019      19,619
                                                                             --------    --------
   Operating income                                                             3,952       7,178

Other income (expense):
   Interest expense                                                               (61)        (40)
   Interest and other income, net                                               1,178         855
                                                                             --------    --------
                                                                                1,117         815
                                                                             --------    --------

Income from continuing operations before income taxes                           5,069       7,993
Provision for income taxes                                                      1,521       2,234
                                                                             --------    --------
Income from continuing operations                                               3,548       5,759
Loss from discontinued operations, net of income taxes (Note 3)                   (27)       (431)
                                                                             --------    --------
Net income                                                                   $  3,521    $  5,328
                                                                             ========    ========

Basic income per common share:
   Income from continuing operations                                         $   0.15    $   0.24
   Loss from discontinued operations                                                -    $  (0.02)
   Net income                                                                $   0.15    $   0.22

Diluted income per common share:
   Income from continuing operations                                         $   0.14    $   0.23
   Loss from discontinued operations                                                -    $  (0.01)
   Net income                                                                $   0.14    $   0.22

Weighted average shares outstanding:
   Basic                                                                       24,280      24,145
   Diluted                                                                     24,595      24,690


See accompanying notes to consolidated financial statements and accountants' review report.

                                                 4
</TABLE>

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

                                                                              Three Months Ended
                                                                                 December 31,
                                                                               2005        2004
                                                                               ----        ----
<S>                                                                          <C>         <C>
Net sales                                                                    $ 69,467    $ 76,738
Cost of sales                                                                  57,999      63,456
                                                                             --------    --------
   Gross profit                                                                11,468      13,282

Selling, general and administrative expenses                                    9,657      10,189
                                                                             --------    --------
   Operating income                                                             1,811       3,093

Other income (expense):
   Interest expense                                                               (37)        (20)
   Interest and other income, net                                                 395         306
                                                                             --------    --------
                                                                                  358         286
                                                                             --------    --------

Income from continuing operations before income taxes                           2,169       3,379
Provision for income taxes                                                        622         989
                                                                             --------    --------
Income from continuing operations                                               1,547       2,390
Loss from discontinued operations, net of income taxes (Note 3)                     -        (438)
                                                                             --------    --------
Net income                                                                   $  1,547    $  1,952
                                                                             ========    ========

Basic income per common share:
   Income from continuing operations                                         $   0.06    $   0.10
   Loss from discontinued operations                                                -    $  (0.02)
   Net income                                                                $   0.06    $   0.08

Diluted income per common share:
   Income from continuing operations                                         $   0.06    $   0.10
   Loss from discontinued operations                                                -    $  (0.02)
   Net income                                                                $   0.06    $   0.08

Weighted average shares outstanding:
   Basic                                                                       24,273      24,163
   Diluted                                                                     24,557      24,722


See accompanying notes to consolidated financial statements and accountants' review report.

                                                 5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                   ACETO CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (unaudited and in thousands)

                                                                                Six Months Ended
                                                                                   December 31,
                                                                               2005            2004
                                                                               ----            ----
<S>                                                                          <C>             <C>
Operating activities:
   Net income                                                                $  3,521        $  5,328
   Loss from discontinued operations                                               27             431
   Adjustments to reconcile net income to net cash provided
     by operating activities:
         Depreciation and amortization                                            686             647
         Provision for doubtful accounts                                            -             230
         Non-cash stock compensation                                               50              90
         Deferred income taxes                                                  1,387             908

         Changes in assets and liabilities:
           Investments - trading securities                                        65             (53)
           Trade accounts receivable                                           (1,240)          6,135
           Other receivables                                                      135            (495)
           Inventory                                                             (401)         (8,256)
           Prepaid expenses and other current assets                             (681)           (120)
           Other assets                                                          (307)           (739)
           Drafts and acceptances payable                                         (61)         (1,235)
           Accounts payable                                                    (1,111)         (5,004)
           Accrued compensation                                                   (21)            (83)
           Accrued environmental remediation                                      (43)            (80)
           Income taxes receivable                                                  -             606
           Other accrued expenses and long-term liabilities                     2,562           1,729
                                                                             --------        --------
Net cash provided by operating activities                                       4,568              39
                                                                             --------        --------

Investing activities:
     Purchases of investments                                                       -            (718)
     Sales of investments                                                           -             348
     Payments received on notes receivable                                         31              42
     Purchases of property and equipment                                         (268)         (3,025)
                                                                             --------        --------
Net cash used in investing activities                                            (237)         (3,353)
                                                                             --------        --------

Financing activities:
     Purchases of treasury stock                                                 (581)              -
     Proceeds from exercise of stock options                                      105             856
     Income tax benefit on exercise of stock options                               21             215
     Payment of note payable - related party                                        -            (500)
     Payments of short-term bank loans                                           (126)              -
                                                                             --------        --------
     Net cash (used in) provided by financing activities                         (581)            571
                                                                             --------        --------

Net cash (used in) provided by discontinued operations                            (38)             23
                                                                             --------        --------

Effect of exchange rate changes on cash                                          (101)            529
                                                                             --------        --------

Net increase (decrease) in cash                                                 3,611          (2,191)
Cash at beginning of period                                                    19,950          23,330
                                                                             --------        --------
Cash at end of period                                                        $ 23,561        $ 21,139
                                                                             ========        ========

See accompanying notes to consolidated financial statements and accountants' review report.

                                                   6
</TABLE>

<PAGE>

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

(1) BASIS OF PRESENTATION

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

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

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

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

(2) STOCK-BASED COMPENSATION

Prior to July 1, 2005, the Company accounted for stock-based employee
compensation under the intrinsic value method as outlined in the provisions of
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations while disclosing pro-forma net income and net income per share
as if the fair value method had been applied in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under the intrinsic value method, no compensation expense was
recognized if the exercise price of the Company's employee stock options equaled
or exceeded the market price of the underlying stock on the date of grant. Since
the Company had issued all stock option grants with exercise prices equal to, or
greater than, the market value of the common stock on the date of grant, through
June 30, 2005 no compensation cost was recognized in the consolidated statements
of income. Effective July 1, 2005, the Company adopted SFAS No. 123(R),
"Share-based Payment." SFAS No. 123(R) replaces SFAS No. 123 and supersedes APB
Opinion No. 25. SFAS 123(R) requires that all stock-based compensation be
recognized as an expense in the financial statements and that such costs be
measured at the fair value of the award. This statement was adopted using the
modified prospective method, which requires the Company to recognize
compensation expense on a prospective basis. Therefore, prior period financial
statements have not been restated. Under this method, in addition to reflecting
compensation expense for new share-based payment awards, expense is also
recognized to reflect the remaining vesting period of awards that had been
included in pro-forma disclosures in prior periods. Since all options
outstanding as of June 30, 2005 were fully vested, there was no compensation
expense recognized for those options in the consolidated statements of income
for the three and six month periods ended December 31, 2005. SFAS 123(R) also
requires that tax benefits related to stock option exercises be reflected as
financing cash inflows instead of operating cash inflows. For the six months
ended December 31, 2004, this new treatment resulted in increased cash flows
from financing activities of $215, which reduced cash flows from operating
activities by the same amount. The Company's policy is to satisfy stock-based
compensation awards with treasury shares.

