<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, 2004
                        Commission file number 000-04217


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


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

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

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

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


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

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

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

The Registrant has 24,225,003 shares of common stock outstanding as of February
7, 2005.


<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004

                                Table of Contents


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets - December 31, 2004 (unaudited) and
         June 30, 2004

         Consolidated Statements of Income - Six Months
         Ended December 31, 2004 and 2003 (unaudited)

         Consolidated Statements of Income - Three Months
         Ended December 31, 2004 and 2003 (unaudited)

         Consolidated Statements of Cash Flows - Six Months
         Ended December 31, 2004 and 2003 (unaudited)

         Notes to Unaudited Consolidated Financial Statements

         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 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,
                                                                                          2004              2004
                                                                                          ----              ----
                                                                                      (unaudited)
<S>                                                                                   <C>                 <C>
ASSETS

Current assets:
     Cash and cash equivalents                                                        $     27,139        $    32,330
     Short-term investments                                                                  4,311                888
     Receivables:
           Trade, less allowance for doubtful accounts (December, $1,079;
             June, $1,033)                                                                  47,826             53,084
           Other                                                                             2,073              1,504
                                                                                      ------------        -----------
                                                                                            49,899             54,588

     Inventory                                                                              50,148             41,784
     Prepaid expenses and other current assets                                               1,257              1,165
     Assets held for sale                                                                    2,656                  -
     Income taxes receivable                                                                     -                606
     Deferred income tax benefit, net                                                        1,841              1,613
                                                                                      ------------        -----------
                  Total current assets                                                     137,251            132,974

Long-term notes receivable                                                                     696                747

Property and equipment                                                                       8,817              7,044
Less accumulated depreciation and amortization                                               3,739              4,390
                                                                                      ------------        -----------
                                                                                             5,078              2,654

  Goodwill                                                                                   2,347              3,179
  Intangible assets, net                                                                     3,852              3,701
  Deferred income tax benefit, net                                                           3,443              4,579
  Other assets                                                                               2,517              1,863
                                                                                      ------------        -----------

  Total assets                                                                        $    155,184        $   149,697
                                                                                      ============        ===========


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

                                                           3
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                      December 31,         June 30,
                                                                                          2004              2004
                                                                                          ----              ----
                                                                                      (unaudited)
<S>                                                                                   <C>                 <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Drafts and acceptances payable                                                     $      3,486        $     4,610
   Accounts payable                                                                         26,604             31,292
   Note payable - related party                                                                500              1,000
   Accrued compensation                                                                      2,728              2,836
   Accrued environmental remediation                                                         1,246              1,326
   Other accrued expenses                                                                   10,587              6,070
   Liabilities relating to assets held for sale                                                434                  -
                                                                                      ------------        -----------
         Total current liabilities                                                          45,585             47,134

Long-term liabilities                                                                        2,714              2,140
Minority interest                                                                              131                157
                                                                                      ------------        -----------
         Total liabilities                                                                  48,430             49,431

Commitments and contingencies (Note 14)

Shareholders' equity:
   Common stock, $.01 par value (Note 7):
       (40,000 shares authorized; 25,644 shares issued;
       24,220 and 24,118 shares outstanding at
       December 31, 2004 and June 30, 2004, respectively)                                      256                256
   Capital in excess of par value                                                           57,245             57,111
   Retained earnings                                                                        59,998             56,490
   Treasury stock, at cost:
       (1,424 and 1,526 shares at December
        31, 2004 and June 30, 2004, respectively)                                          (14,118)           (15,135)
   Accumulated other comprehensive income                                                    3,373              1,544
                                                                                      ------------        -----------

         Total shareholders' equity                                                        106,754            100,266
                                                                                      ------------        -----------

Total liabilities and shareholders' equity                                            $    155,184        $   149,697
                                                                                      ============        ===========


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

                                                           4

<PAGE>
<TABLE>
<CAPTION>

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


                                                                                              Six Months Ended
                                                                                                December 31,
                                                                                          2004               2003
                                                                                          ----               ----
<S>                                                                                   <C>                 <C>
Net sales                                                                             $    155,167        $   138,890
Cost of sales                                                                              128,996            114,986
                                                                                      ------------        -----------
   Gross profit                                                                             26,171             23,904

Selling, general and administrative expenses                                                18,380             15,672
                                                                                      ------------        -----------
   Operating income                                                                          7,791               8,232

Other income (expense):
   Interest expense                                                                            (40)               (68)
   Interest and other income, net                                                              855                888
                                                                                      ------------        -----------
                                                                                               815                820
                                                                                      ------------        -----------

Income from continuing operations before income taxes                                        8,606              9,052
Provision for income taxes                                                                   2,467              2,717
                                                                                      ------------        -----------
Income from continuing operations                                                            6,139              6,335
Loss from discontinued operations, net of income taxes (Note 3)                               (811)              (253)
                                                                                      ------------        -----------
Net income                                                                            $      5,328        $     6,082
                                                                                      ============        ===========

Basic income per common share (a):
   Income from continuing operations                                                  $       0.25        $      0.27
   Loss from discontinued operations                                                  $      (0.03)       $     (0.01)
    Net income                                                                        $       0.22        $      0.26

Diluted income per common share (a):
   Income from continuing operations                                                  $       0.25        $      0.26
   Loss from discontinued operations                                                  $      (0.03)       $     (0.01)
    Net income                                                                        $       0.22        $      0.25

Weighted average shares outstanding (a):
   Basic                                                                                    24,145             23,732
   Diluted                                                                                  24,690             24,353


(a)  The number of shares outstanding and the per-share information have been adjusted for a 3-for-2 stock split
     effected in the form of a dividend, paid January 10, 2005.

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

                                                           5

<PAGE>
<TABLE>
<CAPTION>

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


                                                                                             Three Months Ended
                                                                                               December 31,
                                                                                          2004               2003
                                                                                          ----               ----
<S>                                                                                   <C>                 <C>
Net sales                                                                             $     75,808        $    67,954
Cost of sales                                                                               62,810             55,632
                                                                                      ------------        -----------
   Gross profit                                                                             12,998             12,322

Selling, general and administrative expenses                                                 9,565              8,380
                                                                                      ------------        -----------
   Operating income                                                                          3,433              3,942

Other income (expense):
   Interest expense                                                                            (20)               (48)
   Interest and other income, net                                                              306                511
                                                                                      ------------        -----------
                                                                                               286                463
                                                                                      ------------        -----------

Income from continuing operations before income taxes                                        3,719              4,405
Provision for income taxes                                                                   1,218              1,245
                                                                                      ------------        -----------
Income from continuing operations                                                            2,501              3,160
Loss from discontinued operations, net of income taxes (Note 3)                               (548)              (197)
                                                                                      ------------        -----------
Net income                                                                            $      1,953        $     2,963
                                                                                      ============        ===========

Basic income per common share (a):
   Income from continuing operations                                                  $       0.10        $      0.13
   Loss from discontinued operations                                                  $      (0.02)       $     (0.01)
    Net income                                                                        $       0.08        $      0.12

Diluted income per common share (a):
    Income from continuing operations                                                 $       0.10        $      0.13
    Loss from discontinued operations                                                 $      (0.02)       $     (0.01)
    Net income                                                                        $       0.08        $      0.12

Weighted average shares outstanding (a):
   Basic                                                                                    24,163             23,783
   Diluted                                                                                  24,722             24,314


(a)  The number of shares outstanding and the per-share information have been adjusted for a 3-for-2 stock split,
     effected in the form of a dividend, paid January 10, 2005.

