UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the fiscal year ended June 30, 2008
 Commission
file number 000-04217
 
 ACETO
CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 New
      York
              
              11-1720520(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification Number)One Hollow Lane, Lake
      Success, NY 11042(Address
      of principal executive offices)
 
 (516)
627-6000
 (Registrant's
telephone number, including area code)
 
 Securities
registered pursuant to Section 12 (b) of the Act:
 
 Common Stock, par
      value $.01 per share
              
              The NASDAQ Global
      Select Market(Title
      of Class)
              
              (Name
      of each exchange on which
registered)
 
 Securities
registered pursuant to Section 12 (g) of the Act:  None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes o  No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act.
 Yes o  No x
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x  No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large
accelerated filer o                                                    Accelerated
filer x
 
 Non-accelerated
filer o                                                      Smaller
reporting company o
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes o  No x
  
 
  
 The
aggregate market value of the voting stock of the Company held by non-affiliates
of the Companybased
on the closing price of the common stock on December 31, 2007 as reported on
the NASDAQ Global Select Market, was approximately
$192,485,400.
 
 The
Registrant has 24,445,572 shares of common stock outstanding as of September 2,
2008.
 
 Documents
incorporated by reference:  The information required in response to
Part III of this Annual Report on Form 10-K is hereby incorporated by reference
to the specified portions of the Registrant’s definitive proxy statement for the
annual meeting of shareholders to be held on December 4, 2008.
  
 2
  ACETO
CORPORATION AND SUBSIDIARIES
 FORM
10-K
 FOR THE
FISCAL YEAR ENDED JUNE 30, 2008
   
 
 PagePART
      I.Item
      1.
              Business
              4Item
      1A.
              Risk
      Factors
              6Item
      1B.
              Unresolved
      Staff Comments
              11Item
      2.
              Properties
              11Item
      3.
              Legal
      Proceedings
              11Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              12PART
      II.Item
      5.
              Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              13Item
      6.
              Selected
      Financial Data
              15Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              15Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              28Item
      8.
              Financial
      Statements and Supplementary Data
              29Item
      9.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
              29Item
      9A.
              Controls
      and Procedures
              29Item
      9B.
              Other
      Information
              32PART
      III.Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              32Item
      11.
              Executive
      Compensation
              32Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              32Item
      13.
              Certain
      Relationships and Related Transactions and Director
      Independence
              32Item
      14.
              Principal
      Accountant Fees and Services
              32PART
      IV.Item
      15.
              Exhibits
      and Financial Statement Schedules
              32Signatures
  3
  PART
I
 
 CAUTIONARY
STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
 
 This
Annual Report on Form 10-K 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
stated in 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,
international military conflicts, the mix of products sold and their profit
margins, order cancellation or a reduction in orders from customers, competitive
product offerings and pricing actions, the availability and pricing of key raw
materials, dependence on key members of management, risks of entering into new
European markets, and economic and political conditions in the United States and
abroad.
 
 NOTE
REGARDING DOLLAR AMOUNTS
 
 In this
Annual Report, all dollar amounts are expressed in thousands, except share
prices and per-share amounts.
 
 Item
1.  Business
 
 General
 
  Aceto
Corporation, together with its consolidated subsidiaries, are referred to herein
collectively as “Aceto”, “Company”, “we”, “us”, and “our” unless the content
indicates otherwise.  Aceto was incorporated in 1947 in the State of
New York.  We are a global leader in the sourcing, quality assurance,
regulatory support, marketing and distribution of chemically derived
pharmaceuticals, biopharmaceuticals, specialty chemicals and crop protection
products.  Our business is organized along product lines 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
profit. Products that fall within this segment include active pharmaceutical
ingredients (APIs), pharmaceutical intermediates, nutraceuticals and
biopharmaceuticals.
  We
typically partner with both customers and suppliers years in advance of a drug
coming off patent to provide the generic equivalent.  We believe we
have a pipeline of new APIs poised to reach commercial levels over the coming
years as the patents on existing drugs expire, both in the United States and
Europe. In addition, we continue to explore opportunities to provide a
second-source option for existing generic drugs with approved abbreviated new
drug applications (ANDAs). The opportunities that we are looking for are to
supply the APIs for the more mature generic drugs where pricing has stabilized
following the dramatic decreases in price that these drugs experienced after
coming off patent.  As is the case in the generic industry, the
entrance into the market of other generic competition generally has a negative
impact on the pricing of the affected products.  By leveraging our
worldwide sourcing, quality assurance and regulatory capabilities, we believe we
can be an alternative lower cost, second-source provider of existing APIs to
generic drug companies.
  According
to IMS Health, the global pharmaceutical market is expected to grow 5-6% in 2008
to approximately $745 billion.  In the United States, sales growth is
expected to range from 4-5% which marks a historic low for the United
States.  Key factors limiting the growth in this market include a
leveling off of growth from the introduction of the Medicare Part D prescription
drug benefit, patent expirations of branded products and an associated increase
in the use of lower cost generic drugs, and an increased pressure from
governmental authorities and managed care providers to control
costs.
  The
Chemicals & Colorants segment is a major supplier to the many different
industries that require outstanding performance from chemical raw materials and
additives.  Products that fall within this segment include
intermediates for dyes, pigments and agrochemicals.  We provide
chemicals used to make plastics, surface coatings, textiles, lubricants, flavors
and fragrances. Many of Aceto’s raw materials are also used in high-tech
products like high-end electronic parts (circuit boards and computer chips) and
binders for specialized rocket fuels. We are currently responding to the
changing needs of our customers in the color producing industry by taking our
resources and knowledge downstream as a supplier of select organic pigments. We
expect that continued global Gross Domestic Product growth will drive higher
demand for the chemical industry, especially in China and other emerging regions
of the world. With supply growth limited, we expect that industry supply/demand
balances will remain favorable. However, continued volatility in energy costs
will add uncertainty to our profit outlook.
  4
  According
to the American Chemistry Council, leading indicators of global industrial
production continue to suggest a slowing down of
activity.   Overall, on a year-over-year basis, global chemical
industry production increased by a modest 2.5%.
  The Crop
Protection segment sells herbicides, fungicides, insecticides, and other
agricultural chemicals to customers, primarily located in the United States and
Western Europe. In fiscal 2007, we entered into a multi-year contract with a
major agricultural chemical distributor and launched generic Asulam, an
herbicide for sugar cane and the first generic registration that we have
received.  Our plan is to continue to develop our pipeline and bring
to market additional products in a similar manner. In May 2008, the Company sold
an insecticide product to its patent owner in conjunction with litigation
settlement involving an expired license.
  According
to the US Department of Agriculture, total acreage planted in 2008 increased by
1.3% to slightly more than 324 million acres.  The number of peanut
acres planted in 2008 was up approximately 19% from 2007 levels, sugar cane
acreage was down 0.9% from 2007 and potato acres planted in 2008 were down 10.6%
from 2007 levels.
  Our main
business strengths are sourcing, quality assurance, regulatory support,
marketing and distribution. With a physical presence in ten countries, we
distribute over 1000 pharmaceuticals and chemicals used principally as raw
materials in the pharmaceutical, agricultural, color, surface coating/ink and
general chemical consuming industries. We believe that we are currently the
largest buyer of pharmaceutical and specialty chemicals for export from China,
purchasing from over 500 different manufacturers.
 
 Our
presence in China, Germany, France, the Netherlands, Singapore, India, Poland,
Hong Kong, Japan, the United Kingdom andthe United States, along
with strategically located warehouses worldwide, enable us to respond quickly to
demands from customers worldwide, assuring that a consistent, high-quality
supply of pharmaceutical, biopharmaceutical, specialty chemicals and crop
protection products are readily accessible.  We are able to offer our
customers competitive pricing, continuity of supply, and quality
control.  We believe our 60 years of experience, our reputation for
reliability and stability, and our long-term relationships with suppliers have
fostered loyalty among our customers.
 
 We remain
confident about our business prospects.  We anticipate continued
organic growth which will be enhanced through our plans to enter the market for
companion animal vaccines,  the market for finished dosage form
generic drugs,  the Japanese pharmaceutical market, the continued
globalization of our Chemicals & Colorants business, the further
globalization of our nutraceutical business, the  expansion of our
crop protection segment by acquisition of product lines and intellectual
property, the continued enhancement of our sourcing operations in China and
India, and the steady improvement of our quality assurance and regulatory
capabilities.
 
 We
believe our track record of continuous product introductions demonstrates that
Aceto has come to be recognized by the worldwide generic pharmaceutical industry
as an important, reliable supplier.  Our plans involve seeking
strategic acquisitions that enhance our earnings and forming alliances with
partners that add to our capabilities, when possible.
 
 Information
concerning revenue and gross profit attributable to each of our reportable
segments is found in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, and in Note 19 to the
Consolidated Financial Statements, Part II, Item 8, “Financial Statements and
Supplementary Data.”
 
 Products
and Customers
 
 During
the fiscal years ended June 30, 2008 and 2007, approximately 67% and 65%,
respectively, of our purchases were from Asia and approximately 19% and 21%,
respectively, were from Europe.
 
 Our
customers are primarily located throughout the United States, Europe and
Asia.  They include a wide range of companies in the industrial
chemical, agricultural, and health science industries, and range from small
trading companies to Fortune 500 companies.  During fiscal years 2008
and 2007, sales made to customers in the United States totaled $165,287 and
$153,147, respectively.  Sales made to customers outside the United
States during fiscal years 2008 and 2007 totaled $194,304 and $160,326,
respectively, of which, approximately 58% were to customers located in
Europe.
  5
  The
chemical industry is highly competitive.  We compete by offering
high-quality products produced around the world by both large and small
manufacturers at attractive prices.  Because of our long standing
relationships with many suppliers as well as our sourcing operations in both
China and India, we are able to ensure that any given product is manufactured at
a facility that is appropriate for that product.  For the most part,
we store our inventory of chemicals in public warehouses strategically located
throughout the United States, Europe, and Asia, and we can therefore fill orders
rapidly from inventory.  We have developed ready access to key
purchasing, research, and technical executives of our customers and
suppliers.  This allows us to ensure that when necessary, sourcing
decisions can be made quickly.
 
 No single
product or customer accounted for as much as 10% of net sales in fiscal years
2008, 2007 or 2006.  No single supplier accounted for as much as 10%
of purchases in fiscal 2008 and 2007.
 
 We hold
no patents, licenses, franchises or concessions that we consider material to our
operations.
 
 Our
subsidiary Aceto Agricultural Chemicals Corp. (Aceto Agricultural) markets and
contracts for the manufacture of, certain crop protection products that are
subject to the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA).  Under FIFRA, companies that wish to market pesticides must
provide test data to the Environmental Protection Agency (EPA) to register,
obtain and maintain approved labels for those pesticides.  The EPA
requires that follow-on registrants of these products, on a basis prescribed in
the FIFRA regulations, compensate the initial registrant for the cost of
producing the necessary test data.  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, and pay for, the
testing effort.  We are currently a member of three such task force
groups and historically, our payments have been in the range of $100 - $250 per
year.  We may be required to make such additional payments in the
future.
 
 Employees
 
 At June
30, 2008, we had 227 employees, none of whom were covered by a collective
bargaining agreement.
 
 Item
1A.  Risk factors
 
 You
should carefully consider the following risk factors and other information
included in this Annual Report.  The risks and uncertainties described
below are not the only ones we face.  Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may
also impair our business operations.  If any of the following risk
factors occur, our business, financial condition, operating results and cash
flows could be materially adversely affected.
 
 If
we are unable to compete effectively with our competitors, many of which have
greater market presence and resources than us, our profitability and financial
condition will be adversely affected.
 
 Our
financial condition and operating results are directly related to our ability to
compete in the intensely competitive worldwide chemical market.  We
face intense competition from global and regional distributors of chemical
products, many of which are large chemical manufacturers as well as
distributors.  Many of these companies have substantially greater
resources than us, including greater financial, marketing and distribution
resources. We cannot assure you that we will be able to compete successfully
with any of these companies. In addition, increased competition could result in
price reductions, reduced margins and loss of market share for our services, all
of which would adversely affect our business, results of operations and
financial condition.
 
 Our
distribution operations concentrate on generic products and therefore are
subject to the risks of the generic industry.
 
 The
ability of our business to provide consistent, sequential quarterly growth is
affected, in large part, by our participation in the launch of new products by
generic manufacturers and the subsequent advent and extent of competition
encountered by these products. This competition can result in significant and
rapid declines in pricing with a corresponding decrease in net sales. Our
margins can also be affected by the risks inherent to the generic
industry.
 
 Healthcare
reform and a reduction in the reimbursement levels by governmental authorities,
HMOs, MCOs or other third-party payors may adversely affect our
business.
 
 Third
party payors increasingly challenge pricing of pharmaceutical products. The
trend toward managed healthcare, the growth of organizations such as HMOs and
MCOs and legislative proposals to reform healthcare and government insurance
programs could significantly influence the purchase of pharmaceutical products,
resulting in lower prices and a reduction in product demand. Such cost
containment measures and healthcare reform could affect our ability to sell our
products and could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
  6
  We
may incur significant uninsured environmental and other liabilities inherent in
the chemical distribution industry that would have a negative effect on our
financial condition.
 
 The
business of distributing chemicals is subject to regulation by numerous federal,
state, local, and foreign governmental authorities.  These regulations
impose liability for loss of life, damage to property and equipment, pollution
and other environmental damage that may occur in our business.  Many
of these regulations provide for substantial fines and remediation costs in the
event of chemical spills, explosions and pollution.  While we believe
that we are in substantial compliance with all current laws and regulations, we
can give no assurance that we will not incur material liabilities that exceed
our insurance coverage or that such insurance will remain available on terms and
at rates acceptable to us. Additionally, if existing environmental and other
regulations are changed, or additional laws or regulations are passed, the cost
of complying with those laws may be substantial, thereby adversely affecting our
financial performance.
 
 In fiscal
2008 and 2007, the Company received letters from the Pulvair Site Group, a group
of potentially responsible parties (PRP Group) who are working with the State of
Tennessee (the State) to remediate a contaminated property in Tennessee called
the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous
substances to the site which were released into the
environment.   The State had begun administrative proceedings
against the members of the PRP group and Aceto with respect to the cleanup of
the Pulvair site and the group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $2,100 from the Company for its share to
remediate the site contamination. Although the Company acknowledges that it
shipped materials to the site for formulation over twenty years ago, the Company
believes that the evidence does not show that the hazardous materials sent by
Aceto to the site have significantly contributed to the contamination of the
environment. Accordingly, the Company believes that the settlement offer is
unreasonable. Alternatively, counsel to the PRP Group has proposed that Aceto
join it as a participating member and pay 3.16% of the PRP Group's
cost.  The Company believes that this percentage is high because it is
based on the total volume of materials that Aceto sent to the site, most of
which were non-hazardous substances and as such, believes that, at most, it is a
de minimus contributor to the site contamination. The impact of the resolution
of this matter on the Company's results of operations in a particular reporting
period is not known.  However, management believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial condition or liquidity.
 
 Our
subsidiary, Arsynco, has environmental remediation obligations in connection
with its former manufacturing facility in Carlstadt, New Jersey. Estimates of
how much it would cost to remediate environmental contamination at this site
have increased since the facility was closed in 1993.  If the actual
costs are significantly greater than estimated, it could have a material adverse
effect on our financial condition, operating results and cash
flows.
 
 In March
2006, Arsynco received notice from the EPA of its status as a PRP under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for a site described as the Berry’s Creek Study Area.   Arsynco
is one of over 150 PRPs 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 PRPs and their financial
strength.  Based on prior practice in similar situations, it is
possible that the State may assert a claim for natural resource damages with
respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages
in connection with Berry's Creek; any such claim with respect to Berry's Creek
could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site.  Any claim for natural
resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. 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.
  The
distribution and sale of our products are subject to prior governmental
approvals and thereafter ongoing governmental regulation.
  Our
products are subject to laws administered by federal, state and foreign
governments, including regulations requiring registration and approval of many
of our products. More stringent restrictions could make our products less
desirable, which would adversely affect our revenues and profitability. Some of
our products are subject to the EPA registration and re-registration
requirements, and are registered in accordance with FIFRA. Such registration
requirements are based, among other things, on data demonstrating that the
product will not cause unreasonable adverse effects on human health or the
environment when used according to approved label directions. Governmental
regulatory authorities have required, and may require in the future, that
certain scientific data requirements be performed on our products and this may
require us on our behalf or in joint efforts with other registrants to perform
additional testing.  Responding to such requirements may cause delays
in or the cessation of the sales of one or more of our products which would
adversely affect our profitability. We can provide no assurance that any testing
approvals or registrations will be granted on a timely basis, if at all, or that
our resources will be adequate to meet the costs of regulatory compliance or
that the economic benefit of complying with the requirement will exceed our
cost.
  7
  Tax
legislation and assessments by various tax authorities may be materially
different than the amounts we have provided for in our consolidated financial
statements.
 
 We are
regularly audited by federal, state, and foreign tax authorities. From time to
time, these audits may result in proposed assessments. While we believe that we
have adequately provided for any such assessments, future settlements may be
materially different than we have provided for and thereby adversely affect our
earnings and cash flows.
 
 We
operate in various tax jurisdictions, and although we believe that we have
provided for income and other taxes in accordance with the relevant regulations,
if the applicable regulations were ultimately interpreted differently by a
taxing authority, we may be exposed to additional tax liabilities. From time to
time, various legislative initiatives may be proposed that could adversely
affect our tax positions. There can be no assurance that our effective tax rate
will not be adversely affected by these initiatives.
 
 Our
acquisition strategy is subject to a number of inherent risks, including the
risk that our acquisitions may not be successful.
 
 We
continually seek to expand our business through acquisitions of other companies
that complement our own and through joint ventures, licensing agreements and
other arrangements. Any decision regarding strategic alternatives would be
subject to inherent risks, and we cannot guarantee that we will be able to
identify the appropriate opportunities, successfully negotiate economically
beneficial terms, successfully integrate any acquired business, retain key
employees, or achieve the anticipated synergies or benefits of the strategic
alternative selected. Acquisitions can require significant capital resources and
divert our management’s attention from our existing business. Additionally, we
may issue additional shares in connection with a strategic transaction, thereby
diluting the holdings of our existing common shareholders, incur debt or assume
liabilities, become subject to litigation, or consume cash, thereby reducing the
amount of cash available for other purposes.
 
 Any acquisition that we make could
result in a substantial charge to our earnings.
 
 We have
previously incurred charges to our earnings in connection with acquisitions, and
may continue to experience charges to our earnings for any acquisitions that we
make, including large and immediate write-offs of acquired assets, or impairment
charges. These costs may also include substantial severance and other closure
costs associated with eliminating duplicate or discontinued products, employees,
operations and facilities. These charges could have a material adverse effect on
our results of operations for particular quarterly periods and they could
possibly have an adverse impact on the market price of our common
stock.
 
 Our
revenue stream and related gross profit is difficult to predict.
 
 Our
revenue stream is difficult to predict because it is primarily generated as
customers place orders and customers can change their requirements or cancel
orders. Many of our sales orders are short-term and may be cancelled at any
time. As a result, much of our revenue is not recurring from period to period,
which contributes to the variability of our results from period to period. In
addition, certain of our products carry a higher gross margin than other
products, particularly in the Health Sciences segment. Reduced sales of these
higher margin products could have a significant impact on our operating results.
We believe that quarter-to-quarter comparisons of our operating results are not
a good indication of our future performance.
 
 Our
operating results may fluctuate in future quarters, which may adversely affect
the trading price of our common stock.
 
 Our
operating results will fluctuate on a quarterly basis as a result of a number of
factors, including the timing of contracts, the delay or cancellation of a
contract, and changes in government regulations. Any one of these factors could
have a significant impact on our quarterly results. In some quarters, our
revenue and operating results may fall below the expectations of securities
analysts and investors, which would likely cause the trading price of our common
stock to decline.
  8
  Failure
to obtain products from outside manufacturers could adversely affect our ability
to fulfill sales orders to our customers.
 
 We rely
on outside manufacturers to supply products for resale to our
customers.  Manufacturing problems, including manufacturing delays
caused by plant shutdowns and issues that may arise due to the restrictions of
transporting chemicals related to the 2008 Summer Olympics in Beijing, may occur
with these and other outside sources. If such problems occur, we cannot assure
that we will be able to deliver our products to our customers profitably or on
time.
 
 Our
potential liability arising from our commitment to indemnify our directors,
officers and employees could adversely affect our earnings and financial
condition.
 
 We have
committed in our bylaws to indemnify our directors, officers and employees
against the reasonable expenses incurred by these persons in connection with an
action brought against him or her in such capacity, except in matters as to
which he or she is adjudged to have breached a duty to us.  The
maximum potential amount of future payments we could be required to make under
this provision is unlimited. While we have ”directors and officers” insurance
policies that covers a portion of this potential exposure, we may be adversely
affected if we are required to pay damages or incur legal costs in connection
with a claim above our insurance limits.
 
 Our business may
give rise to product liability claims not covered by insurance or indemnity
agreements.
 
 The
marketing, distribution and use of chemical products involves substantial risk
of product liability claims. A successful product liability claim that we have
not insured against, that exceeds our levels of insurance or that we are not
indemnified for may require us to pay a substantial amount of damages. In the
event that we are forced to pay such damages, this payment may have a material
adverse effect on our financial and operating results.
 
 Our
business may be adversely affected by terrorist activities.
 
 Our
business depends on the free flow of products and services through the channels
of commerce.  Instability due to military, terrorist, political and
economic actions in other countries could materially disrupt our overseas
operations and export sales.  In fiscal years 2008 and 2007,
approximately 54% and 53%, respectively, of our revenues were attributable to
operations conducted abroad and to sales generated from the United States to
foreign countries.  In addition, in fiscal year 2008, approximately
67% and 19% of our purchases came from Asia and Europe,
respectively.  In addition, in certain countries where we currently
operate or export, intend to operate or export, or intend to expand our
operations, we could be subject to other political, military and economic
uncertainties, including labor unrest, restrictions on transfers of funds and
unexpected changes in regulatory environments.
 
 Fluctuations
in foreign currency exchange rates may adversely affect our results of
operations and financial condition.
 
 A
substantial portion of our revenue is denominated in currencies other than the
U.S. dollar because certain of our foreign subsidiaries operate in their local
currencies.  Our results of operations and financial condition may
therefore be adversely affected by fluctuations in the exchange rate between
foreign currencies and the U.S. dollar.
 
 We
rely heavily on key executives for our financial performance.
 