                                       7
<PAGE>

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

The following table illustrates the effect on net income per common share for
the three and six month periods ended December 31, 2004 as if the Company had
consistently measured the compensation cost for the Company's stock option
programs under the fair value method adopted in fiscal 2006:

                                      Six months ended     Three months ended
                                        December 31,          December 31,
                                            2004                  2004
                                            ----                  ----
Net income - as reported                 $    5,328            $    1,952
Add: Stock-based compensation
   included in reported net income
Deduct:  Total stock-based                       90                     9
   employee compensation
   expense determined under fair
   value method for all awards,
   net of related tax effects
                                             (4,369)                 (411)
                                         ----------            ----------
Net income - pro forma                   $    1,049            $    1,550

Net income per share:
   Basic - as reported                   $     0.22            $     0.08
   Basic - pro forma                     $     0.04            $     0.06

   Diluted - as reported                 $     0.22            $     0.08
   Diluted - pro forma                   $     0.04            $     0.06

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

In January 2006, the Company granted 131 options to certain employees and
directors 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. In accordance with SFAS 123(R), compensation expense of
$326, as determined using the Black-Scholes option pricing model, will be
charged over the vesting period beginning in the third quarter.

(3) SALE OF INSTITUTIONAL SANITARY SUPPLIES SEGMENT

During June 2005, the Company entered into an agreement to sell the majority of
the product lines formulated and marketed by CDC Products Corp. ("CDC"), which
is one of the two subsidiaries forming part of the Institutional Sanitary
Supplies segment. The sale of certain product lines of CDC was completed on
August 24, 2005 for $75 and a note receivable of $44 due in April 2006, which
resulted in a pre-tax gain of $66, included in other income in the statement of
income for the six months ended December 31, 2005. Excluded from the sale of
CDC's product lines was Anti-Clog, an EPA-registered biocide that has a unique
delivery system and is used in commercial air-conditioning systems. As a result
of management's decision to retain the Anti-Clog product, the Company has
reclassified all of CDC's operating results previously reported as "discontinued
operations" for the period ended December 31, 2004 to "continuing operations" in
the consolidated statements of income for the three and six month periods ended
December 31, 2005 and 2004.

On September 6, 2005, the Company completed the sale of certain assets of Magnum
Research Corp. for $81, of which $66 was received as of December 31, 2005, the
remaining subsidiary forming part of the Institutional Sanitary Supplies
segment, the operating results of which are included in discontinued operations
in the consolidated statements of income. In December 2005, the Company exited
the leased space previously occupied by CDC and Magnum Research Corp. As a
result, the Company recorded a pre-tax charge of $378, included in selling,
general

                                       8
<PAGE>

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

and administrative expenses, representing the present value of the remaining
lease obligation, reduced by estimated sub-lease rental income over the
remaining lease term, which expires in December 2009. Assets held for sale of
the disposal group included in the accompanying consolidated balance sheet as of
June 30, 2005, consist of current assets (primarily accounts receivable and
inventory) of $217, and goodwill of $25.

Liabilities related to the assets held for sale reported in the accompanying
consolidated balance sheet as of June 30, 2005, consist of accounts payable and
accrued expenses of $46.

Operating results of discontinued operations were as follows:

<TABLE>
<CAPTION>
                                       Six months ended          Three months ended
                                         December 31,               December 31,
                                      2005          2004        2005          2004
                                      ----          ----        ----          ----
<S>                                  <C>           <C>              <C>       <C>
Net sales                            $  154        $  726           -         $  355
                                     ------        ------      ------         ------

Income from operations of
discontinued business                    44            27           -             16
Provision for income taxes              (17)          (10)          -             (6)

Non-cash impairment charge                -          (723)          -           (723)
Benefit for income taxes                  -           275           -            275
                                     ------        ------      ------         ------

Loss from discontinued operations    $  (27)       $ (431)          -         $ (438)
                                     ======        ======      ======         ======
</TABLE>

(4) SHORT-TERM INVESTMENTS

A summary of short-term investments were as follows:

<TABLE>
<CAPTION>
                                              December 31, 2005                  June 30, 2005
                                              -----------------                  -------------
                                         Fair Value       Cost Basis      Fair Value       Cost Basis
                                         ----------       ----------      ----------       ----------
<S>                                       <C>              <C>             <C>               <C>
Trading securities
------------------
Corporate equity securities               $   638          $   152         $   657           $   152

Available for sale securities
-----------------------------
Corporate bonds                             1,179            1,210           1,194           $ 1,210
Government and agency securities            3,186            3,253           3,217           $ 3,253
                                          -------                          -------
                                          $ 5,003                          $ 5,068
                                          =======                          =======
</TABLE>

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill of $1,703 and $1,720 as of December 31, 2005 and June 30, 2005,
respectively, relates to the Health Sciences segment. During December 2004, the
Company recorded a non-cash impairment charge of $448, net of taxes of $275, for
the write-down of goodwill relating to the Institutional Sanitary Supplies
segment.


                                       9
<PAGE>

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

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

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

       Customer relationships       $2,600             $  743         $1,857
       Customer lists                  600                570             30
       Non-compete agreements          637                507            130
       EPA Registration                150                  -            150
       Patent License                  838                 19            819
                                    ------             ------         ------
                                    $4,825             $1,839         $2,986
                                    ======             ======         ======

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

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

Amortization expense for intangible assets subject to amortization amounted to
$275 and $327 for the six months ended December 31, 2005 and 2004, respectively.
The estimated aggregate amortization expense for intangible assets subject to
amortization for each of the succeeding years ended December 31 are as follows:
2006: $543; 2007: $513; 2008: $513; 2009: $467; 2010: $469 and thereafter: $481.

As of December 31, 2005 and June 30, 2005, the Company also had $812 and $827,
respectively, of intangible assets pertaining to trademarks which are not
subject to amortization.