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

                                                           6
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                              Six Months Ended
                                                                                                December 31,
                                                                                          2004               2003
                                                                                          ----               ----
<S>                                                                                   <C>                 <C>
Operating activities:
   Net income                                                                         $      5,328        $     6,082
   Loss from discontinued operations                                                           811                  -
                                                                                      ------------        -----------
   Net income from continuing operations                                                     6,139              6,082
   Adjustments to reconcile net income to net cash provided
       by continuing operations:
         Depreciation and amortization                                                         647                490
         Provision for doubtful accounts                                                       230                112
         Non-cash stock compensation                                                            90                126
         Deferred income taxes                                                                 908                  -
         Income tax benefit on exercise of stock options                                       215                948
         Changes in assets and liabilities:
           Investments - trading securities                                                    (53)              (117)
           Trade accounts receivable                                                         5,970             (1,641)
           Other receivables                                                                  (495)              (198)
           Inventory                                                                        (8,210)             2,995
           Prepaid expenses and other current assets                                          (131)              (331)
           Other assets                                                                       (739)               105
           Drafts and acceptances payable                                                   (1,235)               302
           Accounts payable                                                                 (5,004)             4,855
           Accrued compensation                                                                 (7)              (224)
           Accrued environmental remediation                                                   (80)                 -
           Income taxes receivable                                                             606              1,885
           Other accrued expenses and long-term liabilities                                  1,894             (1,042)
                                                                                      ------------        -----------
Net cash provided by operating activities                                                      745             14,347
                                                                                      ------------        -----------

Investing activities:
     Purchases of investments                                                               (3,718)            (2,708)
     Sales of investments                                                                      348                  -
     Payments received on notes receivable                                                      42                228
     Purchases of property and equipment                                                    (3,347)              (330)
                                                                                      ------------        -----------
Net cash used in investing activities                                                       (6,675)            (2,810)
                                                                                      ------------        -----------

Financing activities:
     Proceeds from exercise of stock options                                                   856              1,945
     Payment of note payable - related party                                                  (500)                 -
     Payments of short-term bank loans                                                           -             (2,284)
                                                                                      ------------        -----------
     Net cash provided by (used in) financing activities                                       356               (339)
                                                                                      ------------        -----------

Net cash used in discontinued operations                                                      (146)                 -
                                                                                      ------------        -----------
Effect of exchange rate changes on cash                                                        529                466
                                                                                      ------------        -----------

Net (decrease) increase in cash                                                             (5,191)            11,664
Cash at beginning of period                                                                 32,330             20,263
                                                                                      ------------        -----------
Cash at end of period                                                                 $     27,139        $    31,927
                                                                                      ============        ===========


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


                                                           7

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                    (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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial statements. These
judgments can be subjective and complex, and consequently actual results could
differ from those estimates and assumptions. The Company's most critical
accounting policies relate to revenue recognition; allowance for doubtful
accounts; inventory; goodwill and other intangible assets; pension benefits;
income taxes; and environmental matters and other contingencies.

These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America.
Accordingly, these statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Form 10-K for the year ended June 30, 2004.

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

(2)     STOCK-BASED COMPENSATION

The Company applies the intrinsic value method as outlined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), and related interpretations for stock options and other stock-based awards
while disclosing pro forma net income and 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 is recognized if the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant. Since the Company has
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, no compensation cost
has been recognized. SFAS No. 123 requires that the Company provide pro forma
information regarding net income and net income per common share as if
compensation cost for the Company's stock option programs had been determined in
accordance with the fair value method prescribed therein. The following table
illustrates the effect on net income and net income per common share as if the
Company had measured the compensation cost for the Company's stock option
programs under the fair value method in each period presented:


                                       8
<PAGE>
<TABLE>
<CAPTION>
                                             Six months ended             Three months ended
                                               December 31,                  December 31,
                                            2004           2003          2004          2003
                                            ----           ----          ----          ----
<S>                                        <C>            <C>           <C>           <C>
Net income - as reported                   $5,328         $6,082        $1,953        $2,963
Deduct:  Total stock-based employee
     compensation expense determined
     under fair value method for all
     awards, net of related tax
     effects                                (4,279)          (534)         (402)         (278)
                                           -------          -----         -----         -----

Net income - pro forma                     $ 1,049         $5,548        $1,551        $2,685

Net income per share:
     Basic - as reported                   $  0.22         $ 0.26        $ 0.08        $ 0.12
     Basic - pro forma                     $  0.04         $ 0.23        $ 0.06        $ 0.11

     Diluted - as reported                 $  0.22         $ 0.25        $ 0.08        $ 0.12
     Diluted - pro forma                   $  0.04         $ 0.23        $ 0.06        $ 0.11
</TABLE>

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 vested as of their date of grant.

(3)     ASSETS HELD FOR SALE

On December 31, 2004, the Company committed to a plan to divest its non-core
Institutional Sanitary Supplies ("ISS") segment. The Company decided to sell its
ISS segment to focus on its core segments and its new patent-pending landfill
odor-control product. The Company anticipates that a sale of the ISS segment
will be completed within a year.

Assets held for sale of the disposal group included in the accompanying
consolidated balance sheet as of December 31, 2004 consist of current assets
(primarily accounts receivable and inventory) of $1,752, property and equipment
of $682, and goodwill of $222. Liabilities related to the assets held for sale
consist of accounts payable and accrued expenses of $434 in the accompanying
consolidated balance sheet as of December 31, 2004.

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations of the ISS segment have been
recorded as discontinued operations in the accompanying consolidated statements
of income. Revenues from discontinued operations were $2,745 and $2,648 for the
six months ended December 31, 2004 and 2003, respectively, and $1,285 and $1,248
for the three months ended December 31, 2004 and 2003, respectively. The loss
from operations of the discontinued business was $363 (net of income taxes of
$222) and $253 (net of income taxes of $169) for the six months ended December
31, 2004 and 2003, respectively, and $100 (net of income taxes of $61) and $197
(net of income taxes of $132) for the three months ended December 31, 2004 and
2003, respectively. In addition, the loss from discontinued operations includes
a non-cash write-down to goodwill of $448 (net of income taxes of $275) in
December 2004.

The presentation in the consolidated statements of income for the three and six
months ended December 31, 2003 have been reclassified to reflect the
discontinued operations. The consolidated balance sheet as of June 30, 2004 and
the statement of cash flows for the six months ended December 31, 2003 have not
been reclassified to reflect the discontinued operations.

(4)     BUSINESS ACQUISITIONS

On December 31, 2003, the Company, through its wholly owned subsidiary Aceto
Holding GmbH ("Aceto Holding"), acquired from Corange Deutschland Holding GmbH
("Corange"), all of the capital stock of Pharma


                                       9
<PAGE>

Waldhof Beteiligungs GmbH ("Pharma Waldhof"), and all of the partnership
interest of Pharma Waldhof GmbH & Co. KG. Pharma Waldhof is the general partner
of Pharma Waldhof GmbH & Co. KG.

The following unaudited pro forma financial information presents a summary of
the Company's consolidated results of continuing operations for the six and
three months ended December 31, 2003, assuming the Pharma Waldhof acquisition
had taken place as of July 1, 2003:

                                   Six months ended        Three months ended
                                     December 31,             December 31,
                                         2003                     2003
                                         ----                     ----
   Net sales                           $143,444                 $ 70,147
   Net income                          $  7,359                 $  3,553

   Net income per common share:
        Basic                          $   0.31                 $   0.15
        Diluted                        $   0.30                 $   0.15

The unaudited pro forma financial information has been prepared for comparative
purposes only and reflects the addition of the historical unaudited results of
Pharma Waldhof. The pro forma financial information includes adjustments to the
Company's historical results to reflect reduced interest income generated from
cash that was used for the acquisition, depreciation and amortization expenses
and related income tax adjustments. The pro forma information does not purport
to be indicative of operating results that would have been achieved had the
acquisition taken place on the dates indicated or the results that may be
obtained in the future.

