<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, 2006
                        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)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                                                  Yes [X] No [_]

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

   Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                                                  Yes [_] No [X]

The Registrant has 24,313,090 shares of common stock outstanding as of February
2, 2007.

<PAGE>

                       ACETO CORPORATION AND SUBSIDIARIES
             QUARTERLY REPORT FOR THE PERIOD ENDED DECEMBER 31, 2006

                                TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

           Consolidated Balance Sheets - December 31, 2006 (unaudited)
           and June 30, 2006

           Consolidated Statements of Income - Six Months
           Ended December 31, 2006 and 2005 (unaudited)

           Consolidated Statements of Income - Three Months
           Ended December 31, 2006 and 2005 (unaudited)

           Consolidated Statements of Cash Flows - Six Months
           Ended December 31, 2006 and 2005 (unaudited)

           Notes to Consolidated Financial Statements (unaudited)

           Report of Independent Registered Public Accounting Firm

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

Item 3.    Quantitative and Qualitative Disclosures About
           Market Risk

Item 4.    Controls and Procedures

PART II.   OTHER INFORMATION

Item 1A.   Risk Factors

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

Item 6.    Exhibits

Signatures

Exhibits

<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                          December 31,   June 30,
                                                                              2006         2006
                                                                          ------------   --------
                                                                          (unaudited)
<S>                                                                         <C>          <C>
ASSETS
Current assets:
   Cash in banks                                                            $ 30,608     $ 33,732
   Investments                                                                 9,632        3,309
   Trade receivables, less allowance for doubtful
      accounts (December, $356, June $416)                                    55,802       50,993
   Other receivables                                                           2,744        1,406
   Inventory                                                                  51,049       47,259
   Prepaid expenses and other current assets                                   1,277        1,011
   Deferred income tax benefit, net                                            3,459        3,396
                                                                            --------     --------
         Total current assets                                                154,571      141,106

Long-term notes receivable                                                       567          557
Property and equipment, net                                                    4,594        4,808
Property held for sale                                                         4,531        4,531
Goodwill                                                                       1,802        1,755
Intangible assets, net                                                         4,050        3,789
Deferred income tax benefit, net                                               6,388        7,356
Other assets                                                                   3,483        2,690
                                                                            --------     --------

TOTAL ASSETS                                                                $179,986     $166,592
                                                                            ========     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                         $ 30,102     $ 24,424
   Accrued expenses                                                           13,587       10,612
   Note payable - related party                                                  500          500
   Deferred income tax liability                                                 863          863
                                                                            --------     --------
         Total current liabilities                                            45,052       36,399

Long-term liabilities                                                          6,529        6,379
Environmental remediation liability                                            5,200        5,200
Deferred income tax liability                                                  3,226        3,329
Minority interest                                                                254          232
                                                                            --------     --------
         Total liabilities                                                    60,261       51,539

Commitments and contingencies (Note 13)

Shareholders' equity:
   Common stock, $.01 par value, 40,000 shares authorized;
      25,644 shares issued; 24,309 and 24,278 shares outstanding at
      December 31, 2006 and June 30, 2006, respectively                          256          256
   Capital in excess of par value                                             56,819       56,691
   Retained earnings                                                          70,847       68,464
   Treasury stock, at cost, 1,355 and 1,366 shares at December 31, 2006
      and June 30, 2006, respectively                                        (12,895)     (13,198)
   Accumulated other comprehensive income                                      4,698        2,840
                                                                            --------     --------
         Total shareholders' equity                                          119,725      115,053
                                                                            --------     --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                  $179,986     $166,592
                                                                            ========     ========
</TABLE>

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


                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                       December 31,
                                                                  -------------------
                                                                    2006       2005
                                                                  --------   --------
<S>                                                               <C>        <C>
Net sales                                                         $150,411   $144,460
Cost of sales                                                      124,958    120,489
                                                                  --------   --------
   Gross profit                                                     25,453     23,971

Selling, general and administrative expenses                        19,244     20,019
                                                                  --------   --------
   Operating income                                                  6,209      3,952
Other income (expense):
   Interest expense                                                    (81)       (61)
   Interest and other income, net                                      169      1,178
                                                                  --------   --------
                                                                        88      1,117
                                                                  --------   --------

Income from continuing operations before income taxes                6,297      5,069
Provision for income taxes                                           2,091      1,521
                                                                  --------   --------
Income from continuing operations                                    4,206      3,548
Loss from discontinued operations, net of income taxes (Note 3)         --        (27)
                                                                  --------   --------
Net income                                                        $  4,206   $  3,521
                                                                  ========   ========
Basic income per common share:
   Income from continuing operations                              $   0.17   $   0.15
   Loss from discontinued operations                                    --         --
   Net income                                                     $   0.17   $   0.15

Diluted income per common share:
   Income from continuing operations                              $   0.17   $   0.14
   Loss from discontinued operations                                    --         --
   Net income                                                     $   0.17   $   0.14

Weighted average shares outstanding:
   Basic                                                            24,288     24,280
   Diluted                                                          24,625     24,595
</TABLE>

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


                                        4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                      December 31,
                                                                  ------------------
                                                                     2006      2005
                                                                   -------   -------
<S>                                                                <C>       <C>
Net sales                                                          $75,686   $69,467
Cost of sales                                                       63,124    57,999
                                                                   -------   -------
   Gross profit                                                     12,562    11,468

Selling, general and administrative expenses                         9,840     9,657
                                                                   -------   -------
   Operating income                                                  2,722     1,811

Other income (expense):
   Interest expense                                                    (68)      (37)
   Interest and other income (expense), net                            (32)      395
                                                                   -------   -------
                                                                      (100)      358
                                                                   -------   -------

Income from continuing operations before income taxes                2,622     2,169
Provision for income taxes                                             878       622
                                                                   -------   -------
Income from continuing operations                                    1,744     1,547
Loss from discontinued operations, net of income taxes (Note 3)         --        --
                                                                   -------   -------
Net income                                                         $ 1,744   $ 1,547
                                                                   =======   =======

Basic income per common share:
   Income from continuing operations                               $  0.07   $  0.06
   Loss from discontinued operations                                    --        --
   Net income                                                      $  0.07   $  0.06

Diluted income per common share:
   Income from continuing operations                               $  0.07   $  0.06
   Loss from discontinued operations                                    --        --
   Net income                                                      $  0.07   $  0.06

Weighted average shares outstanding:
   Basic                                                            24,293    24,273
   Diluted                                                          24,670    24,557
</TABLE>

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


                                        5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                Six Months Ended
                                                                   December 31,
                                                               -----------------
                                                                 2006      2005
                                                               -------   -------
<S>                                                            <C>       <C>
Operating activities:
   Net income                                                  $ 4,206   $ 3,521
   Adjustments to reconcile net income to net cash provided
      by operating activities:
         Depreciation and amortization                             867       686
         Provision for doubtful accounts                            59        --
         Non-cash stock compensation                               246        50
         Deferred income taxes                                     802     1,387
         Changes in assets and liabilities:
            Investments - trading securities                       (65)       19
            Trade accounts receivable                           (4,808)   (1,114)
            Other receivables                                   (1,450)      124
            Inventory                                           (3,219)     (325)
            Prepaid expenses and other current assets             (259)     (681)
            Other assets                                          (373)     (399)
            Accounts payable                                     5,838    (1,192)
            Other accrued expenses and long-term liabilities     1,162     2,454
                                                               -------   -------
Net cash provided by operating activities                        3,006     4,530
                                                               -------   -------