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

(6) ACCRUED EXPENSES

The components of accrued expenses as of December 31, 2005 and June 30, 2005
were as follows:

                                                  December 31,      June 30,
                                                      2005            2005
                                                      ----            ----

       Accrued compensation                         $  2,535        $  2,566
       Accrued environmental remediation costs         1,152           1,195
       Accrued dividends payable                       1,816               -
       Other accrued expenses                          7,342           5,713
                                                    --------        --------
                                                    $ 12,845        $  9,474
                                                    ========        ========

(7) COMMON STOCK

On December 2, 2005, the Company's board of directors declared a regular
semi-annual cash dividend of $0.075 per share which was paid on January 11, 2006
to shareholders of record on December 23, 2005. The amount paid for the cash
dividend of $1,816 was included in other accrued expenses at December 31, 2005.

On December 2, 2004, the Company's board of directors declared a 3-for-2 stock
split, effected in the form of a dividend, and a cash dividend of $0.15 per
share, to be paid semi-annually. The stock split, effected in the form of a
dividend, and semi-annual cash dividend of $0.075 were paid January 10, 2005, to
shareholders of record on

                                       10
<PAGE>

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

December 24, 2004. The amount paid for the cash dividend of $1,820 was included
in other accrued expenses at December 31, 2004. The Company transferred $80 to
common stock from capital in excess of par value, representing the aggregate par
value of the 8,073 shares issued for the stock split.

(8) NET INCOME PER COMMON SHARE

Basic income per common share is based on the weighted average number of common
shares outstanding during the period. Diluted income per common share includes
the dilutive effect of potential common shares outstanding. The Company's only
potential common shares outstanding are stock options, which resulted in a
dilutive effect of 284 and 559 shares for the three months ended December 31,
2005, and 2004, respectively. There were 1,610 stock options outstanding as of
December 31, 2005, that were not included in the calculation of diluted income
per common share for the three months ended December 31, 2005 because their
effect would have been anti-dilutive. There were no stock options outstanding as
of December 31, 2004 that were not included in the calculation of diluted income
per common share for the three months ended December 31, 2004 because their
effect would have been anti-dilutive.

(9) COMPREHENSIVE INCOME

Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles, are
excluded from net income.

The components of comprehensive income were as follows:

<TABLE>
<CAPTION>
                                              Six months ended          Three months ended
                                                December 31,               December 31,
                                            2005            2004       2005           2004
                                            ----            ----       ----           ----
<S>                                        <C>             <C>        <C>            <C>
Comprehensive income:
   Net income                              $3,521          $5,328     $1,547         $1,952
   Foreign currency translation
     adjustment                              (128)          3,028       (310)         2,569
   Unrealized loss on available for
     sale securities                          (46)            (87)        (5)          (207)
   Change in fair value of cross
     currency interest rate swaps              54          (1,112)       145           (944)
                                           ------          ------     ------         ------
Total                                      $3,401          $7,157     $1,377         $3,370
                                           ======          ======     ======         ======
</TABLE>

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

(10) DEFERRED INCOME TAXES

The decrease in the deferred income tax assets of $1,387 and $908 during the six
months ended December 31, 2005 and 2004, respectively, related to the reduction
of taxes payable due to the utilization of foreign net operating loss
carryforwards. The reduction of taxes payable during the six months ended
December 31, 2004 was partially offset by a $275 deferred tax asset established
for the write-down of goodwill.

                                       11
<PAGE>

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

(11) SUPPLEMENTAL CASH FLOW INFORMATION

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

                                               2005           2004
                                               ----           ----
       Interest                               $    48        $    31
       Income taxes, net of refunds               497            929

The semi-annual cash dividend of $0.075 paid January 11, 2006, to shareholders
of record on December 23, 2005 of $1,816 was included in other accrued expenses
at December 31, 2005.

(12) RELATED PARTY TRANSACTIONS

Certain directors of the Company are affiliated with law firms that serve as
counsel to the Company on various corporate matters. During the six months ended
December 31, 2005 and 2004, the Company incurred legal fees of $157 and $57,
respectively, for services rendered to the Company by these law firms.

(13) COMMITMENTS AND CONTINGENCIES

As of December 31, 2005, the Company had outstanding purchase obligations
totaling $49,488 with suppliers to acquire certain products for resale to third
party customers.

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

One of the Company's subsidiaries was a defendant in a legal action alleging
patent infringement. The patent in question covered a particular method of
applying one of the products in the Company's Agrochemicals segment. In
September 2005, shortly before a trial was expected to begin, the parties agreed
to a settlement. Under the terms of the settlement agreement, the Company was
obligated to pay $1,375, of which $625 was paid in December 2005 and the
remaining $750 will be paid in equal installments over the next five years. As a
result of the settlement, the company recorded an intangible asset of $838 for
the patent license, which will be amortized over its remaining life of 11 years,
and a charge of $537, included in SG&A expense, for the six months ended
December 31, 2005.

Commercial letters of credit are issued by the Company during the ordinary
course of business through major domestic banks as requested by certain
suppliers. The Company had open letters of credit of approximately $1,306 and
$1,783 as of December 31, 2005 and June 30, 2005, respectively. The terms of
these letters of credit are all less than one year. No material loss is
anticipated due to non-performance by the counterparties to these agreements.

(14) RECENT ACCOUNTING PRONOUNCEMENTS

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

                                       12
<PAGE>

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

that are in a transition phase as of the date of SFAS No. 154. The Company does
not believe that adoption of SFAS No. 154 will have a material impact on its
financial statements.

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

On October 22, 2004, the President of the United States signed the American Jobs
Creation Act of 2004. This law creates a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of limitations, and the FASB
issued two Staff Positions to provide guidance on how companies should account
for the effects of the American Jobs Creation Act. The Company is currently
evaluating whether to repatriate any extraordinary dividends.

(15) SEGMENT INFORMATION

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

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

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

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

The Institutional Sanitary Supplies segment reported in prior years, which
included cleaning solutions, fragrances and deodorants for commercial and
industrial customers, was successfully divested from the Company's ongoing
business. During June 2005, the Company entered into an agreement to sell the
majority of the product lines formulated and marketed by CDC, which was one of
the two subsidiaries forming the Institutional Sanitary Supplies segment. The
sale of certain product lines of CDC was completed on August 24, 2005. Excluded
from the sale of CDC's product lines was Anti-Clog, an EPA-registered biocide
that has a unique delivery system and is used in commercial air-conditioning
systems. As a result of management's decision to retain the Anti-Clog product,
the Company has reclassified all of CDC's operating results previously reported
as "discontinued operations" for the period ended December 31, 2004 to
"continuing operations" in the consolidated statements of income for the three
and six month periods ended December 31, 2005 and 2004. Commencing July 1, 2005,
the operating results of CDC, which consist primarily of Anti-Clog sales, are
included in the Chemicals & Colorants segment. On September 6, 2005, the Company
completed the sale of certain assets of Magnum Research Corp., the remaining
subsidiary forming part of the former Institutional Sanitary Supplies segment,
the operating results of which are included in discontinued operations in the
consolidated statements of income.