(5)     SHORT-TERM INVESTMENTS

Short-term investments at December 31, 2004 consist of governmental agency
securities of $2,506, corporate bonds of $1,212 and corporate equity securities
of $593. The governmental agency securities and corporate bonds are classified
as available for sale. The corporate equity securities are classified as trading
securities. The difference between the fair value of the available for sale
investments and cost at December 31, 2004 was insignificant.

(6)     GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill of $2,347 and $2,234 as of December 31, 2004 and June 30, 2004 relates
to the Health Sciences segment. Goodwill at June 30, 2004 also includes $945
related to the discontinued ISS segment, which was written down to its fair
value of $222 in December 2004 and is included in assets held for sale at
December 31, 2004.

Intangible assets subject to amortization as of December 31, 2004 and June 30,
2004 were as follows:

                             Gross Carrying     Accumulated         Net Book
                                 Value          Amortization          Value
                                 -----          ------------          -----
   DECEMBER 31, 2004

   Customer relationships        $2,995            $  428            $2,567
   Customer lists                   600               450               150
   Non-compete agreements           670               470               200
                                 ------            ------            ------
                                 $4,265            $1,348            $2,917
                                 ======            ======            ======

   JUNE 30, 2004

   Customer relationships        $2,644            $  189            $2,455
   Customer lists                   600               390               210
   Non-compete agreements           643               442               201
                                 ------            ------            ------
                                 $3,887            $1,021            $2,866
                                 ======            ======            ======



                                       10
<PAGE>

Amortization expense for intangible assets subject to amortization amounted to
$327 and $111 for the six months ended December 31, 2004 and 2003, respectively.
The estimated aggregate amortization expense for intangible assets subject to
amortization for each of the succeeding years ended December 31 are as follows:
2005: $598; 2006: $508; 2007: $478; 2008: $478; 2009: $428; 2010: $427.

As of December 31, 2004 and June 30, 2004, the Company also had $935 and $835,
respectively, of intangible assets pertaining to trademarks which are not
subject to amortization.

The changes in the Health Sciences segment's goodwill and the gross carrying
value of intangible assets is attributable to foreign currency exchange rates
used to translate the financial statements of foreign subsidiaries.

(7)     STOCKHOLDERS' EQUITY

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 and semi-annual cash dividend of
$0.075 were paid January 10, 2005, to shareholders of record on 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. All references to the number of
common shares and the per common share amounts have been restated to give
retroactive effect to the above stock split for all periods presented.

(8)     NET INCOME PER COMMON SHARE

A reconciliation of the numerators and denominators of the basic and diluted
income per common share follows:

<TABLE>
<CAPTION>
                                                     Six months ended           Three months ended
                                                       December 31,                December 31,
                                                   2004            2003        2004            2003
                                                   ----            ----        ----            ----
<S>                                              <C>             <C>         <C>             <C>
Income from continuing operations                $  6,139        $  6,335    $  2,501        $  3,160
Loss from discontinued operations                    (811)           (253)       (548)           (197)
                                                 --------        --------    --------        --------

Net income                                       $  5,328        $  6,082    $  1,953        $  2,963
                                                 ========        ========    ========        ========

Weighted average common shares outstanding         24,145          23,732      24,163          23,783
(basic) (a)
Effect of dilutive securities:
   Stock options (a)                                  545             621         559             531
                                                 --------        --------    --------        --------
Weighted average common and potential
 common shares outstanding (diluted) (a)           24,690          24,353      24,722          24,314
                                                 ========        ========    ========        ========

Basic income per common share (a):
   Income from continuing operations             $   0.25        $   0.27    $   0.10        $   0.13
   Loss from discontinued operations             $  (0.03)       $  (0.01)   $  (0.02)       $  (0.01)
                                                 --------        --------    --------        --------
   Net income                                    $   0.22        $   0.26    $   0.08        $   0.12
                                                 ========        ========    ========        ========

Diluted income per common share (a):
    Income from continuing operations            $   0.25        $   0.26    $   0.10        $   0.13
    Loss from discontinued operations            $  (0.03)       $  (0.01)   $  (0.02)       $  (0.01)
                                                 --------        --------    --------        --------
    Net income                                   $   0.22        $   0.25    $   0.08        $   0.12
                                                 ========        ========    ========        ========
</TABLE>

(a)  Share and per share information have been adjusted for a 3-for-2 stock
     split effected in the form of a dividend, paid January 10, 2005.

There were no employee stock options outstanding at December 31, 2004 that were
not included in the diluted income per common share calculation because their
effect would have been anti-dilutive.


                                       11
<PAGE>

(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,
                                         2004            2003          2004           2003
                                         ----            ----          ----           ----
<S>                                     <C>             <C>           <C>             <C>
Comprehensive income:
    Net income                          $5,328          $6,082        $1,953          $2,963
    Foreign currency translation
       adjustment                        3,028             922         2,569             765
    Unrealized loss on forward
       currency contracts                  (87)              -          (207)              -
    Change in fair value of cross
       currency interest rate swaps     (1,112)            (30)         (944)             58
                                        ------          ------        ------          ------
Total                                   $7,157          $6,974        $3,371          $3,786
                                        ======          ======        ======          ======
</TABLE>

The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. New 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 $908 during the six months
ended December 31, 2004 related to the reduction of taxes payable by $1,183 due
to the utilization of foreign net operating loss carryforwards, partially offset
by a $275 deferred tax asset established for the write-down of goodwill.

(11)    SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes for the six months ended December 31,
2004 and 2003 were as follows:

                                          2004                2003
                                          ----                ----
   Interest                             $     31            $     70
   Income taxes                              929               1,327

The semi-annual cash dividend of $0.075 paid January 10, 2005, to shareholders
of record on December 24, 2004 of $1,820 was included in other accrued expenses
at December 31, 2004.

(12)    BENEFIT PLANS

To comply with the requirements of the recently enacted American Jobs Creation
Act of 2004, as of December 31, 2004, the Company has frozen its non-qualified
Supplemental Executive Retirement Plan and will not permit further deferrals and
contributions to this plan for compensation earned after December 31, 2004. All
of the earned benefits of the participants in this plan as of December 31, 2004
will be preserved under the existing plan provisions. The Company intends to
establish a similar plan in compliance with the American Jobs Creation Act.

(13)    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, 2004 and 2003, the Company incurred legal fees of


                                       12
<PAGE>

$57 and $97, respectively, for services rendered to the Company by these law
firms. The fees charged by such firms were at rates comparable to rates
obtainable from other firms for similar services.

(14)    COMMITMENTS AND CONTINGENCIES AND SHORT-TERM BORROWINGS

As of December 31, 2004, the Company had outstanding purchase obligations
totaling $16,315 with suppliers to the Company's Germany, Netherlands and
Singapore operations to acquire certain products for resale to third party
customers.

During November 2004, the Company purchased ten separate units, comprising an
entire floor of office space, aggregating approximately 1,300 gross square
meters (whole number, not in thousands) located in Shanghai, China. The
aggregate purchase price was approximately $2,900, of which $2,616 has been paid
at December 31, 2004.

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.

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 $2,590 and
$1,161 as of December 31, 2004 and June 30, 2004, 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.

(15)    RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R, "Share-Based Payment," that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and instead requires that such
transactions be accounted for using a fair value based method. This statement is
effective for interim or annual periods beginning after June 15, 2005 (the
Company's 2006 fiscal year), as if all share-based compensation awards granted,
modified or settled after December 15, 1994 had been accounted for using the
fair value based method of accounting. The Company has not yet determined the
transition method it expects to select in adopting the provisions of FASB
Statement No. 123R. See Note 2 "Stock-Based Compensation" for pro-forma
information if the Company had elected to adopt the requirements of the
previously issued SFAS 123.