Investing activities:
      Purchases of investments                                  (6,222)       --
      Payments received on notes receivable                         34        31
      Purchases of intangible assets                              (401)       --
      Purchases of property and equipment                         (339)     (268)
                                                               -------   -------
Net cash used in investing activities                           (6,928)     (237)
                                                               -------   -------

Financing activities:
      Purchases of treasury stock                                   --      (581)
      Proceeds from exercise of stock options                      151       105
      Excess tax benefit on exercise of stock options               24        21
      Payments of short-term bank loans                             --      (126)
                                                               -------   -------
      Net cash provided by (used in) financing activities          175      (581)
                                                               -------   -------

Effect of exchange rate changes on cash                            623      (101)
                                                               -------   -------

Net increase (decrease) in cash                                 (3,124)    3,611
Cash at beginning of period                                     33,732    19,950
                                                               -------   -------
Cash at end of period                                          $30,608   $23,561
                                                               =======   =======
</TABLE>

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


                                        6

<PAGE>

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

(1) BASIS OF PRESENTATION

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

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

These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
U.S. generally accepted accounting principles. Accordingly, these statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended June 30, 2006.

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

(2) STOCK-BASED COMPENSATION

Prior to July 1, 2005, the Company accounted for stock-based employee
compensation under the intrinsic value method as outlined in the provisions of
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations while disclosing pro-forma net income and net income per share
as if the fair value method had been applied in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under the intrinsic value method, no compensation expense was
recognized if the exercise price of the Company's employee stock options equaled
or exceeded the market price of the underlying stock on the date of grant. Since
the Company had issued all stock option grants with exercise prices equal to, or
greater than, the market value of the common stock on the date of grant, through
June 30, 2005 no compensation cost was recognized in the consolidated statements
of income.

Effective July 1, 2005, the Company adopted SFAS No. 123(R), "Share-based
Payment." SFAS No. 123(R) replaces SFAS No. 123 and supercedes APB Opinion No.
25. SFAS 123(R) requires that all stock-based compensation be recognized as an
expense in the financial statements and that such costs be measured at the fair
value of the award. This statement was adopted using the modified prospective
method, which requires the Company to recognize compensation expense on a
prospective basis. Therefore, prior period financial statements have not been
restated. SFAS 123(R) also requires that excess tax benefits related to stock
option exercises be reflected as financing cash inflows. Prior to the adoption
of SFAS 123(R), the Company presented all tax benefits related to stock-based
compensation as an operating cash inflow. The Company's policy is to satisfy
stock-based compensation awards with treasury shares.

In December 2006, the Company granted 56 options to the Directors at an exercise
price equal to the market value of the common stock on the date of grant. These
options vest over one year and will expire ten years from the date of grant.
Compensation expense of $224, as determined using the Black-Scholes option
pricing model will be charged over the vesting period.

(3) SALE OF INSTITUTIONAL SANITARY SUPPLIES SEGMENT

During June 2005, the Company entered into an agreement to sell the majority of
the product lines formulated and marketed by CDC Products Corp. ("CDC"), which
is one of the two subsidiaries forming part of the former


                                        7

<PAGE>

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

Institutional Sanitary Supplies segment. The sale of certain product lines of
CDC was completed on August 24, 2005 for $75 and a note receivable of $44 due in
April 2006, which resulted in a pre-tax gain of $66, included in other income in
the statement of income for the six months ended December 31, 2006. Excluded
from the sale of CDC's product lines was Anti-Clog, an EPA-registered biocide
that has a unique delivery system and is used in commercial air-conditioning
systems. As a result of management's decision to retain the Anti-Clog product,
CDC's operating results are included in continuing operations in the
consolidated statements of income and are included within the Chemicals &
Colorants segment.

On September 6, 2005, the Company completed the sale of certain assets of Magnum
Research Corp. for $81, of which $66 was received as of December 31, 2005, the
remaining subsidiary forming part of the former Institutional Sanitary Supplies
segment, the operating results of which are included in discontinued operations
in the consolidated statements of income.

Net sales from discontinued operations for the three and six months ended
December 31, 2005 were $0 and $154, respectively. The net loss from discontinued
operations for the three and six months ended December 31, 2005 were $0 and $27,
respectively, which includes a loss on the sale of certain assets of Magnum
Research Corp. of $22, net of income tax.

(4) SHORT-TERM INVESTMENTS

A summary of short-term investments were as follows:

<TABLE>
<CAPTION>
                                      December 31, 2006          June 30, 2006
                                   -----------------------   -----------------------
                                   Fair Value   Cost Basis   Fair Value   Cost Basis
                                   ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>
Trading securities
------------------
Corporate equity securities          $  765       $  152       $  697       $  152

Available for sale securities
-----------------------------
Corporate bonds                       1,180        1,204        1,167       $1,210
Government and agency securities      7,687        7,678        1,445       $1,501
                                     ------                    ------
                                     $9,632                    $3,309
                                     ======                    ======
</TABLE>

The gains (losses) on trading securities were $63 and $(54) for the three months
ended December 31, 2006 and 2005, respectively. The gains (losses) on trading
securities for the six months ended December 31, 2006 and 2005 were $65 and
$(19), respectively.

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill of $1,802 and $1,755 as of December 31, 2006 and June 30, 2006,
respectively, relates to the Health Sciences segment.

Intangible assets subject to amortization as of December 31, 2006 and June 30,
2006 were as follows:

                                  Gross Carrying    Accumulated   Net Book
                                       Value       Amortization    Value
                                  --------------   ------------   --------
         December 31, 2006
         -----------------

         Customer relationships       $2,898          $1,242       $1,656
         EPA Registration                666              16          650
         Patent License                  838              95          743
         Non-compete agreements          242             145           97
                                      ------          ------       ------

                                      $4,644          $1,498       $3,146
                                      ======          ======       ======


                                        8

<PAGE>

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

         June 30, 2006
         -------------

         Customer relationships       $2,755          $  984       $1,771
         EPA registrations               265               3          262
         Patent license                  838              57          781
         Non-compete agreements          230             115          115
         Customer lists                  600             600           --
                                      ------          ------       ------

                                      $4,688          $1,759       $2,929
                                      ======          ======       ======

The estimated useful lives of customer relationships, customer lists, patent
license, EPA registrations and non-compete agreements are 7 years, 5 years, 11
years, 10 years and 3-5 years, respectively.

Amortization expense for intangible assets subject to amortization amounted to
$339 and $275 for the six months ended December 31, 2006 and 2005, respectively.
The estimated aggregate amortization expense for intangible assets subject to
amortization for each of the succeeding years ended December 31 are as follows:
2007: $565; 2008: $565; 2009: $529; 2010: $520; 2011: $288 and thereafter: $679.