                                       13
<PAGE>

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

Six months ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                     Institutional
                           Health     Chemicals &                       Sanitary       Consolidated
                          Sciences     Colorants     Agrochemicals      Supplies          Totals
                          --------     ---------     -------------      --------          ------
<S>                       <C>           <C>              <C>                           <C>
2005
----
Net sales                 $ 82,732      $ 51,879         $ 9,849               -       $ 144,460
Gross profit                16,265         8,093           1,938               -          26,296
Unallocated cost
  of sales (1)                                                                            (2,325)
                                                                                       ---------
Net gross profit                                                                       $  23,971
                                                                                       ---------

2004
----
Net sales                 $ 97,622      $ 48,548         $ 8,997         $ 2,020       $ 157,187
Gross profit                17,673         7,917           2,791             333          28,714
Unallocated cost
  of sales (1)                                                                            (1,917)
                                                                                       ---------
Net gross profit                                                                       $  26,797
                                                                                       ---------
</TABLE>

Three months ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                     Institutional
                           Health     Chemicals &                       Sanitary       Consolidated
                          Sciences     Colorants     Agrochemicals      Supplies          Totals
                          --------     ---------     -------------      --------          ------
<S>                       <C>           <C>              <C>             <C>           <C>
2005
----
Net sales                 $ 38,056      $ 25,731         $ 5,680               -       $  69,467
Gross profit                 7,432         4,004           1,282               -          12,718
Unallocated cost
  of sales (1)                                                                            (1,250)
                                                                                       ---------
Net gross profit                                                                       $  11,468
                                                                                       ---------

2004
----
Net sales                 $ 45,383      $ 24,543         $ 5,882         $   930       $  76,738
Gross profit                 8,133         4,024           1,973             137          14,267
Unallocated cost
  of sales (1)                                                                              (985)
                                                                                       ---------
Net gross profit                                                                       $  13,282
                                                                                       ---------
</TABLE>

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

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

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

<TABLE>
<CAPTION>
                              Net Sales                 Gross Profit            Long-lived Assets
                              ---------                 ------------            -----------------
                          Six months ended            Six months ended                 As of
                             December 31,               December 31,       December 31,      June 30,
                         2005          2004         2005          2004         2005            2005
                         ----          ----         ----          ----         ----            ----
<S>                     <C>          <C>           <C>          <C>           <C>             <C>
United States          $ 91,273     $ 87,532       $13,448      $13,703       $1,516          $1,469
Germany                  27,199       31,658         7,013        7,685          447             509
Netherlands               5,491        4,010           927          935          240             285
France                    5,767        5,414           713          718           90              90
Asia-Pacific             14,730       28,573         1,870        3,756        3,106           3,190
                       --------     --------       -------      -------       ------          ------
Total                  $144,460     $157,187       $23,971      $26,797       $5,399          $5,543
                       ========     ========       =======      =======       ======          ======
</TABLE>

                                       14
<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Aceto Corporation

We have reviewed the consolidated balance sheet of Aceto Corporation and
subsidiaries as of December 31, 2005, and the related consolidated statements of
income for the three-month and six-month periods ended December 31, 2005, and
the related consolidated statement of cash flows for the six-month period ended
December 31, 2005 included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended December 31, 2005. These interim
financial statements are the responsibility of the Company's management.

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

The consolidated balance sheet of Aceto Corporation and subsidiaries as of June
30, 2005, and the related consolidated statements of income, shareholders'
equity and comprehensive income (loss), and cash flows for the year then ended
(not presented herein) have been previously audited by other independent public
accountants, in accordance with the standards of the Public Company Accounting
Oversight Board; and in their report dated September 8, 2005, they expressed an
unqualified opinion on those consolidated financial statements.


/s/ BDO Seidman, LLP

Melville, New York

February 3, 2006



                                       15
<PAGE>

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

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

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

                          NOTE REGARDING DOLLAR AMOUNTS

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

EXECUTIVE SUMMARY

We are reporting net sales of $144,460 for the six months ended December 31,
2005, which represents an 8.1% decrease over the $157,187 reported in the
comparable prior period. Our income from continuing operations of $3,548, or
$0.14 per diluted share was $2,211 lower than the comparable prior period. As
discussed in prior quarterly and annual reports, this decrease is directly
attributable to the loss of business on two previously launched API's.

Our financial position as of December 31, 2005 remains strong, as we had cash of
$23,561, working capital of $97,398, no long-term debt, and shareholders' equity
of $108,833.

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

The Health Sciences segment is our largest segment in terms of both sales and
gross profits. This segment is comprised of APIs, pharmaceutical intermediates,
diagnostic chemicals and nutritional supplements. APIs comprise about 65% of
this segment's revenues.

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

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

                                       16
<PAGE>

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

We formerly also reported under the Institutional Sanitary Supplies segment,
which included cleaning solutions, fragrances and deodorants for commercial and
industrial customers. This segment was successfully divested from our ongoing
business. Specifically, during June 2005, we entered into an agreement to sell
the majority of the product lines formulated and marketed by CDC Products Corp.
("CDC"), which was one of the two subsidiaries forming the Institutional
Sanitary Supplies segment. The sale of certain product lines of CDC was
completed on August 24, 2005. Excluded from the sale of CDC's product lines was
Anti-Clog, an EPA-registered biocide that has a unique delivery system and is
used in commercial air-conditioning systems. As a result of management's
decision to retain the Anti-Clog product, the Company has reclassified all of
CDC's operating results previously reported as "discontinued operations" for the
period ended December 31, 2004 to "continuing operations" in the consolidated
statements of income for the three and six month periods ended December 31, 2005
and 2004. Commencing July 1, 2005, the operating results of CDC, which consist
primarily of Anti-Clog sales, are included in the Chemicals & Colorants segment.
On September 6, 2005, we completed the sale of certain assets of Magnum Research
Corp., the remaining subsidiary forming part of the Institutional Sanitary
Supplies segment, the operating results of which are included in discontinued
operations in the consolidated statements of income. In December 2005, the
Company exited the leased space previously occupied by CDC and Magnum Research
Corp. As a result, the Company recorded a pre-tax charge of $378, included in
selling, general and administrative expenses, representing the present value of
the remaining lease obligation reduced by estimated sub-lease rental income over
the remaining lease term, which expires in December 2009.

Our main business strengths are sourcing, regulatory support and quality
control. We believe that we are currently the largest buyer of pharmaceutical
and specialty chemicals for export from China, purchasing from over 500
different factories.