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, although
the FASB recently issued two Staff Positions to provide guidance on how
companies should account for the effects of the American Jobs Creation Act,
uncertainty remains and further U.S. Treasury guidance is anticipated. The
Company is evaluating the repatriation provision of this law to determine
whether, and to what extent, it might repatriate extraordinary dividends, as
defined in this law. Accordingly, it can not reasonably estimate the amounts, if
any, of undistributed earnings that may be repatriated. The Company expects to
complete its evaluation within a reasonable amount of time after additional U.S.
Treasury guidance is published.

(16)    SEGMENT INFORMATION

The Company's four 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.


                                       13
<PAGE>

        o       Chemicals & Colorants - products include a variety of specialty
                chemicals used in plastics, resins, adhesives, coatings, food,
                flavor additives, fragrances, cosmetics, metal finishing,
                electronics 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.

        o       Institutional Sanitary Supplies & Other - products include
                cleaning solutions, fragrances, and deodorants for commercial
                and industrial customers. On December 31, 2004, management
                committed to a plan to sell this segment. Accordingly, the
                results of this segment are included in discontinued operations
                in the accompanying consolidated statements of income.

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.

Six months ended December 31, 2004 and 2003 for continuing operations:

<TABLE>
<CAPTION>
                                  Health      Chemicals &                    Consolidated
                                 Sciences      Colorants     Agrochemicals      Totals
                                 --------      ---------     -------------      ------
2004
----
<S>                               <C>           <C>              <C>           <C>
Net sales                         $97,622       $48,548          $8,997        $155,167
Gross profit                       17,643         7,653           2,791          28,087
Unallocated cost of sales (1)                                                    (1,916)
                                                                               --------
Net gross profit                                                               $ 26,171

2003
----
Net sales                         $87,076       $44,188          $7,626        $138,890
Gross profit                       16,053         7,176           2,582          25,811
Unallocated cost of sales (1)                                                    (1,907)
                                                                               --------
Net gross profit                                                               $ 23,904
</TABLE>

Three months ended December 31, 2004 and 2003 for continuing operations:

<TABLE>
<CAPTION>

                                  Health      Chemicals &                    Consolidated
                                 Sciences      Colorants     Agrochemicals      Totals
                                 --------      ---------     -------------      ------
2004
----
<S>                               <C>           <C>              <C>           <C>
Net sales                         $45,384       $24,542          $5,882        $ 75,808
Gross profit                        8,118         3,892           1,973          13,983
Unallocated cost of sales (1)                                                      (985)
                                                                               ---------
Net gross profit                                                               $ 12,998

2003
----
Net sales                         $42,070       $21,047          $4,837        $ 67,954
Gross profit                        7,459         3,723           1,902          13,084
Unallocated cost of sales (1)                                                      (762)
                                                                               --------
Net gross profit                                                               $ 12,322
</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.


                                       14
<PAGE>

Net sales and gross profit by location for the six months ended December 31,
2004 and 2003 and long-lived assets by location as of December 31, 2004 and June
30, 2004 for continuing operations 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,
                              2004           2003             2004           2003           2004            2004
                              ----           ----             ----           ----           ----            ----
<S>                         <C>            <C>              <C>            <C>             <C>            <C>
United States               $ 85,512       $ 82,335         $ 13,077       $ 14,529        $  1,197       $  1,748
Germany                       31,658         20,342            7,685          3,619             665            585
Netherlands                    4,010          4,678              935            846             398            129
France                         5,414          4,659              718            744             113            119
Asia-Pacific                  28,573         26,876            3,756          4,166           2,705             73
                            --------       --------         --------       --------        --------       --------
Total                       $155,167       $138,890         $ 26,171       $ 23,904        $  5,078       $  2,654
                            ========       ========         ========       ========        ========       ========
</TABLE>


                                       15
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders
Aceto Corporation:

We have reviewed the accompanying consolidated balance sheet of Aceto
Corporation and subsidiaries as of December 31, 2004, the related consolidated
statements of income for the three-month and six-month periods ended December
31, 2004 and 2003, and the related consolidated statements of cash flows for the
six-month periods ended December 31, 2004 and 2003. These consolidated financial
statements are the responsibility of the Company's management.

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

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

We have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Aceto Corporation and subsidiaries as of June 30, 2004, and the related
consolidated statements of income, shareholders' equity and comprehensive income
(loss), and cash flows for the year then ended (not presented herein); and in
our report dated September 9, 2004, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of June 30, 2004, is fairly
stated, in all material aspects, in relation to the consolidated balance sheet
from which it has been derived.

As discussed in note 2 to the June 30, 2004 consolidated financial statements,
Aceto Corporation and subsidiaries adopted the provisions of Statement of
Financial Accounting Standards No. 141, "Business Combinations" and Statement
No. 142, "Goodwill and Other Intangible Assets" as of July 1, 2002.


                                                      /s/ KPMG LLP


Melville, New York
February 8, 2005


                                       16
<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 a global distributor of chemically-derived pharmaceuticals,
biopharmaceuticals, specialty chemicals, and agrochemicals. Our offices in
China, Germany, France, the Netherlands, Singapore, India, Poland, Hong Kong,
the United Kingdom and the United States, along with warehouses worldwide,
enable us to respond quickly to global customer demands, assuring that a
consistent, high-quality supply of pharmaceutical, biopharmaceutical, specialty
chemicals and agrochemicals is never far away. We are able to offer our
customers very competitive pricing, continuity of supply, and quality control.
Our 57 years of experience, our reputation for reliability and stability, and
our long-term relationships with our suppliers have fostered loyalty among our
customers.

We remain confident about our short- and long-term business prospects. In the
short-term, we anticipate continued organic growth, including growth resulting
from our launching new active pharmaceutical ingredients (APIs), entering the
developing biopharmaceutical market, globalization of our Chemicals & Colorants
business, expansion of our Agrochemicals segment by acquisition of product
lines, continued enhancement of our sourcing operations in China and India, and
steady improvement of our regulatory capabilities.

We believe that new product launches and product introductions demonstrate that
Aceto has come to be recognized by the worldwide generic pharmaceutical industry
as a reliable supplier. Our long-term plans involve seeking strategic
acquisitions that enhance our earnings, forming alliances with partners that add
to our capabilities, and establishing significant business operations in Eastern
Europe. We believe Eastern Europe has great potential in the API business, given
that entry of Eastern European countries into the European Union will result in
them being subject to the same strict pharmaceutical regulations as their
Western European counterparts.

We are reporting net sales of $155,167 for the six months ended December 31,
2004, which represents an 11.7% increase over the $138,890 reported in the same
period in fiscal 2004. Our income from continuing operations of $6,139, or $0.25
per diluted share was slightly lower than the same period in fiscal 2004.

Our financial position as of December 31, 2004 remains strong, as we had cash of
$27,139, working capital of $91,666, no long-term debt, and shareholders' equity
of $106,754.


                                       17
<PAGE>

Our business is separated into four principal segments: Health Sciences,
Chemicals & Colorants, Agrochemicals, and Institutional Sanitary Supplies &
Other.

The Health Sciences segment is our largest and fastest growing 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 70% of this segment's revenues. We typically partner with
both customers and suppliers years in advance of a drug coming off patent to
provide the generic equivalent.

We have an extensive pipeline of new generic products poised to reach commercial
levels over the coming years as the patents on existing drugs expire, both in
the United States and Europe. In addition, as new members join the European
Union, primarily from Eastern Europe, they become subject to the same regulatory
standards as their Western Europe counterparts. With the opening of our office
in Poland in January 2004, 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, 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.

The Agrochemicals segment, while relatively small in terms of sales, provides
the highest gross margin percentages. Our revenues are derived from sales of
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 believe this will have a marginally positive effect on the
gross margins contribution in this segment.

On December 31, 2004, we committed to a plan to divest our non-core
Institutional Sanitary Supplies Segment. A sale will enable us to focus on our
core segments as well as our new patent-pending landfill odor-control product,
Landfill Odorend, which will be integrated into the Chemicals & Colorants
segment.