 Our
financial performance is highly dependent upon the efforts and abilities of our
key executives. The loss of the services of any of our key executives could
therefore have a material adverse effect upon our financial position and
operating results. None of our key executives has an employment agreement with
us and we do not maintain “key-man” insurance on any of our key
executives.
 
 Violations
of cGMP and other government regulations could have a material adverse affect on
our business, financial condition and results of operations.
 
 All
facilities and manufacturing techniques used to manufacture products for
clinical use or for commercial sale in the United States must be operated in
conformity with current Good Manufacturing Practices ("cGMP") regulations as
required by the FDA. Our suppliers’ facilities are subject to scheduled periodic
regulatory and customer inspections to ensure compliance with cGMP and other
requirements applicable to such products. A finding that we had materially
violated these requirements could result in one or more regulatory sanctions,
loss of a customer contract, disqualification of data for client submissions to
regulatory authorities and a mandated closing of our suppliers’ facilities,
which in turn could have a material adverse effect on our business, financial
condition and results of operations.
  9
  Litigation
may harm our business and our management and financial resources.
 
 Substantial,
complex or extended litigation could cause us to incur large expenditures and
could distract our management. For example, lawsuits by employees, stockholders,
collaborators, distributors, customers, or end-users of our products or services
could be very costly and substantially disrupt our business. Disputes from time
to time with such companies or individuals are not uncommon, and we cannot
assure you that we will always be able to resolve such disputes out of court or
on favorable terms.
 
 The
market price of our stock could be volatile.
 
 The
market price of our common stock has been subject to volatility and may continue
to be volatile in the future, due to a variety of factors,
including:
 
 ·
              quarterly
      fluctuations in our operating income and earnings per share
      results
 ·
              technological
      innovations or new product introductions by us or our
      competitors
 ·
              economic
      conditions
 ·
              disputes
      concerning patents or proprietary
rights
 ·
              changes
      in earnings estimates and market growth rate projections by market
      research analysts
 ·
              sales
      of common stock by existing security
holders
 ·
              loss
      of key personnel
 ·
              securities
      class actions or other litigation
 
 The
market price for our common stock may also be affected by our ability to meet
analysts' expectations. Any failure to meet such expectations, even slightly,
could have an adverse effect on the market price of our common
stock.  In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies.
 
 Incidents
related to hazardous materials could adversely affect our business.
 
 Portions
of our operations require the controlled use of hazardous
materials.  Although we are diligent in designing and implementing
safety procedures to comply with the standards prescribed by federal, state, and
local regulations, the risk of accidental contamination of property or injury to
individuals from these materials cannot be completely eliminated. In the event
of such an incident, we could be liable for any damages that result, which could
adversely affect our business.
 
 There
are inherent uncertainties involved in estimates, judgments and assumptions used
in preparing financial statements in accordance with U.S. generally accepted
accounting principles.  Any changes in the estimates, judgments and
assumptions we use could have a material adverse effect on our financial
position and results of operations.
 
 The
consolidated financial statements included in the periodic reports we file with
the SEC are prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”).  Preparing financial statements in accordance
with GAAP involves making estimates, judgments and assumptions that affect
reported amounts of assets, liabilities, revenues, expenses and income.
Estimates, judgments and assumptions are inherently subject to change, and any
such changes could result in corresponding changes to the reported
amounts.
 
 Failure
to maintain effective internal controls in accordance with Section 404 of
the Sarbanes-Oxley Act could have an adverse effect on our business and stock
price.
  Section 404
of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of
our internal controls over financial reporting as of the end of each fiscal year
and to include a management report assessing the effectiveness of our internal
controls over financial reporting in our annual report. Section 404 also
requires our independent registered public accounting firm to report on our
internal controls over financial reporting. If we fail to maintain the adequacy
of our internal controls, we cannot assure you that we will be able to conclude
in the future that we have effective internal controls over financial reporting.
If we fail to maintain effective internal controls, we might be subject to
sanctions or investigation by regulatory authorities, such as the Securities and
Exchange Commission or NASDAQ.  Any such action could adversely affect
our financial results and the market price of our common stock and may also
result in delayed filings with the Securities and Exchange
Commission.
  10
  Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.
 
 Complying
with changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC
regulations will require the Company to expend additional resources. We are
committed to maintaining the highest standards of corporate governance and
public disclosure. As a result, we will continue to invest necessary resources
to comply with evolving laws, regulations and standards, and this investment may
result in increased expenses and a diversion of management time and attention
from revenue-generating activities.
 
 Available
information
 
 We file
annual, quarterly, and current reports, proxy statements, and other information
with the U.S. Securities and Exchange Commission.  You may read and
copy any document we file at the SEC’s public reference room at 100 F Street,
NE, Washington, D.C. 20549.
 
 You may
call the SEC at 1-800-SEC-0330 for information on the public reference
room.  The SEC maintains a website that contains annual, quarterly,
and current reports, proxy statements, and other information that issuers
(including Aceto) file electronically with the SEC.  The SEC’s website
is www.sec.gov.
 
 Our
website is www.aceto.com.  We
make available free of charge through our Internet site, via a link to the SEC’s
website at www.sec.gov, our
annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on
Form 8-K; Forms 3, 4 and 5 filed on behalf of our directors and executive
officers; and any amendments to those reports and forms.  We make
these filings available as soon as reasonably practicable after they are
electronically filed with, or furnished to, the SEC. The information on our
website is not incorporated by reference into this Annual Report.
 
 Item
1B.  Unresolved Staff Comments
 
 None.
 
 Item
2.  Properties
 
 Our
general headquarters and main sales office occupy approximately 26,000 gross
square feet of leased space in an office building in Lake Success, New
York.  The lease expires in April 2011.
 
 In
November 2007, we purchased approximately 2,300 gross square meters of land
along with 12,000 gross square feet of office space in Mumbai, India to develop
our infrastructure in order to capitalize on the Indian pharmaceutical
market.
 
 Arsynco’s
former manufacturing facility is located on a 12-acre parcel in Carlstadt, New
Jersey, that it owns.  This parcel contains one building with
approximately 5,000 gross square feet of office space.
 
 In
November 2004, we purchased approximately 1,300 gross square meters of office
space located in Shanghai, China for our sales offices and investment
purposes.
 
 We also
lease office space in Hamburg, Germany; Düsseldorf, Germany; Heemskerk, the
Netherlands; Paris, France; Lyon, France; Singapore; and Warsaw,
Poland.  These offices are used for sales and administrative
purposes.
 
 We
believe that our properties are generally well maintained, in good condition and
adequate for our present needs.
 
 Item
3.  Legal Proceedings.
 
 We are
subject to various claims that have arisen in the normal course of
business.  We do not know what impact the final resolution of these
matters will have on our results of operations in a particular reporting
period.  We believe, however, that the ultimate outcome of such
matters will not have a material adverse effect on our financial condition or
liquidity.
 
 In fiscal
2008 and 2007, the Company received letters from the Pulvair Site Group, a group
of potentially responsible parties (PRP Group) who are working with the State of
Tennessee (the State) to remediate a contaminated property in Tennessee called
the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous
substances to the site which were released into the
environment.   The State had begun administrative proceedings
against the members of the PRP group and Aceto with respect to the cleanup of
the Pulvair site and the group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $2,100 from the Company for its share to
remediate the site contamination. Although the Company acknowledges that it
shipped materials to the site for formulation over twenty years ago, the Company
believes that the evidence does not show that the hazardous materials sent by
Aceto to the site have significantly contributed to the contamination of the
environment. Accordingly, the Company believes that the settlement offer is
unreasonable. Alternatively, counsel to the PRP Group has proposed that Aceto
join it as a participating member and pay 3.16% of the PRP Group's
cost.  The Company believes that this percentage is high because it is
based on the total volume of materials that Aceto sent to the site, most of
which were non-hazardous substances and as such, believes that, at most, it is a
de minimus contributor to the site contamination. The impact of the resolution
of this matter on the Company's results of operations in a particular reporting
period is not known.  However, management believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial condition or liquidity.
  11
  In March
2006, Arsynco received notice from the EPA of its status as a PRP under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for a site described as the Berry’s Creek Study Area.   Arsynco
is one of over 150 PRPs 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 PRPs and their financial
strength.  Based on prior practice in similar situations, it is
possible that the State may assert a claim for natural resource damages with
respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages
in connection with Berry's Creek; any such claim with respect to Berry's Creek
could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site.  Any claim for natural
resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. 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.
 
 Item
4. Submission of Matters to a Vote of Security Holders.
 
 No matter
was submitted to a vote of our security holders during the fourth quarter of the
fiscal year covered by this Annual Report.
  12
  PART
II
 
 Item
5.  Market for the Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
 
 Our
common stock is traded on the NASDAQ Global Select Market using the symbol
“ACET.”  The following table states the fiscal year 2008 and 2007 high
and low sales prices of our common stock as reported by the NASDAQ Global Select
Market for the periods indicated.
 
 HIGH
              
              
              LOWFISCAL
      YEAR 2008First
      Quarter
              
              $
              9.82
              
              
              $
              8.28Second
      Quarter
              
              
              9.39
              
              
              
              7.51Third
      Quarter
              
              
              8.43
              
              
              
              5.79Fourth
      Quarter
              
              
              8.52
              
              
              
              6.60FISCAL
      YEAR 2007First
      Quarter
              
              $
              7.63
              
              
              $
              6.54Second
      Quarter
              
              
              9.25
              
              
              
              6.82Third
      Quarter
              
              
              9.98
              
              
              
              7.22Fourth
      Quarter
              
              
              9.48
              
              
              
              7.60
 
 Cash
dividends of $0.10 per common share were paid in January 2008, cash dividends of
$0.05 per common share were paid in March 2008 and cash dividends of $0.10 per
common share were paid in June of 2008.  Cash dividends of $0.075 per
common share were paid in January 2007 and cash dividends of $0.10 per common
share were paid in June of 2007.  Cash dividends of $0.075 per common
share were paid in January and June of fiscal year 2006.
 
 As of
September 2, 2008, there were 509
holders of record of our common stock.
 
 22,363
shares of our common stock were held by the nominee of the Depository Trust
Company, the country's principal central depository.  For purposes of
determining the number of owners of our common stock, those shares are
considered to be owned by one holder.  Additional individual holdings
in street name result in a sizable number of beneficial owners being represented
on our records as owned by various banks and stockbrokers.
 
 The
following table states certain information with respect to our equity
compensation plans at June 30, 2008:
 Plan
      category
              
              Number
      of securities to
                be
      issued upon exercise
                of
      outstanding options
              
              
              Weighted-average
                exercise
      price of
                outstanding
      options
              
              
              Number
      of securities
                remaining
      available for
                future
      issuance under
                equity
      compensation plansEquity
      compensation plans approved by security holders
              
              
              2,879
              
              
              $
              7.59
              
              
              
              524Equity
      compensation plans not approved by security holders
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              2,879
              
              
              $
              7.59
              
              
              
              524
 Performance
Graph
 
 The
following graph compares on a cumulative basisthe yearly percentage
change, assuming dividend reinvestment, over the last five fiscal years in (a)
the total shareholder return on our common stock with (b) the total return on
the Standard & Poor’s 500 Index and (c) the total return on a published
line-of-business index – the Dow Jones U.S. Chemicals Index (the “Peer
Group”).
 
 The
following graph assumes that $100 had been invested in each of the Company, the
Standard & Poor’s 500 Index and the Peer Group on June 30,
2003.  The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
  13
  
   ASSUMES
$100 INVESTED ON JUNE 30, 2003
 ASSUMES
DIVIDEND REINVESTMENT
 FISCAL
YEAR ENDING JUNE 30, 2008
 Aceto Corporation
              
              S&P 500 Index
              
              Dow Jones U.S.
                ChemicalsJune
      30, 2003
              100
              
              100
              
              100June
      30, 2004
              144
              
              119
              
              126June
      30, 2005
              93
              
              127
              
              138June
      30, 2006
              88
              
              138
              
              146June
      30, 2007
              120
              
              166
              
              194June
      30, 2008
              102
              
              144
              
              225
 
 14
 
 Item
6.  Selected Financial Data
 (In
thousands, except per-share amounts)
 
 
 Fiscal years ended June 30,
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(1)Net
      sales
              
              $
              359,591
              
              
              $
              313,473
              
              
              $
              297,328
              
              
              $
              313,431
              
              
              $
              296,646Operating
      income
              
              
              21,377
              
              
              
              15,064
              
              
              
              12,429
              
              
              
              11,590
              
              
              
              16,405Income
      from continuing operations
              
              
              13,473
              
              
              
              10,212
              
              
              
              9,264
              
              
              
              10,625
              
              
              
              13,111Net
      income
              
              
              13,473
              
              
              
              10,212
              
              
              
              9,237
              
              
              
              10,015
              
              
              
              13,067At year endWorking
      capital
              
              $
              128,786
              
              
              $
              112,930
              
              
              $
              104,707
              
              
              $
              94,249
              
              
              $
              86,420Total
      assets
              
              
              222,243
              
              
              
              188,478
              
              
              
              166,592
              
              
              
              149,028
              
              
              
              149,697Long-term
      liabilities
              
              
              16,836
              
              
              
              15,548
              
              
              
              15,140
              
              
              
              3,982
              
              
              
              2,877Shareholders’
      equity
              
              
              140,409
              
              
              
              124,827
              
              
              
              115,053
              
              
              
              107,655
              
              
              
              100,266Income per common share(2)Basic
      income per common share from continuing operations
              
              $
              0.55
              
              
              $
              0.42
              
              
              $
              0.38
              
              
              $
              0.44
              
              
              $
              0.55Basic
      income per common share from net income
              
              $
              0.55
              
              
              $
              0.42
              
              
              $
              0.38
              
              
              $
              0.41
              
              
              $
              0.55Diluted
      income per common share from continuing operations
              
              $
              0.54
              
              
              $
              0.41
              
              
              $
              0.38
              
              
              $
              0.43
              
              
              $
              0.53Diluted
      income per common share from net income
              
              $
              0.54
              
              
              $
              0.41
              
              
              $
              0.38
              
              
              $
              0.41
              
              
              $
              0.53Cash
      dividends
              
              $
              0.25
              
              
              $
              0.175
              
              
              $
              0.15
              
              
              $
              0.15
              
              
              $
              0.11(1)Includes
      the acquisition of Pharma Waldhof on December 31, 2003.
                (2)
      Adjusted for stock splits, effected in the form of dividends, as
      appropriate.
 Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 Executive
Summary
 
 The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) is intended to provide the readers of our
financial statements with a narrative discussion about our business. The
MD&A is provided as a supplement to and should be read in conjunction with
our financial statements and the accompanying notes.
 
 We are
reporting a $6,313 increase in operating income to $21,377 for the year ended
June 30, 2008 as compared to $15,064 for the prior year.  This
increase in operating income was achieved, despite a highly competitive
environment, primarily through a significant increase in sales, improving our
profit margin and our management of selling, general and administrative
costs.  Net sales for fiscal 2008 were $359,591, an increase of
$46,118 from fiscal 2007.  This increase in net sales also impacted
our gross profit, which increased $12,812 to $67,305 for fiscal
2008.  Our net income increased to $13,473, or $0.54 per diluted
share, an increase of $3,261 or 31.9% compared to fiscal year 2007.
 
 Our
financial position as of June 30, 2008, remains strong, as we had cash and
short-term investments of $47,063, working capital of $128,786, no long-term
debt and shareholders’ equity of $140,409.
 
 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.
Products that fall within this segment include APIs, pharmaceutical
intermediates, nutraceuticals and biopharmaceuticals.
  We
typically partner with both customers and suppliers years in advance of a drug
coming off patent to provide the generic equivalent.  We believe we
have a pipeline of new APIs poised to reach commercial levels over the coming
years as the patents on existing drugs expire, both in the United States and
Europe. In addition, we continue to explore opportunities to provide a
second-source option for existing generic drugs with ANDAs. The opportunities
that we are looking for are to supply the APIs for the more mature generic drugs
where pricing has stabilized following the dramatic decreases in price that
these drugs experienced after coming off patent.  As is the case in
the generic industry, the entrance into the market of other generic competition
generally has a negative impact on the pricing of the affected
products.  By leveraging our worldwide sourcing, quality assurance and
regulatory capabilities, we believe we can be an alternative lower cost,
second-source provider of existing APIs to generic drug companies.
  15
  The
Chemicals & Colorants segment is a major supplier to the many different
industries that require outstanding performance from chemical raw materials and
additives.  Products that fall within this segment include
intermediates for dyes, pigments and agrochemicals.  We provide
chemicals used to make plastics, surface coatings, textiles, lubricants, flavors
and fragrances. Many of our raw materials are also used in high-tech products
like high-end electronic parts (circuit boards and computer chips) and binders
for specialized rocket fuels. We are currently responding to the changing needs
of our customers in the color producing industry by taking our resources and
knowledge downstream as a supplier of select organic pigments. We expect that
continued global Gross Domestic Product growth will drive higher demand for the
chemical industry, especially in China and other emerging regions of the world.
With supply growth limited, we expect that industry supply/demand balances will
remain favorable. However, continued volatility in energy costs will add
uncertainty to our profit outlook.
  The Crop
Protection segment sells herbicides, fungicides, insecticides, and other
agricultural chemicals to customers, primarily located in the United States and
Western Europe. In fiscal 2007, we entered into a multi-year contract with a
major agricultural chemical distributor and launched generic Asulam, an
herbicide for sugar cane and the first generic registration that we have
received.  Our plan is to continue to develop our pipeline and bring
to market additional products in a similar manner. In May 2008, the Company sold
an insecticide product to its patent owner in conjunction with litigation
settlement involving an expired license.
 
 We
formerly also reported under the Institutional Sanitary Supplies segment, which
included cleaning solutions, fragrances and deodorants for commercial and
industrial customers.  This former segment was successfully divested
from our ongoing business during fiscal 2006.
  Our main
business strengths are sourcing, quality assurance, regulatory support,
marketing and distribution. With a physical presence in ten countries, we
distribute over 1000 pharmaceuticals and chemicals used principally as raw
materials in the pharmaceutical, agricultural, color, surface coating/ink and
general chemical consuming industries. We believe that we are currently the
largest buyer of pharmaceutical and specialty chemicals for export from China,
purchasing from over 500 different manufacturers.
 
 In this
MD&A, we explain our general financial condition and results of operations,
including the following:
 
 ·
              factors
      that affect our business
 ·
              our
      earnings and costs in the periods
presented
 ·
              changes
      in earnings and costs between
periods
 ·
              sources
      of earnings
 ·
              the
      impact of these factors on our overall financial
  condition
 
 As you
read this MD&A, refer to the accompanying consolidated statements of income,
which present the results of our operations for the three years ended June 30,
2008.  We analyze and explain the differences between periods in the
specific line items of the consolidated statements of income.
 
 Critical
Accounting Estimates and Policies
 
 This
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 indefinite-life
intangible assets, long-lived assets, environmental and other contingencies,
income taxes and stock-based compensation.  We base our estimates on
various factors, including historical experience, advice from outside
subject-matter experts, and various assumptions that we believe to be reasonable
under the circumstances, which together form the basis for our making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources.  Actual results may differ from these
estimates.
  16
  We
believe the following critical accounting policies affected our more significant
judgments and estimates used in preparing these consolidated financial
statements.
 
 Revenue
Recognition
 
 We
recognize revenue from sales of any product when it is shipped and title and
risk of loss pass to the customer.  We have no acceptance or other
post-shipment obligations and we do not offer product warranties or services to
our customers.
 
 Sales are
recorded net of returns of damaged goods from customers, which historically have
been immaterial, and sales incentives offered to customers.  Sales
incentives consist primarily of volume incentive rebates.  We record
volume incentive rebates as the underlying revenue transactions that result in
progress by the customer in earning the rebate are recorded, in accordance with
Emerging Issues Task Force (EITF) 01-09, “Accounting for Consideration Given by
a Vendor to a Customer (Including a Reseller of the Vendor's
Products).”
 
 Allowance
for Doubtful Accounts
 
 We
maintain allowances for doubtful accounts relating to estimated losses resulting
from customers being unable to make required payments.  Allowances for
doubtful accounts are based on historical experience and known factors regarding
specific customers and the industries in which those customers
operate.  If the financial condition of our customers were to
deteriorate, resulting in their ability to make payments being impaired,
additional allowances would be required.
 
 Inventories
 
 Inventories,
which consist principally of finished goods, are stated at the lower of cost
(first-in first-out method) or market.  We write down our inventories
for estimated excess and obsolete goods by an amount equal to the difference
between the carrying cost of the inventory and the estimated market value based
upon assumptions about future demand and market conditions.  A
significant sudden increase in demand for our products could result in a
short-term increase in the cost of inventory purchases, while a significant
decrease in demand could result in an increase in the excess inventory
quantities on-hand.  Additionally, we may overestimate or
underestimate the demand for our products which would result in our understating
or overstating, respectively, the write-down required for excess and obsolete
inventory.  Although we make every effort to ensure the accuracy of
our forecasts of future product demand, any significant unanticipated changes in
demand could have a significant impact on the value of our inventory and
reported operating results.
 
 Goodwill
and Other Indefinite-Lived  Intangible Assets
 
 Goodwill
is calculated as the excess of the cost of purchased businesses over the value
of their underlying net assets.  Other indefinite-lived intangible
assets principally consist of trademarks.  Goodwill and other
indefinite-lived intangible assets are not amortized.
 
 In
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets,” we test goodwill and other
indefinite-lived intangible assets for impairment on at least an annual
basis.  To determine the fair value of these intangible assets, we use
many assumptions and estimates that directly impact the results of the
testing.  In making these assumptions and estimates, we use
industry-accepted valuation models and set criteria that are reviewed and
approved by various levels of management.  If our estimates or our
related assumptions change in the future, we may be required to record
impairment charges for these assets.
 
 Long-Lived
Assets
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Identifiable
intangible assets principally consist of customer relationships, product rights
and related intangibles, EPA registrations and related data, patent license and
covenants not to compete.  Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset.
Recoverability of assets held for sale is measured by comparing the carrying
amount of the assets to their estimated fair value.  If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.  Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
  17
  Environmental
and Other Contingencies
 
 We
establish accrued liabilities for environmental matters and other contingencies
when it is probable that a liability has been incurred and the amount of the
liability can reasonably be estimated.  If the contingency is resolved
for an amount greater or less than the accrual, or our share of the contingency
increases or decreases, or other assumptions relevant to the development of the
estimate were to change, we would recognize an additional expense or benefit in
income in the period that the determination was made.
 