As of December 31, 2006 and June 30, 2006, the Company also had $904 and $860,
respectively, of intangible assets pertaining to trademarks which are not
subject to amortization.

Changes in goodwill and the gross carrying value of customer relationships, non
-compete agreements and trademarks are attributable to changes in foreign
currency exchange rates used to translate the financial statements of foreign
subsidiaries.

(6) ACCRUED EXPENSES

The components of accrued expenses as of December 31, 2006 and June 30, 2006
were as follows:

                                                       December 31,   June 30,
                                                           2006         2006
                                                       ------------   --------

   Accrued compensation                                   $ 2,557      $ 2,691
   Accrued environmental remediation costs                    200          200
   Accrued dividends payable                                1,823           --
   Accrued income taxes payable                               657        2,019
   Other accrued expenses                                   8,350        5,702
                                                          -------      -------
                                                          $13,587      $10,612
                                                          =======      =======

(7) COMMON STOCK

On December 7, 2006, the Company's board of directors declared a regular
semi-annual cash dividend of $0.075 per share which was paid on January 12, 2007
to shareholders of record on December 22, 2006. The amount paid for the cash
dividend of $1,823 was included in other accrued expenses at December 31, 2006.

(8) NET INCOME PER COMMON SHARE

Basic income per common share is based on the weighted average number of common
shares outstanding during the period. Diluted income per common share includes
the dilutive effect of potential common shares outstanding. The Company's only
potential common shares outstanding are stock options, which resulted in a
dilutive effect of 377 and 284 shares for the three months ended December 31,
2006 and 2005, respectively. For the six months ended December 31, 2006 and
2005, the stock options which were potential common shares outstanding resulting
in a


                                        9

<PAGE>

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

dilutive effect were 676 and 631, respectively. There were 1,599 and 1,610
stock options outstanding as of December 31, 2006 and 2005, respectively, that
were not included in the calculation of diluted income per common share for the
three months ended December 31, 2006 and 2005, respectively, because their
effect would have been anti-dilutive.

(9) COMPREHENSIVE INCOME

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

The components of comprehensive income were as follows:

<TABLE>
<CAPTION>
                                             Six months ended   Three months ended
                                               December 31,        December 31,
                                             ----------------   ------------------
                                              2006      2005      2006     2005
                                             ------   -------    ------   -------
<S>                                          <C>       <C>       <C>      <C>
Comprehensive income:
   Net income                                $4,206    $3,521    $1,744   $1,547
   Foreign currency translation
      adjustment                              1,724      (128)    1,359     (310)

   Unrealized gain (loss) on available for
      sale securities                            36       (46)        2       (5)
   Change in fair value of cross
      currency interest rate swaps               98        54         8      145
                                             ------    ------    ------   ------
Total                                        $6,064    $3,401    $3,113   $1,377
                                             ======    ======    ======   ======
</TABLE>

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

(10) DEFERRED INCOME TAXES

The decrease in the deferred income tax assets of $802 and $1,387 during the six
months ended December 31, 2006 and 2005, respectively, related to the reduction
of taxes payable due to the utilization of foreign net operating loss
carryforwards.

(11) SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes for the six months ended December 31,
2006 and 2005 were as follows:

                                                  2006    2005
                                                 ------   ----
                  Interest                       $   61   $ 48
                  Income taxes, net of refunds    2,539    497

(12) RELATED PARTY TRANSACTIONS

Certain directors of the Company are affiliated with law firms that serve as
counsel to the Company on various corporate matters. During the six months ended
December 31, 2006 and 2005, the Company incurred legal fees of $183 and $157,
respectively, for services rendered to the Company by these law firms.


                                       10

<PAGE>

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

(13) COMMITMENTS AND CONTINGENCIES

As of December 31, 2006, the Company had outstanding purchase obligations
totaling $67,823 to acquire certain products for resale to third party
customers.

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

The Company has environmental remediation obligations in connection with
Arsynco, Inc. ("Arsynco"), a subsidiary formerly involved in manufacturing
chemicals, located in Carlstadt, New Jersey, which was closed in 1993 and is
currently held for sale. During fiscal 2006, based on continued monitoring of
the contamination at the site and the current proposed plan of remediation, the
Company received an estimate from an environmental consultant stating that the
costs of remediation could be between $5,400 and $6,900. As of both December 31,
2006 and June 30, 2006 a liability $5,400 is included in the accompanying
consolidated balance sheets. In accordance with Emerging Issues Task Force
(EITF) Issue 90-8, "Capitalization of Costs to Treat Environmental
Contamination" management believes that the majority of costs incurred to
remediate the site will be capitalized in preparing the property which is
currently held for sale. An appraisal of the fair value of the property by a
third-party appraiser supports this assumption. However, these matters, if
resolved in a manner different from those assumed in current estimates, could
have a material adverse effect on the Company's financial condition, operating
results and cash flows when resolved in a future reporting period.

In March 2006, Arsynco received notice from the Environmental Protection Agency
(EPA) of its status as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for a site described as the Berry's Creek Study Area. Arsynco is one of over 150
PRP's which have potential liability for the required investigation and
remediation of the site. The estimate of the potential liability is not
quantifiable for a number of reasons, including the difficulty in determining
the extent of contamination and the length of time remediation may require. In
addition, any estimate of liability must also consider the number of other PRP's
and their financial strength. Since an amount of the liability can not be
reasonably estimated at this time, no accrual is recorded for these potential
future costs. The impact of the resolution of this matter on the Company's
results of operations in a particular reporting period is not known. However,
management believes that the ultimate outcome of this matter will not have a
material adverse effect on the Company's financial condition or liquidity.

One of the Company's subsidiaries was a defendant in a legal action alleging
patent infringement. The patent in question covered a particular method of
applying one of the products in the Company's Crop Protection segment. In
September 2005, shortly before a trial was expected to begin, the parties agreed
to a settlement. Under the terms of the settlement agreement, the Company was
obligated to pay $1,375, of which $775 was paid as of December 31, 2006 and the
remaining $600 will be paid in equal installments over the next four years. As a
result of the settlement, the company recorded an intangible asset of $838 for
the patent license, which is being amortized over its remaining life, and a
charge of $537, included in SG&A expense, for the six months ended December 31,
2005.

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


                                       11

<PAGE>

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

In December 2005, the Company exited the leased space previously occupied by CDC
and Magnum Research Corp. As a result, the Company recorded a pre-tax charge of
$378, included in selling, general and administrative expenses representing the
present value of the remaining lease obligation, reduced by estimated sub-lease
rental income. In June 2006, the Company negotiated a lease termination with its
landlord for the facility. In connection with the lease termination, the
landlord and a third party entered into a long-term lease for which the Company
guaranteed the rental payments by the third party through September 30, 2009.
The aggregate rental payments of the third party that are guaranteed by the
Company are $925 and the fair value of this guarantee is deemed to be
insignificant.

Commercial letters of credit are issued by the Company in the ordinary course of
business through major domestic banks as requested by certain suppliers. The
Company had open letters of credit of approximately $675 and $1,349 as of
December 31, 2006 and June 30, 2006, respectively. The terms of these letters of
credit are all less than one year. No material loss is anticipated due to
non-performance by the counterparties to these agreements.