Aceto's main strengths are sourcing, regulatory support and quality control. We
are currently the largest buyer of pharmaceutical and specialty chemicals for
export from China, purchasing from over 400 different factories.

Among our greatest strengths are our people and their ability to meet the
individual needs of customers. Eighty-five of our approximately 260 employees
have technical degrees and we have eighteen employees whose exclusive
responsibility is regulatory compliance. This enables us to dispatch highly
skilled professionals whenever they might be needed.

In this section, we explain our general financial condition and results of
operations, including the following:

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

As you read this section, refer to the accompanying consolidated statements of
income, which present the results of our operations for the six-month and
three-month periods ended December 31, 2004 and 2003. We analyze and explain the
differences between periods in the specific line items of the consolidated
statements of income.

CRITICAL ACCOUNTING POLICIES

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 accounting principles generally accepted in the United States.
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
evaluate our estimates on a regular basis, including those related to bad debts,
inventories, goodwill


                                       18
<PAGE>

and intangible assets, environmental and other contingencies, pension benefits
and income taxes. We base our estimates on various factors, including historical
experience, consultation and advice from third-party subject-matter experts, and
on various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions and circumstances.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of these
consolidated financial statements.

REVENUE RECOGNITION

We recognize revenue from product sales at the time of shipment and passage of
title and risk of loss to the customer. We have no acceptance or other
post-shipment obligations and we do not offer product warranties or services to
our customers.

Sales are recorded net of returns of damaged goods from customers, which
historically have been immaterial, and sales incentives offered to customers.
Sales incentives consist primarily of volume incentive rebates. We record such
volume incentive rebates as the underlying revenue transactions that result in
progress by the customer in earning the rebate are recorded, in accordance with
Emerging Issues Task Force 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)."

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Allowances for
doubtful accounts are based on historical experience and known factors regarding
specific customers and industries in which the customers operate. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances would be
required.

INVENTORIES

Inventories, which consist principally of finished goods, are stated at the
lower of cost (first-in, first-out method) or market. We write down our
inventories for estimated excess and obsolete goods by an amount equal to the
difference between the carrying cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions. A
significant sudden increase in the demand for our products could result in a
short-term increase in the cost of inventory purchases, while a significant
decrease in demand could result in an increase in the amount of excess inventory
quantities on-hand. Additionally, our estimates of future product demand may
prove to be inaccurate, in which case we may have understated or overstated the
write-down required for excess and obsolete inventory. Although we make every
effort to ensure the accuracy of our forecasts of future product demand, any
significant unanticipated changes in demand could have a significant impact on
the value of our inventory and reported operating results.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is calculated as the excess of the cost of purchased businesses over
the value of their underlying net assets. Other intangible assets principally
consist of customer relationships, trademarks, purchased customer lists, and
covenants not to compete. Goodwill and other intangible assets that have an
indefinite life are not amortized.

As required by Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," we test goodwill and other intangible
assets for impairment on at least an annual basis. To determine the fair value
of these intangible assets, there are many assumptions and estimates used that
directly impact the results of the testing. In making these assumptions and
estimates, we use industry-accepted valuation models and set criteria that are
reviewed and approved by various levels of management. Additionally, we use, as
necessary, a


                                       19
<PAGE>

third-party valuation firm to help us evaluate recorded goodwill. If our
estimates or their related assumptions change in the future, we may be required
to record impairment charges for these assets.

ENVIRONMENTAL AND OTHER CONTINGENCIES

We establish accrued liabilities for environmental matters and other
contingencies when it is probable that a liability has been incurred and the
amount of the liability is reasonably estimable. If the contingency is resolved
for an amount greater or less than the accrual, or our share of the contingency
increases or decreases, or other assumptions relevant to the development of the
estimate were to change, we would recognize an additional expense or benefit in
income in the period such determination was made.

PENSION BENEFITS

In addition to our defined contribution plans in the United States, we sponsor
pension plans outside the United States covering fourteen employees who meet
eligibility requirements. Several statistical and other factors that attempt to
estimate the probability and magnitude of future events are used in calculating
the expense and liability related to the plans. These factors include
assumptions about the discount rate, expected return on plan assets and rate of
future compensation increases, within certain guidelines. In addition, our
actuarial consultants also use subjective factors such as withdrawal and
mortality rates to estimate these variables. The actuarial assumptions that we
use may differ materially from actual results due to changing market and
economic conditions, higher or lower withdrawal rates or longer or shorter life
spans of participants, among other things. Differences from these assumptions
may significantly affect the amount of pension expense and liability that we
record.

TAXES

We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 establishes financial accounting and reporting
standards for the effects of income taxes that result from an enterprise's
activities during the current and preceding years. It requires an asset and
liability approach for financial accounting and reporting of income taxes.

Net deferred tax assets have been recorded based on our projecting that we will
have sufficient future earnings to realize these assets, and the net deferred
tax assets have been provided for at currently enacted income tax rates. If we
determine that a deferred tax asset will not be realizable, an adjustment to the
deferred tax asset will result in a reduction of net income at that time.

Deferred taxes have not been provided on undistributed earnings of foreign
subsidiaries since substantially all of these earnings are expected to be
permanently reinvested in our foreign operations. A deferred tax liability will
be recognized if and when we expect to recover those undistributed earnings in a
taxable manner, such as through receipt of dividends or sale of the investments.
Determination of the amount of the unrecognized U.S. income tax liability is not
practical because of the complexities of the hypothetical calculation. In
addition, foreign tax credit carryforwards would be available to reduce a
portion of such U.S. tax liability.


                                       20
<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 2004 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2003

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

                                                                                        Comparison 2004
                                          2004                    2003                 Over/(Under) 2003
                                          ----                    ----                 -----------------
                                                 % of                    % of            $             %
Segment                           Net sales     total     Net sales      total        change         change
-------                           ---------     -----     ---------      -----        ------         ------
<S>                               <C>           <C>       <C>            <C>         <C>                <C>
Health Sciences                   $  97,622      62.9%    $  87,076       62.7%      $  10,546          12.1%
Chemicals & Colorants                48,548      31.3        44,188       31.8           4,360           9.9
Agrochemicals                         8,997       5.8         7,626        5.5           1,371          18.0
                                  ---------     -----     ---------      -----       ---------      ---------

Net sales                         $ 155,167     100.0%    $ 138,890      100.0%      $  16,277          11.7%
                                  =========     =====     =========      =====       =========      =========


                                                           GROSS PROFIT BY SEGMENT
                                                        Six months ended December 31,

                                                                                        Comparison 2004
                                          2004                    2003                 OVER/(UNDER) 2003
                                          ----                    ----                 -----------------
                                    Gross      % of         Gross       % of            $             %
Segment                             Profit     Sales        Profit      Sales        Change         Change
-------                             ------     -----        ------      -----        ------         ------

Health Sciences                    $17,643     18.1%       $16,053      18.4%        $ 1,590          9.9%
Chemicals & Colorants                7,653     15.8          7,176      16.2             477          6.6
Agrochemicals                        2,791     31.0          2,582      33.9             209          8.1
                                   -------    -------      -------    -------        -------        -------

Segment gross profit                28,087     18.1         25,811      18.6           2,276          8.8

Freight and storage costs (1)       (1,916)    (1.2)        (1,907)     (1.4)             (9)        (0.5)
                                   -------    -------      -------    -------        -------        -------
Gross profit                       $26,171     16.9%       $23,904      17.2%        $ 2,267          9.5%
                                   =======    =======      =======    =======        =======        =======
</TABLE>

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


                                       21
<PAGE>

NET SALES

Net sales increased $16,277 or 11.7%, to $155,167 for the six months ended
December 31, 2004 compared with $138,890 for the same period in the prior year.
We reported sales increases in all three segments as explained below.