 Taxes
 
 We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.”  SFAS No. 109 establishes financial accounting and reporting
standards for the effects of income taxes that result from an enterprise’s
activities during the current and preceding years.  It requires an
asset-and-liability approach to financial accounting and reporting of income
taxes.
 
 As of
June 30, 2008, we had current net deferred tax assets of $686 and non-current
net deferred tax assets of $2,347.  These net deferred tax assets have
been recorded based on our projecting that we will have sufficient future
earnings to realize these assets, and the net deferred tax assets have been
provided for at currently enacted income tax rates.  If we determine
that we will not be able to realize a deferred tax asset, an adjustment to the
deferred tax asset will result in a reduction of net income at that
time.
 
 Deferred
taxes have not been provided on undistributed earnings of foreign subsidiaries
since substantially all of these earnings are expected to be permanently
reinvested in our foreign operations.  A deferred tax liability will
be recognized when we expect that we will recover those undistributed earnings
in a taxable manner, such as through receipt of dividends or sale of the
investments.  Determination of the amount of the unrecognized U.S.
income tax liability is not practical because of the complexities of the
hypothetical calculation.  In addition, unrecognized foreign tax
credit carryforwards would be available to reduce a portion of such U.S. tax
liability.
 
 German
tax reform was enacted in August 2007 that reduces the corporate headline tax
rate for businesses from 40% to 30%, as well as implementing a cap on interest
deductions and tightening the tax basis for trade tax income. This tax rate
reduction became effective for tax years ending after January 1, 2008. Due to
the reduction in the overall German tax rate, the deferred income tax asset was
revalued during the month of enactment of the tax reform, which was in the first
quarter of fiscal 2008, and therefore was reduced by approximately $1,429, which
is reflected in the consolidated financial statements for the year ended June
30, 2008.
 
 In June
2006, the FASB issued FASB Interpretation (FIN) No. 48 “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109”. FIN
No. 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 No. 48 is effective for fiscal
years beginning after December 15, 2006. The Company adopted FIN No. 48 on July
1, 2007 and determined that the adoption of FIN No. 48 did not have a material
impact on its consolidated financial statements.
 
 Stock-based
Compensation
 
 With the
adoption of SFAS No. 123(R) on July 1, 2005, we are required to record the fair
value of stock-based compensation awards as an expense.  In order to
determine the fair value of stock options on the date of grant, we apply the
Black-Scholes option-pricing model, including an estimate of forfeitures. 
Inherent in this model are assumptions related to expected stock-price
volatility, risk-free interest rate, expected life and dividend yield. 
Expected stock-price volatility is based on the historical daily price changes
of the underlying stock which are obtained from public data sources. The
risk-free interest rate is based on U.S. Treasury issues with a term equal to
the expected life of the option. We use historical data to estimate expected
dividend yield, expected life and forfeiture rates. In fiscal 2007, we utilized
the “simplified” method prescribed in SEC Staff Accounting Bulletin No. 107 to
estimate the expected life. For stock option grants issued during fiscal 2008,
we used an expected stock-price volatility of 46.0% and an expected life of 5.6
years.
  18
  Results
of Operations
 
 Fiscal
Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30,
2007
 
 Net
      Sales by Segment
                Year
      ended June 30,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007%
      of
              
              
              
              
              
              %
      of
              
              
              $
              
              
              
              %Segment
              
              Net sales
              
              
              total
              
              
              Net sales
              
              
              Total
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              211,481
              
              
              
              58.8
              
              
              $
              170,691
              
              
              
              54.5
              %
              
              $
              40,790
              
              
              
              23.9
              %Chemicals
      & Colorants
              
              
              129,662
              
              
              
              36.1
              
              
              
              123,299
              
              
              
              39.3
              
              
              
              6,363
              
              
              
              5.2Crop
      Protection
              
              
              18,448
              
              
              
              5.1
              
              
              
              19,483
              
              
              
              6.2
              
              
              
              (1,035
              )
              
              
              (5.3
              )Net
      sales
              
              $
              359,591
              
              
              
              100.0
              %
              
              $
              313,473
              
              
              
              100.0
              %
              
              $
              46,118
              
              
              
              14.7
              %Gross
      Profit by Segment
                Year
      ended June 30,Comparison
      20082008
              
              
              2007
              
              
              Over/(Under) 2007Gross
              
              
              %
      of
              
              
              Gross
              
              
              %
      of
              
              
              
              $
              
              
              
              %Segment
              
              Profit
              
              
              Sales
              
              
              Profit
              
              
              sales
              
              
              Change
              
              
              changeHealth
      Sciences
              
              $
              44,612
              
              
              
              21.1
              %
              
              $
              33,007
              
              
              
              19.3
              %
              
              $
              11,605
              
              
              
              35.2Chemicals
      & Colorants
              
              
              18,782
              
              
              
              14.5
              
              
              
              16,556
              
              
              
              13.4
              
              
              
              2,226
              
              
              
              13.4Crop
      Protection
              
              
              3,911
              
              
              
              21.2
              
              
              
              4,930
              
              
              
              25.3
              
              
              
              (1,019
              )
              
              
              (20.7
              )Gross
      profit
              
              $
              67,305
              
              
              
              18.7
              %
              
              $
              54,493
              
              
              
              17.4
              %
              
              $
              12,812
              
              
              
              23.5
              %
 
 19
 
 Net
Sales
 
 Net sales
increased $46,118, or 14.7%, to $359,591 for the year ended June 30, 2008,
compared with $313,473 for the prior year.  We reported sales
increases in our Health Sciences and Chemicals & Colorants segments, which
were partially offset by a slight sales decrease in our Crop Protection
segment.
 
 Health
Sciences
 
 Net sales
for the Health Sciences segment increased by $40,790 for the year ended June 30,
2008, to $211,481, which represents a 23.9% increase over net sales of $170,691
for the prior year.  This increase is due to various factors including
increased sales from our foreign operations of $23,475, specifically our
European operations and a $4,679 rise in sales of our pharmaceutical
intermediates. In addition, our domestic generics product group experienced an
increase in sales of $12,004. The domestic sales increase for the year ended
June 30, 2008 was due to the volume of re-orders for existing products as well
as realization of new products from our pipeline. We expect the volume of
re-orders for existing products to continue at a similar rate through the next
fiscal year.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment were $129,662 for the year ended June
30, 2008, compared to $123,299 for the prior year.  Our chemical
business is diverse in terms of products, customers and consuming
markets.  The increase in sales from this segment is partially
attributable to an increase of $5,049 in sales for chemicals used in aroma
products, $5,723 in sales of pigment and dye intermediates, and a $1,032 rise in
sales of chemicals used to make surface coatings.  In addition, the
increase in sales is due to a rise in prices in the chemical industry due to
increased demand for chemical products in China. This increase is offset in part
by a $4,967 decline in sales of our products sold to the food, beverage and
cosmetics industries as a result of the slowdown in the economy.
 
 Crop
Protection
 
 Net sales
for the Crop Protection segment decreased to $18,448 for the year ended June 30,
2008, a decrease of $1,035, or 5.3%, over net sales of $19,483 for the prior
year.  The overall decrease in net sales was mainly attributable to
decreased sales of an herbicide used for sugar cane as well as decreased sales
related to an insecticide in which we were  involved in an antitrust
case related to certain licensed technology.   These decreases
were partially offset by an increase in sales of an herbicide which is primarily
used on peanuts as the peanut acreage has increased from 2007.
 
 Gross
Profit
 
 Gross
profit by segment increased $12,812 to $67,305 (18.7% of net sales) for the year
ended June 30, 2008, as compared to $54,493 (17.4% of net sales) for the prior
year.
 
 Health
Sciences
 
 Health
Sciences’ gross profit of $44,612 for the year ended June 30, 2008, was $11,605
or 35.2 % higher than the prior year. This increase in gross profit was
attributable to an $8,084 increase in gross profit primarily from our European
operations as well as the overall increase in sales volume.  Gross
margin increased to 21.1% in fiscal 2008 compared to a gross margin of 19.3% for
the prior fiscal year due primarily to favorable product mix in our domestic
nutraceutical products, as well as products sold by our European operations,
which were more profitable than other products.
 
 Chemicals
& Colorants
 
 Gross
profit for the year ended June 30, 2008, increased by $2,226, or 13.4%, over the
prior year.  Gross margin was 14.5% for the year ended June 30, 2008
compared to 13.4% for the prior period.   The increase in the
gross profit and gross margin percentage primarily relates to the increase in
sales volume and positive product mix on aroma chemicals. In addition, there was
a $330 settlement of an anti-dumping claim included in the prior year cost of
sales.
  Crop
Protection
 
 Gross
profit for the Crop Protection segment decreased to $3,911 for the year ended
June 30, 2008, versus $4,930 for the prior year, a decrease of $1,019 or
20.7%.  Gross margin for the year ended June 30, 2008 was 21.2%
compared to the prior period gross margin of 25.3%.The primary reason for the
decrease in the gross profit and gross margin percentage primarily relates to a
decline in sales volume of a particular herbicide and insecticide as described
above in the Crop Protection net sales section.
  20
  Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses (SG&A) increased $6,004, or 15.2%, to
$45,422 for the year ended June 30, 2008 compared to $39,418 for the prior
year.  As a percentage of sales, SG&A remained consistent at 12.6%
for fiscal 2008.  The increase in SG&A is partially attributed to
an increase of $1,300 in legal expenses, the majority of which was incurred
relating to an antitrust case that the Company previously commenced against the
owner of certain licensed technology used with one of our crop protection
products, which was settled in May 2008. SG&A also increased due to a $3,590
rise in personnel related costs, of which $1,849 relates to our foreign
operations and $1,741 relates to various factors including annual salary
increases, stock-based compensation and increased bonus expense as a result of
increased profitability.   In addition, commission expense
increased by $505 due to increased sales. Additionally, the prior year amount
was reduced by $243 of proceeds received from credit insurance, of which there
was no comparable amount received during the year ended June 30,
2008.
 
 Research
and Development Expenses
 
 Research
and development expenses (R&D) increased $495 over the prior year to $506
for the year ended June 30, 2008. R&D relates to the development of two
finished dosage form generic pharmaceutical products to be distributed in
Europe.
 
 Operating
Income
 
 Fiscal
2008 operating income was $21,377 compared to $15,064 in the prior year, an
increase of $6,313 or 41.9%.  This increase was due to the overall
increase in gross profit of $12,812 offset in part by the $6,499 increase in
SG&A and R&D expenses.
 
 Interest
and Other Income, Net
 
 Interest
and other income, net was $957 for fiscal 2008 versus $532 for fiscal 2007. The
primary reason for this fluctuation is due to changing the functional currency
of our Chinese subsidiaries from the Chinese Renminbi to the U.S. Dollar, since
these subsidiaries primarily generate and expend cash in the U.S.
Dollar.  As a result, we recorded a correction of an error in the
third quarter of 2008, which resulted in additional interest and other income,
net of approximately $559, which represented approximately $389 after tax
profit. We did not deem this adjustment to be material to any prior quarters in
fiscal 2008 based upon both quantitative and qualitative factors.  In
addition, this adjustment does not impact the 2008 year-to-date reported
results. This matter was not corrected for periods prior to June 30, 2007 due to
the immateriality of the effects of this in earlier years.  Beginning
in 2006, the Chinese government began to revalue the Chinese Renminbi against
other currencies, including the U.S. Dollar. The decision by the Chinese
government to no longer peg the Renminbi to the U.S. Dollar has caused a
reduction in value of dollar denominated assets held in China, which was
particularly experienced in fiscal 2008. The increase in interest and other
income, net was partially offset by a $115 decrease in other income related to a
government subsidy paid annually for doing business in a free trade zone in
Shanghai, China and a $186 increase in unrealized loss on trading
securities.
  Provision
for Income Taxes
 
 The
effective tax rate for fiscal 2008 increased to 39.3% from 33.8% for fiscal
2007.  The increase in the effective tax rate was primarily due to
German tax reform, which was enacted in August 2007, that reduced the corporate
headline tax rate for businesses from 40% to 30%, as well as implementing a cap
on interest deductions and tightening the tax basis for trade tax income. This
tax rate reduction became effective for tax years ending after January 1, 2008.
Due to the future reduction in the overall German tax rate, the deferred income
tax asset was revalued during the month of enactment of the tax reform, which
was in the first quarter of fiscal 2008, and therefore was reduced by
approximately $1,429, which is reflected in the consolidated financial
statements for the year ended June 30, 2008.  Without this adjustment,
the fiscal 2008 effective tax rate would have been 32.8%. Additionally, tax
reform has taken place in China and effective January 1, 2008, the corporate
headline tax rate was increased to 25% from 15%.
 
 21
  Results
of Operations
 
 Fiscal
Year Ended June 30, 2007 Compared to Fiscal Year Ended June 30,
2006
 
 Net
      Sales by Segment
                Year
      ended June 30,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under) 2006%
      of
              
              
              
              
              
              %
      of
              
              
              $
              
              
              
              %Segment
              
              Net sales
              
              
              total
              
              
              Net sales
              
              
              total
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              170,691
              
              
              
              54.5
              %
              
              $
              166,725
              
              
              
              56.1
              %
              
              $
              3,966
              
              
              
              2.4
              %Chemicals
      & Colorants
              
              
              123,299
              
              
              
              39.3
              
              
              
              110,869
              
              
              
              37.3
              
              
              
              12,430
              
              
              
              11.2Crop
      Protection
              
              
              19,483
              
              
              
              6.2
              
              
              
              19,734
              
              
              
              6.6
              
              
              
              (251
              )
              
              
              (1.3
              )Net
      sales
              
              $
              313,473
              
              
              
              100.0
              %
              
              $
              297,328
              
              
              
              100.0
              %
              
              $
              16,145
              
              
              
              5.4
              %Gross
      Profit by Segment
                Year
      ended June 30,Comparison
      20072007
              
              
              2006
              
              
              Over/(Under) 2006Gross
              
              
              %
      of
              
              
              Gross
              
              
              %
      of
              
              
              
              $
              
              
              
              %Segment
              
              profit
              
              
              sales
              
              
              Profit
              
              
              sales
              
              
              change
              
              
              changeHealth
      Sciences
              
              $
              33,007
              
              
              
              19.3
              %
              
              $
              32,313
              
              
              
              19.4
              %
              
              $
              694
              
              
              
              2.1
              %Chemicals
      & Colorants
              
              
              16,556
              
              
              
              13.4
              
              
              
              17,144
              
              
              
              15.5
              
              
              
              (588
              )
              
              
              (3.4
              )Crop
      Protection
              
              
              4,930
              
              
              
              25.3
              
              
              
              4,760
              
              
              
              24.1
              
              
              
              170
              
              
              
              3.6Segment
      gross profit
              
              
              54,493
              
              
              
              17.4
              
              
              
              54,217
              
              
              
              18.2
              
              
              
              276
              
              
              
              0.5Freight
      and storage costs (1)
              
              
              -
              
              
              
              -
              
              
              
              (3,259
              )
              
              
              (1.1
              )
              
              
              3,259
              
              
              
              100.0Gross
      profit
              
              $
              54,493
              
              
              
              17.4
              %
              
              $
              50,958
              
              
              
              17.1
              %
              
              $
              3,535
              
              
              
              6.9
              %
 
 (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 year ended June 30, 2007 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.
  22
  Net
Sales
 
 Net sales
increased $16,145, or 5.4%, to $313,473 for the year ended June 30, 2007,
compared with $297,328 for the prior year.  We reported sales
increases in our Health Sciences and Chemicals & Colorants segments, which
were partially offset by a slight sales decrease in our Crop Protection
segment.
 
 Health
Sciences
 
 Net sales
for the Health Sciences segment increased by $3,966 for the year ended June 30,
2007, to $170,691, which represents a 2.4% increase over net sales of $166,725
for the prior year.  The sales increase from the prior period is
primarily related to increased sales from our foreign operations of $9,229,
specifically our Germany and Singapore operations, and increased sales from the
pharmaceutical intermediates and diagnostics products of
$4,365.   These increases were partially offset by a decrease
from one specific generic product of $9,906 due to its normal selling
pattern.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment were $123,299 for the year ended June
30, 2007, compared to $110,869 for the prior year.  This increase of
$12,430 or 11.2%, over the prior period is attributable to an increase in the
number of products being offered by our foreign subsidiaries, namely Germany and
Singapore. Sales of Chemicals & Colorants by our foreign subsidiaries for
the year ended June 30, 2007 increased by $6,920 over the comparable prior year
period.    The increase in sales for this segment also
resulted from the increase in sales in the coatings product group of $7,350. The
increase in Chemicals and Colorant sales is partially offset by one customer
within our color-pigment and pigment-intermediate business, whose contract
expired in fiscal 2006 and purchased $3,118 during 2006 as compared to zero in
2007.   Our chemical business is diverse in terms of products,
customers and consuming markets.
 
 Crop
Protection
 
 Net sales
for the Crop Protection segment decreased to $19,483 for the year ended June 30,
2007, a decrease of $251, or 1.3%, over net sales of $19,734 for the prior
year.  The overall decrease in net sales was mainly attributable to
decreases in three products of $2,955 due to the unseasonable dry weather
conditions, particularly in the southern U.S. region and the 10-20% reduction of
peanut acreage in favor of corn due to the increased demand for
ethanol.  These decreases were partially offset by the launch of our
Asulam product in the first quarter of 2007 which resulted in sales of
$2,802.
 
 Gross
Profit
 
 Gross
profit by segment increased $3,535 to $54,493 (17.4% of net sales) for the year
ended June 30, 2007, as compared to $50,958 (17.1% of net sales) for the prior
year.  The gross profit of each segment was negatively affected by the
direct allocation of certain freight and storage costs in 2007 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 $33,007 for the year ended June 30, 2007, was $694 or
2.1% higher than the prior year. This increase in gross profit was directly
attributable to the increase in the sales volume. The gross margin declined to
19.3% in fiscal 2007 compared to a gross margin of 19.4% for the prior fiscal
year which is directly attributed to the direct allocation of certain freight
and storage charges that are not included in last year’s comparable
period.
 
 Chemicals
& Colorants
 
 Gross
profit for the year ended June 30, 2007, decreased by $588, or 3.4%, over the
prior year due to the direct allocation of certain freight and storage charges
not included in last year’s comparable period as well as settlement of an
anti-dumping claim of $330.  Gross margin decreased from 15.5% in
fiscal 2006 to 13.7% in fiscal 2007.  The foreign subsidiaries,
primarily Germany and Singapore, contributed $625 or 19% more gross profit in
2007 as compared to 2006.  Additionally, the coatings product group
reported an increase of $723 due to the sales increase previously mentioned
above over the prior year.
 
 Crop
Protection
 
 Gross
profit for the Crop Protection segment increased to $4,930 for the year ended
June 30, 2007, versus $4,760 for the prior year, an increase of $170 or 3.6%.
The primary reason for the increase in gross profit was due to the launch of the
Asulam product.    The gross profit was negatively affected
by $1,028 related to the sales decline in the three products discussed earlier,
which was partially offset by lower costs to maintain our EPA registered
products of $338.
  23
  Unallocated
freight and storage costs
 
 Unallocated
cost of sales was $0 for fiscal 2007 compared to $3,259 in 2006.  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
year.  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
 
 SG&A
increased $909, or 2.4%, to $39,418 for the year ended June 30, 2007 compared to
$38,509 for the prior year.  As a percentage of sales, SG&A
decreased to 12.6% for fiscal 2007 versus 13.0% for fiscal 2006.  The
increase in SG&A is primarily attributable to the increase of $1,244 in
personnel costs including increased bonus expenses and additional employees,
$415 increase in sales and marketing expenses, and $259 increased legal costs,
partially offset by lower operating expenses of $952 resulting from the sale of
one of our subsidiaries in August 2005 and a $537 charge for settlement of legal
claims against one of our subsidiaries in 2006.
 
 Operating
Income
 
 Fiscal
2007 operating income was $15,064 compared to $12,429 in the prior year, an
increase of $2,635 or 21.2%.  This increase was due to the $3,535
increase in gross profit, which was partially offset by the overall increase in
SG&A expenses and R&D expenses of $900.
 
 Interest
and Other Income, Net
 
 Interest
and other income was $532 for fiscal 2007, which represents a 44.4% decrease
from $956 in fiscal 2006.  The decrease is primarily attributable to a
decrease of $409 in a government subsidy paid annually for doing business in a
free trade zone in Shanghai, China and net loss on foreign currency of $770,
partially offset by an increase in interest income of $455 due to increased
investments during the year and increased interest rates.
 
 Provision
for Income Taxes
 
 The
effective tax rate for fiscal 2007 increased to 33.8% from 30.1% for fiscal
2006.  The increase in the effective tax rate relates primarily to
increased earnings in foreign tax jurisdictions with higher tax rates, primarily
Germany.
 
 Liquidity
and Capital Resources
 
 Cash
Flows
 
 At June
30, 2008, we had $46,515 in cash, of which $33,222 was outside the United
States, $548 in short-term investments and no outstanding bank
loans.
 