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

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

When you read this Management's Discussion and Analysis section, you should
refer to the accompanying consolidated statements of income, which present the
results of our operations for the three and six month periods ended December 31,
2005 and 2004. We analyze and explain the differences between periods in the
specific line items of the consolidated statements of income.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

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

                                       17
<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 2005 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2004

<TABLE>
<CAPTION>
                                                             NET SALES BY SEGMENT
                                                        Six months ended December 31,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                                 % of                    % of         $              %
Segment                           Net sales     total     Net sales      total      change         change
-------                           ---------     -----     ---------      -----      ------         ------
<S>                                 <C>         <C>         <C>          <C>       <C>             <C>
Health Sciences                    $ 82,732      57.3%     $ 97,622       62.1%    $(14,890)        (15.3)%
Chemicals & Colorants                51,879      35.9        48,548       30.9        3,331           6.9
Agrochemicals                         9,849       6.8         8,997        5.7          852           9.5
Institutional Sanitary
  Supplies                                -         -         2,020        1.3       (2,020)       (100.0)
                                   --------    ------      --------     ------     --------       -------

Net sales                          $144,460     100.0%     $157,187      100.0%    $(12,727)         (8.1)%
                                   ========    ======      ========     ======     ========       =======


                                                           GROSS PROFIT BY SEGMENT
                                                        Six months ended December 31,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                                 % of                    % of         $              %
Segment                           Net sales     sales     Net sales      sales      change         change
-------                           ---------     -----     ---------      -----      ------         ------

Health Sciences                    $ 16,265      19.7%     $ 17,673       18.1%    $ (1,408)         (8.0)%
Chemicals & Colorants                 8,093      15.6         7,917       16.3          176           2.2
Agrochemicals                         1,938      19.7         2,791       31.0         (853)        (30.6)
Institutional Sanitary
   Supplies                               -         -           333       16.5         (333)       (100.0)
                                   --------    ------      --------     ------     --------       -------

Segment gross profit                 26,296      18.2        28,714       18.3       (2,418)          8.4

Freight and storage costs (1)        (2,325)     (1.6)       (1,917)      (1.2)        (408)        (21.3)
                                   --------    ------      --------     ------     --------       -------

Gross profit                       $ 23,971      16.6%     $ 26,797       17.0%    $ (2,826)         10.5%
                                   ========    ======      ========     ======     ========       =======


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


                                       18
<PAGE>

NET SALES

Net sales decreased $12,727, or 8.1%, to $144,460 for the six months ended
December 31, 2005, compared with $157,187 for the comparable prior period. We
reported a sales decrease in our Health Sciences segment during this period,
which was partially offset by sales increases in our Chemicals & Colorants and
Agrochemicals segments, as explained below.

HEALTH SCIENCES

Net sales for the Health Sciences segment decreased by $14,890 for the six
months ended December 31, 2005, to $82,732, which represents a 15.3% decrease
from net sales of $97,622 for the prior period. The sales decrease from the
prior period is directly attributed to the loss of foreign business of $15,491
from two previously launched APIs due to increased competition. The six month
results, net of the two lost APIs, include a sales reduction of $1,235 from our
foreign operations which was offset by a sales increase of $1,890 from our
domestic operations over the prior year.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment were $51,879 for the six months
ended December 31, 2005, compared to $48,548 for the prior period. This increase
of $3,331, or 6.9%, over the prior period is primarily attributable to an
increase in the Agricultural intermediate and food, beverage and cosmetic
product groups of $2,961 over the comparable period last year. Sales of
Chemicals & Colorants products by our foreign subsidiaries for the six months
ended December 31, 2005, showed a modest increase of $258 over the prior period.
Our chemical business is diverse in terms of products, customers and consuming
markets. In addition, net sales for this segment includes a $1,086 increase
relating to our former CDC business, including the Anti-Clog product. One
customer within our color-pigment and pigment-intermediate business purchased
$1,721 less product during the six months ended December 31, 2005 as their
contract had expired. This reduction was more than offset by an increase over
the prior period in domestic sales of our chemical and colorants offerings; in
particular products with increased sales were coatings and miscellaneous
intermediates.

AGROCHEMICALS

Net sales for the Agrochemical segment increased to $9,849 for the six months
ended December 31, 2005, an increase of $852, or 9.5%, over net sales of $8,997
for the prior period. The increase in net sales was primarily attributable to
$325 higher sales of the product sold by our joint venture with Nufarm and an
increased demand for a fungicide used on pecans of $297.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) decreased $2,418 to $26,296 (18.2% of net sales) for the
six months ended December 31, 2005, as compared to $28,714 (18.3% of net sales)
for the prior period.

HEALTH SCIENCES

Health Sciences' gross profit of $16,265 for the six months ended December 31,
2005, was $1,408 or 8.0% lower than the prior period. This decrease in gross
profit was directly attributable to the loss of business on two larger
previously-launched APIs in Asia of $2,221 due to significant competitive
pressures. This lost gross profit was partially offset by an increase in gross
profit from sales increases from our domestic APIs of $468 and pharmaceutical
intermediates products of $260 over the prior period. The gross margin increased
to 19.7% compared to a gross margin of 18.1% for the prior period due primarily
to a shift in the product mix of net sales to higher margin products during the
six months ended December 31, 2005.

                                       19
<PAGE>

CHEMICALS & COLORANTS

Gross profit for the six months ended December 31, 2005, increased by $176, or
2.2%, over the prior period. The gross margin percentage was 15.6% for the six
months ended December 31, 2005 compared to 16.3% for the prior period due to a
shift in product mix to slightly lower margin products.

AGROCHEMICALS

Gross profit for the Agrochemicals segment decreased to $1,938 for the six
months ended December 31, 2005, versus $2,791 for the prior period, a decrease
of $853 or 30.6%. Gross margin for the period was 19.7% compared to the prior
period gross margin of 31.0%. The primary reasons for the decrease in gross
profit was due to lower royalty payments from our foreign customers of $278
compared to last year, and higher cost of goods for our largest selling product,
of $245. The gross profits and margins were also negatively affected by $194 due
to higher costs associated with maintaining our EPA registered products. We
believe our gross margin for the balance of the fiscal year will be more in line
with historical levels.

Unallocated cost of sales increased $408, to $2,325 for the six months ended
December 31, 2005 compared to $1,917 in the prior period, representing a 21.3%
increase. The higher costs were mainly a result of higher stock levels and
freight costs due to rising fuel surcharges on shipments to customers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $400, or 2.0% to
$20,019 for the six months ended December 31, 2005 compared to $19,619 for the
prior period. As a percentage of sales, SG&A increased to 13.9% for the six
months ended December 31, 2005 versus 12.5% for the prior period. This increase
was primarily due to the inclusion of a $537 charge for a settlement of legal
claims against our Agrochemicals subsidiary. The increase was partially offset
by a decrease in bad debt expense of $230 and a general decrease in SG&A
expenses of $200 as a result of recent cost saving initiatives. Operating
expenses include a $378 charge to exit the facility occupied by our former CDC
business. The exit charge is included in the total CDC SG&A expenses during the
six months of $1,126 which is $90 less than the same period last year. We expect
the CDC operating expenses to decrease significantly in the coming quarters.