(14) RECENT ACCOUNTING PRONOUNCEMENTS

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

In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48 "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109". FIN 48
prescribes a comprehensive model for recognizing, measuring, presenting and
disclosing in the financial statements tax positions taken or expected to be
taken on a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. Management is currently assessing the impact of FIN 48 on the
consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157). SFAS No. 157 establishes a common definition for fair value to be
applied to US GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. Management is currently assessing the impact of SFAS No. 157
on the consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS No. 158). SFAS No.
158 requires that employers recognize on a prospective basis the funded status
of their defined benefit pension and other postretirement plans on their
consolidated balance sheet and recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net periodic
benefit cost. SFAS No. 158 also requires additional disclosures in the notes to
financial statements. SFAS No. 158 is effective as of the end of fiscal years
ending after December 15, 2006. Management is currently assessing the impact of
SFAS No. 158 on our consolidated financial statements but does not expect that
it will have a material impact on the consolidated financial position or results
of operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin ("SAB") 108
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 requires
that public companies utilize a "dual-approach" to assessing the quantitative
effects of financial misstatements. This dual approach includes both an income
statement focused assessment and a balance sheet


                                       12

<PAGE>

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

focused assessment. The guidance in SAB 108 must be applied to annual financial
statements for fiscal years ending after November 15, 2006.

(15) SEGMENT INFORMATION

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

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

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

     o    Crop Protection - crop protection products including herbicides,
          fungicides and insecticides, as well as a sprout inhibitor for
          potatoes. The Company has changed the name of this segment from
          Agrochemicals to Crop Protection as of December 31, 2006.

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

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, 2006 and 2005

<TABLE>
<CAPTION>
                                 Health    Chemicals &      Crop      Consolidated
                                Sciences    Colorants    Protection      Totals
                                --------   -----------   ----------   ------------
<S>                              <C>         <C>           <C>          <C>
2006
----
Net sales                        $82,655     $57,385       $10,371      $150,411
Gross profit                      15,415       7,598         2,440        25,453
Unallocated cost of sales (1)                                                 --
                                                                        --------
Net gross profit                                                        $ 25,453
                                                                        ========

2005
----
Net sales                        $82,734     $51,877       $9,849       $144,460
Gross profit                      16,265       8,093        1,938         26,296
Unallocated cost of sales (1)                                             (2,325)
                                                                        --------
Net gross profit                                                        $ 23,971
                                                                        ========
</TABLE>


                                       13

<PAGE>

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

Three months ended December 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                 Health    Chemicals &      Crop      Consolidated
                                Sciences    Colorants    Protection      Totals
                                --------   -----------   ----------   ------------
<S>                              <C>         <C>           <C>           <C>
2006
----
Net sales                        $40,151     $28,543       $6,992        $75,686
Gross profit                       7,198       3,711        1,653         12,562
Unallocated cost of sales (1)                                                 --
                                                                         -------
Net gross profit                                                         $12,562
                                                                         =======

2005
----
Net sales                        $38,058     $25,729       $5,680        $69,467
Gross profit                       7,432       4,004        1,282         12,718
Unallocated cost of sales (1)                                             (1,250)
                                                                         -------
Net gross profit                                                         $11,468
                                                                         =======
</TABLE>

(1) Prior to July 2006, certain freight and storage costs were not able to be
allocated to the segments. Effective July 2006, as a result of certain system
improvements, all freight and storage costs are allocated to a particular
segment. Therefore, the unallocated portion of certain freight and storage costs
for the six months ended December 31, 2006 have now been identified to the
segments as presented above. Total Company gross profit and margin were not
affected by this change in allocation of costs. However, the comparison of gross
profit by segment will be affected by the change in allocation of these costs.

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

Net sales and gross profit by location for the six months ended December 31,
2006 and 2005 and long-lived assets by location as of December 31, 2006 and June
30, 2006 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,
                  2006       2005       2006      2005        2006         2006
                --------   --------   -------   -------   ------------   --------
<S>             <C>        <C>        <C>       <C>          <C>          <C>
United States   $ 87,440   $ 91,273   $14,101   $13,448      $ 3,276      $ 3,033
Germany           33,493     27,199     8,002     7,013        4,011        4,061
Netherlands        3,937      5,491       760       927          135          179
France             7,899      5,767       896       713           81           80
Asia-Pacific      17,642     14,730     1,694     1,870        2,942        2,999
                --------   --------   -------   -------      -------      -------
Total           $150,411   $144,460   $25,453   $23,971      $10,445      $10,352
                ========   ========   =======   =======      =======      =======
</TABLE>


                                       14

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Aceto Corporation

We have reviewed the consolidated balance sheet of Aceto Corporation and
subsidiaries as of December 31, 2006, and the related consolidated statements of
income for the three-month and six-month periods ended December 31, 2006 and
2005, and the related consolidated statements of cash flows for the six-month
periods ended December 31, 2006 and 2005, included in the accompanying
Securities and Exchange Commission Form 10-Q for the period ended December 31,
2006. These interim financial statements are the responsibility of the Company's
management.

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

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

We have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board, the consolidated balance sheet of Aceto Corporation
and subsidiaries as of June 30, 2006, and the related consolidated statements of
income, shareholders' equity and comprehensive income and cash flows for the
year then ended (not presented herein); and in our report dated September 6,
2006, 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, 2006, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.


/s/ BDO Seidman LLP

Melville, New York

February 6, 2007


                                       15

<PAGE>

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

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

This Quarterly Report on Form 10-Q and the information incorporated by reference
includes "forward-looking statements" within the meaning of section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend those forward looking-statements to be covered by the safe harbor
provisions for forward-looking statements. All statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking statements. Any
such forward-looking statements are based on current expectations, estimates and
projections about our industry and our business. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," or variations
of those words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth or implied by any forward-looking statements. Factors that could cause
actual results to differ materially from forward-looking statements include, but
are not limited to, unforeseen environmental liabilities, uncertain military,
political and economic conditions in the world, the mix of products sold and the
profit margins thereon, order cancellation or a reduction in orders from
customers, the nature and pricing of competing products, the availability and
pricing of key raw materials, dependence on key members of management, risks of
entering into new European markets, continued successful integration of
acquisitions, and economic and political conditions in the United States and
abroad. We undertake no obligation to update any such forward-looking statements
other than as required by law.

                          NOTE REGARDING DOLLAR AMOUNTS

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

EXECUTIVE SUMMARY

We are reporting net sales of $150,411 for the six months ended December 31,
2006, which represents a 4.1% increase over the $144,460 reported in the
comparable prior period. Gross profit for the six months ended December 31, 2006
was $25,453 and our gross margin was 16.9% as compared to gross profit of
$23,971 and gross margin of 16.6% for the comparable prior period. Interest and
other income (expense) for the six months ended December 31, 2006 was $88 which
is a decrease of $1,029 as compared to the comparable prior period. The decrease
can be directly attributed to a decrease in a government subsidy paid annually
in Shanghai and larger foreign exchange losses due to the devaluation of the US
dollar compared to the Euro and Chinese Yuan. Our income from continuing
operations of $4,206, or $0.17 per diluted share was $658 or 18.5% higher than
the comparable prior period.