 Our cash
position at June 30, 2008 increased $14,195 from the amount at June 30,
2007.  Operating activities for the year ended June 30, 2008 provided
cash of $15,418 as compared to cash provided by operations of $4,163 for the
comparable 2007 period. The $15,418 was comprised of $13,473 in net income and
$5,602 derived from adjustments for non-cash items, offset by a net $3,657
decrease from changes in operating assets and liabilities. The non-cash items
included $2,378 in depreciation and amortization expense, $1,285 in stock
compensation and $1,835 for the deferred income taxes
provision.  Accounts receivable increased $7,326 during the year ended
June 30, 2008, due to increased sales during the fourth quarter of 2008 as
compared to the fourth quarter of 2007. Inventories increased by approximately
$7,989 and accounts payable increased by $9,615 due to the increase in the
Health Sciences segment for inventory on-hand related to our European operations
as a result of a ramp-up in orders for products to be shipped in the first and
second quarters of 2009.  In addition, the Company is carrying more
stock for certain products of both the Chemicals and Colorants and Health
Sciences segments that are purchased from China, due to a supplier interruption
related to the Olympics to be held in China in the summer of 2008. Accrued
expenses and other liabilities increased $4,853 during the year ended June 30,
2008, due primarily to an increase in accrued expenses for our foreign
subsidiaries related to timing of income tax payments and an increase in accrued
compensation related to increased performance payments, which are anticipated to
be paid in the first quarter of 2009. Other receivables increased $1,647 due to
an increase in VAT (value added tax) receivables in our European subsidiaries
due to increased sales.  Other assets increased $1,832 due primarily
to increases in retirement-related assets and an increase in long-term
receivables related to the sale of intangible assets.  Our cash
position at June 30, 2007 decreased $1,412 from the amount at June 30,
2006.  Operating activities for the year ended June 30, 2007 provided
cash of $4,163 as compared to cash provided by operations of $16,028 for the
comparable 2006 period. The $4,163 was comprised of $10,212 in net income and
$3,878 derived from adjustments for non-cash items, offset by a net $9,927
decrease from changes in operating assets and liabilities. The non-cash items
included $1,791 in depreciation and amortization expense and $1,692 for the
deferred income taxes provision. Accounts receivable increased $6,973 during the
year ended June 30, 2007, due to increased sales during the fourth quarter of
2007 as compared to the fourth quarter of 2006.  Inventories increased
by approximately $12,565 and accounts payable increased by $7,884 as a result of
a ramp-up in orders for products to be shipped in the first quarter of 2008 and
an increase in products in which we have decided to carry stock. Accrued
expenses and other liabilities increased $4,185 during the year ended June 30,
2007, due primarily to an increase in accrued expenses related to a joint
venture, an increase in accrued expenses for our foreign subsidiaries related to
increased sales and profitability overseas, as well as increase in accrued
compensation related to increased performance payments, which are anticipated to
be paid in the first quarter of 2008. Other receivables increased $1,726 due to
an increase in VAT taxes receivables in our European subsidiaries, related to
increased sales in that region.  Our cash position at June 30, 2006,
increased $13,782 from the amount at June 30, 2005.  Operating
activities provided cash of $16,028, primarily from net income of $9,237 and a
decrease in inventory of $4,909.
  24
  Investing
activities for the year ended June 30, 2008 provided cash of $1,404 primarily
related to maturities and sales of available for sale investments of $2,200 and
proceeds from sale of intangible assets of $400. Cash provided by investing
activities is offset in part by the purchases of property and equipment of
$1,197. We expect capital expenditures will be between $750 and $1,000 during
fiscal 2009.  Investing activities for the year ended June 30, 2007
used cash of $2,591 primarily related to purchases of investments of $6,274 and
purchases of property and equipment and intangibles of $704 and $2,468,
respectively, including $2,000 for the Asulam product registration and related
data filed with the United States Environmental Protection Agency and state
regulatory agencies to support such registrations and other supporting data. The
amount of cash used for investing activities is offset in part by $6,779 of
maturities of available for sale investments. Investing activities for the year
ended June 30, 2006 provided cash of $1,387, primarily as a result of proceeds
from the sale of investments of $1,799.  This was partially offset by
$485 of expenditures for property and equipment.
 
 Financing
activities for the year ended June 30, 2008 used cash of $6,030 primarily from
the payments of dividends of $6,110. Financing activities for the year ended
June 30, 2007 used cash of $3,991 primarily from the payments of dividends of
$4,257. Financing activities for the year ended June 30, 2006 used cash of
$4,009 primarily as a result of payments of cash dividends of $3,637 and
payments for purchases of treasury stock of $581.
 
 Credit
Facilities
 
 We have
available credit facilities with certain foreign financial
institutions.  These facilities provide us with a line of credit of
$22,844, as of June 30, 2008.  We are not subject to any financial
covenants under these arrangements.
 
 In June
2007, we amended our revolving credit agreement with a financial institution
that expires June 30, 2010, and provides for available credit of
$10,000.  At June 30, 2008, we had utilized $663 in letters of credit,
leaving $9,337 of this facility unused.  Under the credit agreement,
we may obtain credit through direct borrowings and letters of
credit.  Our obligations under the credit agreement are guaranteed by
certain of our subsidiaries and are secured by 65% of the capital of certain of
our non-domestic subsidiaries.  There is no borrowing base on the
credit agreement.  Interest under the credit agreement is at LIBOR
plus 1.50%.  The credit agreement contains several covenants
requiring, among other things, minimum levels of debt service and tangible net
worth.  We are also subject to certain restrictive debt covenants,
including covenants governing liens, limitations on indebtedness, guarantees,
sale of assets, sales of receivables, and loans and investments.  We
were in compliance with all covenants at June 30, 2008.
 
 Working
Capital Outlook
 
 Working
capital was $128,786 at June 30, 2008, versus $112,930 at June 30,
2007.  The increase in working capital was primarily attributable to
net income during the year.  We continually evaluate possible
acquisitions of or investments in businesses that are complementary to our own,
and such transactions may require the use of cash.  In connection with
our crop protection business, we plan to acquire product registration costs and
related data filed with the United States Environmental Protection Agency as
well as payments to various task force groups, which could approximate $11,200
in fiscal 2009.  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 for
the next twelve months.  We may obtain additional credit facilities to
enhance our liquidity.
  25
  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 that will affect our short and long-term
liquidity.  At June 30, 2008, we had no significant obligations for
capital expenditures.  At June 30, 2008, contractual cash obligations
and other commercial commitments were as follows:
 
 Payments
Due and/or
 Amount of
Commitment
 (Expiration per
Period)
 
 Total
              
              
              Less
      than
                1 year
              
              
              1-3
                Years
              
              4-5
                Years
              
              After
                5 yearsOperating
      leases
              
              $
              5,213
              
              
              $
              2,131
              
              
              $
              2,746
              
              $
              171
              
              $
              165Commercial
      letters of credit
              
              
              663
              
              
              
              663
              
              
              
              -
              
              
              -
              
              
              -Standby
      letters of credit
              
              
              169
              
              
              
              169
              
              
              
              -
              
              
              -
              
              
              -Unconditional
      purchase obligations
              
              
              79,168
              
              
              
              79,168
              
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              85,213
              
              
              $
              82,131
              
              
              $
              2,746
              
              $
              171
              
              $
              165
 
 Other
significant commitments and contingencies include the following:
 
 1.
              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 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 $100 - $250 per year.  We may
      be required to make additional payments in the
  future.
 
 2.
              We,
      together with our subsidiaries, are subject to pending and threatened
      legal proceedings that have arisen in the normal course of
      business.  We do not know how the final resolution of these
      matters will affect our results of operations in a particular reporting
      period. Our management is of the opinion, however, that the ultimate
      outcome of such matters will not have a material adverse effect upon our
      financial condition or liquidity.
 
 3.
              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 2008, 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 $7,846 and $9,574.  As of June 30, 2008 and 2007 a
      liability of $7,846 and $6,136, respectively, is included in the
      accompanying consolidated balance sheet.  In accordance with
      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 classified as 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.
 
 4.
              In
      March 2006, Arsynco received notice from the EPA of its status as a PRP
      under the Comprehensive Environmental
      Response, Compensation and Liability Act (CERCLA) for a site described as
      the Berry’s CreekStudy
      Area.   Arsynco is one of over 150 PRPs which have
      potential liability for the required investigation andremediation
      of the site.  The estimate of the potential liability is not
      quantifiable for a number of reasons, includingthe
      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 PRPs and their financial
      strength.  Based on prior practice in similar situations, it is
      possible that the State may assert a claim for natural resource damages
      with respect to the Arsynco site itself, and either the federal government
      or the State (or both) may assert claims against Arsynco for natural
      resource damages in connection with Berry's Creek; any such claim with
      respect to Berry's Creekcould
      also be asserted against the approximately 150 PRPs which the EPA has
      identified in connection with that site.  Any claim for natural
      resource damages with respect to the Arsynco site itself may also be
      asserted against BASF, the former owners of the Arsynco property. 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.
  26
  5.
              In
      fiscal 2008 and 2007, the Company received letters from the Pulvair Site
      Group, a group of potentially responsible parties (PRP Group) who are
      working with the State of Tennessee (the State) to remediate a
      contaminated property in Tennessee called the Pulvair site. The PRP Group
      has alleged that Aceto shipped hazardous substances to the site which were
      released into the environment.   The State had begun
      administrative proceedings against the members of the PRP group and Aceto
      with respect to the cleanup of the Pulvair site and the group has begun to
      undertake cleanup. The PRP Group is seeking a settlement of approximately
      $2,100 from the Company for its share to remediate the site contamination.
      Although the Company acknowledges that it shipped materials to the site
      for formulation over twenty years ago, the Company believes that the
      evidence does not show that the hazardous materials sent by Aceto to the
      site have significantly contributed to the contamination of the
      environment. Accordingly, the Company believes that the settlement offer
      is unreasonable. Alternatively, counsel to the PRP Group has proposed that
      Aceto join it as a participating member and pay 3.16% of the PRP Group's
      cost.  The Company believes that this percentage is high because
      it is based on the total volume of materials that Aceto sent to the site,
      most of which were non-hazardous substances and as such, believes that, at
      most, it is a de minimus contributor to the site contamination. The impact
      of the resolution of this matter on the Company's results of operations in
      a particular reporting period is not known.  However, management
      believes that the ultimate outcome of this matter will not have a material
      adverse effect on the Company's financial condition or
      liquidity.
 
 
 
 Related
Party Transactions
 
 Certain
of our directors are affiliated with law firms that serve as our legal counsel
on various corporate matters.  During fiscal years 2008, 2007 and
2006, we incurred legal fees of $342, $329 and $315, respectively, for services
rendered to the Company by those law firms.  We believe that 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
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157). SFAS No. 157 establishes a common definition for fair value to be
applied to US GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007.  In February 2008, the FASB provided a one-year
deferral for the implementation of SFAS No. 157 for nonfinancial assets and
liabilities recognized or disclosed at fair value in the financial statements on
a nonrecurring basis.Management believes the
adoption of this statement is not expected to have a material impact on the
consolidated financial position or results of operations and that the impact in
2009 will only be on  Aceto’s disclosures.
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115" (SFAS No. 159). SFAS No. 159 allows companies the choice to
measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting date. The
provisions of SFAS No. 159 will be effective for fiscal years beginning after
November 15, 2007.  The Company does not believe adopting the provisions of
SFAS No. 159 will have a significant impact on its consolidated financial
statements.
 
 In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards” (EITF No. 06-11). EITF No. 06-11 provides guidance regarding how an
entity should recognize the tax benefit received as a result of dividends paid
to holders of share-based compensation awards and charged to retained earnings
according to SFAS No. 123(R), and will become effective in the first quarter of
2009. Management does not expect EITF No. 06-11 to have a material impact on the
Company’s consolidated financial statements.
  27
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS No. 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company must adopt these new requirements in its first
quarter of fiscal 2010.  The adoption of this statement will impact
the manner in which the Company presents noncontrolling interests, but will not
impact its consolidated financial position or results of
operations.
 
 In
December 2007, the FASB approved the issuance of SFAS No. 141 (revised 2007)
“Business Combinations” (SFAS No. 141R). SFAS No. 141R establishes principles
and requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In March
2008, the FASB issued SFASNo.161, “Disclosures about Derivative Instruments and Hedging
Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161
requires enhanced qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the impact of SFAS No. 161 on its consolidated financial
statements.
 
 
 Item
7A.  Quantitative and Qualitative Disclosures about Market
Risk
 
 Market
Risk Sensitive Instruments
 
 The
market risk inherent in our market-risk-sensitive instruments and positions is
the potential loss arising from adverse changes in investment market prices,
foreign currency exchange-rates and interest rates.
 
 Investment
Market Price Risk
 
 We had
short-term investments of $548 at June 30, 2008.  Those short-term
investments consisted of corporate equity securities, and 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 $55
as of June 30, 2008.  Actual results may differ.
 
 Foreign
Currency Exchange Risk
 
 In order
to reduce the risk of foreign currency exchange rate fluctuations, we hedge some
of our transactions denominated in a currency other than the functional
currencies applicable to each of our various entities.  The
instruments used for hedging are short-term foreign currency contracts
(futures).  The changes in market value of such contracts have a high
correlation to price changes in the currency of the related hedged
transactions.  At June 30, 2008, we had foreign currency contracts
outstanding that had a notional amount of $20,768.  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 June 30, 2008, was not material.
 
 In
addition, we enter into cross currency interest rate swaps to reduce foreign
currency exposure on inter-company transactions.  In May 2003 we
entered into a five-year cross currency interest rate swap
transaction,  for the purpose of hedging fixed-interest-rate,
foreign-currency-denominated cash flows under inter-company
loans.  This transaction expired in May 2008 when the underlying
inter-company loan was repaid. Since our interest rate swap qualified as hedging
activity, the change in its fair value, amounting to $161 in fiscal 2007 is
recorded in accumulated other comprehensive income included in the accompanying
consolidated balance sheet as of June 30, 2007.
  28
  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
(loss).  On June 30, 2008, we had translation exposure to various
foreign currencies, with the most significant being the Euro.  The
potential loss as of June 30, 2008, resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rates amounted to
$7,600.  Actual results may differ.
 
 Interest
rate risk
 
 Due to
our financing, investing and cash-management activities, we are subject to
market risk from exposure to changes in interest rates.  We utilize a
balanced mix of debt maturities along with both fixed-rate and variable-rate
debt to manage our exposure to changes in interest rates.  Our
financial instrument holdings at year-end were analyzed to determine their
sensitivity to interest rate changes.  In this sensitivity analysis,
we used the same change in interest rate for all maturities.  All
other factors were held constant.  If there were an adverse change in
interest rates of 10%, the expected effect on net income related to our
financial instruments would be immaterial.  However, there can be no
assurances that interest rates will not significantly affect our results of
operations.
 
 Item
8.  Financial Statements and Supplementary Data.
 
 The
financial statements and supplementary data required by this Item 8 are set
forth later in this report.
 
 Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
 
 None.
 
 Item
9A. Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
  Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are
designed to ensure that information required to be disclosed in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Our disclosure controls and procedures are
also designed to ensure that information required to be disclosed in the reports
that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial
officer, to allow timely decisions regarding required disclosure. Our chief
executive officer and chief financial officer, with assistance from other
members of our management, have reviewed the effectiveness of our disclosure
controls and procedures as of June 30, 2008 and, based on their evaluation, have
concluded that the disclosure controls and procedures were
effective.
  Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended
June 30, 2008 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as that term is defined in Rule 13a-15(f)
under the Exchange Act. Under the supervision and with the participation of our
management, including our principal executive and principal financial officers,
we assessed, as of June 30, 2008, the effectiveness of our internal control over
financial reporting. This assessment was based on criteria established in the
framework in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.  Based on our
assessment using those criteria, management concluded that our internal control
over financial reporting as of June 30, 2008, was effective.
  29
  Our
internal control over financial reporting as of June 30, 2008, has been audited
by BDO Seidman LLP, an independent registered public accounting firm, as stated
in their report, which is included herein.
 
 Internal
control over financial reporting is defined as a process designed by, or under
the supervision of, our principal executive and principal financial officers and
effected by our board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those policies and
procedures that:
 
 ·
              pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;
 
 ·
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      the preparation of financial statements in accordance with U.S. generally
      accepted accounting principles and that our receipts and expenditures are
      being made only in accordance with authorization of our management and
      directors; and
 
 ·
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.
 
 A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the internal control system are
met.  Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all
control issues, if any, within a company have been detected.
 
 30
  Report of Independent
Registered Public Accounting Firm
 
 
 The Board
of Directors and Shareholders
 Aceto
Corporation:
 
 We have
audited Aceto Corporation's internal control over financial reporting as of June
30, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Aceto Corporation's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, Aceto Corporation maintained, in all material respects, effective
internal control over financial reporting as of June 30, 2008, based on the COSO
criteria.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Aceto
Corporation as of June 30, 2008 and 2007, and the related consolidated
statements of income and comprehensive income, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 2008 and our
report dated September 4, 2008, expressed an unqualified opinion
thereon.
 
 /s/ BDO
Seidman, LLP
 
 Melville,
New York
 September
4, 2008
 
 31
  Item
9B.  Other Information
 
 None.
 
 PART
III
 
 Item
10.  Directors, Executive Officers and Corporate
Governance
 
 Incorporated
herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission with respect to our annual meeting of
shareholders scheduled to be held on December 4, 2008.
  Item
11.  Executive Compensation
 
 Incorporated
herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission with respect to our annual meeting of
shareholders scheduled to be held on December 4, 2008.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
 
 Incorporated
herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission with respect to our annual meeting of
shareholders scheduled to be held on December 4, 2008.
  Item
13.  Certain Relationships and Related Transactions, and Director
Independence
 
 Incorporated
herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission with respect to our annual meeting of
shareholders scheduled to be held on December 4, 2008.
 
 Item
14.  Principal Accountant Fees and Services
 
 Incorporated
herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission with respect to our annual meeting of
shareholders scheduled to be held on December 4, 2008.
 
 PART
IV
 
 Item
15.  Exhibits and Financial Statement Schedules
 
 The
following documents are filed as part of this Report:
  (a)
                The
      financial statements listed in the Index to Consolidated Financial
      Statements are filed as part of this Annual Report.Allfinancial
      statement schedules have been included in the Consolidated Financial
      Statements or Notes thereto.(b)
                ExhibitsExhibitNumber
                Description3.1
                Restated
      Certificate of Incorporation (incorporated by reference to Exhibit
      4(a)(iii) to RegistrationStatement
      No. 2-70623 on Form S-8 (S-8 2-70623)).3.2
                Certificate
      of Amendment dated November 21, 1985 to Restated Certificate of
      Incorporation (incorporated byreference
      to Exhibit 3(ii) to the Company's annual report on Form 10-K for the
      fiscal year ended June 30, 1986).3.3
                Amended
      and restated by-laws of Aceto Corporation, effective as of February 2,
      2005 (incorporated by reference toExhibit
      3.1 to the Company’s current report on Form 8-K dated February 2,
      2005).3.4
                Amended
      and restated by-laws of Aceto Corporation, effective as of December 6,
      2007 (incorporated by referenceto
      Exhibit 3.1 to the Company’s current report on Form 8-K dated December 6,
      2007).
  32
  10.1
                Aceto
      Corporation 401(k) Retirement Plan, effective August 1, 1997, as amended
      and restated as of July 1, 2002(incorporated
      by reference to Exhibit 10.1 to the Company’s annual report on Form 10-K
      for the fiscal year endedJune
      30, 2004).10.2
                Supplemental
      Executive Retirement Plan, as amended and restated, effective June 30,
      2004 and frozen as ofDecember
      31, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s
      annual report on Form 10-K
      forthe
      fiscal year ended June 30, 2004).10.3
                Aceto
      Corporation Stock Option Plan (as Amended and Restated effective as of
      September 19, 1990) (and asfurther
      Amended effective June 9, 1992) (incorporated by reference to Exhibit
      10(v)(b) to the Company'sannual
      report on Form 10-K for the fiscal year ended June 30,
    1992).10.4
                1998
      Aceto Corporation Omnibus Equity Award Plan (incorporated by reference to
      Exhibit 10(v) to the Company’sannual
      report on Form 10-K for the fiscal year ended June 30,
    1999).10.5
                Aceto
      Corporation 2002 Stock Option Plan (incorporated by reference to Exhibit
      4(i) to Registration Statement No.333-110653
      on Form S-8).10.6
                Lease
      between Aceto Corporation and M. Parisi & Son Construction Co., Inc.
      for office space at One Hollow Lane,Lake
      Success, NY dated April 28, 2000 (incorporated by reference to Exhibit
      10(vi) to the Company’s annualreport
      on Form 10-K for the fiscal year ended June 30, 2000).10.7
                Lease
      between Aceto Corporation and M. Parisi & Son Construction Co., Inc.
      for office space at One Hollow Lane,Lake
      Success, NY dated April 28, 2000 (incorporated by reference to Exhibit
      10(vi)(b) to the Company’s annualreport
      on Form 10-K for the year ended June 30, 2000).10.8
                Lease
      between CDC Products Corp. and Seaboard Estates for manufacturing and
      office space at 1801 FalmouthAvenue,
      New Hyde Park, NY dated October 31, 1999 (incorporated by reference to
      Exhibit 10(vi)(c) to theCompany’s
      annual report on Form 10-K for the year ended June 30,
    2000).10.9
                Stock
      Purchase Agreement among Windham Family Limited Partnership, Peter H.
      Kliegman, CDC Products Corp.and
      Aceto Corporation (incorporated by reference to Exhibit 10(vii) to the
      Company’s annual report on Form 10-Kfor
      the year ended June 30, 1999).10.10
                Asset
      Purchase Agreement among Magnum Research Corporation, CDC Products Corp.,
      Roy Gross and AcetoCorporation
      (incorporated by reference to Exhibit 10 (viii) to the Company’s annual
      report on Form 10-K for theyear
      ended June 30, 2000).10.11
                Asset
      Purchase Agreement between Schweizerhall, Inc. and Aceto Corporation
      (incorporated by reference toExhibit
      10(ix) to the Company’s annual report on Form 10-K for the year ended June
      30, 2000).10.12
                Purchase
      and Sale Agreement among Schweizerhall Holding AG, Chemische Fabrik
      Schweizerhall, Schweizerhall,Inc.,
      Aceto Corporation and Aceto Holding B.V., I.O. (incorporated by reference
      to Exhibit 2.1 to the Company’scurrent
      report on Form 8-K dated April 4, 2001).10.13
                Loan
      Guarantee between Aceto Corporation and subsidiaries and Deutsche Bank AG
      dated March 22,
      2001(incorporated
      by reference to Exhibit 10.13 to the Company’s annual report on Form 10-K
      for the year ended June30,
      2001).10.14
                Credit
      Agreement between Aceto Corporation and subsidiaries and JPMorgan Chase
      Bank dated May 10,
      2002(incorporated
      by reference to Exhibit 10.13 to the Company’s annual report on Form 10-K
      for the year ended June30,
      2002).10.15
                Amendment
      and Waiver to Credit Agreement between Aceto Corporation and subsidiaries
      and JPMorgan ChaseBank
      dated June 29, 2004 (incorporated by reference to Exhibit 10.15 to the
      Company’s annual report on Form 10-K
      for the year ended June 30, 2004).
  33
  10.16
                Waiver
      to Credit Agreement between Aceto Corporation and subsidiaries and
      JPMorgan Chase Bank dated August31,
      2004 (incorporated by reference to Exhibit 10.16 to the Company’s annual
      report on Form 10-K for the yearended
      June 30, 2004).10.17
                Share
      Purchase Agreement dated as of December 12, 2003 between Aceto Holding
      GmbH and CorangeDeutschland
      Holding GmbH (incorporated by reference to Exhibit 2.1 to the Company’s
      current report on Form 8-K
      dated December 31, 2003).10.18
                Aceto
      Corporation Supplemental Executive Deferred Compensation Plan, effective
      March 14, 2005 (incorporatedby
      reference to Exhibit 10.1 to the Company’s current report on Form 8-K
      dated March 14, 2005).10.19
                Form
      of purchase agreement between Shanghai Zhongjin Real Estate Development
      Company Limited and Aceto(Hong
      Kong) Limited dated November 10, 2004 (incorporated by reference to
      Exhibit 10.1 to the Company’squarterly
      report on Form 10-Q for the quarter ended December 31,
    2004).10.20
                Amendment
      and Waiver to Credit Agreement between Aceto Corporation and subsidiaries
      and JPMorgan ChaseBank
      dated June 26, 2007.10.21
                Aceto
      Corporation 2007 Long-Term Performance Incentive Plan (incorporated by
      reference to Exhibit 4(i) toRegistration
      Statement No. 333-149586 on Form S-8).21.1*
                Subsidiaries
      of the Company.23.1*
                Consent
      of BDO Seidman, LLP.31.1*
                Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adoptedpursuant
      to Section 302 of the Sarbanes-Oxley Act of 200231.2*
                Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adoptedpursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1*
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of200232.2*
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of2002
 __________
 *Filed
herewith
  34
 ACETO
CORPORATION AND SUBSIDIARIES
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 Report of
Independent Registered Public Accounting Firm
 
 Consolidated
financial statements:
 
 Consolidated
balance sheets as of June 30, 2008 and 2007
 
 Consolidated
statements of income for the years ended June 30, 2008, 2007 and
2006
 
 Consolidated
statements of cash flows for the years ended June 30, 2008, 2007 and
2006
 
 Consolidated
statements of shareholders’ equity and comprehensive income for the years ended
June 30, 2008, 2007 and 2006
 
 Notes to
consolidated financial statements
 
 Schedules:
 
 II -
Valuation and qualifying accounts
 
 All
      other schedules are omitted because they are not required or the
      information required is given in the consolidated financial statements or
      notes thereto.
 