HEALTH SCIENCES

Net sales for the Health Sciences segment increased by $10,546 for the six
months ended December 31, 2004 to $97,622, which represented a 12.1% increase
over last year's net sales of $87,076. Several factors contributed to the
increase in net sales in the Health Sciences segment. Virtually all of the
increase resulted from improved sales in our European and Asian markets in
addition to the newly acquired Pharma Waldhof business, all of which contributed
to an increase in sales of $10,536. The European and Asian market increase was
attributable to the introduction of several new products and strong follow-up
sales of existing products. Included in the European and Asian net sales
increases were follow-up shipments of several generic products launched outside
the U.S. market prior to this fiscal year that showed an increase in net sales
of $1,856 over the same period last year. Domestically, API and nutritional
sales decreases of $1,818 and $740 respectively were substantially offset by an
increase in pharmaceutical intermediates net sales of $2,463.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment was $48,548 for the six months
ended December 31, 2004 compared to $44,188 for the same period in the prior
year. This increase in net sales of $4,360 or 9.9% versus the same period in the
prior year is partially attributable to the steady introduction of the products
to our foreign subsidiaries product offerings. Our foreign subsidiaries'
increased their sales of Chemicals & Colorants for the six months ended December
31, 2004 by $2,564. Our chemical business is diverse in terms of products,
customers and consuming markets. One customer within our color pigment and
pigment intermediate business purchased $1,975 less product in the first six
months of fiscal 2005. This reduction was more than offset by increases in sales
of our industrial chemical offerings of $3,987 over the same period last year.
We expect a similar trend to continue in the short-term as the U.S. economy
recovers.

AGROCHEMICALS

Net sales for the Agrochemical segment increased to $8,997 for the six months
ended December 31, 2004, an 18.0% increase over the same period in the prior
year of $7,626. The increase in net sales was attributable to higher sales of
our highest volume product as well as sales generated from several new products.
The Agrochemical segment sales trend for the six months should continue during
the balance of fiscal 2005.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) increased $2,276 to $28,087 (18.1% of net sales) for the
six months ended December 31, 2004 as compared to $25,811 (18.6% of net sales)
for the same period in the prior year. The Health Sciences segment made the
largest contribution to this increase as it accounted for $1,590 or 69.9% of the
overall increase.

HEALTH SCIENCES

The Health Sciences gross profit for the six months ended December 31, 2004 was
$17,643, a 9.9% increase over last year's gross profit of $16,053 for the same
period. The gross margin decreased slightly to 18.1% compared to last year's
gross margin of 18.4%. Gross profit improvement in the Health Sciences segment
was attributable to the various revenue factors as described above, namely an
overall sales increase of $10,546 primarily from foreign subsidiaries, including
Pharma Waldhof, which has higher margins. The domestic gross margin decrease can
be primarily attributed to the lower than normal API gross margins realized on a
re-launched anti-biotic of 10% and a product mix shift to pharmaceutical
intermediates which contribute lower margins than API's. Additionally, two of


                                       22
<PAGE>

our larger previously launched API's in Europe and Asia have experienced normal
pricing pressures for a more mature product.

CHEMICALS & COLORANTS

Gross profits increased by $477 or 6.6% over the same period last year. Last
year's gross profit included a favorable adjustment of $450 due to a reversal of
a reserve for the estimated loss of a purchase contract. Excluding this
adjustment, the gross profit would have increased by $927 or 13.8%. The segment
would have shown improved margins of 15.8% versus 15.2% for the same period last
year excluding the adjustment. Contributions from categories such as food and
beverages, miscellaneous intermediates, polymer additives and coatings in
addition to improved sales volume and margins in the European markets were the
primary reasons for the improvements. The increase in gross margin percentage
was caused by a decrease in sales to one major customer whose sales had
generated lower than usual margins, along with an improvement in margins across
other categories due to changes in product mix and, in some cases, improved
product pricing.

AGROCHEMICALS

Gross profit for the Agrochemicals segment increased to $2,791 for the six
months ended December 31, 2004 versus $2,582 for the same period last year, an
increase of 8.1%. The increased gross profit contributions resulted from a large
increase in sales of one existing product, sales from several new products as
well as a price increase in one product.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $2,708 or 17.3%
to $18,380 for the six months ended December 31, 2004 in comparison to $15,672
for the same period last year. As a percentage of sales, SG&A increased to 11.8%
versus 11.3% for the comparable period in fiscal 2004. SG&A increased primarily
due to the inclusion of Pharma Waldhof expenses of $1,247 which was acquired in
December 2003, costs of $515 for new business development initiatives including
personnel, fees associated with the planning and pre-implementation efforts of a
new ERP system of $230 and increased compensation and related fringe benefit
costs of $763.

OPERATING INCOME

For the six months ended December 31, 2004 operating income was $7,791 compared
to $8,232 for the same period last year, a decrease of $441 or 5.4%. This
decrease was due to higher SG&A expenses of $2,708, partially offset by the
overall increase in gross profit of $2,267, with the main contribution of $1,590
coming from the Health Sciences segment.

INTEREST AND OTHER INCOME, NET

Interest and other income decreased to $855 for the six months ended December
31, 2004 as compared to $888 for the same period last year. The decrease of $33
was attributable to a reduced unrealized gain on foreign currency of $115
partially offset by higher interest income of $20 resulting from higher returns
on short-term investment and an increase of $62 regarding a government subsidy
paid annually for doing business in a free-trade zone in Shanghai, China.

PROVISION FOR INCOME TAXES

The effective tax rate decreased to 28.7% from 30.0% for the same period last
year. This decrease in the effective tax rate is due to proportionately higher
earnings in jurisdictions with lower tax rates, primarily China.


                                       23
<PAGE>

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations for the Institutional Sanitary
Supplies segment have been recorded as discontinued operations in the
accompanying consolidated statements of income. The net loss from discontinued
operations was $811 and $253 for the six months ended December 31, 2004 and
2003, 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.

THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2003

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

                                                                                        Comparison 2004
                                          2004                    2003                 Over/(Under) 2003
                                          ----                    ----                 -----------------
                                                 % of                    % of            $             %
Segment                           Net sales     total     Net sales      total        change         change
-------                           ---------     -----     ---------      -----        ------         ------
<S>                               <C>           <C>       <C>            <C>         <C>                <C>

Health Sciences                   $  45,384      59.8%    $  42,070       61.9%      $   3,314           7.9%
Chemicals & Colorants                24,542      32.4        21,047       31.0           3,495          16.6
Agrochemicals                         5,882       7.8         4,837        7.1           1,045          21.6
                                  ---------     -----     ---------      -----       ---------      ---------

Net sales                         $  75,808     100.0%    $  67,954      100.0%      $   7,854          11.6%
                                  =========     =====     =========      =====       =========      =========


                                                           GROSS PROFIT BY SEGMENT
                                                       Three months ended December 31,

                                                                                        Comparison 2004
                                          2004                    2003                 OVER/(UNDER) 2003
                                          ----                    ----                 -----------------
                                    Gross      % of         Gross       % of            $             %
Segment                             Profit     Sales        Profit      Sales        Change         Change
-------                             ------     -----        ------      -----        ------         ------

Health Sciences                   $   8,118      17.9%    $   7,459       17.7%      $     659           8.8%
Chemicals & Colorants                 3,892      15.9         3,723       17.7             169           4.5
Agrochemicals                         1,973      33.5         1,902       39.3              71           3.7
                                  ---------     -----     ---------      -----       ---------      ---------
Segment gross profit                 13,983      18.4        13,084       19.2             899           6.9

Freight and storage costs (1)          (985)     (1.3)         (762)      (1.1)           (223)         29.3
                                  ---------     -----     ---------      -----       ---------      ---------
Gross profit                      $  12,998      17.1%    $  12,322       18.1%      $     676           5.5%
                                  =========     =====     =========      =====       =========      =========
</TABLE>

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


                                       24
<PAGE>

NET SALES

Net sales increased $7,854 or 11.6%, to $75,808 for the three months ended
December 31, 2004 compared with $67,954 for the same period in the prior year.
We reported sales increases for all three segments as compared to the same
period last year.