Our financial position as of December 31, 2006 remains strong, as we had cash of
$30,608, working capital of $109,519, no long-term debt, and shareholders'
equity of $119,725.

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

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

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


                                       16

<PAGE>

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

The Crop Protection segment sells herbicides, pesticides, and other agricultural
chemicals to customers, primarily located in the United States and Western
Europe. Our joint venture with Nufarm, which markets Butoxone(R), is expected
to increase our market share of the peanut, soybean and alfalfa herbicide
markets. The Crop Protection segment was formerly reported as the Agrochemical
segment. The name change of this segment was effected on December 31, 2006.

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

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

     o    factors that affect our business

     o    our earnings and costs in the periods presented

     o    changes in earnings and costs between periods

     o    sources of earnings

     o    the impact of these factors on our overall financial condition

As you read this Management's Discussion and Analysis section, refer to the
accompanying consolidated statements of income, which present the results of our
operations for the three and six month periods ended December 31, 2006 and 2005.
We analyze and explain the differences between periods in the specific line
items of the consolidated statements of income.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

As disclosed in our Form 10-K for the year ended June 30, 2006, the discussion
and analysis of our financial condition and results of operations is based on
our consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. In preparing these financial
statements, we were required to make estimates and assumptions that affect the
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We regularly evaluate our estimates including
those related to allowances for bad debts, inventories, goodwill and intangible
assets, environmental and other contingencies, and income taxes. We base our
estimates on various factors, including historical experience, advice from
outside subject-matter experts, and various assumptions that we believe to be
reasonable under the circumstances, which together form the basis for our making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. The actual results may differ from these
estimates.

Since June 30, 2006, there have been no significant changes to the assumptions
and estimates related to those critical accounting estimates and policies.


                                       17

<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 2006 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2005

<TABLE>
<CAPTION>
                                                   NET SALES BY SEGMENT
                                              Six months ended December 31,
                                ---------------------------------------------------------
                                                                         Comparison 2006
                                       2006                2005         Over/(Under) 2005
                                -----------------   -----------------   -----------------
                                             % of                % of       $        %
Segment                         Net sales   total   Net sales   total    Change   change
-------                         ---------   -----   ---------   -----    ------   ------
<S>                              <C>        <C>      <C>        <C>      <C>       <C>
Health Sciences                  $ 82,655    55.0%   $ 82,734    57.3%   $  (79)   (0.1)%
Chemicals & Colorants              57,385    38.1      51,877    35.9     5,508    10.6
Crop Protection                    10,371     6.9       9,849     6.8       522     5.3
                                 --------   -----    --------   -----    ------    ----

Net sales                        $150,411   100.0%   $144,460   100.0%   $5,951     4.1%
                                 ========   =====    ========   =====    ======    ====
</TABLE>

<TABLE>
<CAPTION>
                                               GROSS PROFIT BY SEGMENT
                                            Six months ended December 31,
                                -----------------------------------------------------
                                                                     Comparison 2006
                                      2006              2005        Over/(Under) 2005
                                ---------------   ---------------   -----------------
                                 Gross     % of    Gross    % of        $        %
Segment                          Profit   Sales    profit   sales    Change   change
-------                         -------   -----   -------   -----    ------   ------
<S>                             <C>        <C>    <C>        <C>     <C>       <C>
Health Sciences                 $15,415    18.6%  $16,265    19.7%   $ (850)    (5.2)%
Chemicals & Colorants             7,598    13.2     8,093    15.6      (495)    (6.1)
Crop Protection                   2,440    23.5     1,938    19.7       502     25.9
                                -------    ----   -------    ----    ------    -----

Segment gross profit             25,453    16.9    26,296    18.2      (843)    (3.2)

Freight and storage costs (1)        --      --    (2,325)   (1.6)    2,325    100.0
                                -------    ----   -------    ----    ------    -----

Gross profit                    $25,453    16.9%  $23,971    16.6%   $1,482      6.2%
                                =======    ====   =======    ====    ======    =====
</TABLE>

(1) Prior to July 2006, certain freight and storage costs were not able to be
allocated to the Company's three segments. Effective July 2006, as a result of
certain system improvements, all freight and storage costs are allocated to a
particular segment. Therefore, the unallocated portion of certain freight and
storage costs for the six months ended December 31, 2006 have now been
identified to the segments as presented above. Total Company gross profit and
margin were not affected by this change in allocation of costs. However, the
comparison of gross profit by segment will be affected by the change in
allocation of these costs.

The Company's chief operating decision maker evaluates performance of the
segments based on 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.


                                       18

<PAGE>

NET SALES

Net sales increased $5,951, or 4.1%, to $150,411 for the six months ended
December 31, 2006, compared with $144,460 for the comparable prior period. The
increase in sales was primarily created by a 10.6% sales increase in our
Chemicals & Colorants segment, along with a 5.3% increase in our Crop Protection
segment over the comparable period last year.

HEALTH SCIENCES

Net sales for the Health Sciences segment decreased by $79 for the six months
ended December 31, 2006, to $82,655, which represents a 0.1% decrease from net
sales of $82,734 for the prior period. This decrease was the result of a
decrease from one specific generic product of $7,363 due to its normal selling
pattern. The decrease was mostly offset by increases in pharmaceutical
intermediate sales of $2,492 and foreign sales increases of $4,939 over the same
period last year.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment were $57,385 for the six months
ended December 31, 2006, compared to $51,877 for the prior period. This increase
of $5,508, or 10.6%, over the prior period is primarily attributable to an
increase in the number of products being offered by our foreign subsidiaries.
Sales of Chemicals & Colorants by our foreign subsidiaries for the six months
ended December 31, 2006 increased by $4,845 over the comparable prior year
period. One customer within our color-pigment and pigment-intermediate business,
whose contract expired in fiscal 2006, purchased $3,058 during the six months
ended December, 2005 as compared to zero in the current period. This reduction
was more than offset by increased sales of coatings of $4,360 and Agricultural
intermediates of $1,822 over the prior period.

CROP PROTECTION

Net sales for the Crop Protection segment increased to $10,371 for the six
months ended December 31, 2006, an increase of $522, or 5.3%, over net sales of
$9,849 for the prior period. The increase in net sales was mainly attributable
to the launch of our Asulam product of $1,702 which was offset by decreases in
three other products of $1,019 due to the unseasonable dry weather conditions,
particularly in the southern U.S. region.

GROSS PROFIT

Gross profit increased by $1,482 to $25,453 (16.9% of net sales) for the six
months ended December 31, 2006, as compared to $23,971 (16.6% of net sales) for
the prior period. The gross profit of each segment was negatively affected by
the direct allocation of certain freight and storage costs in the six months
ended December 31, 2006 that had been reported as unallocated in prior years.
The Company's overall gross profit and margin were not affected but the
segmental comparisons to last year have been affected.