 35
  Report of Independent
Registered Public Accounting Firm
 
 
 The Board
of Directors and Shareholders
 Aceto
Corporation:
 
 We have
audited the accompanying consolidated balance sheets of Aceto Corporation and
subsidiaries as of June 30, 2008 and 2007 and the related consolidated
statements of income, shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended June 30,
2008.  In connection with our audits of the consolidated financial
statements, we have also audited the schedule as listed in the accompanying
index.  These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Aceto Corporation and
subsidiaries at June 30, 2008 and 2007, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2008,
in conformity with accounting principles generally accepted in the United States
of America.
 
 Also, in
our opinion, the financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
 
 We also
have audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Aceto Corporation and
subsidiaries’ internal control over financial reporting as of June 30, 2008,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated September 4, 2008 expressed an unqualified
opinion thereon.
 
 
 
 /s/ BDO
Seidman, LLP
 
 Melville,
New York
 September
4, 2008
 
 36
  ACETO
      CORPORATION AND SUBSIDIARIES
                CONSOLIDATED
      BALANCE SHEETS
                AS
      OF JUNE 30, 2008 AND 2007
                (in
      thousands, except per-share amounts)2008
              
              
              2007ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              46,515
              
              
              $
              32,320Investments
              
              
              548
              
              
              
              3,036Trade
      receivables:  less allowance for doubtful accounts (2008,
      $477;2007,
      $491)
              
              
              68,220
              
              
              
              58,206Other
      receivables
              
              
              4,819
              
              
              
              3,123Inventory
              
              
              71,109
              
              
              
              60,679Prepaid
      expenses and other current assets
              
              
              817
              
              
              
              1,128Deferred
      income tax asset, net
              
              
              1,756
              
              
              
              2,541Total
      current assets
              
              
              193,784
              
              
              
              161,033Long-term
      notes receivable
              
              
              347
              
              
              
              449Property
      and equipment, net
              
              
              4,307
              
              
              
              4,406Property
      held for sale
              
              
              6,978
              
              
              
              5,268Goodwill
              
              
              1,987
              
              
              
              1,820Intangible
      assets, net
              
              
              5,421
              
              
              
              5,817Deferred
      income tax asset, net
              
              
              4,098
              
              
              
              5,958Other
      assets
              
              
              5,321
              
              
              
              3,727TOTAL
      ASSETS
              
              $
              222,243
              
              
              $
              188,478LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              43,480
              
              
              $
              32,539Short
      term bank loans
              
              
              -
              
              
              
              25Note
      payable – related party
              
              
              500
              
              
              
              500Accrued
      expenses
              
              
              19,948
              
              
              
              14,154Deferred
      income tax liability
              
              
              1,070
              
              
              
              885Total
      current liabilities
              
              
              64,998
              
              
              
              48,103Long-term
      liabilities
              
              
              7,034
              
              
              
              6,684Environmental
      remediation liability
              
              
              7,578
              
              
              
              5,816Deferred
      income tax liability
              
              
              1,751
              
              
              
              2,746Minority
      interest
              
              
              473
              
              
              
              302Total
      liabilities
              
              
              81,834
              
              
              
              63,651Commitments
      and contingencies (Note 16)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares issued;
      24,446 and 24,330 shares
                outstanding
      at June 30, 2008 and 2007, respectively
              
              
              256
              
              
              
              256Capital
      in excess of par value
              
              
              56,832
              
              
              
              56,854Retained
      earnings
              
              
              81,778
              
              
              
              74,419Treasury
      stock, at cost, 1,198 and 1,314 shares at June 30, 2008 and
      2007,  respectively
              
              
              (11,571
              )
              
              
              (12,693
              )Accumulated
      other comprehensive income
              
              
              13,114
              
              
              
              5,991Total
      shareholders’ equity
              
              
              140,409
              
              
              
              124,827TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              222,243
              
              
              $
              188,478
 
 See
accompanying notes to consolidated financial statements.
  37
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                CONSOLIDATED
      STATEMENTS OF INCOME
                FOR
      THE YEARS ENDED JUNE 30, 2008, 2007 AND 2006
                (in
      thousands, except per-share amounts)2008
              
              
              2007
              
              
              2006Net
      sales
              
              $
              359,591
              
              
              $
              313,473
              
              
              $
              297,328Cost
      of sales
              
              
              292,286
              
              
              
              258,980
              
              
              
              246,370Gross
      profit
              
              
              67,305
              
              
              
              54,493
              
              
              
              50,958Selling,
      general and administrative expenses
              
              
              45,422
              
              
              
              39,418
              
              
              
              38,509Research
      and development expenses
              
              
              506
              
              
              
              11
              
              
              
              20Operating
      income
              
              
              21,377
              
              
              
              15,064
              
              
              
              12,429Other
      income (expense):Interest
      expense
              
              
              (145
              )
              
              
              (173
              )
              
              
              (127
              )Interest
      and other income, net
              
              
              957
              
              
              
              532
              
              
              
              956812
              
              
              
              359
              
              
              
              829Income
      from continuing operations before income taxes
              
              
              22,189
              
              
              
              15,423
              
              
              
              13,258Provision
      for income taxes
              
              
              8,716
              
              
              
              5,211
              
              
              
              3,994Income
      from continuing operations
              
              
              13,473
              
              
              
              10,212
              
              
              
              9,264Loss
      from discontinued operations, net of income taxes (Note 3)
              
              
              -
              
              
              
              -
              
              
              
              (27
              )Net
      income
              
              $
              13,473
              
              
              $
              10,212
              
              
              $
              9,237Basic
      income per common share:Income
      from continuing operations
              
              $
              0.55
              
              
              $
              0.42
              
              
              $
              0.38Loss
      from discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              $
              0.55
              
              
              $
              0.42
              
              
              $
              0.38Diluted
      income per common share:Income
      from continuing operations
              
              $
              0.54
              
              
              $
              0.41
              
              
              $
              0.38Loss
      from discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              $
              0.54
              
              
              $
              0.41
              
              
              $
              0.38Weighted
      average shares outstanding:Basic
              
              
              24,346
              
              
              
              24,305
              
              
              
              24,267Diluted
              
              
              24,800
              
              
              
              24,711
              
              
              
              24,590
 
 See
accompanying notes to consolidated financial statements.
  38
  ACETO
      CORPORATION AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED JUNE 30, 2008, 2007 AND 2006(in
      thousands)2008
                
                
                2007
                
                
                2006Operating
      activities:Net
      income
                
                
                $
                13,473
                
                
                $
                10,212
                
                
                $
                9,237Adjustments
      to reconcile net income to net cash provided by (used in)operating
      activities:Depreciation
      and amortization
                
                
                2,378
                
                
                
                1,791
                
                
                
                1,558Gain
      on sale of assets
                
                
                
                -
                
                
                
                -
                
                
                
                (66
                )Provision
      for doubtful accounts
                
                
                98
                
                
                
                132
                
                
                
                38Non-cash
      stock compensation
                
                
                1,285
                
                
                
                443
                
                
                
                278Unrealized
      loss (gain) on trading securities
                
                
                6
                
                
                
                (180
                )
                
                
                (40
                )Deferred
      income taxes
                
                
                
                1,835
                
                
                
                1,692
                
                
                
                1,134Changes
      in assets and liabilities:Investments
      – trading securities
                
                
                324
                
                
                
                -
                
                
                
                -Trade
      accounts receivable
                
                
                (7,326
                )
                
                
                (6,973
                )
                
                
                (227
                )Other
      receivables
                
                
                
                (1,647
                )
                
                
                (1,726
                )
                
                
                129Inventory
                
                
                
                (7,989
                )
                
                
                (12,565
                )
                
                
                4,909Prepaid
      expenses and other current assets
                
                
                345
                
                
                
                (96
                )
                
                
                (182
                )Other
      assets
                
                
                
                (1,832
                )
                
                
                (636
                )
                
                
                (719
                )Accounts
      payable
                
                
                
                9,615
                
                
                
                7,884
                
                
                
                (3,962
                )Accrued
      expenses and other liabilities
                
                
                4,853
                
                
                
                4,185
                
                
                
                3,941Net
      cash provided by operating activities
                
                
                15,418
                
                
                
                4,163
                
                
                
                16,028Investing
      activities:Purchases
      of investments
                
                
                
                -
                
                
                
                (6,274
                )
                
                
                -Proceeds
      from sale of investments
                
                
                1,000
                
                
                
                -
                
                
                
                1,799Maturities
      of investments
                
                
                
                1,200
                
                
                
                6,779
                
                
                
                -Payments
      received on notes receivable
                
                
                98
                
                
                
                151
                
                
                
                73Issuance
      of notes receivable
                
                
                
                -
                
                
                
                (75
                )
                
                
                -Proceeds
      from sale of intangible assets
                
                
                400
                
                
                
                -
                
                
                
                -Purchase
      of intangible assets
                
                
                
                (97
                )
                
                
                (2,468
                )
                
                
                -Purchases
      of property and equipment, net
                
                
                (1,197
                )
                
                
                (704
                )
                
                
                (485
                )Net
      cash provided by (used in) investing activities
                
                
                1,404
                
                
                
                (2,591
                )
                
                
                1,387Financing
      activities:Proceeds
      from exercise of stock options
                
                
                87
                
                
                
                217
                
                
                
                250Excess
      income tax benefit on exercise of stock options
                
                
                18
                
                
                
                24
                
                
                
                85Payment
      of cash dividends
                
                
                
                (6,110
                )
                
                
                (4,257
                )
                
                
                (3,637
                )Payments
      for purchases of treasury stock
                
                
                -
                
                
                
                -
                
                
                
                (581
                )(Repayments)
      borrowings of short-term bank loans
                
                
                (25
                )
                
                
                25
                
                
                
                (126
                )Net
      cash used in financing activities
                
                
                (6,030
                )
                
                
                (3,991
                )
                
                
                (4,009
                )Effect
      of foreign exchange rate changes on cash
                
                
                3,403
                
                
                
                1,007
                
                
                
                376Net
      increase (decrease) in cash and cash equivalents
                
                
                14,195
                
                
                
                (1,412
                )
                
                
                13,782Cash
      and cash equivalents at beginning of period
                
                
                32,320
                
                
                
                33,732
                
                
                
                19,950Cash
      and cash equivalents at end of period
                
                $
                46,515
                
                
                $
                32,320
                
                
                $
                33,732
 
 See
accompanying notes to consolidated financial statements.
  39
  ACETO CORPORATION AND
      SUBSIDIARIESCONSOLIDATED STATEMENTS OF
      SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOMEFOR THE YEARS ENDED JUNE 30, 2008,
      2007 AND 2006(in thousands, except per-share
      amounts)AccumulatedCapital
    in
                
                
                
                
                
                
                
                
                
                
                
                OtherCommon
      Stock
                
                
                Excess of
                
                
                Retained
                
                
                Treasury
      Stock
                
                
                ComprehensiveShares
                
                
                Amount
                
                
                Par
    Value
                
                
                Earnings
                
                
                Shares
                
                
                Amount
                
                
                Income
                
                
                TotalBalance at June 30,
      2005
                
                
                25,644
                
                
                $
                256
                
                
                $
                56,903
                
                
                $
                62,864
                
                
                
                (1,362
                )
                
                $
                (13,505
                )
                
                $
                1,137
                
                
                $
                107,655Net income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,237
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,237Other comprehensive
      income:Change in fair value of cross
      currencyinterest rate
      swaps
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                42
                
                
                
                42Foreign currency
      translationadjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,682
                
                
                
                1,682Unrealized loss on available for
      saleinvestments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (42
                )
                
                
                (42
                )Additional minimum pension
      liability
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                21
                
                
                
                21Comprehensive
      income:
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                10,940Stock issued pursuant to employee
      stockincentive
    plans
                
                
                -
                
                
                
                -
                
                
                
                (66
                )
                
                
                -
                
                
                
                20
                
                
                
                219
                
                
                
                -
                
                
                
                153Dividends declared ($0.15 per
      share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,637
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,637
                )Share-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                188
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                188Purchases of treasury
      stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (96
                )
                
                
                (581
                )
                
                
                -
                
                
                
                (581
                )Exercise of stock
      options
                
                
                -
                
                
                
                -
                
                
                
                (419
                )
                
                
                -
                
                
                
                72
                
                
                
                669
                
                
                
                -
                
                
                
                250Tax benefit from exercise of stock
      options
                
                -
                
                
                
                -
                
                
                
                85
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                85Balance at June 30,
      2006
                
                
                25,644
                
                
                
                256
                
                
                
                56,691
                
                
                
                68,464
                
                
                
                (1,366
                )
                
                
                (13,198
                )
                
                
                2,840
                
                
                
                115,053Net income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,212
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,212Other comprehensive
      income:Change in fair value of cross
      currencyinterest rate
      swap
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                161
                
                
                
                161Foreign currency
      translationadjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,900
                
                
                
                2,900Unrealized gain on available for
      saleinvestments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                52
                
                
                
                52Comprehensive
      income:
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,325Adjustment to adopt SFAS No. 158,
      net oftax of $25
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                38
                
                
                
                38Stock issued pursuant to employee
      stockincentive
    plans
                
                
                -
                
                
                
                -
                
                
                
                (44
                )
                
                
                -
                
                
                
                15
                
                
                
                142
                
                
                
                -
                
                
                
                98Dividends declared ($0.175 per
      share)
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (4,257
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (4,257
                )Share-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                329
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                329Exercise of stock
      options
                
                
                -
                
                
                
                -
                
                
                
                (146
                )
                
                
                -
                
                
                
                37
                
                
                
                363
                
                
                
                -
                
                
                
                217Tax benefit from exercise of stock
      options
                
                -
                
                
                
                -
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                24Balance at June 30,
      2007
                
                
                25,644
                
                
                $
                256
                
                
                $
                56,854
                
                
                $
                74,419
                
                
                
                (1,314
                )
                
                $
                (12,693
                )
                
                $
                5,991
                
                
                $
                124,827Net income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13,473
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13,473Other comprehensive
      income:Change in fair value of
      cross currencyinterest rate
      swap
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                75
                
                
                
                75Foreign currency
      translationadjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,944
                
                
                
                6,944Unrealized gain on available for
      saleinvestments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                42
                
                
                
                42Defined benefit plans, net of tax
      of $29
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                62
                
                
                
                62Comprehensive
      income:
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                20,596Stock issued pursuant to employee
      stockincentive
    plans
                
                
                -
                
                
                
                -
                
                
                
                (20
                )
                
                
                -
                
                
                
                15
                
                
                
                150
                
                
                
                -
                
                
                
                130Issuance of restricted stock, net
      of forfeitures
                -
                
                
                
                -
                
                
                
                (821
                )
                
                
                -
                
                
                
                85
                
                
                
                821
                
                
                
                -
                
                
                
                -Dividends declared ($0.25 per
      share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (6,114
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (6,114
                )Share-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                865
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                865Exercise of stock
      options
                
                
                -
                
                
                
                -
                
                
                
                (64
                )
                
                
                -
                
                
                
                16
                
                
                
                151
                
                
                
                -
                
                
                
                87Tax benefit from exercise of stock
      options
                
                -
                
                
                
                -
                
                
                
                18
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                18Balance at June 30,
      2008
                
                
                25,644
                
                
                $
                256
                
                
                $
                56,832
                
                
                $
                81,778
                
                
                
                (1,198
                )
                
                $
                (11,571
                )
                
                $
                13,114
                
                
                $
                140,409See accompanying notes to
      consolidated financial statements.
     40
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  (1)
Description of Business
 
 Aceto
Corporation and subsidiaries (“Aceto” or the “Company”) is primarily engaged in
the sourcing, quality assurance, regulatory support, marketing and distribution
of chemically derived pharmaceuticals, biopharmaceuticals, specialty chemicals
and crop protection products used principally as raw materials in the
agricultural, color, pharmaceutical, surface coating/ink and general chemical
consuming industries. Most of the chemicals distributed by the Company are
purchased from companies located outside the United States.  The
Company’s customers are primarily located throughout the United States, Europe
and Asia.
 
 (2)
Summary of Significant Accounting Policies
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. In addition, the financial statements
of S.R.F.A. LLC, a joint-venture entity which is 50% owned by the Company and
commenced operations in April 2004, are included in the consolidated financial
statements in accordance with FASB Interpretation 46R, “Consolidation of
Variable Interest Entities” (FIN 46R).  All significant inter-company
balances and transactions are eliminated in consolidation.
 
 Use
of Estimates
 
 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 and the disclosure of contingent assets
and liabilities at the date of the financial statements. These judgments can be
subjective and complex, and consequently actual results could differ from those
estimates and assumptions.  The Company’s most critical accounting
policies relate to revenue recognition; allowance for doubtful accounts;
inventory; goodwill and other indefinite-life intangible assets; long-lived
assets; environmental matters and other contingencies; income taxes; and
stock-based compensation.
 
 Cash
Equivalents
 
 The
Company considers all highly liquid debt instruments with original maturities at
the time of purchase of three months or less to be cash
equivalents.
 
 Investments
 
 The
Company classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase and periodically
re-evaluates such classifications.  Trading securities are carried at
fair value, with unrealized holding gains and losses included in
earnings.  Held-to-maturity securities are recorded at cost and are
adjusted for the amortization or accretion of premiums or discounts over the
life of the related security. Unrealized holding gains and losses on
available-for-sale securities are excluded from earnings and are reported as a
separate component of accumulated other comprehensive income (loss) until
realized.  In determining realized gains and losses, the cost of
securities sold is based on the specific identification method. Interest and
dividends on the investments are accrued at the balance sheet date.
 
 Inventories
 
 Inventories,
which consist principally of finished goods, are stated at the lower of cost
(first-in first-out method) or market.  The Company writes down its
inventories for estimated excess and obsolete goods by an amount equal to the
difference between the carrying cost of the inventory and the estimated market
value based upon assumptions about future demand and market
conditions.
 
 Environmental
and Other Contingencies
 
 The
Company establishes accrued liabilities for environmental matters and other
contingencies when it is probable that a liability has been incurred and the
amount of the liability is reasonably estimable.  If the contingency
is resolved for an amount greater or less than the accrual, or the Company’s
share of the contingency increases or decreases, or other assumptions relevant
to the development of the estimate were to change, the Company would recognize
an additional expense or benefit in the consolidated statements of income in the
period such determination was made.
  41
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Pension
Benefits
 
 In
connection with certain historical acquisitions in Germany, the Company assumed
defined benefit pension plans covering certain employees who meet certain
eligibility requirements.  The net pension benefit obligations
recorded and the related periodic costs are based on, among other things,
assumptions of the discount rate, estimated return on plan assets, salary
increases and the mortality of participants.  The obligation for these
claims and the related periodic costs are measured using actuarial techniques
and assumptions.  Actuarial gains and losses are deferred and
amortized over future periods.  The Company’s plans are funded in
conformity with the funding requirements of applicable government
regulations.
 
 Accumulated
Other Comprehensive Income
 
 The
components of accumulated other comprehensive income as of June 30, 2008 and
2007 are as follows:
 
 2008
              
              
              2007Fair
      value of cross currency interest rate swaps
              
              $
              -
              
              
              $
              (75
              )Cumulative
      foreign currency translation adjustments
              
              
              13,014
              
              
              
              6,070Unrealized
      loss on available for sale investments
              
              
              -
              
              
              
              (42
              )Defined
      benefit plans
              
              
              100
              
              
              
              38Total
              
              $
              13,114
              
              
              $
              5,991
 The
foreign currency translation adjustments for the year ended June 30, 2008
primarily relates to the fluctuation of the conversion rate of the Euro. The
currency translation adjustments are not adjusted for income taxes as they
relate to indefinite investments in non-US subsidiaries.
 
 Common
Stock
 
 On May 4,
2005, the Board of Directors of the Company authorized the extension of the
Company’s stock repurchase program for an additional three years, which expired
in May 2008.  On September 4, 2008, the Board of Directors of the
Company authorized the continuation of the Company’s stock repurchase program,
expiring in May 2011.  Under the stock repurchase program, the Company
is authorized to purchase up to an additional 4,051 shares of common stock in
open market or private transactions, at prices not to exceed the market value of
the common stock at the time of such purchase.
 