HEALTH SCIENCES

Net sales for the Health Sciences segment increased to $45,384 for the three
months ended December 31, 2004, which represented a 7.9% increase over last
year's net sales of $42,070. Several factors contributed to the increase in net
sales in the Health Sciences segment. A large portion of the increase resulted
from improved sales in our European and Asian markets in addition to the newly
acquired Pharma Waldhof business, all of which contributed to an increase in
sales of $3,286. The European and Asian market increase was attributable to the
introduction of several new products and follow-up sales of existing products.
Domestically, sales of active pharmaceutical ingredients (APIs) and nutritionals
decreased by a net $1,481 caused by a drop in demand for select products and
price erosion of the largest volume product shipped in the previous year. The
net overall decrease in domestic APIs sales includes an increase in sales for
the re-launching of a broad based antibiotic amounting to $1,133. The
pharmaceutical intermediates product line contributed to the segment's
improvement with a $1,412 or 85.8% increase in sales over fiscal 2004. We
believe sales of the pharmaceutical intermediates products will continue to
outperform last year's pace for the remainder of fiscal 2005.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment was $24,542 for the three months
ended December 31, 2004 compared to $21,047 for the same period in the prior
year. This increase in net sales of $3,495 or 16.6% versus the same period in
the prior year is partially attributable to the steady introduction of the
Chemical and Colorants products to our foreign subsidiaries product offerings of
$1,710. Our chemical business is diverse in terms of products, customers and
consuming markets. This quarter was a further illustration of this diversity.
One customer within our color pigment and pigment intermediate business
purchased $1,015 less product in the second quarter of fiscal 2005. This
reduction was more than offset by increases in sales of industrial chemicals of
$1,944, agricultural intermediates of $559 and dye intermediates of $464.

AGROCHEMICALS

Net sales for the Agrochemicals segment increased to $5,882 for the three months
ended December 31, 2004, a 21.6% increase over the same period in the prior year
of $4,837. The increase in net sales in the Agrochemicals segment was
attributable to higher sales of our highest volume product as well as sales
generated from several new products in the current quarter. The Agrochemical
segment sales trend should continue during the balance of fiscal 2005.

GROSS PROFIT

Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) increased $899 to $13,983 (18.4% of net sales) for the
three months ended December 31, 2004 as compared to $13,084 (19.2% of net sales)
for the same period in the prior year. The Health Sciences segment made the
largest contribution to this increase as it accounted for $659 or 73.3% of the
overall increase.

HEALTH SCIENCES

The Health Sciences gross profit for the three months ended December 31, 2004
was $8,118, an 8.8% increase over last year's first quarter gross profit of
$7,459. The gross margin increased to 17.9% in the second quarter of fiscal 2005
compared to last year's second quarter gross margin of 17.7%. Gross profit
improvement in the Health Sciences segment was attributable to the various
revenue factors as described above, namely an overall sales increase of $3,314.
Gross margins for the European and Asia markets increased from 14.4% to 18.6%,
much of which was due to the strong margins of our Pharma Waldhof business.
Gross margins in the USA slipped from 22.1% to 15.5% due to pricing pressure and
the product mix featuring increased sales in the pharmaceutical


                                       25
<PAGE>

intermediate products which contribute a lower margin than API's. We expect a
similar trend on pricing pressure to continue in the short-term.

CHEMICALS & COLORANTS

Gross profit increased by $169 or 4.5% over the same period last year to $3,892.
As mentioned previously, last year gross profits included a favorable adjustment
of $450 due to a reversal of a reserve for the estimated loss of a purchase
contract. If we were to reduce last year gross profit by the adjustment, the
increase would have been $619 or a 18.9% increase. The segment would have shown
improved margins of 15.9% versus 15.6% for the same period last year excluding
the adjustment. Contributions from categories such as agriculture intermediates,
food and beverages, miscellaneous intermediates and polymer additives in
addition to improved sales volume and margins in the European markets were the
primary reasons for the improvements. The increase in gross margin percentage
was caused by a decrease in sales to one major customer whose sales had
generated lower than usual margins, along with an improvement in margins across
other categories due to changes in product mix and, in some cases, improved
product pricing. The future trends are difficult to predict as they depend on
product mix and the introduction of new products.

AGROCHEMICALS

Gross profit from the Agrochemicals segment was $1,973 this quarter versus
$1,902 for the same period last year, an increase of 3.7%. There were gross
profit contributions resulting from a large increase in sales of one existing
product and sales from several new products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $1,185 or 14.1%
to $9,565 this quarter in comparison to $8,380 for the same period last year. As
a percentage of sales, SG&A increased to 12.6% in the second quarter of fiscal
2005 versus 12.3% for the comparable period in fiscal 2004. SG&A increased
primarily due to the inclusion of our Pharma Waldhof business of $574 which was
acquired in December 2003, an increase in the provision for bad debt of $265,
costs of new business development initiatives including personnel of $251 and
increased compensation including fringe benefit costs of $334, partially offset
by a decrease in consulting fees of $261.

OPERATING INCOME

For the quarter ended December 31, 2004 operating income was $3,433 compared to
$3,942 for the same period last year, a decrease of $509 or 12.9%. This decrease
was due to higher SG&A expenses of $1,185, partially offset by the overall
increase in gross profit of $676, with the main contribution of $659 coming from
the Health Sciences segment.

INTEREST AND OTHER INCOME, NET

Interest and other income decreased to $306 for the quarter ended December 31,
2004 as compared to $511 for the same period last year. The decrease of $205 was
primarily attributable to a reduction of net gains on foreign currency of $151
compared to the same period last year.

PROVISION FOR INCOME TAXES

The effective tax rate increased to 32.8% from 28.3% for the same period last
year. This increase in the effective tax rate is due to proportionately higher
earnings in jurisdictions with higher tax rates, primarily Germany.

DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the results of operations for the Institutional Sanitary
Supplies segment have been recorded as discontinued operations in the
accompanying consolidated statements of income. The net loss from discontinued
operations was $548 and $197


                                       26
<PAGE>

for the three months ended December 31, 2004 and 2003, respectively. The net
loss from discontinued operations for the three months ended December 31, 2004
includes a non-cash write-down of goodwill of $448.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

At December 31, 2004, we had $27,139 in cash, $4,311 in short-term investments
and no debt.

Our cash position at December 31, 2004 decreased $5,191 from the June 30, 2004
level. Operating activities provided cash of $745, primarily from net income of
$5,328, partially offset by a net decrease caused by changes in assets and
liabilities.

Investing activities for the six months ended December 31, 2004 used cash of
$6,675 primarily related to purchases of short-term investments and property and
equipment.

Financing activities for the six months ended December 31, 2004 provided cash of
$356 primarily as a result of proceeds from stock option exercises, partially
offset by a payment of a related party note payable.

CREDIT FACILITIES

We have credit facilities with two European financial institutions. These
facilities provide us with a line of credit of 14,500 Euros (approximately
$19,784), as of December 31, 2004. We are not subject to any financial covenants
under these arrangements. There were no outstanding balances under the credit
facilities at December 31, 2004.

In addition, we have a revolving credit facility with a financial institution
which expires June 30, 2007 and provides for available credit of $10,000. At
December 31, 2004, we had utilized $2,590 in letters of credit, leaving $7,410
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, 2004.

WORKING CAPITAL OUTLOOK

Working capital was $91,666 at December 31, 2004 versus $85,840 at June 30,
2004. 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.