OPERATING INCOME

For the six months ended December 31, 2005, operating income was $3,952 compared
to $7,178 in the prior period, a decrease of $3,226 or 44.9%. This decrease was
due to the overall decrease in gross profit of $2,826 and the $400 increase in
SG&A expenses.

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income (expense) was $1,178 for the six months ended December
31, 2005, which represents an increase of $323 over the prior period. The
increase is primarily attributable to an increase of $102 regarding a government
subsidy paid annually for doing business in a free trade zone in Shanghai,
China, proceeds from credit insurance of $211, sale of distribution rights for a
particular product in certain European countries of $133 and proceeds from the
sale of certain task force data of $55, partially offset by a net loss on
foreign currency of $224.

PROVISION FOR INCOME TAXES

The effective tax rate for the six months ended December 31, 2005 increased to
30.0% from 27.9% for the prior period. The increase in the effective tax rate
was primarily due to increased earnings in foreign tax jurisdictions with higher
tax rates, primarily Germany, and reduced earnings in foreign tax jurisdictions
with lower tax rates, primarily Shanghai.

                                       20
<PAGE>

DISCONTINUED OPERATIONS

The net loss from discontinued operations was $27 and $431 for the six months
ended December 31, 2005 and 2004, respectively. The net loss from discontinued
operations for the six months ended December 31, 2004 includes a non-cash
write-down of goodwill of $448, net of taxes of $275.

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

<TABLE>
<CAPTION>

                                                             NET SALES BY SEGMENT
                                                       Three months ended December 31,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                                 % of                    % of         $              %
Segment                           Net sales     total     Net sales      total      change         change
-------                           ---------     -----     ---------      -----      ------         ------
<S>                                 <C>         <C>         <C>          <C>       <C>             <C>
Health Sciences                    $ 38,056      54.7%     $ 45,383       59.1%    $ (7,327)        (16.1)%
Chemicals & Colorants                25,731      37.0        24,543       32.0        1,188           4.8
Agrochemicals                         5,680       8.2         5,882        7.7         (202)         (3.4)
Institutional Sanitary
   Supplies                               -         -           930        1.2         (930)       (100.0)
                                   --------    ------      --------     ------     --------       -------

Net sales                          $ 69,467     100.0%     $ 76,738      100.0%    $ (7,271)         (9.4)%
                                   ========    ======      ========     ======     ========       =======

                                                           GROSS PROFIT BY SEGMENT
                                                       Three months ended December 31,

                                                                                      Comparison 2005
                                           2005                     2004             Over/(Under) 2004
                                           ----                     ----             -----------------
                                                 % of                    % of         $              %
Segment                           Net sales     sales     Net sales      sales      change         change
-------                           ---------     -----     ---------      -----      ------         ------

Health Sciences                    $  7,432      19.5%     $  8,133       17.9%    $   (701)         (8.6)%
Chemicals & Colorants                 4,004      15.6         4,024       16.4          (20)            -
Agrochemicals                         1,282      22.6         1,973       33.5         (691)        (35.0)
Institutional Sanitary
   Supplies                               -         -           137        1.0         (137)       (100.0)
                                   --------    ------      --------     ------     --------       -------

Segment gross profit                 12,718      18.3        14,267       18.6       (1,549)        (10.9)%

Freight and storage costs (1)        (1,250)     (1.8)         (985)      (1.3)        (265)        (26.8)%
                                   --------    ------      --------     ------     --------       -------

Gross profit                       $ 11,468      16.5%     $ 13,282       17.3%    $ (1,814)        (13.7)%
                                   ========    ======      ========     ======     ========       =======

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

</TABLE>

                                       21
<PAGE>

NET SALES

Net sales decreased $7,271or 9.4%, to $69,467 for the three months ended
December 31, 2005, compared with $76,738 for the comparable prior period. We
reported sales decreases in our Health Sciences and Agrochemicals segments
partially offset by a sales increase in our Chemicals & Colorants, as explained
below.

HEALTH SCIENCES

Net sales for the Health Sciences segment decreased by $7,327 for the three
months ended December 31, 2005, to $38,056, which represents a 16.1% decrease
from net sales of $45,383 for the prior period. The sales decrease from the
prior period is directly attributable to the loss of foreign business of $5,347
from two previously launched APIs due to increased competition. Additionally,
our foreign subsidiaries reported a sales reduction of $3,396 primarily from
Germany and France. The French API business was affected by recent changes in
the government's generic reimbursement policy. This loss of business was
partially offset by a $1,416 increase in net sales from our domestic operations
over the prior period.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment were $25,731 for the three
months ended December 31, 2005, compared to $24,543 for the prior period. This
increase of $1,188, or 4.8%, over the prior period is primarily attributable to
an increase in the Ag intermediate product group of $1,246. Our chemical
business is diverse in terms of products, customers and consuming markets. One
customer within our color-pigment and pigment-intermediate business purchased
$886 less product during the three months ended December 31, 2005 due to the
expiration of their contract. This reduction was more than offset by a $1,018
increase over the prior period in domestic sales of our chemical and colorants
offerings; in particular products with increased sales were dye intermediates,
coatings, and food beverage and cosmetics. In addition, net sales includes a
$312 increase due to the inclusion of Anti-Clog sales in this segment.

AGROCHEMICALS

Net sales for the Agrochemicals segment decreased to $5,680 for the three months
ended December 31, 2005, a decrease of $202, or 3.4%, over net sales of $5,882
for the prior year. The decrease in net sales was primarily attributable to $246
lower royalty income from our foreign customers.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) decreased $1,549 to $12,718 (18.3% of net sales) for the
three months ended December 31, 2005, as compared to $14,267 (18.6% of net
sales) for the prior period.

HEALTH SCIENCES

Health Sciences' gross profit of $7,432 for the three months ended December 31,
2005, was $701 or 8.6% lower than the prior period. This decrease in gross
profit was directly attributed to the loss of business on two larger previously
launched APIs in Asia of $755 due to significant competitive pressures. This
lost gross profit was partially offset by an increase in gross profit from our
domestic operations of $373 and lower gross profit from our German operation of
$554 caused by reduced sales volume compared to the prior year.

CHEMICALS & COLORANTS

Gross profit for the three months ended December 31, 2005, decreased by $20, or
less than 1%, over the prior period. The gross margin percentage was 15.6% for
the three months ended December 31, 2005 compared to 16.4% for the prior period
due to increasing costs and a shift in product mix to slightly lower margin
products.