 Stock
Options
 
 Effective
July 1, 2005, the Company adopted SFAS No. 123(R), “Share-Based
Payment.”  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.  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 order
to determine the fair value of stock options on the date of grant, the Company
uses the Black-Scholes option-pricing model, including an estimate of forfeiture
rates. Inherent in this model are assumptions related to expected
stock-price volatility, risk-free interest rate, expected life and dividend
yield.  Expected stock-price volatility is based on the historical daily
price changes of the underlying stock which are obtained from public data
sources. The risk-free interest rate is based on U.S. Treasury issues with
a term equal to the expected life of the option. The Company uses historical
data to estimate expected dividend yield, expected life and forfeiture rates. In
fiscal 2007, the Company utilized the “simplified” method prescribed in SEC
Staff Accounting Bulletin No. 107 to estimate the expected life.
 
 42
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Revenue
Recognition
 
 The
Company recognizes revenue from product sales at the time of shipment and
passage of title and risk of loss to the customer.  The Company has no
acceptance or other post-shipment obligations and does not offer product
warranties or services to its customers.
 
 Sales are
recorded net of returns of damaged goods from customers, which historically have
been immaterial, and sales incentives offered to customers.  The
Company’s sales incentives consist primarily of volume incentive
rebates.  The Company records such volume incentive rebates as the
underlying revenue transactions that result in progress by the customer in
earning the rebate are recorded, in accordance with EITF 01-09, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products).”
 
 Shipping
and Handling Fees and Costs
 
 All
amounts billed to a customer in a sales transaction related to shipping and
handling represent revenues earned and are included in net sales.  The
costs incurred by the Company for shipping and handling are reported as a
component of cost of sales.  Cost of sales also includes inbound
freight, receiving, inspection, warehousing, distribution network, and customs
and duty costs.
 
 Net
Income Per Common Share
 
 Basic
income per common share is based on the weighted average number of common shares
outstanding during the period.  Diluted income per common share
includes the dilutive effect of potential common shares
outstanding.  The following table sets forth the reconciliation of
weighted average shares outstanding and diluted weighted average shares
outstanding for the fiscal years ended June 30, 2008, 2007 and
2006:
 
 2008
              
              
              2007
              
              
              2006Weighted
      average shares outstanding
              
              
              24,346
              
              
              
              24,305
              
              
              
              24,267Dilutive
      effect of stock options and
                restricted
      stock awards and units
              
              
              454
              
              
              
              406
              
              
              
              323Diluted
      weighted average shares
                outstanding
              
              
              24,800
              
              
              
              24,711
              
              
              
              24,590
 
 There
were 1,534, 1,443 and 1,638 common equivalent shares outstanding as of June 30,
2008, 2007 and 2006, respectively that were not included in the calculation of
diluted income per common share because their effect would have been
anti-dilutive.
 
 Income
Taxes
 
 Income
taxes are accounted for under the asset and liability
method.  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
 
 43
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Property
and Equipment
 
 Property
and equipment are stated at cost and are depreciated using the straight line
method over the estimated useful lives of the related
asset.  Expenditures for improvements that extend the useful life of
an asset are capitalized.  Ordinary repairs and maintenance are
expensed as incurred.  When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and any related gains or losses are included in income.
 
 The
components of property and equipment were as follows:
 June 30, 2008
              
              
              June 30, 2007
              
              
              Estimated useful
                life (years)Machinery
      and equipment
              
              $
              1,140
              
              
              $
              964
              
              
              
              3-7Leasehold
      improvements
              
              
              378
              
              
              
              330
              
              
              Shorter
      of asset life or lease termComputer
      equipment and software
              
              
              3,772
              
              
              
              3,763
              
              
              
              3-5Furniture
      and fixtures
              
              
              1,138
              
              
              
              1,100
              
              
              
              5-10Automobiles
              
              
              411
              
              
              
              497
              
              
              
              3Building
              
              
              3,221
              
              
              
              3,015
              
              
              
              20Land
              
              
              280
              
              
              
              -
              
              
              
              -$
              10,340
              
              
              $
              9,669Accumulated
      depreciation and amortization
              
              
              6,033
              
              
              
              5,263$
              4,307
              
              
              $
              4,406
 
 Property
held for sale represents land and land improvements of $6,978 and $5,268 at June
30, 2008 and 2007, respectively.  During fiscal 2008 the Company
recorded an additional $1,710 to partially recognize the capitalized
environmental costs up to the fair value of the land and land improvements to
the extent of additional environmental remediation cost estimates in accordance
with EITF 90-8 “Capitalization of Costs to Treat Environmental
Contamination”.
 
 Depreciation
and amortization of property and equipment amounted to $1,174, $1,067 and $943
for the years ended June 30, 2008, 2007, and 2006, respectively.
 
 Goodwill
and Other Intangibles
 
 Goodwill
is calculated as the excess of the cost of purchased businesses over the fair
value of their underlying net assets.  Other intangible assets
principally consist of customer relationships, patent license, EPA registrations
and related data, trademarks, product rights and related intangibles and
covenants not to compete.  Goodwill and other intangible assets that
have an indefinite life are not amortized.
 
 In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the
Company tests goodwill and other intangible assets for impairment on at least an
annual basis.  Goodwill impairment exists if the net book value of a
reporting unit exceeds its estimated fair value.  The impairment
testing is performed in two steps: (i) the Company determines impairment by
comparing the fair value of a reporting unit with its carrying value, and (ii)
if there is an impairment, the Company measures the amount of impairment loss by
comparing the implied fair value of goodwill with the carrying amount of that
goodwill.  To determine the fair value of these intangible assets, the
Company uses many assumptions and estimates that directly impact the results of
the testing.  In making these assumptions and estimates, the Company
uses industry accepted valuation models and set criteria that are reviewed and
approved by various levels of management.
 
 Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. Recoverability of assets held for sale is measured by comparing the
carrying amount of the assets to their estimated fair value.  If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets.  Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
  44
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Accounting
for Derivatives and Hedging Activities
 
 The
Company accounts for derivatives and hedging activities under the provisions of
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as
amended, which establishes accounting and reporting guidelines for derivative
instruments and hedging activities.  SFAS No. 133 requires the
recognition of all derivative financial instruments as either assets or
liabilities in the statement of financial condition and measurement of those
instruments at fair value.  Changes in the fair values of those
derivatives are reported in earnings or other comprehensive income depending on
the designation of the derivative and whether it qualifies for hedge
accounting.  The accounting for gains and losses associated with
changes in the fair value of a derivative and the effect on the consolidated
financial statements depends on its hedge designation and whether the hedge is
highly effective in achieving offsetting changes in the fair value or cash flows
of the asset or liability hedged.  Under the provisions of SFAS No.
133, the method that is used for assessing the effectiveness of a hedging
derivative, as well as the measurement approach for determining the ineffective
aspects of the hedge, is established at the inception of the hedged
instrument.
 
 For
derivatives designated as fair value hedges, changes in fair value are
recognized in earnings.  If the fair value hedge is fully effective,
the change in fair value of the hedged item attributable to the hedged risk is
adjusted to fair value and is also recognized in earnings.  Changes in
the fair value of a derivative that is highly effective and that is designated
and qualifies as a cash flow hedge are recorded in other comprehensive income to
the extent that the derivative is effective as a hedge, until earnings are
affected by the variability in cash flows of the designated hedged
item.
 
 The
Company entered into cross currency interest rate swaps to reduce foreign
currency exposure on inter-company transactions.  The gains or losses
on the inter-company loans due to changes in foreign currency rates are offset
by the gains or losses on the swap in the statements of income.  Since
the Company’s interest rate swaps qualified as cash flow hedging activities, the
change in their fair value was recorded in accumulated other comprehensive
income.
 
 The
Company operates internationally, therefore its earnings, cash flows and
financial positions are exposed to foreign currency risk from
foreign-currency-denominated receivables and payables, which, in the U.S., have
been denominated in various foreign currencies, including Euros, British Pounds,
Japanese Yen, Singapore Dollars and Chinese Renminbi and at certain foreign
subsidiaries in U.S. dollars and other non-local currencies.
 
 Management
believes it is prudent to minimize the risk caused by foreign currency
fluctuation.  Management minimizes the currency risk on its foreign
currency receivables and payables by purchasing future foreign currency
contracts (futures) with one of its financial institutions.  Futures
are traded on regulated U.S. and international exchanges and represent
commitments to purchase or sell a particular foreign currency at a future date
and at a specific price.   Since futures are purchased for the
amount of the foreign currency receivable or for the amount of foreign currency
needed to pay for specific purchase orders, and the futures mature on the due
date of the related foreign currency vendor invoices or customer receivables,
the Company believes that it eliminates risks relating to foreign currency
fluctuation.  The Company takes delivery of all futures to pay
suppliers in the appropriate currency.  The gains or losses for the
changes in the fair value of the foreign currency contracts are recorded in cost
of sales (sales) and offset the gains or losses associated with the impact of
changes in foreign exchange rates on trade payables (receivables) denominated in
foreign currencies.  Senior management and members of the financial
department continually monitor foreign currency risks and the use of this
derivative instrument.
 
 Foreign
Currency
 
 The
financial statements of the Company’s foreign subsidiaries are translated into
U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation."
Where the functional currency of a foreign subsidiary is its local currency,
balance sheet accounts are translated at the current exchange rate and income
statement items are translated at the average exchange rate for the
period.   Exchange gains or losses resulting from the translation
of financial statements of foreign operations are accumulated in other
comprehensive income.  Where the local currency of a foreign
subsidiary is not its functional currency, financial statements are translated
at either current or historical exchange rates, as appropriate.
 
 45
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  In the
third quarter of 2008, the Company changed the functional currency of its
Chinese subsidiaries from the Chinese Renminbi to the U.S. Dollar, since these
subsidiaries primarily generate and expend cash in the U.S.
Dollar.  As a result, the Company recorded a correction of an error in
the third quarter of 2008, which resulted in additional interest and other
income, net of approximately $559, which represented approximately $389 after
tax profit. The Company did not deem this adjustment to be material to any prior
quarters in fiscal 2008 based upon both quantitative and qualitative
factors.  In addition, this adjustment does not impact the 2008
year-to-date reported results. This matter was not corrected for periods prior
to June 30, 2007 due to the immateriality of the effects of this in earlier
years.
 
 Reclassifications
 
 Certain
reclassifications have been made to the prior period consolidated financial
statements to conform to the current year presentation.
 
 (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 reporting units forming part of the former Institutional Sanitary
Supplies reportable 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 year ended June 30, 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.  Beginning in July 2005, the operating results of the
Anti-Clog product, which are not material, are included in the Chemicals &
Colorants reportable segment.
 
 On
September 6, 2005, the Company completed the sale of certain assets of Magnum
Research Corp. for $81, the remaining reporting unit of the former Institutional
Sanitary Supplies reportable segment, the operating results of which are
included in discontinued operations in the consolidated statements of
income.  In December 2005, the Company exited the leased space
previously occupied by CDC and Magnum Research Corp.  In June 2006,
the Company negotiated a lease termination with its landlord which resulted in a
pre-tax charge of $378 included in selling, general and administrative expenses
for the year ended June 30, 2006.
 
 Operating
results of discontinued operations for the fiscal year ended June 30, 2006 were
as follows:
 
 
 2006Net
      sales
              
              $
              154Loss
      from operations of discontinued business
              
              
              (44
              )Benefit
      for income taxes
              
              
              17Non-cash
      impairment charge
              
              
              -Benefit
      for income taxes
              
              
              -Loss
      from discontinued operations
              
              $
              (27
              )
 
 46
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  (4)
Investments
 
 A summary
of short-term investments was as follows:
 
 June 30, 2008
              
              
              June 30, 2007Fair Value
              
              
              Cost Basis
              
              
              Fair Value
              
              
              Cost BasisTrading
      securitiesCorporate
      equity securities
              
              $
              548
              
              
              $
              14
              
              
              $
              877
              
              
              $
              152Available for sale
      securitiesCorporate
      bonds
              
              $
              -
              
              
              $
              -
              
              
              $
              1,187
              
              
              $
              1,203Government
      and agency securities
              
              $
              -
              
              
              $
              -
              
              
              $
              972
              
              
              $
              1,000$
              548
              
              
              
              
              
              
              $
              3,036
 The
Company has classified all investments with maturity dates of greater than three
months as current since it has the ability to redeem them within the year and is
available for current operations.
 
 Unrealized
(losses) gains on trading securities were $(6), $180 and $40 for fiscal 2008,
2007 and 2006, respectively.
 
 (5)
Notes Receivable
 
 The
Company has four notes receivable with outstanding balances aggregating $450 and
$548 at June 30, 2008 and June 30, 2007, respectively, which have arisen from
sales of property.  The notes are either secured by a first mortgage
on the real property sold or collateralized by a security interest in the asset
sold.  The notes range in length from seven to ten years and earn
interest at a fixed rate.  The range of fixed rates on the notes is
5.5% to 7.0%.  Included in current assets are the current portions of
the notes receivable due within one year totaling $103 and $99 at June 30, 2008
and 2007, respectively.
 
 (6)  Goodwill
and Other Intangible Assets
 
 Goodwill
of $1,987 and $1,820 as of June 30, 2008 and June 30, 2007, respectively,
relates to the Health Sciences segment and reporting unit.
 
 Intangible
assets subject to amortization as of June 30, 2008 and 2007 were as
follows:
 
 Gross
                Carrying
                Value
              
              
              Accumulated
                Amortization
              
              
              Net
      Book
                ValueJune 30,
      2008Customer
      relationships
              
              $
              3,468
              
              
              $
              2,229
              
              
              $
              1,239Product
      rights and related intangibles
              
              
              96
              
              
              
              4
              
              
              
              92Patent
      license
              
              
              838
              
              
              
              209
              
              
              
              629EPA
      registrations and related data
              
              
              2,733
              
              
              
              384
              
              
              
              2,349Non-compete
      agreements
              
              
              290
              
              
              
              261
              
              
              
              29$
              7,425
              
              
              $
              3,087
              
              
              $
              4,338Gross
                Carrying
                Value
              
              
              Accumulated
                Amortization
              
              
              Net
      Book
                ValueJune 30,
      2007Customer
      relationships
              
              $
              2,958
              
              
              $
              1,479
              
              
              $
              1,479Patent
      license
              
              
              838
              
              
              
              133
              
              
              
              705EPA
      registrations and related data
              
              
              2,733
              
              
              
              98
              
              
              
              2,635Non-compete
      agreements
              
              
              247
              
              
              
              173
              
              
              
              74$
              6,776
              
              
              $
              1,883
              
              
              $
              4,893
  47
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  The
estimated useful lives of customer relationships, product rights and related
intangibles, patent license, EPA registrations and related data and non-compete
agreements are 7 years, 3-5 years, 11 years, 10 years and 3-5 years,
respectively.
 
 As of
June 30, 2008 and June 30, 2007, the Company also had $1,083 and $924,
respectively, of intangible assets pertaining to trademarks which have
indefinite lives and are not subject to amortization.
 
 In fiscal
2008 and 2007, changes in goodwill and trademarks are attributable to foreign
currency exchange rates used to translate the financial statements of foreign
subsidiaries.
 
 Amortization
expense for intangible assets subject to amortization amounted to $1,204, $724
and $615 for the years ended June 30, 2008, 2007 and 2006,
respectively.  The estimated aggregate amortization expense for
intangible assets subject to amortization for each of the succeeding years ended
June 30, 2009 through June 30, 2014 are as follows:  2009: $871; 2010:
$860; 2011: $709; 2012: $383; 2013: $366 and 2014 and thereafter:
$1,149.
 
 
 (7)
Accrued Expenses
 
 The
components of accrued expenses as of June 30, 2008 and 2007 were as
follows:
 2008
              
              
              2007Accrued
      compensation
              
              $
              4,399
              
              
              $
              3,749Accrued
      environmental remediation costs
              
              
              268
              
              
              
              321Accrued
      income taxes payable
                Other
      accrued expenses
              
              
              5,248
                10,033
              
              
              
              1,504
                8,580$
              19,948
              
              
              $
              14,154
 
 (8)
Environmental Remediation
 
 In fiscal
2008 and 2007, the Company received letters from the Pulvair Site Group, a group
of potentially responsible parties (PRP Group) who are working with the State of
Tennessee (the State) to remediate a contaminated property in Tennessee called
the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous
substances to the site which were released into the
environment.   The State had begun administrative proceedings
against the members of the PRP group and Aceto with respect to the cleanup of
the Pulvair site and the group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $2,100 from the Company for its share to
remediate the site contamination. Although the Company acknowledges that it
shipped materials to the site for formulation over twenty years ago, the Company
believes that the evidence does not show that the hazardous materials sent by
Aceto to the site have significantly contributed to the contamination of the
environment. Accordingly, the Company believes that the settlement offer is
unreasonable. Alternatively, counsel to the PRP Group has proposed that Aceto
join it as a participating member and pay 3.16% of the PRP Group's
cost.  The Company believes that this percentage is high because it is
based on the total volume of materials that Aceto sent to the site, most of
which were non-hazardous substances and as such, believes that, at most, it is a
de minimus contributor to the site contamination. The impact of the resolution
of this matter on the Company's results of operations in a particular reporting
period is not known.  However, management believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial condition or liquidity.
 
 The
Company has environmental remediation obligations in connection with Arsynco,
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 2008, 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 $7,846 and $9,574.  As of June
30, 2008 and 2007 a liability of $7,846 and $6,136, respectively, is included in
the accompanying consolidated balance sheet.  In accordance with 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 classified as
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.
  48
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  In March
2006, Arsynco received notice from the EPA of its status as a PRP under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for a site described as the Berry’s Creek Study Area.   Arsynco
is one of over 150 PRPs 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 PRPs and their financial
strength.  Based on prior practice in similar situations, it is
possible that the State may assert a claim for natural resource damages with
respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages
in connection with Berry's Creek; any such claim with respect to Berry's Creek
could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site.  Any claim for natural
resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. 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.
 
 (9)
Financing Arrangements
 
 The
Company has a revolving credit agreement with a financial institution that
expires June 30, 2010 and provides for available credit of
$10,000.  Under the credit agreement, the Company may obtain credit
through direct borrowings and letters of credit.  The obligations of
the Company under the credit agreement are guaranteed by certain of the
Company’s subsidiaries and are secured by 65% of the capital of certain
non-domestic subsidiaries which the Company owns.  There is no
borrowing base on the credit agreement.  Interest under the credit
agreement is at LIBOR plus 1.50%, which was 3.96%, 6.82% and 7.19% at June 30,
2008, 2007 and 2006, respectively.  The credit agreement contains
several financial covenants requiring, among other things, minimum levels of
debt service and tangible net worth.  The Company is also subject to
certain restrictive debt covenants including liens, limitations on indebtedness,
guarantees, sale of assets, sales of receivables, and loans and
investments.  The Company was in compliance with all covenants at June
30, 2008.
 
 At June
30, 2008 and 2007, the Company had available lines of credit with foreign
financial institutions totaling $22,844 and $19,472,
respectively.  The Company has issued a cross corporate guarantee to
the foreign banks.  Short term loans under these agreements bear
interest at LIBOR plus 0.75%, which was 3.21%, 6.07% and 6.44% at June 30, 2008,
2007 and 2006, respectively.  The Company is not subject to any
financial covenants under these arrangements.
 
 Under the
above financing arrangements, the Company had $663 in letters of credit leaving
an unused facility of $32,181 at June 30, 2008.  At June 30, 2007 the
Company had $25 in short-term bank loans outstanding and $702 in letters of
credit leaving an unused facility of $28,770.
 
 (10)  Stock
Based Compensation Plans
 
 At the
annual meeting of shareholders of the Company held December 6, 2007, the
shareholders approved the Aceto Corporation 2007 Long-Term Performance Incentive
Plan (2007 Plan). The Company has reserved 700 shares of common stock for
issuance under the 2007 Plan to the Company’s employees and non-employee
directors. There are five types of awards that may be granted under the 2007
Plan-options to purchase common stock, stock appreciation rights, restricted
stock, restricted stock units and performance incentive units.
 
 In
September 2002, the Company adopted the Aceto Corporation 2002 Stock Option Plan
(2002 Plan), which was ratified by the Company’s shareholders in December
2002.  Under the 2002 Plan, restricted stock or options to purchase up
to 1,688 shares of the Company’s common stock may be granted by the Company to
officers, directors, employees and agents of the Company.  The
exercise price per share shall not be less than the market value of Aceto common
stock on the date of grant and each option may not become exercisable less than
six months from the date it is granted.  Restricted stock may be
granted to an eligible participant in lieu of a portion of any annual cash bonus
earned by such participant.  Such award may include additional shares
of restricted stock (premium shares) greater than the portion of bonus paid in
restricted stock.  The restricted stock award is vested at issuance
and the restrictions lapse ratably over a period of years as determined by the
Board of Directors, generally three years.  The premium shares vest
when all the restrictions lapse, provided that the participant remains employed
by the Company at that time.
  49
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  In
December 2007, the Company granted 239 options to non-employee directors and
employees at an exercise price of $8.05 per share.  These options vest
on the first anniversary of the date of grant and expire ten years from the date
of grant.
 
 During
the year ended June 30, 2007, the Company granted 65 options to certain
employees and directors at a weighted average exercise price of $8.25 per share.
The options vest on the first anniversary of the date of grant and expire ten
years from the date of grant.
 
 In
January 2006, the Company granted 131 options to certain employees and directors
at an exercise price of 6.82 per share.  The options vest on the first
anniversary of the date of grant and expire ten years from the date of
grant.
 
 All
options granted were at exercise prices equal to the market value of the common
stock on the date of grant.  As of June 30, 2008, there were 431 and
91 shares of common stock available for grant under the 2007 and 2002 Plans,
respectively.
 
 In
December 1998, the Company adopted the Aceto Corporation 1998 Omnibus Equity
Award Plan (1998 Plan).  In accordance with the 1998 Plan the
Company’s Board of Directors (Board) may grant up to 1,688 shares of common
stock in the form of stock options or restricted stock to eligible
participants.  The exercise price per share, determined by the Board,
for options granted cannot be less than the market value of the stock on the
date of grant.  The options vest as determined by the Board and expire
no later than ten years from the date of grant.  Restricted stock may
be granted to an eligible participant in lieu of a portion of any annual cash
bonus earned by such participant.  Such restricted stock award may
include premium shares greater than the portion of bonus paid in restricted
stock.  The restricted stock award is vested at issuance and the
restrictions lapse ratably over a period of years as determined by the
Board.  The premium shares vest when the restrictions lapse, provided
that the participant remains employed by the Company at that
time.  Under the 1998 Plan, there were 2 shares of common stock
available for grant as either options or restricted stock at June 30,
2008.  The 1998 Plan expires in December 2008.
 