HEALTH SCIENCES

Health Sciences' gross profit of $15,415 for the six months ended December 31,
2006, was $850 or 5.2% lower than the prior year comparable period. This
decrease in gross profit is attributable to the expected decrease in sales of
one particular product in the generics product group as described above which
resulted in a $595 decline in gross profit. The balance of the gross profit
shortfall can be mainly attributed to the direct allocation of certain freight
and storage charges not included in last year's comparable period.

CHEMICALS & COLORANTS

Gross profit for the six months ended December 31, 2006 decreased by $495, or
6.1%, compared to the prior period. The gross margin percentage was 13.2% for
the six months ended December 31, 2006 compared to 15.6% for the prior period
primarily due to the direct allocation of certain freight and storage charges
not included in last year's comparable period. The foreign subsidiaries
contributed $572 or 45% more gross profit for the six months ended


                                       19

<PAGE>

December 31, 2006 as compared to the prior period. Additionally, the coating
products reported an increase of $545 due to the sales increase previously
mentioned above over the same period in the prior year.

CROP PROTECTION

Gross profit for the Crop Protection segment increased to $2,440 for the six
months ended December 31, 2006, versus $1,938 for the prior period, an increase
of $502 or 25.9%. Gross margin for the period was 23.5% compared to the prior
period gross margin of 19.7%. The primary reason for the increase in gross
profit was due to the launch of the Asulam product. The gross profit was also
negatively affected by $278 related to the sales decline in the three products
discussed earlier, which was mostly offset by lower costs to maintain our EPA
registered products of $233.

UNALLOCATED FREIGHT AND STORAGE COSTS

Unallocated cost of sales were $0 for the six months ended December 31, 2006
compared to $2,325 in the prior period. As a result of certain system
improvements, certain freight and storage costs which were not able to be
identified to a particular segment in the prior fiscal years, have now been
included within the segments. Therefore, there are no unallocated freight and
storage costs in the current period. Total Company gross profit and margin were
not affected by this allocation. This revision will affect the comparison of the
segments' gross profits, however.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") decreased by $775, or 3.9%
to $19,244 for the six months ended December 31, 2006 compared to $20,019 for
the prior period. As a percentage of sales, SG&A decreased to 12.8% for the six
months ended December 31, 2006 versus 13.9% for the prior period. The decrease
in SG&A relates primarily to a legal settlement charge recorded in the prior
year of $537 and lower operating expenses of $1,027 resulting from the sale of
one of our subsidiaries in August 2005. These decreases were partially offset by
the increase in operating expenses of our foreign businesses to support their
increased marketing efforts of $900.

OPERATING INCOME

For the six months ended December 31, 2006, operating income was $6,209 compared
to $3,952 in the prior period, an increase of $2,257 or 57.1%. This increase was
due to the overall increase in gross profit of $1,482 and the $775 decrease in
SG&A expenses.

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income (expense) was $88 for the six months ended December
31, 2006, which represents a decrease of $1,029 from the prior period. This
decrease is primarily attributable to a decrease of $407 regarding a government
subsidy paid annually for doing business in a free trade zone in Shanghai,
China, settlement of an anti-dumping claim of $330 and increased realized and
unrealized foreign exchange losses of $278.

PROVISION FOR INCOME TAXES

The effective tax rate for the six months ended December 31, 2006 increased to
33.2% from 30.0% for the prior period. The increase in the effective tax rate
was primarily due to increased earnings in foreign tax jurisdictions with higher
tax rates, primarily Germany, and reduced earnings in foreign tax jurisdictions
with lower tax rates, primarily Shanghai.


                                       20

<PAGE>

DISCONTINUED OPERATIONS

In accordance with SFAS No.144, "Accounting for the Impairment or Disposal of
Long-lived Assets," the results of operations of one of the subsidiaries forming
part of the former Institutional Sanitary Supplies segment have been recorded as
discontinued operations in the accompanying consolidated statements of income.
The net loss from discontinued operations was $0 and $27 for the six months
ended December 31, 2006 and 2005, respectively. The net loss in last year's
period included a loss on the sale of certain assets of 0$22, net of income
taxes.

THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2005

<TABLE>
<CAPTION>
                                                   NET SALES BY SEGMENT
                                             Three months ended December 31,
                                ---------------------------------------------------------
                                                                         Comparison 2006
                                       2006                2005         Over/(Under) 2005
                                -----------------   -----------------   -----------------
                                             % of                % of      $         %
Segment                         Net sales   total   Net sales   total    change   change
-------                         ---------   -----   ---------   -----    ------   ------
<S>                              <C>        <C>      <C>        <C>      <C>       <C>
Health Sciences                  $40,151     53.0%   $38,058     54.8%   $2,093     5.5%
Chemicals & Colorants             28,543     37.8     25,729     37.0     2,814    10.9
Crop Protection                    6,992      9.2      5,680      8.2     1,312    23.1
                                 -------    -----    -------    -----    ------    ----

Net sales                        $75,686    100.0%   $69,467    100.0%   $6,219     9.0%
                                 =======    =====    =======    =====    ======    ====
</TABLE>

<TABLE>
<CAPTION>
                                               GROSS PROFIT BY SEGMENT
                                           Three months ended December 31,
                                -----------------------------------------------------
                                                                     Comparison 2006
                                      2006              2005        Over/(Under) 2005
                                ---------------   ---------------   -----------------
                                 Gross    % of     Gross    % of        $        %
Segment                          profit   sales    profit   sales    change   change
-------                         -------   -----   -------   -----    ------   ------
<S>                             <C>        <C>    <C>        <C>     <C>      <C>
Health Sciences                 $ 7,198    17.9%  $ 7,432    19.5%   $ (234)    (3.1)%
Chemicals & Colorants             3,711    13.0     4,004    15.6      (293)    (7.3)
Crop Protection                   1,653    23.6     1,282    22.6       371     28.9
                                -------    ----   -------    ----    ------   ------

Segment gross profit             12,562    16.6    12,718    18.3      (156)    (1.2)%

Freight and storage costs (1)        --      --    (1,250)   (1.8)    1,250   (100.0)%
                                -------    ----   -------    ----    ------   ------

Gross profit                    $12,562    16.6%  $11,468    16.5%   $1,094      9.5%
                                =======    ====   =======    ====    ======   ======
</TABLE>

(1) Prior to July 2006, certain freight and storage costs were not able to be
allocated to the segments. Effective July 2006, as a result of certain system
improvements, all freight and storage costs are allocated to a particular
segment. Therefore, the unallocated portion of certain freight and storage costs
for the six months ended December 31, 2006 have now been identified to the
segments as presented above. Total Company gross profit and margin were not
affected by this change in allocation of costs. However, the comparison of gross
profit by segment will be affected by the change in allocation of these costs.

The Company does not allocate assets by segment. 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.


                                       21

<PAGE>

NET SALES

Net sales increased $6,219 or 9.0%, to $75,686 for the three months ended
December 31, 2006, compared with $69,467 for the comparable prior period. We
reported sales increases in all of our segments as explained below.