                                       27
<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, 2004, we had no
significant obligations for capital expenditures, other than the purchase of
office space in Shanghai, China discussed below. At December 31, 2004,
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                  $ 10,096      $1,949         $3,630         $3,155        $1,362

Commercial letters of credit
                                     2,590       2,590              -              -             -

Standby letters of credit              109         109              -              -             -

Unconditional purchase
obligations (a)                     16,315      16,315              -              -             -
                                   -------     -------         ------         ------        ------

Total                              $29,110     $20,963         $3,630         $3,155        $1,362
                                   =======     =======         ======         =======       ======
</TABLE>

(a) As of December 31, 2004, we had outstanding purchase obligations totaling
$16,315 with suppliers to our Germany, Netherlands and Singapore operations to
acquire certain products for resale to customers.

Other significant commitments and contingencies included the following:

        (1)     We had a liability of $2,105 as of December 31, 2004 for our
                non-qualified Supplemental Executive Retirement Plan. The
                related funds held by the grantor trust amounted to $1,809 as of
                December 31, 2004.

        (2)     During November 2004, we purchased ten separate units,
                comprising an entire floor of office space, aggregating
                approximately 1,300 gross square meters (whole number, not in
                thousands) located in Shanghai, China. The aggregate purchase
                price was approximately $2,900 of which $2,616 has been paid at
                December 31, 2004.

        (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 the impact the final
                resolution of these matters will have on our results of
                operations or liquidity 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.

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,
2004 and 2003, we incurred legal fees of $57 and $97, 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.


                                       28
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R, "Share-Based Payment," that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and instead requires that such
transactions be accounted for using a fair value based method. This statement is
effective for interim or annual periods beginning after June 15, 2005 (the
Company's 2006 fiscal year), as if all share-based compensation awards granted,
modified or settled after December 15, 1994 had been accounted for using the
fair value based method of accounting. The Company has not yet determined the
transition method it expects to select in adopting the provisions of FASB
Statement No. 123R. See Note 2 "Stock-Based Compensation" for pro-forma
information if the Company had elected to adopt the requirements of the
previously issued SFAS 123.

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, although
the FASB recently issued two Staff Positions to provide guidance on how
companies should account for the effects of the American Jobs Creation Act,
uncertainty remains and further U.S. Treasury guidance is anticipated. The
Company is evaluating the repatriation provision of this law to determine
whether, and to what extent, it might repatriate extraordinary dividends, as
defined in this law. Accordingly, it can not reasonably estimate the amounts, if
any, of undistributed earnings that may be repatriated. The Company expects to
complete its evaluation within a reasonable amount of time after additional U.S.
Treasury guidance is published.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION
INCLUDED IN THIS QUARTERLY REPORT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES WE FACE. ADDITIONALLY, RISKS AND UNCERTAINTIES NOT
CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR
BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISK FACTORS OCCUR, OUR BUSINESS,
FINANCIAL CONDITION, OPERATING RESULTS AND CASH FLOWS COULD BE MATERIALLY
ADVERSELY AFFECTED.

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

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

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


                                       29
<PAGE>

laws or regulations are passed, the cost of complying with those laws may be
substantial, thereby adversely affecting our financial performance.

ASSESSMENTS BY VARIOUS TAX AUTHORITIES MAY BE MATERIALLY DIFFERENT THAN WE HAVE
PROVIDED FOR.

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.

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

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

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

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

OUR REVENUE IS DIFFICULT TO PREDICT.

Our revenue is difficult to predict because it is primarily generated on a
contract-by-contract or purchase order basis, and customers can change their
requirements or cancel orders. Many of our contracts 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.

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 by-laws 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"


                                       30
<PAGE>

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 year 2004, approximately 50% of our
revenues were attributable to operations conducted abroad and to export sales.
In addition, in fiscal 2004, approximately 29% and 59% of our purchases came
from Europe and Asia, respectively. In addition, in certain countries where we
currently operate, export, intend to operate, 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
United States 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 United States dollar. Moreover, we may incur
significant costs in connection with conversions between currencies.

WE RELY ON KEY EXECUTIVES IN LARGE PART 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.

THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND
ASSUMPTIONS USED IN PREPARING FINANCIAL STATEMENTS IN ACCORDANCE WITH ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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 accounting principles generally
accepted in the United States ("GAAP"). The preparation of 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.

WHILE WE BELIEVE THAT WE CURRENTLY HAVE ADEQUATE INTERNAL CONTROL PROCEDURES IN
PLACE, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM LEGISLATION REQUIRING
COMPANIES TO EVALUATE CONTROLS UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF
2002.

We are evaluating our internal controls systems in order to allow management to
report on, and our independent registered public accounting firm to attest to,
our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We
are performing the system and process evaluation and testing required in an
effort to comply with the management certification and auditor attestation
requirements of Section 404. As a result, we are incurring additional expenses
and a diversion of management's time. While we anticipate being able to fully
implement the requirements relating to internal controls and all other aspects
of Section 404 in a timely fashion, we cannot be certain as to the timing of
completion of our evaluation, testing and remediation actions or the impact of
the same on our operations since there is no precedent available by which to
measure compliance adequacy. If we are not able to implement the requirements of
Section 404 in a timely manner or with adequate compliance, 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.


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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 market price, foreign
currency exchange rates and interest rates.

MARKET PRICE RISK

Short-term investments at December 31, 2004 of $4,311, which consists of
corporate securities, governmental agency securities and corporate bonds are
recorded at fair value and have exposure to price risk. This risk is estimated
as the potential loss in fair value resulting from a hypothetical 10% adverse
change in prices quoted by stock exchanges and amounts to $431 as of December
31, 2004. 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, 2004, we had foreign currency contracts outstanding that had a notional
amount of $2,756. 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, 2004 was
$(87).

In addition, we also 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 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 swaps from date of
purchase to December 31, 2004 was $(1,621). 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.

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" in
the accompanying consolidated balance sheets. On December 31, 2004, we had
translation exposure to various foreign currencies, with the most significant
being the Euro and the Singapore dollar. The potential loss as of December 31,
2004, resulting from a hypothetical 10% adverse change in quoted foreign
currency exchange rates amounted to $3,902. Actual results may differ.

INTEREST RATE RISK

Due to our financing, investing and cash management activities, we are subject
to market risk from exposure to changes in interest rates. We utilize a balanced
mix of debt maturities along with both fixed-rate and variable-rate debt to
manage our exposure to changes in interest rates. Our financial instrument
holdings 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.


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ITEM 4.  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, 2004 and, based on their evaluation, have concluded that the
disclosure controls and procedures were effective as of such date.

There has been no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the second quarter of fiscal 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


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PART II.  OTHER INFORMATION

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

The Company held an annual meeting of its shareholders on December 2, 2004. Two
matters were voted on at the annual meeting, as follows:

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

          The votes were cast for this matter as follows:

                                              FOR            WITHHELD/ABSTAIN
          Leonard S. Schwartz              11,250,774            3,752,373
          Samuel I. Hendler                10,288,718            4,714,429
          Robert A. Wiesen                 10,294,880            4,708,267
          Stanley H. Fischer               10,561,284            4,441,863
          Albert L. Eilender               13,789,941            1,213,206
          Ira S. Kallem                    13,780,482            1,222,665
          Hans C. Noetzli                  13,789,266            1,213,881

          Each nominee was elected a director of the Company.

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

          The votes were cast for this matter as follows:

                        FOR             AGAINST                 ABSTAIN

                     14,367,200         617,345                  18,602

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

ITEM 6.  EXHIBITS

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

    10.1  Form of purchase agreement between Shanghai Zhongjin Real Estate
          Development Company Limited and Aceto (Hong Kong) Limited dated
          November 10, 2004

    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.


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<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, 2005         BY /s/ Douglas Roth
     ----------------------         -------------------------------------------
                                    Douglas Roth, Chief Financial Officer

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


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