 Under the
terms of the Company’s 1980 Stock Option Plan, as amended (1980 Plan), options
may be issued to officers and key employees. The exercise price per share can be
greater or less than the market value of the stock on the date of grant. The
options vest either immediately or over a period of years as determined by the
Board of Directors and expire no later than five or ten years from the original
date they are fully vested.  The 1980 Plan expired September
2005.  Outstanding options survive the expiration of the 1980
Plan.
 
 The
following summarizes the shares of common stock under options for all plans at
June 30, 2008, 2007 and 2006, and the activity with respect to options for the
respective years then ended:
 Shares
      subject to
                option
              
              
              Weighted
      average
                exercise
      price per
                share
              
              Aggregate
                Intrinsic
                ValueBalance
      at June 30, 2005
              
              
              2,764
              
              
              $
              7.65Granted
              
              
              131
              
              
              
              6.82Exercised
              
              
              (72)
              
              
              
              3.88Forfeited
      (including cancelled options)
              
              
              (80)
              
              
              
              10.65Balance
      at June 30, 2006
              
              
              2,743
              
              
              $
              7.62Granted
              
              
              65
              
              
              
              8.25Exercised
              
              
              (38)
              
              
              
              6.02Forfeited
      (including cancelled options)
              
              
              (70)
              
              
              
              10.26Balance
      at June 30, 2007
              
              
              2,700
              
              
              $
              7.58Granted
              
              
              239
              
              
              
              8.05Exercised
              
              
              (16)
              
              
              
              5.57Forfeited
      (including cancelled options)
              
              
              (44)
              
              
              
              10.07Balance
      at June 30, 2008
              
              
              2,879
              
              
              $
              7.59
              
              $4,264Options
      exercisable at June 30, 2008
              
              
              2,643
              
              
              $
              7.55
              
              $4,264
 
 The total
intrinsic value of stock options exercised during the years ended June 30, 2008,
2007 and 2006 was approximately $48, $106
and $234, respectively. At June 30, 2008, outstanding options had
expiration dates ranging from December 10, 2008 to December 6,
2017.
  50
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Under the
2002 Plan and the 1998 Plan, compensation expense is recorded for the market
value of the restricted stock awards in the year the related bonus is earned and
over the vesting period for the market value at the date of grant of the premium
shares granted.  In fiscal 2008, 2007 and 2006, restricted stock
awarded and premium shares vested of 15, 15 and 20 common shares, respectively,
were issued from treasury stock under employee incentive plans, which increased
stockholders’ equity by $130, $98 and $153, respectively.  The related
non-cash compensation expense related to the restricted stock granted and the
vesting of premium shares during the year, which are issuable only when fully
vested, was $92, $114 and $90 in fiscal 2008, 2007 and 2006,
respectively.  Additionally, non-cash compensation expense of $540,
$329 and $188 was recorded in fiscal 2008, 2007 and 2006, respectively, relating
to stock option grants, which is included in selling, general and administrative
expenses. As of June 30, 2008, the total unrecognized compensation cost related
to option awards is $310, and the related weighted average period over which it
is expected that such unrecognized compensation cost will be recognized is
approximately five months.
 
 The
following summarizes the non-vested stock options at June 30, 2008 and the
activity with respect to non-vested options for the year ended June 30,
2008:
 Shares
      subject to option
              
              
              Weighted
      average grant date fair valueNon-vested
      at June 30, 2007
              
              
              65
              
              
              $
              3.96Granted
              
              
              239
              
              
              
              3.01Vested
              
              
              (
      65
              )
              
              
              3.96Forfeited
              
              
              (3
              )
              
              
              3.01Non-vested
      at June 30, 2008
              
              
              236
              
              
              $
              3.01
 
 The
per-share weighted-average fair value of stock options granted during 2008, 2007
and 2006 was $3.01, $3.96 and $2.87, respectively, on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
 
 2008
              
              
              2007
              
              
              2006Expected
      life
              
              5.6
      years
              
              
              5.5
      years
              
              
              5.5
      yearsExpected
      volatility
              
              
              46.0%
              
              
              
              57.0%
              
              
              
              50.0%Risk-free
      interest rate
              
              
              3.55%
              
              
              
              4.43%
              
              
              
              4.36%Dividend
      yield
              
              
              2.50%
              
              
              
              1.86%
              
              
              
              2.22%
 
 In
December 2007, the Company granted 86 shares of restricted common stock and 20
restricted stock units. These shares of restricted common stock and restricted
stock units vest over three years, will result in remaining stock-based
compensation expense of approximately $517, and the related weighted average
period over which it is expected that such unrecognized compensation cost will
be recognized is approximately 2.4 years. In accordance with SFAS No. 123(R),
compensation expense is recognized on a straight-line basis over the employee's
vesting period or to the employee's retirement eligibility date, if earlier, for
restricted stock awards.   For the year ended June 30, 2008, the
Company recorded non-cash stock-based compensation expense of approximately
$325, which is included in selling, general and administrative expenses, for
these shares of restricted common stock and restricted stock units, of which
$186 of compensation expense related to retiree eligibility.   In
addition, in accordance with SFAS No. 123(R), the Company recorded additional
compensation expense of $328 during the year ended June 30, 2008, related to
grants of restricted common stock, whereby the service inception dated preceded
the grant date. Since these shares of restricted common stock will be issued in
fiscal 2009, the Company has recorded a liability as of June 30, 2008 for such
awards.
 
 51
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
 A summary
of restricted stock awards including restricted stock units as of June 30, 2008,
is presented below:
 
 Shares
              
              
              Weighted
                averagegrant
                date
      fair valueNon-vested
      at beginning of year
              
              
              -
              
              
              $
              -Granted
              
              
              106
              
              
              
              8.05Vested
              
              
              -
              
              
              
              -Forfeited
              
              
              (1
              )
              
              
              8.05Non-vested
      at June 30, 2008
              
              
              105
              
              
              $
              8.05
 
 
 
 (11)  Interest
and Other Income
 
 Interest
and other income during fiscal 2008, 2007 and 2006 was comprised of the
following:
 
 2008
              
              
              2007
              
              
              2006Dividends
              
              $
              58
              
              
              $
              64
              
              
              $
              133Interest
              
              
              1,124
              
              
              
              1,045
              
              
              
              590Net
      (loss) gain on investments
              
              
              (
      8
              )
              
              
              174
              
              
              
              29Foreign
      government subsidies received
              
              
              37
              
              
              
              152
              
              
              
              561Minority
      interest
              
              
              (125
              )
              
              
              (70
              )
              
              
              (61
              )Foreign
      currency losses
              
              
              (42
              )
              
              
              (770
              )
              
              
              (354
              )Miscellaneous
              
              
              (87
              )
              
              
              (63
              )
              
              
              58$
              957
              
              
              $
              532
              
              
              $
              956
 
 (12)
Income Taxes
 
 The
components of income from continuing operations before the provision for income
taxes are as follows:
 
 2008
              
              
              2007
              
              
              2006Domestic
      operations
              
              $
              3,882
              
              
              $
              2,988
              
              
              $
              1,981Foreign
      operations
              
              
              18,307
              
              
              
              12,435
              
              
              
              11,277$
              22,189
              
              
              $
              15,423
              
              
              $
              13,258
  The
components of the provision for income taxes are as follows:
 
 2008
              
              
              2007
              
              
              2006Federal:Current
              
              $
              1,167
              
              
              $
              788
              
              
              $
              105Deferred
              
              
              128
              
              
              
              208
              
              
              
              335State
      and local:Current
              
              
              201
              
              
              
              270
              
              
              
              187Deferred
              
              
              19
              
              
              
              6
              
              
              
              126Foreign:Current
              
              
              5,216
              
              
              
              2,461
              
              
              
              2,568Deferred
              
              
              1,985
              
              
              
              1,478
              
              
              
              673$
              8,716
              
              
              $
              5,211
              
              
              $
              3,994
  Income
taxes payable, which is included in accrued expenses, was $5,248 and $1,504 at
June 30, 2008 and 2007, respectively.
 
 52
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)




The tax
effects of temporary differences that give rise to the deferred tax assets and
liabilities at June 30, 2008 and 2007 are presented below:
 2008
              
              
              2007Deferred
      tax assets:Accrued
      environmental remediation liabilities not currently
    deductible
              
              $
              482
              
              
              $
              461Accrued
      deferred compensation
              
              
              1,984
              
              
              
              1,493Additional
      inventoried costs for tax purposes
              
              
              204
              
              
              
              168Allowance
      for doubtful accounts receivable
              
              
              143
              
              
              
              132Depreciation
      and amortization
              
              
              15
              
              
              
              -Impairment
      charges
              
              
              -
              
              
              
              196Foreign
      tax credit carryforward
              
              
              478
              
              
              
              -Domestic
      net operating loss carryforwards
              
              
              245
              
              
              
              333Foreign
      net operating loss carryforwards
              
              
              4,924
              
              
              
              8,738Total
      gross deferred tax assets
              
              
              8,475
              
              
              
              11,521Valuation
      allowances
              
              
              (1,534
              )
              
              
              (2,502
              )6,941
              
              
              
              9,019Deferred
      tax liabilities:Foreign
      deferred tax liabilities
              
              
              (2,821
              )
              
              
              (3,631
              )Unrealized
      gain on investments
              
              
              (250
              )
              
              
              (313
              )Goodwill
              
              
              (168
              )
              
              
              (143
              )Depreciation
      and amortization
              
              
              -
              
              
              
              (11
              )Installment
      gain on sale of assets
              
              
              (608
              )
              
              
              -Other
              
              
              (61
              )
              
              
              (53
              )Total
      gross deferred tax liabilities
              
              
              (3,908
              )
              
              
              (4,151
              )Net
      deferred tax assets
              
              $
              3,033
              
              
              $
              4,868
 
 The
following table shows the current and non current deferred tax assets
(liabilities) at June 30, 2008 and 2007:
 
 2008
              
              
              2007Current
      deferred tax assets, net
              
              $
              1,756
              
              
              $
              2,541Non-current
      deferred tax assets, net
              
              
              4,098
              
              
              
              5,958Current
      deferred tax liabilities
              
              
              (1,070
              )
              
              
              (885
              )Non
      current deferred tax liabilities
              
              
              (1,751
              )
              
              
              (2,746
              )Net
      deferred tax assets
              
              $
              3,033
              
              
              $
              4,868
 
 The
change in net deferred tax assets for the year ended June 30, 2008 was a
decrease of $1,835. This decrease is related primarily to German tax reform
which was enacted in August 2007 that reduced the corporate headline tax rate
for businesses from 40% to 30%, as well as implementing a cap on interest
deductions and tightening the tax basis for trade tax income. This tax rate
reduction became effective for tax years ending after January 1, 2008. Due to
the reduction in the overall German tax rate, the deferred income tax asset was
revalued during the month of enactment of the tax reform, which was in the first
quarter of fiscal 2008, and therefore was reduced by approximately $1,429, which
is reflected in the consolidated financial statements for the year ended June
30, 2008.
 
 The net
change in the total valuation allowance for the year ended June 30, 2008 was a
decrease of $968, which was primarily due to the disallowance of a tax deduction
in Aceto France that had been fully reserved at June 30, 2007. The net change in
the total valuation allowance for the year ended June 30, 2007 was an increase
of $52.  This increase was primarily attributable to an additional
valuation allowance recorded for net operating loss carryforwards generated in
certain foreign jurisdictions.  A valuation allowance is provided when
it is more likely than not that some portion, or all, of the deferred tax assets
will not be realized.  The Company has established valuation
allowances primarily for net operating loss carryforwards in certain foreign
countries.  In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets are not expected to be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which net operating loss carryforwards are
utilizable and temporary differences become deductible.  Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order
to fully realize the net deferred tax assets recognized at June 30, 2008, the
Company will need to generate future taxable income of approximately
$9,500.
  53
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Based
upon the level of historical taxable income and projections for taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.  There can be no assurance, however,
that the Company will generate any earnings or any specific level of continuing
earnings in the future.  The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are
reduced.
 
 Deferred
taxes have not been provided on undistributed earnings of foreign subsidiaries
amounting to approximately $69,700 at June 30, 2008 since substantially all of
these earnings are expected to be permanently reinvested in foreign
operations.  A deferred tax liability will be recognized when the
Company expects that it will recover these undistributed earnings in a taxable
manner, such as through the receipt of dividends or sale of the
investments.  Determination of the amount of unrecognized deferred
U.S. income tax liabilities is not practical to calculate because of the
complexity of this hypothetical calculation.  In addition,
unrecognized foreign tax credit carryforwards would be available to reduce a
portion of such U.S. tax liability.
 
 We
operate in various tax jurisdictions, and although we believe that we have
provided for income and other taxes in accordance with the relevant regulations,
if the applicable regulations were ultimately interpreted differently by a
taxing authority, we may be exposed to additional tax liabilities.
 
 A
reconciliation of the statutory federal income tax rate and the effective tax
rate for continuing operations for the fiscal years ended June 30, 2008, 2007
and 2006 follows:
 2008
              
              
              2007
              
              
              2006Federal
      statutory tax rate
              
              
              34.0
              %
              
              
              34.0
              %
              
              
              34.0
              %State
      and local taxes, net of federal income tax benefit
              
              
              0.6
              
              
              
              1.1
              
              
              
              1.0Increase
      in valuation allowance
              
              
              0.0
              
              
              
              0.4
              
              
              
              5.3Foreign
      tax rate differential
              
              
              (2.2
              )
              
              
              (2.1
              )
              
              
              (9.1
              )Change
      in foreign tax rate effect
              
              
              6.4
              
              
              
              -
              
              
              
              -Other
              
              
              0.5
              
              
              
              0.4
              
              
              
              (1.1
              )Effective
      tax rate
              
              
              39.3
              %
              
              
              33.8
              %
              
              
              30.1
              %
 
 At June
30, 2008, the Company had foreign net operating loss carryforwards of
approximately $15,200 which are available to offset future foreign taxable
income and which have no expiration date.
 
 In June
2006, the FASB issued FASB Interpretation (FIN) No. 48 “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109”. FIN
No. 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 No. 48 is effective for fiscal
years beginning after December 15, 2006. The Company adopted FIN No. 48 on July
1, 2007 and determined that the adoption of FIN No. 48 did not have a material
impact on its consolidated financial statements. In addition, there are no
material unrecognized tax benefits included in the consolidated balance sheet
that would, if recognized, have a material effect on the Company’s effective tax
rate. The Company is continuing its practice of recognizing interest and
penalties related to income tax matters in income tax expense. The total accrual
for interest and penalties related to uncertain tax positions was approximately
$122 as of June 30, 2008. The Company recognized
interest and penalties of $53 related to income taxes during the
year ended June 30, 2008. The Company files U.S. federal, U.S. state, and
foreign tax returns, and is generally no longer subject to tax examinations for
fiscal years prior to 2005 (in the case of certain foreign tax returns, fiscal
year 2002).
 
 54
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  (13)
Supplemental Cash Flow Information
 
 Cash paid
for interest and income taxes during fiscal 2008, 2007 and 2006 was as
follows:
 
 
 2008
              
              
              2007
              
              
              2006Interest
              
              $
              115
              
              
              $
              167
              
              
              $
              129Income
      taxes, net of refunds
              
              $
              3,127
              
              
              $
              3,822
              
              
              $
              797
  The
Company had a non-cash item excluded from the Consolidated Statements of Cash
Flows during the years ended June 30, 2008 , 2007, and 2006 of $1,710, $737 and
$4,205, respectively, related to capitalized environmental remediation
costs.
 
 
 (14)
Retirement Plans
 
 Defined
Contribution Plans
 
 The
Company has defined contribution retirement plans in which certain employees are
eligible to participate, including deferred compensation plans (see below). The
Company's annual contribution per employee, which is at management's discretion,
is based on a percentage of the employee’s compensation. The Company's provision
for these defined contribution plans amounted to $1,237, $1,209 and $1,148 in
fiscal 2008, 2007 and 2006, respectively.
 
 Defined
Benefit Plans
 
 The
Company sponsors certain defined benefit pension plans covering certain
employees of its German subsidiaries who meet the plan’s eligibility
requirements.  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.  The Company
adopted the recognition and disclosure provisions of this statement for the year
ended June 30, 2007. The incremental effect of applying SFAS No. 158 on
individual line items in the consolidated balance sheet at June 30, 2007 is as
follows:
 
 Prior
      to SFAS
                No.
      158
                adoption
              
              SFAS
      No. 158
                adoption
                adjustments
              
              After
      SFAS
                No.
      158
                adoptionAccrued
      pension liability
              
              874
              
              
              (63)
              
              811Deferred
      income tax liability
              
              2,721
              
              
              25
              
              2,746Total
      liabilities
              
              63,689
              
              
              (38)
              
              63,651Accumulated
      other comprehensive income
              
              5,953
              
              
              38
              
              5,991Total
      shareholders’ equity
              
              124,789
              
              
              38
              
              124,827
 
 The
accrued pension liability as of June 30, 2008 was $933.  The accrued
pension liability recorded as of June 30, 2007 amounted to $811.  Net
periodic pension costs, which consists principally of interest cost and service
cost was $80 in fiscal 2008, $73 in fiscal 2007 and $87 in fiscal
2006.  The Company’s plans are funded in conformity with the funding
requirements of the applicable government regulations.  An assumed
weighted average discount rate of 6.0%, 5.1% and 4.2% and a compensation
increase rate of 4.0%, 3.2% and 3.3% were used in determining the actuarial
present value of benefit obligations as of June 30, 2008, 2007 and 2006,
respectively.
  55
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Deferred
Compensation Plans
 
 To comply
with the requirements of the American Jobs Creation Act of 2004, as of December
2004, the Company froze its non-qualified Supplemental Executive Retirement Plan
(the Frozen Plan) and has not allowed any further deferrals or contributions to
the Frozen Plan after December 31, 2004.  All of the earned benefits
of the participants in the Frozen Plan as of December 31, 2004, will be
preserved under the existing plan provisions.
 
 On March
14, 2005, the Company’s Board of Directors adopted the Aceto Corporation
Supplemental Executive Deferred Compensation Plan (the Plan).  The
Plan is a non-qualified deferred compensation plan intended to provide certain
qualified executives with supplemental benefits beyond the Company’s 401(k)
plan, as well as to permit additional deferrals of a portion of their
compensation.  The Plan is intended to comply with the provisions of
section 409A of the Internal Revenue Code of 1986, as amended, and is designed
to provide comparable benefits to those under the Frozen
Plan.  Substantially all compensation deferred under the Plan, as well
as Company contributions, is held by the Company in a grantor trust, which is
considered an asset of the Company.  The assets held by the grantor
trust are in life insurance policies.
 
 As of
June 30, 2008 and 2007, the Company recorded a liability under the Plans of
$3,909 and $3,523 respectively, (included in long-term liabilities) and an asset
(included in other assets) of $3,284 and $3,008, respectively, primarily
representing the cash surrender value of policies owned by the
Company.
 
 (15)
Financial Instruments
 
 Derivative
Financial Instruments
 
 At June
30, 2008 and 2007 the Company had future foreign currency contracts that have a
notional amount of $20,768 and $13,793, respectively.  Unrealized
gains (losses) on hedging activities at the end of fiscal 2008 and 2007 amounted
to $5 and ($20), respectively and are included in the consolidated statements of
income.  The contracts have varying maturities of less than one
year.
 
 The
Company is exposed to credit losses in the event of non-performance by the
financial institutions, who are the counter parties, on its future foreign
currency contracts.  The Company anticipates, however, that the
financial institutions will be able to fully satisfy their obligations under the
contracts.  The Company does not obtain collateral to support
financial instruments, but monitors the credit standing of the financial
institutions.
 
 In
addition, the Company entered into cross currency interest rate swaps to reduce
foreign currency exposure on inter-company transactions.  In May 2003
Aceto 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 inter-company
loans.  This transaction expired in May 2008 when the underlying
inter-company loan was repaid. Since this interest rate swap qualified as
hedging activity, the change in its fair value, amounting to $161 in fiscal 2007
is recorded in accumulated other comprehensive income included in the
accompanying consolidated balance sheet as of June 30, 2007.
 
 Off-Balance
Sheet Risk
 
 Commercial
letters of credit are issued by the Company during the ordinary course of
business through major banks as requested by certain suppliers.  The
Company had open letters of credit of approximately $663 and $702 as of June 30,
2008 and 2007, respectively.  The terms of these letters of credit are
all less than one year.  No material loss is anticipated due to
non-performance by the counter parties to these agreements.
 
 Fair
Value of Financial Instruments
 
 The
carrying values of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.  The difference between the fair value
of long-term notes receivable and their carrying value at both June 30, 2008 and
2007 was not material.  The fair value of the Company’s notes
receivable was based upon current rates offered for similar financial
instruments to the Company.
  56
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Business
and Credit Concentration
 
 Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of trade receivables. The Company’s customers are
dispersed across many industries and are located throughout the United States as
well as in Mexico, Brazil, Malaysia, France, Canada, Germany, Vietnam, Greece,
Australia, the United Kingdom, the Netherlands and other countries. The Company
estimates an allowance for doubtful accounts based upon the credit worthiness of
its customers as well as general economic conditions. Consequently, an adverse
change in those factors could affect the Company’s estimate of this allowance.
The Company as a policy does not require collateral from its
customers.  At June 30, 2008 and 2007, no single customer accounted
for as much as 10% of net trade accounts receivable.
 
 No single
product or customer accounted for as much as 10% of net sales in fiscal 2008,
2007 or 2006.
 
 During
the fiscal years ended June 30, 2008, 2007 and 2006, approximately 67%, 65% and
67%, respectively, of the Company’s purchases came from Asia and approximately
19%, 21% and 21%, respectively, came from Europe.
 
 The
Company maintains operations located outside of the United
States.  Net assets located in Europe and Asia approximated $45,919
and $34,307, respectively at June 30, 2008.  Net assets located in
Europe and Asia approximated $31,559 and $32,560, respectively at June 30,
2007.
 
 (16)
Commitments and Contingencies
 
 As of
June 30, 2008, the Company has outstanding purchase obligations totaling $79,168
with suppliers to the Company’s domestic and foreign operations 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.
 
 Packaging
used for one of the Company's crop protection products was covered by a patent,
for which the Company had a license that expired in August 2007. The Company had
commenced a lawsuit against the current owner of the patent bringing claims
based on antitrust and related claims.   In December 2007, the
Company's motion for a preliminary injunction was denied. In May 2008, the
patent owner filed a lawsuit against the Company for patent infringement, among
other claims seeking unspecified monetary damages and a permanent injunction.
The court then granted the patent owner's motion for a temporary restraining
order, which temporarily restrained Aceto from using or selling product in
packaging covered by the patent.  On May 16, 2008, the Company
announced that it had settled the litigation and sold the crop protection
product to the patent owner.  The sale included registrations, data,
know-how and certain inventories.  The settlement of the litigation
and sale of the crop protection product did not have a material impact on the
Company’s financial condition or liquidity.
 