HEALTH SCIENCES

Net sales for the Health Sciences segment increased by $2,093 for the three
months ended December 31, 2006, to $40,151, which represents a 5.5% increase
from net sales of $38,058 for the prior period. The sales increase from the
prior period is directly attributable to an increase of foreign business of
$3,811 and an increase in our pharmaceutical intermediates and nutritional
businesses of $1,313 and $420 respectively. These increases in sales were
partially offset by a decrease from one specific generic product of $3,481 due
to its normal selling pattern.

CHEMICALS & COLORANTS

Net sales for the Chemicals & Colorants segment were $28,543 for the three
months ended December 31, 2006, compared to $25,729 for the prior period. This
increase of $2,814, or 10.9%, over the prior period is primarily attributable to
an increase of $2,927 from our foreign business. One customer within our
color-pigment and pigment-intermediate business purchased $1,359 less product
during the three months ended December 31, 2006 due to the expiration of their
contract. This reduction was more than offset by an increase over the prior
period in domestic sales of the coatings, agricultural intermediates and pigment
intermediates product families.

CROP PROTECTION

Net sales for the Crop Protection segment increased to $6,992 for the three
months ended December 31, 2006, an increase of $1,312, or 23.1%, over net sales
of $5,680 for the prior year. The increase in net sales was primarily
attributable to the launch of the Asulam product of $1,603 which was partially
offset by an insecticide used on peanuts which recorded $339 less sales due to
unseasonably dry weather conditions, particularly in the Southern U.S. region.

GROSS PROFIT

Gross profit increased by $1,094 to $12,562 (16.6% of net sales) for the three
months ended December 31, 2006, as compared to $11,468 (16.5% of net sales) for
the prior period. The gross profit of each segment was negatively affected by
the direct allocation of certain freight and storage costs in the three months
ended December 31, 2006 that had been reported as unallocated in prior years.
The Company's overall gross profit and margin were not affected but the
segmental comparisons to last year have been affected.

HEALTH SCIENCES

Health Sciences' gross profit of $7,198 for the three months ended December 31,
2006, was $234 or 3.1% lower than the prior period. This decrease in gross
profit is directly attributable to the expected decrease in sales of one
particular product in the generic product group which was described above which
resulted in a $334 decline in gross profit. The balance of the gross profit
shortfall can be attributed to the direct allocation of certain freight and
storage charges in the current period which were not included in last year's
comparable period.

CHEMICALS & COLORANTS

Gross profit for the three months ended December 31, 2006 decreased by $293, or
7.3%, from the prior period. The gross margin percentage was 13.0% for the three
months ended December 31, 2006 compared to 15.6% for the prior period. The
primary reason for the decline in gross profit and margin is due to the
allocation of certain freight and storage charges in the current period which
were not included in last year's comparable period. The foreign subsidiaries
contributed $491 or 114% more gross profit for the three months ended December
31, 2006 as compared to the prior period. Additionally, the coating products
reported an increase of $309 due to the healthy sales increase previously
discussed over the same period in the prior year.


                                       22

<PAGE>

CROP PROTECTION

Gross profit for the Crop Protection segment increased to $1,653 for the three
months ended December 31, 2006, versus $1,282 for the prior period, an increase
of $371 or 28.9%. Gross margin for the period was 23.6% compared to the prior
period gross margin of 22.6%. The primary reason for the increase in gross
profit was due to the launch of the Asulam product. The gross profit was also
negatively affected by the sales decline in the three products discussed earlier
of $176.

UNALLOCATED FREIGHT AND STORAGE COSTS

Unallocated cost of sales were $0 for the three months ended December 31, 2006
compared to $1,250 in the prior period. As a result of certain system
improvements, certain freight and storage costs which were not able to be
identified to a particular segment in prior periods, have now been included
within the segments. Therefore, there are no unallocated freight and storage
costs in the current period. Total Company gross profit and margin were not
affected by this allocation. This revision will affect the comparison of the
segments' gross profits, however.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $183, or 1.9%,
to $9,840 for the three months ended December 31, 2006 compared to $9,657 for
the prior period. As a percentage of sales, SG&A was 13.0% for the three months
ended December 31, 2006 versus 13.9% for the prior period. The increase in SG&A
relates primarily to the increase in operating expenses of our foreign
businesses to support their increased marketing efforts of $661, which was
partially offset by lowered operating expenses of $478 in our domestic
operations including the sale of a Sanitary Supply subsidiary in August 2005.

OPERATING INCOME

For the three months ended December 31, 2006, operating income was $2,722
compared to $1,811 in the prior period, an increase of $911 or 50.3%. This
increase was due to the overall increase in gross profit of $1,094 partially
offset by the $183 increase in SG&A expenses.

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income (expense) was ($100) for the three months ended
December 31, 2006, which represents a decrease of $458 from the prior period.
The decrease is primarily attributable to the increased realized and unrealized
foreign exchange losses of $447. The devaluation of the U.S. dollar as compared
to the Euro and Chinese Yuan as of December 31, 2006 resulted in a significant
portion of the increase in unrealized foreign exchange loss compared to the
prior year's quarter.

PROVISION FOR INCOME TAXES

The effective tax rate for the three months ended December 31, 2006 was 33.5% as
compared to 28.7% for the prior period. The increase in the effective tax rate
was primarily due to increased earnings in foreign tax jurisdictions with higher
tax rates, primarily Germany, and reduced earnings in foreign tax jurisdictions
with lower tax rates, primarily Shanghai.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

At December 31, 2006, we had $30,608 in cash, $9,632 in short-term investments
and no short-term bank loans.

Our cash position at December 31, 2006 decreased $3,124 from the amount at June
30, 2006. Operating activities provided cash of $3,006, primarily from net
income of $4,206, partially offset by a net decrease caused by changes in assets
and liabilities.


                                       23

<PAGE>

Investing activities for the six months ended December 31, 2006 used cash of
$6,928 primarily related to purchases of investments of $6,222 and purchases of
property and equipment and intangibles of $339 and $401, respectively.

Financing activities for the six months ended December 31, 2006 provided cash of
$175 primarily from exercises of stock options.

CREDIT FACILITIES

We have credit facilities with certain foreign financial institutions. These
facilities provide us with a line of credit of $19,470, of which $0 was utilized
as of December 31, 2006 leaving $19,470 of this facility unused. We are not
subject to any financial covenants under these arrangements.

We have a revolving credit facility with a domestic financial institution which
expires June 30, 2007 and provides for available credit of $10,000. At December
31, 2006, we had utilized $570 in letters of credit, leaving $9,430 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, 2006.

WORKING CAPITAL OUTLOOK

Working capital was $109,519 at December 31, 2006 versus $104,707 at June 30,
2006. The increase in working capital was attributable to various factors
including net income during the period. We continually evaluate possible
acquisitions of or investments in businesses that are complementary to our own,
and such transactions may require the use of cash. We believe that our cash,
other liquid assets, operating cash flows, borrowing capacity and access to the
equity capital markets, taken together, provide adequate resources to fund
ongoing operating expenditures and the anticipated continuation of semi-annual
cash dividends. Further, we may obtain additional credit facilities to enhance
our liquidity.