                                       22
<PAGE>

AGROCHEMICALS

Gross profit for the Agrochemicals segment decreased to $1,282 for the three
months ended December 31, 2005, versus $1,973 for the prior period, a decrease
of $691 or 35.0%. Gross margin for the period was 22.6% compared to the prior
period gross margin of 33.5%. The primary cause of the decrease in gross profit
was lower royalty payments from our foreign customers of $246. Lower sales and
gross margins on our second highest volume product caused the gross profit to
decrease by $106 compared to the same period in the prior year. The gross
profits and margins were also negatively affected by $89 due to higher costs
associated with maintaining our EPA registered products and increased rebate
expenses of $141.

Unallocated cost of sales increased $265, to $1,250 for the three months ended
December 31, 2005 compared to $985 in the prior period, representing a 26.8%
increase. The higher costs were mainly a result of higher stock levels and
freight costs due to rising fuel surcharges on shipments to customers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") decreased $532, or 5.2%,
to $9,657 for the three months ended December 31, 2005 compared to $10,189 for
the prior period. As a percentage of sales, SG&A was 13.9% for the three months
ended December 31, 2005 versus 13.3% for the prior period. The decrease in SG&A
expenses was primarily due to lower travel expenses of $223, a reduction in bad
debt expenses of $190, a general decrease in SG&A expenses as a result of
certain cost saving initiatives, lower consulting fees of $59 as well as a
reduction of $87 in SGA expenses related to the previously sold CDC business as
compared to last year. The overall reduction in CDC expenses includes a charge
to exit the facility previously occupied by CDC in the amount of $378.

OPERATING INCOME

For the three months ended December 31, 2005, operating income was $1,811
compared to $3,093 in the prior period, a decrease of $1,282 or 41.4%. This
decrease was due to the overall decrease in gross profit of $1,814 partially
offset by the $532 decrease in SG&A expenses.

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income (expense) was $395 for the three months ended December
31, 2005, which represents an increase of $89 over the prior period. The
increase is primarily attributable to the sale of distribution rights for a
particular product in certain European countries of $133 and proceeds from the
sale of certain task force data of $55, partially offset by an unrealized loss
on short-term investments of $121.

PROVISION FOR INCOME TAXES

The effective tax rate for the three months ended December 31, 2005 was 28.7% as
compared to 29.3% for the prior period.

DISCONTINUED OPERATIONS

The net loss from discontinued operations was $438 for the three months ended
December 31, 2004. The net loss from discontinued operations for the three
months ended December 31, 2004 includes a non-cash write-down of goodwill of
$448, net of taxes of $275.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

At December 31, 2005, we had $23,561 in cash, $5,003 in short-term investments
and no debt.

                                       23
<PAGE>

Our cash position at December 31, 2005 increased $3,611 from the June 30, 2005
level. Operating activities provided cash of $4,568, primarily from net income
of $3,521, partially offset by a net decrease caused by changes in assets and
liabilities.

Investing activities for the six months ended December 31, 2005 used cash of
$237 primarily related to purchases of property and equipment.

Financing activities for the six months ended December 31, 2005 used cash of
$581 primarily as a result of treasury stock purchases of $581.

CREDIT FACILITIES

We have credit facilities with certain foreign financial institutions. These
facilities provide us with a line of credit of $17,474, of which $33 was
utilized as of December 31, 2005 leaving $17,441 of this facility unused. We are
not subject to any financial covenants under these arrangements.

We have a revolving credit facility with a domestic financial institution which
expires June 30, 2007 and provides for available credit of $10,000. At December
31, 2005, we had utilized $1,149 in letters of credit, leaving $8,851 of this
facility unused. Under the credit agreement, we may obtain credit through direct
borrowings and letters of credit. Our obligations under the credit agreement are
guaranteed by certain of our subsidiaries and are secured by 65% of the capital
of certain of our non-domestic subsidiaries. There is no borrowing base on the
credit agreement. Interest under the credit agreement is at LIBOR plus 1.50%.
The credit agreement contains several covenants requiring, among other things,
minimum levels of debt service and tangible net worth. We are also subject to
certain restrictive debt covenants, including covenants governing liens,
limitations on indebtedness, limitations on cash dividends, guarantees, sale of
assets, sales of receivables, and loans and investments. We were in compliance
with all covenants at December 31, 2005.

WORKING CAPITAL OUTLOOK

Working capital was $97,398 at December 31, 2005 versus $94,249 at June 30,
2005. The increase in working capital was attributable to various factors
including net income during the period. We continually evaluate possible
acquisitions of or investments in businesses that are complementary to our own,
and such transactions may require the use of cash. We believe that our cash,
other liquid assets, operating cash flows, borrowing capacity and access to the
equity capital markets, taken together, provide adequate resources to fund
ongoing operating expenditures and the anticipated continuation of semi-annual
cash dividends. Further, we may obtain additional credit facilities to enhance
our liquidity.


                                       24
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS AND CONTINGENCIES

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

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

                                                Less Than         1-3          4-5           After
                                    Total         1 Year         Years        Years         5 Years
                                  ---------      --------       -------      -------       ---------
<S>                               <C>            <C>            <C>          <C>           <C>
Operating leases                  $   7,754      $  1,774       $ 3,169      $ 2,437       $     374

Commercial letters of credit          1,182         1,182

Standby letters of credit               124           124

Unconditional purchase
obligations (a)                      49,488        49,488             -            -               -
                                  ---------      --------       -------      -------       ---------

Total                             $  58,548      $ 52,568       $ 3,169      $ 2,437       $     374
                                  =========      ========       =======      =======       =========
</TABLE>

Other significant commitments and contingencies included the following:

        1.      Our non-qualified deferred compensation plans are intended to
                provide certain executives with supplemental retirement benefits
                beyond our 401(k) plan, as well as to permit additional deferral
                of a portion of their compensation. All compensation deferred
                under the plans is held by us in a grantor trust, which is
                considered our asset. We had a liability under the plan,
                included in long-term liabilities, of $2,622, and the assets
                held by the grantor trust, included in other assets, amounted to
                $2,330 as of December 31, 2005.

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

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

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

                                       25
<PAGE>

                Under the terms of the settlement agreement, we are required to
                make payments totaling $750 over the next five years.

RELATED PARTY TRANSACTIONS

Certain of our directors are affiliated with law firms which serve as our
counsel on various corporate matters. During the three months ended December 31,
2005 and 2004, we incurred legal fees of $157 and $57, respectively, for
services rendered to us by these law firms. The fees charged by such firms were
at rates comparable to rates obtainable from other firms for similar services.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

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

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

On October 22, 2004, the President of the United States signed the American Jobs
Creation Act of 2004. This law creates a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an 85%
dividends-received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of limitations, and the FASB
issued two Staff Positions to provide guidance on how companies should account
for the effects of the American Jobs Creation Act. The Company is currently
evaluating whether to repatriate any extraordinary dividends.