 In fiscal
2008 and 2007, the Company received letters from the Pulvair Site Group, a group
of potentially responsible parties (PRP Group) who are working with the State of
Tennessee (the State) to remediate a contaminated property in Tennessee called
the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous
substances to the site which were released into the
environment.   The State had begun administrative proceedings
against the members of the PRP group and Aceto with respect to the cleanup of
the Pulvair site and the group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $2,100 from the Company for its share to
remediate the site contamination. Although the Company acknowledges that it
shipped materials to the site for formulation over twenty years ago, the Company
believes that the evidence does not show that the hazardous materials sent by
Aceto to the site have significantly contributed to the contamination of the
environment. Accordingly, the Company believes that the settlement offer is
unreasonable. Alternatively, counsel to the PRP Group has proposed that Aceto
join it as a participating member and pay 3.16% of the PRP Group's
cost.  The Company believes that this percentage is high because it is
based on the total volume of materials that Aceto sent to the site, most of
which were non-hazardous substances and as such, believes that, at most, it is a
de minimus contributor to the site contamination. The impact of the resolution
of this matter on the Company's results of operations in a particular reporting
period is not known.  However, management believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial condition or liquidity.
  57
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  The
Company has environmental remediation obligations in connection with Arsynco’s
former manufacturing facility located in Carlstadt, New Jersey, which was closed
in 1993 and is currently held for sale.  During fiscal 2008, 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 $7,846 and $9,574.  As of
June 30, 2008 a liability of $7,846 is included in the accompanying consolidated
balance sheet.   However, these matters, if resolved in a manner
different from those assumed in current estimates, could have a material adverse
effect on the Company’s financial condition, operating results and cash flows
when resolved in a future reporting period.
 
 In
connection with the environmental remediation obligation for Arsynco, the
Company has filed a claim against BASF Corporation (BASF), the former owners of
the Arsynco property. The Company alleges that BASF is liable for a portion of
the cost to remediate, however, since collection is uncertain at this time, no
asset has been recorded.
 
 In March
2006, Arsynco received notice from the EPA of its status as a PRP under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for a site described as the Berry’s Creek Study Area.   Arsynco
is one of over 150 PRPs 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 PRPs and their financial
strength.  Based on prior practice in similar situations, it is
possible that the State may assert a claim for natural resource damages with
respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages
in connection with Berry's Creek; any such claim with respect to Berry's Creek
could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site.  Any claim for natural
resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. 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 $625 was
paid in December 2005 and the remaining $750 will be paid in equal installments
over the next five years.  As of June 30, 2008, the balance is
$450.  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 of 11 years, and a charge of $537, included in SG&A
expense, for the fiscal year ended June 30, 2006.
 
 A
subsidiary of the Company markets certain agricultural chemicals which are
subject to the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA).  FIFRA requires that test data be provided to the
Environmental Protection Agency (EPA) to register, obtain and maintain approved
labels for pesticide products. The EPA requires that follow-on registrants of
these products compensate the initial registrant for the cost of producing the
necessary test data on a basis prescribed in the FIFRA regulations. Follow-on
registrants do not themselves generate or contract for the data. However, when
FIFRA requirements mandate that new test data be generated to enable all
registrants to continue marketing a pesticide product, often both the initial
and follow-on registrants establish a task force to jointly undertake the
testing effort. The Company is presently a member of three such task force
groups and historically, our payments have been in the range of $100 - $250 per
year.  The Company may be required to make additional payments in the
future.
 
 The
Company leases office facilities in the United States, the Netherlands, Germany,
France, China and Singapore expiring at various dates between December 2008 and
April 2011.  In addition, a domestic subsidiary leases a manufacturing
facility under an operating lease expiring December 2009.
 
 58
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  At June
30, 2008, the future minimum lease payments for office facilities and equipment
for each of the five succeeding years and in the aggregate are as
follows:
 
 Fiscal
      year
              
              Amount2009
              
              $
              2,1312010
              
              
              1,6872011
              
              
              1,0592012
              
              
              892013
              
              
              82Thereafter
              
              
              165$
              5,213
 
 Total
rental expense amounted to $1,868, $1,672 and $1,651 for fiscal 2008, 2007 and
2006, respectively.
 
 In June
2006, the Company negotiated a lease termination with its landlord for the
facility previously occupied by CDC and Magnum.  In connection with
the lease termination, the landlord and a third party entered into a long-term
lease for which the Company guaranteed the rental payments by the third party
through September 30, 2009.  As of June 30, 2008, the aggregate future
rental payments of the third party that are guaranteed by the Company are $382
and the fair value of this guarantee is deemed to be insignificant.
 
 (17)
Related Party Transactions
 
 Certain
directors of the Company are affiliated with law firms that serve as legal
counsel to the Company on various corporate matters.  During fiscal
2008, 2007 and 2006, the Company incurred legal fees of $342, $329 and $315,
respectively, for services rendered to the Company by those law firms. The
Company believes that the fees charged by those firms were at rates comparable
to rates obtainable from other firms for similar services.
 
 In
November 2003, the Company formed a joint venture with Nufarm Americas, Inc.
(Nufarm), a subsidiary of Australia-based Nufarm Limited.  Each
company owns 50% of the joint venture, named S.R.F.A., LLC. In June 2004, Nufarm
and the Company each loaned $1,000 to S.R.F.A., with those loans being evidenced
by demand notes that bear interest at 3.0% per annum.  During fiscal
2005, S.R.F.A. repaid $500 of principal to each of Nufarm and the
Company.  The amounts due Nufarm at June 30, 2008 and 2007 are
included as a note payable in the accompanying consolidated balance
sheets.
 
 (18)
Other Recent Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157). SFAS No. 157 establishes a common definition for fair value to be
applied to US GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007.  In February 2008, the FASB provided a one-year
deferral for the implementation of SFAS No. 157 for nonfinancial assets and
liabilities recognized or disclosed at fair value in the financial statements on
a nonrecurring basis.Management believes the
adoption of this statement is not expected to have a material impact on the
consolidated financial position or results of operations and that the impact in
2009 will only be on Aceto’s disclosures.
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115" (SFAS No. 159). SFAS No. 159 allows companies the choice to
measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting date. The
provisions of SFAS No. 159 will be effective for fiscal years beginning after
November 15, 2007.  The Company does not believe adopting the provisions of
SFAS No. 159 will have a significant impact on its consolidated financial
statements.
 
 In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards” (EITF No. 06-11). EITF No. 06-11 provides guidance regarding how an
entity should recognize the tax benefit received as a result of dividends paid
to holders of share-based compensation awards and charged to retained earnings
according to SFAS No. 123(R), and will become effective in the first quarter of
2009. Management does not expect EITF No. 06-11 to have a material impact on the
Company’s consolidated financial statements.
  59
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS No. 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company must adopt these new requirements in its first
quarter of fiscal 2010.  The adoption of this statement will impact
the manner in which the Company presents noncontrolling interests, but will not
impact its consolidated financial position or results of
operations.
 
 In
December 2007, the FASB approved the issuance of SFAS No. 141 (revised 2007)
“Business Combinations” (SFAS No. 141R). SFAS No. 141R establishes principles
and requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161).
SFAS No. 161 requires enhanced qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the impact of SFAS No. 161 on its consolidated financial
statements.
  (19)
Segment Information
  The
Company's business is organized along product lines into three principal
segments: Health Sciences, Chemicals & Colorants and Crop
Protection.
  Health Sciences - includes the
active ingredients for generic pharmaceuticals, vitamins, and nutritional
supplements, as well as products used in preparing pharmaceuticals, primarily by
major innovative drug companies, and biopharmaceuticals.
  Chemicals & Colorants -
includes a variety of specialty chemicals used in plastics, resins, adhesives,
coatings, food, flavor additives, fragrances, cosmetics, metal finishing,
electronics, air-conditioning systems and many other areas. Dye and pigment
intermediates are used in the color-producing industries such as textiles, inks,
paper, and coatings. Organic intermediates are used in the production of
agrochemicals.
  Crop Protection - includes
herbicides, fungicides and insecticides that control weed growth as well as
control the spread of insects and other microorganisms that can severely damage
plant growth. The Crop Protection segment also includes a sprout inhibitor for
potatoes and an herbicide for sugar cane. The Company changed the name of this
segment from Agrochemicals to Crop Protection in 2007 to more accurately portray
the markets in which it does business.
  The
Company's chief operating decision maker evaluates performance of the segments
based on net sales and gross profit. The Company does not allocate assets by
segment because the chief operating decision maker does not review the assets by
segment to assess the segments' performance, as the assets are managed on an
entity-wide basis.
  60
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
  Health
                Sciences
              
              
              Chemicals
      & Colorants
              
              
              Crop
                Protection
              
              
              Consolidated
      Totals2008Net
      sales
              
              
              $
              211,481
              
              
              $
              129,662
              
              
              $
              18,448
              
              
              $
              359,591Net
      gross profit
              
              
              
              44,612
              
              
              
              18,782
              
              
              
              3,911
              
              
              
              67,3052007Net
      sales
              
              
              $
              170,691
              
              
              $
              123,299
              
              
              $
              19,483
              
              
              $
              313,473Net
      gross profit
              
              
              
              33,007
              
              
              
              16,556
              
              
              
              4,930
              
              
              
              54,4932006Net
      sales
              
              
              $
              166,725
              
              
              $
              110,869
              
              
              $
              19,734
              
              
              $
              297,328Gross
      profit
              
              
              
              32,313
              
              
              
              17,144
              
              
              
              4,760
              
              
              
              54,217Unallocated
      cost of sales (1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,259
              )Net
      gross profit
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              50,958
 
 
 (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.  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.
 
 Net sales
and gross profit by source country for the years ended June 30, 2008, 2007 and
2006 were as follows:
 
 Net Sales
              
              
              Gross Profit2008
              
              
              2007
              
              
              2006
              
              
              2008
              
              
              2007
              
              
              2006United
      States
              
              $
              207,839
              
              
              $
              184,391
              
              
              $
              184,395
              
              
              $
              33,785
              
              
              $
              29,779
              
              
              $
              30,348Germany
              
              
              72,077
              
              
              
              68,484
              
              
              
              56,464
              
              
              
              24,296
              
              
              
              17,371
              
              
              
              14,311Netherlands
              
              
              12,215
              
              
              
              8,579
              
              
              
              10,095
              
              
              
              1,826
              
              
              
              1,594
              
              
              
              1,791France
              
              
              26,286
              
              
              
              16,812
              
              
              
              15,543
              
              
              
              2,919
              
              
              
              1,973
              
              
              
              1,808Asia-Pacific
              
              
              41,174
              
              
              
              35,207
              
              
              
              30,831
              
              
              
              4,479
              
              
              
              3,776
              
              
              
              2,700Total
              
              $
              359,591
              
              
              $
              313,473
              
              
              $
              297,328
              
              
              $
              67,305
              
              
              $
              54,493
              
              
              $
              50,958
 
 Sales
generated from the United States to foreign countries amounted to $44,844,
$35,540 and $29,152 for the fiscal years ended June 30, 2008, 2007 and 2006,
respectively.
 
 Long-lived
assets by geographic region as of June 30, 2008 and June 30, 2007 were as
follows were as follows:
 
 Long-lived assets2008
              
              
              2007United
      States
              
              $
              4,729
              
              
              $
              5,229Europe
              
              
              3,734
              
              
              
              3,967Asia-Pacific
              
              
              3,252
              
              
              
              2,847Total
              
              $
              11,715
              
              
              $
              12,043
 
 61
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED JUNE 30, 2008, 2007 AND 2006
 (in
thousands, except per-share amounts)
 
 (20)  Unaudited
Quarterly Financial Data
 
 The
following is a summary of the unaudited quarterly results of operations for the
years ended June 30, 2008 and 2007.
 
 For
      the quarter endedFiscal
      year ended June 30, 2008
              
              September
      30, 2007
              
              
              December
      31,
                2007
              
              
              March
      31,
                2008
              
              
              June
      30,
                2008Net
      sales
              
              $
              79,528
              
              
              $
              77,105
              
              
              $
              98,255
              
              
              $
              104,703Gross
      profit
              
              
              14,563
              
              
              
              12,479
              
              
              
              16,043
              
              
              
              24,220Net
      income
              
              
              1,294
              
              
              
              908
              
              
              
              3,294
              
              
              
              7,977Net
      income per diluted share
              
              $
              0.05
              
              
              $
              0.04
              
              
              $
              0.13
              
              
              $
              0.32For
      the quarter endedFiscal
      year ended June 30, 2007
              
              September
      30, 2006
              
              
              December
      31,
                2006
              
              
              March
      31,
                2007
              
              
              June
      30,
                2007Net
      sales
              
              $
              74,725
              
              
              $
              75,686
              
              
              $
              75,879
              
              
              $
              87,183Gross
      profit
              
              
              12,561
              
              
              
              12,562
              
              
              
              12,876
              
              
              
              16,494Net
      income
              
              
              2,462
              
              
              
              1,744
              
              
              
              1,800
              
              
              
              4,206Net
      income per diluted share
              
              $
              0.10
              
              
              $
              0.07
              
              
              $
              0.07
              
              
              $
              0.17
 
 The net
income per common share calculation for each of the quarters is based on the
weighted average number of shares outstanding in each
period.  Therefore, the sum of the quarters in a year does not
necessarily equal the year’s net income per common share.
 
 62
 
 Schedule
II
 
 ACETO
CORPORATION AND SUBSIDIARIES
 
 Valuation
and Qualifying Accounts
 
 For
      the years ended June 30, 2008, 2007 and 2006
                (dollars
      in thousands)Description
              
              Balance
      at beginning of
                year
              
              
              Charged
      to
                costs
      and
                expenses
              
              
              Charged
      to
                other
                accounts
              
              
              Deductions
              
              
              Balance
      at
                end
      of yearYear
      ended June 30, 2008Allowance
      for doubtful accounts
              
              $
              491
              
              
              $
              98
              
              
              
              -
              
              
              $
              $112
              (a)
              
              $
              477Year
      ended June 30, 2007Allowance
      for doubtful accounts
              
              $
              416
              
              
              $
              132
              
              
              
              -
              
              
              $
              57
              (a)
              
              $
              491Year
      ended June 30, 2006Allowance
      for doubtful accounts
              
              $
              427
              
              
              $
              38
              
              
              
              -
              
              
              $
              49
              (a)
              
              $
              416
 
 (a)  Specific
accounts written off as uncollectible.
 
 63
  SIGNATURES
 
 
 Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 ACETO
      CORPORATIONBy:
                /s/Leonard
      S. SchwartzLeonard
      S. SchwartzChairman,
      President andChief
      Executive OfficerDate:   September
      4, 2008
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
   Signatures
                
                Title
                
                Date/s/Leonard
      S. Schwartz
                
                Chairman,
      President and
                
                09-04-08Leonard
      S. Schwartz
                
                Chief
      Executive Officer(Principal
      Executive Officer)/s/Douglas
      Roth
                
                Secretary/Treasurer
      and
                
                09-04-08Douglas
      Roth
                
                Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)/s/Stanley
      Fischer
                
                Director
                
                09-04-08Stanley
      Fischer/s/Robert
      Wiesen
                
                Director
                
                09-04-08Robert
      Wiesen/s/Albert
      L. Eilender
                
                Director
                
                09-04-08Albert
      L. Eilender/s/Hans
      C. Noetzli
                
                Director
                
                09-04-08Hans
      C. Noetzli/s/William
      Britton
                
                Director
                
                09-04-08William
      Britton
  64
 EXHIBIT INDEX
 Exhibit
Number                                          Description
 
 3.1
              
              Restated
      Certificate of Incorporation (incorporated by reference to Exhibit
      4(a)(iii) to RegistrationStatement
      No. 2-70623 on Form S-8 (S-8 2-70623)).3.2
              
              Certificate
      of Amendment dated November 21, 1985 to Restated Certificate of
      Incorporation (incorporated by reference to Exhibit 3(ii) to the Company's
      annual report on Form 10-K for the fiscal year ended June 30,
      1986).3.3
              
              Amended
      and restated by-laws of Aceto Corporation, effective as of February 2,
      2005 (incorporated by reference to Exhibit 3.1 to the Company’s current
      report on Form 8-K dated February 2, 2005).3.4
              
              Amended
      and restated by-laws of Aceto Corporation, effective as of December 6,
      2007 (incorporated by reference to Exhibit 3.1 to the Company’s current
      report on Form 8-K dated December 6, 2007).10.1
              
              Aceto
      Corporation 401(k) Retirement Plan, effective August 1, 1997, as amended
      and restated as of July 1, 2002 (incorporated by reference to Exhibit 10.1
      to the Company’s annual report on Form 10-K for the fiscal year ended June
      30, 2004).10.2
              
              Supplemental
      Executive Retirement Plan, as amended and restated, effective June 30,
      2004 and frozen as of December 31, 2004 (incorporated by reference to
      Exhibit 10.2 to the Company’s annual report on Form   10-K
      for the fiscal year ended June 30, 2004).10.3
              
              Aceto
      Corporation Stock Option Plan (as Amended and Restated effective as of
      September 19, 1990) (and as further Amended effective June 9, 1992)
      (incorporated by reference to Exhibit 10(v)(b) to the Company'sannual
      report on Form 10-K for the fiscal year ended June 30,
    1992).10.4
              
              1998
      Aceto Corporation Omnibus Equity Award Plan (incorporated by reference to
      Exhibit 10(v) to the Company’s annual report on Form 10-K for the fiscal
      year ended June 30, 1999).10.5
              
              Aceto
      Corporation 2002 Stock Option Plan (incorporated by reference to Exhibit
      4(i) to Registration Statement No. 333-110653 on Form
  S-8).10.6
              
              Lease
      between Aceto Corporation and M. Parisi & Son Construction Co., Inc.
      for office space at One Hollow Lane, Lake Success, NY dated April 28, 2000
      (incorporated by reference to Exhibit 10(vi) to the Company’s annual
      report on Form 10-K for the fiscal year ended June 30,
    2000).10.7
              
              Lease
      between Aceto Corporation and M. Parisi & Son Construction Co., Inc.
      for office space at One Hollow Lane, Lake Success, NY dated April 28, 2000
      (incorporated by reference to Exhibit 10(vi)(b) to the Company’s annual
      report on Form 10-K for the year ended June 30, 2000).10.8
              
              Lease
      between CDC Products Corp. and Seaboard Estates for manufacturing and
      office space at 1801 Falmouth Avenue, New Hyde Park, NY dated October 31,
      1999 (incorporated by reference to Exhibit 10(vi)(c) to the Company’s
      annual report on Form 10-K for the year ended June 30,
    2000).10.9
              
              Stock
      Purchase Agreement among Windham Family Limited Partnership, Peter H.
      Kliegman, CDC Products Corp. and Aceto Corporation (incorporated by
      reference to Exhibit 10(vii) to the Company’s annual report on Form 10-K
      for the year ended June 30, 1999).10.10
              
              Asset
      Purchase Agreement among Magnum Research Corporation, CDC Products Corp.,
      Roy Gross and Aceto Corporation (incorporated by reference to Exhibit 10
      (viii) to the Company’s annual report on Form 10-K for the year ended June
      30, 2000).10.11
              
              Asset
      Purchase Agreement between Schweizerhall, Inc. and Aceto Corporation
      (incorporated by reference to Exhibit 10(ix) to the Company’s annual
      report on Form 10-K for the year ended June 30,
  2000).
  65
  10.12
              
              Purchase
      and Sale Agreement among Schweizerhall Holding AG, Chemische Fabrik
      Schweizerhall, Schweizerhall, Inc., Aceto Corporation and Aceto Holding
      B.V., I.O. (incorporated by reference to Exhibit 2.1 to the Company’s
      current report on Form 8-K dated April 4, 2001).10.13
              
              Loan
      Guarantee between Aceto Corporation and subsidiaries and Deutsche Bank AG
      dated March 22, 2001 (incorporated by reference to Exhibit 10.13 to the
      Company’s annual report on Form 10-K for the year ended June 30,
      2001).10.14
              
              Credit
      Agreement between Aceto Corporation and subsidiaries and JPMorgan Chase
      Bank dated May 10, 2002 (incorporated by reference to Exhibit 10.13 to the
      Company’s annual report on Form 10-K for the year ended June 30,
      2002).10.15
              
              Amendment
      and Waiver to Credit Agreement between Aceto Corporation and subsidiaries
      and JPMorgan Chase Bank dated June 29, 2004 (incorporated by reference to
      Exhibit 10.15 to the Company’s annual report on Form 10-K for the year
      ended June 30, 2004).10.16
              
              Waiver
      to Credit Agreement between Aceto Corporation and subsidiaries and
      JPMorgan Chase Bank dated August 31, 2004 (incorporated by reference to
      Exhibit 10.16 to the Company’s annual report on Form 10-K for the year
      ended June 30, 2004).10.17
              
              Share
      Purchase Agreement dated as of December 12, 2003 between Aceto Holding
      GmbH and Corange Deutschland Holding GmbH (incorporated by reference to
      Exhibit 2.1 to the Company’s current report on Form 8-K dated December 31,
      2003).10.18
              
              Aceto
      Corporation Supplemental Executive Deferred Compensation Plan, effective
      March 14, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s
      current report on Form 8-K dated March 14, 2005).10.19
              
              Form
      of purchase agreement between Shanghai Zhongjin Real Estate Development
      Company Limited and Aceto (Hong Kong) Limited dated November 10, 2004
      (incorporated by reference to Exhibit 10.1 to the Company’s quarterly
      report on Form 10-Q for the quarter ended December 31,
    2004).10.20
              
              Amendment
      and Waiver to Credit Agreement between Aceto Corporation and subsidiaries
      and JPMorgan Chase Bank dated June 26, 2007.10.21
              
              Aceto
      Corporation 2007 Long-Term Performance Incentive Plan (incorporated by
      reference to Exhibit 4(i) to Registration Statement No. 333-149586 on Form
      S-8).21.1*
              
              Subsidiaries
      of the Company.23.1*
              
              Consent
      of BDO Seidman, LLP.31.1*
              
              Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2*
              
              Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1*
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2*
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 *Filed
herewith