                                       24

<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS AND CONTINGENCIES

We have no material financial commitments other than those under operating lease
agreements, letters of credit and unconditional purchase obligations. We have
certain contractual cash obligations and other commercial commitments which will
impact our short-term and long-term liquidity. At December 31, 2006, we had no
significant obligations for capital expenditures. At December 31, 2006,
contractual cash obligations and other commercial commitments were as follows:

                                          Payments Due and/or
                                          Amount of Commitment
                                         Expiration Per Period
                            -----------------------------------------------
                                      Less Than     1-3      4-5     After
                             Total      1 Year     Years    Years   5 Years
                            -------   ---------   ------   ------   -------

Operating leases            $ 5,675    $ 1,619    $2,634   $1,348     $74

Commercial letters of
credit                          675        675        --       --      --

Standby letters of credit       181        181        --       --      --

Unconditional purchase
obligations                  67,823     67,696       127       --      --
                            -------    -------    ------   ------     ---

Total                       $74,354    $70,171    $2,761   $1,348     $74
                            =======    =======    ======   ======     ===

Other significant commitments and contingencies include the following:

     1.   Our non-qualified deferred compensation plans are intended to provide
          certain executives with supplemental retirement benefits beyond our
          401(k) plan, as well as to permit additional deferral of a portion of
          their compensation. All compensation deferred under the plans is held
          by us in a grantor trust, which is considered our asset. We had a
          liability under the plan, included in long-term liabilities, of
          $3,318, and the assets held by the grantor trust, included in other
          assets, amounted to $2,807 as of December 31, 2006.

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

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


                                       25

<PAGE>

RELATED PARTY TRANSACTIONS

Two of our directors are affiliated with law firms that serve as our legal
counsel on various corporate matters. For the three months ended December 31,
2006 and 2005, we incurred legal fees of $183 and $157, respectively, for
services rendered to the Company by those law firms. The fees charged by those
firms were at rates comparable to rates obtainable from other firms for similar
services.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

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

In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48 "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109". FIN 48
prescribes a comprehensive model for recognizing, measuring, presenting and
disclosing in the financial statements tax positions taken or expected to be
taken on a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. We are currently assessing the impact of FIN 48 on our
consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157). SFAS No. 157 establishes a common definition for fair value to be
applied to US GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are currently assessing the impact of SFAS No. 157 on our
consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS No. 158). SFAS No.
158 requires that employers recognize on a prospective basis the funded status
of their defined benefit pension and other postretirement plans on their
consolidated balance sheet and recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net periodic
benefit cost. SFAS No. 158 also requires additional disclosures in the notes to
financial statements. SFAS No. 158 is effective as of the end of fiscal years
ending after December 15, 2006. We are currently assessing the impact of SFAS
No. 158 on our consolidated financial statements but do not expect that it will
have a material impact on our consolidated financial position or results of
operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin ("SAB") 108
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 requires
that public companies utilize a "dual-approach" to assessing the quantitative
effects of financial misstatements. This dual approach includes both an income
statement focused assessment and a balance sheet focused assessment. The
guidance in SAB 108 must be applied to annual financial statements for fiscal
years ending after November 15, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK SENSITIVE INSTRUMENTS


                                       26

<PAGE>

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

INVESTMENT MARKET PRICE RISK

We had short-term investments of $9,632 at December 31, 2006. Those short-term
investments consisted of government and agency securities, corporate bonds and
corporate equity securities, and they were recorded at fair value and had
exposure to price risk. If this risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in prices quoted by stock
exchanges, the effect of that risk would be $963 as of December 31, 2006.
However, 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, 2006, we had foreign currency contracts outstanding that had a notional
amount of $19,070. 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, 2006, was not
material.

In addition, we enter into cross currency interest rate swaps to reduce foreign
currency exposure on inter-company transactions. In May 2003 we entered into a
five-year cross currency interest rate swap transaction, for the purpose of
hedging fixed-interest-rate, foreign-currency-denominated cash flows under an
inter-company loan. Under the terms of the derivative financial instrument, U.S.
dollar fixed principal and interest payments to be received under the
inter-company loan will be swapped for Euro denominated fixed principal and
interest payments. The change in fair value of the swap from date of purchase to
December 31, 2006, was $(138). The gains or losses on the inter-company loan due
to changes in foreign currency rates will be offset by the gains or losses on
the swap in the accompanying consolidated statements of income. Since our
interest rate swap qualifies as a hedging activity, the change in its fair
value, amounting to $(98) and $54 for the six months ended December 31, 2006 and
2005, respectively, is recorded in accumulated other comprehensive income
included in the accompanying consolidated balance sheets.

We are subject to risk from changes in foreign exchange rates for our
subsidiaries that use a foreign currency as their functional currency and are
translated into U.S. dollars. These changes result in cumulative translation
adjustments, which are included in accumulated other comprehensive income. On
December 31, 2006, we had translation exposure to various foreign currencies,
with the most significant being the Euro and the Chinese Renminbi. The potential
loss as of December 31, 2006, resulting from a hypothetical 10% adverse change
in quoted foreign currency exchange rates, amounted to $5,668. However, 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 is an
adverse change in interest rates of 10%, the expected effect on net income
related to our financial instruments would be immaterial. However, there can be
no assurances that interest rates will not significantly affect our results of
operations.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within


                                       27

<PAGE>

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, 2006 and, based on
their evaluation, have concluded that the disclosure controls and procedures
were effective as of such date.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the six months ended December 31, 2006 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

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

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should
carefully consider the risk factors disclosed under Part I - "Item 1A. Risk
Factors" in our Form 10-K for the year ended June 30, 2006 which could
materially adversely affect our business, financial condition, operating results
and cash flows. The risks and uncertainties described in our Form 10-K for the
year ended June 30, 2006 are not the only ones we face. Additionally, risks and
uncertainties not currently known to us or that we currently deem immaterial
also may materially adversely affect our business, financial condition,
operating results or cash flows.

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

The Company held an annual meeting of its shareholders on December 7, 2006. Two
matters were voted on at the annual meeting, as follows:

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

          The votes were cast for this matter as follows:

                                     FOR    WITHHELD/ABSTAIN
                                   ------   ----------------
             Leonard S. Schwartz   16,966         5,132
             Robert A. Wiesen      15,530         6,568
             Stanley H. Fischer    16,992         5,106
             Albert L. Eilender    21,600           498
             Ira S. Kallem         21,601           497
             Hans C. Noetzli       21,599           499
             William N. Britton    21,589           509

          Each nominee was elected a director of the Company.


                                       28

<PAGE>

     b.   Ratification of the selection of BDO Seidman, LLP as the Company's
          independent accountants for the current fiscal year.

          The votes were cast for this matter as follows:

                      FOR    AGAINST   ABSTAIN
                    ------   -------   -------
                    21,992      93        13

ITEM 6. EXHIBITS

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

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

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

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

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

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


                                       29

<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 8, 2007                   BY /s/ Douglas Roth
                                           -------------------------------------
                                           Douglas Roth, Chief Financial Officer


DATE February 8, 2007                   BY /s/ Leonard S. Schwartz
                                           -------------------------------------
                                           Leonard S. Schwartz, Chairman,
                                           President and Chief Executive Officer


                                       30