RISK FACTORS

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

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

Our financial condition and operating results are directly related to our
ability to compete in the intensely competitive worldwide chemical market. We
face intense competition from global and regional distributors of

                                       26
<PAGE>

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

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

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

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

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

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

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

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

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

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

We have previously incurred charges to our earnings in connection with acquired
assets, and may continue to experience charges to our earnings for any
acquisitions that we make, including large and immediate write-offs of acquired
assets, or impairment charges. These costs may also include substantial
severance and other closure costs

                                       27
<PAGE>

associated with eliminating duplicate or discontinued products, employees,
operations and facilities. These charges could have a material adverse effect on
our results of operations for particular quarterly periods and they could
possibly have an adverse impact on the market price of our common stock.

OUR REVENUE IS DIFFICULT TO PREDICT.

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

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

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

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

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

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

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

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY TERRORIST ACTIVITIES.

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

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

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

                                       28
<PAGE>

WE RELY HEAVILY ON KEY EXECUTIVES FOR OUR FINANCIAL PERFORMANCE.

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

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

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

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

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

THE MARKET PRICE OF OUR STOCK COULD BE VOLATILE.

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

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

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

INCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS.

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

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<PAGE>

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

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK SENSITIVE INSTRUMENTS

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

INVESTMENT MARKET PRICE RISK

We had short-term investments of $5,003 at December 31, 2005. Those short-term
investments consisted of government and agency securities, corporate bonds and
corporate equity securities, and they were recorded at fair value and had
exposure to price risk. If this risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in prices quoted by stock
exchanges, the effect of that risk would be $500 as of December 31, 2005. Actual
results may differ.

FOREIGN CURRENCY EXCHANGE RISK

In order to reduce the risk of foreign currency exchange rate fluctuations, we
hedge some of our transactions denominated in a currency other than the
functional currencies applicable to each of our various entities. The
instruments used for hedging are short-term foreign currency contracts
(futures). The changes in market value of such contracts have a high correlation
to price changes in the currency of the related hedged transactions. At December
31, 2005, we had foreign currency contracts outstanding that had a notional
amount of $15,977. The difference between the fair market value of the foreign
currency contracts and the related commitments at inception and the fair market
value of the contracts and the related commitments at December 31, 2005, was not
material.

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

                                       30
<PAGE>

of purchase to December 31, 2005, was $(224). The gains or losses on the
inter-company loans due to changes in foreign currency rates will be offset by
the gains or losses on the swap in the accompanying consolidated statements of
income. Since our interest rate swaps qualify as hedging activities, the change
in their fair value, amounting to $54 and $(1,112) for the six months ended
December 31, 2005 and 2004, respectively, is recorded in accumulated other
comprehensive income included in the accompanying consolidated balance sheets.

We are subject to risk from changes in foreign exchange rates for our
subsidiaries that use a foreign currency as their functional currency and are
translated into U.S. dollars. These changes result in cumulative translation
adjustments, which are included in accumulated other comprehensive income. On
December 31, 2005, we had translation exposure to various foreign currencies,
with the most significant being the Euro, the Chinese Renminbi and the Singapore
dollar. The potential loss as of December 31, 2005, resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates
amounted to $3,556. Actual results may differ.

INTEREST RATE RISK

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

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Our chief executive officer and chief
financial officer, with assistance from other members of our management, have
reviewed the effectiveness of our disclosure controls and procedures as of
December 31, 2005 and, based on their evaluation, have concluded that the
disclosure controls and procedures were effective as of such date.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six
months ended December 31, 2005 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

NEW ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEM

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

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

Our management, including our chief executive officer and chief financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in any control system, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.

                                       31
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Under the terms of the settlement agreement, we were obligated to pay $1,375, of
which $625 was paid in December 2005 and the remaining $750 will be paid in
equal installments over the next five years. As a result of the settlement, we
recorded an intangible asset of $838 for the patent license, which will be
amortized of its remaining life of 11 years, and a charge of $537, included in
SG&A expense, for the six months ended December 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SHARE REPURCHASE PROGRAM

We are authorized by the Board of Directors to repurchase up to 4,147 shares of
common stock, in the open market or private transactions, at prices not to
exceed the market value of the common stock at the time of such purchase. During
the first six months of fiscal 2006, we purchased approximately 96 shares of
common stock for $585 as outlined in the following table:

<TABLE>
<CAPTION>
                                                                    Total Number of Shares      Maximum Number of
                                                                    Purchased as Part of a     Shares that May Yet
                          Total Number of     Average Price Paid      Publicly Announced        Be Purchased Under
     Period               Shares Purchased         Per Share              Program (1)              the Program
     ------               ----------------         ---------              -----------              -----------
<S>                              <C>                 <C>                      <C>                     <C>
July 2005                        -                     -                       -                      4,147
August 2005                      -                     -                       -                      4,147
September 2005                   -                     -                       -                      4,147
October 2005                     -                     -                       -                      4,147
November 2005                    63                  6.06                     63                      4,084
December 2005                    33                  6.13                     33                      4,051
                                 --                                           --

Total                            96                  6.09                     96                      4,051
                                 ==                                           ==
</TABLE>

(1)     On May 4, 2005, the Board of Directors authorized the extension of the
        share repurchase program, of up to 4,147 shares of common stock, for an
        additional three years, expiring May 2008.

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

The Company held an annual meeting of its shareholders on December 1, 2005. The
election of nominees Leonard S. Schwartz, Robert A. Wiesen, Stanley H. Fischer,
Albert L. Eilender, Ira S. Kallem, Hans C. Noetzli and William N. Britton as
directors of the Company until the next annual meeting was voted on at the
annual meeting.

                                       32
<PAGE>

The votes were cast for this matter as follows:

                                          FOR         WITHHELD/ABSTAIN
       Leonard S. Schwartz              15,887                  5,096
       Robert A. Wiesen                 15,795                  5,188
       Stanley H. Fischer               15,877                  5,106
       Albert L. Eilender               19,871                  1,112
       Ira S. Kallem                    19,903                  1,080
       Hans C. Noetzli                  19,908                  1,075
       William N. Britton               20,364                    619

Each nominee was elected a director of the Company.

ITEM 6. EXHIBITS

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

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

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

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

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

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


                                       33
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            ACETO CORPORATION


DATE   February 9, 2006                     BY  /s/ Douglas Roth
     -----------------------                    ----------------
                                                Douglas Roth, Chief Financial
                                                Officer

DATE   February 9, 2006                     BY  /s/ Leonard S. Schwartz
     -----------------------                    -----------------------
                                                Leonard S. Schwartz, Chairman,
                                                President and Chief Executive
                                                Officer







                                       34