U. S. SECURITIES AND EXCHANGE COMMISSION
                     Washington, DC   20549

                              FORM 10-KSB
(Mark One)

[x] ANNUAL REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 for the fiscal year ended September 30, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT for the transition period from ______________ to ______________

    Commission file number: 000-27503

                      DYNASIL CORPORATION OF AMERICA
      (Exact name of small business issuer as specified in its charter)

         New Jersey                                       22-1734088
 (State or Other Jurisdiction of                       (I.R.S. Employer
 Incorporation or Organization)                        Identification No.)

385 Cooper Road, West Berlin, New Jersey                        08091
(Address of Principal Executive Offices)                      (Zip Code)

                              (856) 767-4600
                        (Issuer's Telephone Number)

Securities registered under Section 12(b) of the Act: none

Securities registered under Section 12(g) of the Act: common stock, $.0005
par value

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response
to item 405 of Regulation S-B contained in this form, and that
no disclosure will 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-KSB or any
amendment to this Form 10-KSB [ ]

State issuer's revenues for its most recent fiscal year: $6,936,631

The Company's common stock is quoted on the NASDAQ OTC Bulletin
Board under the symbol "DYSL.OB".   The estimated aggregate
market value of the voting and non-voting stock held by
non-affiliates of the registrant as of December 4, 2006 was
$2,172,034. The market value is based upon the last sale of the
Common Stock on the NASDAQ OTC Bulletin Board of $0.88 per share
as of December 4, 2006.

The Company had 4,228,487 shares of common stock, par value
$.0005 per share, outstanding as of December 4, 2006.

Documents incorporated by reference: none

Transitional Small Business Disclosure:     Yes       No  X
                                            ----       -----

                                      -1-
<PAGE>
                                  PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     Dynasil Corporation of America ("Dynasil", "we" or the "Company") was
incorporated in the State of New Jersey on October 20, 1960.

     We were founded as a manufacturer and fabricator of
synthetic fused silica, a high purity, industrial optical
material. The manufacturing aspect of the business entails
producing synthetic fused silica through a chemical-vapor-
deposition process in furnaces. The fabricating aspect deals
with precision cutting, coring and shaping to customer
specifications, also done at our manufacturing facility. In
recent years, we have suspended operations of our glass furnaces
and concentrated on the fabrication of optical materials
supplied by other manufacturers. This has included fused quartz
from General Electric, fused silica from Corning Incorporated,
and various optical materials from Schott Glass Technologies
Inc., Ohara Corporation, and others.

      On March 8, 2005, we acquired the operating assets and
assumed certain liabilities of Optometrics LLC ("Optometrics"),
a worldwide supplier of optical components and instruments
including diffraction gratings, interference filters, laser
optics, monochromators and specialized optical systems.  This
acquisition approximately doubled our revenues and added
significant profitability.

     On October 2, 2006, we acquired 100% of the stock of
Evaporated Metal Films Corporation ("EMF") in Ithaca, NY.  EMF
provides optical thin-film coatings for a broad range of
application markets including display systems, optical
instruments, satellite communications and lighting.  EMF
provides products and services to optics markets which are
related to those served by Dynasil. EMF is described in the
following business description, but its financial results will
not be included in Dynasil's financial results until fiscal year
2007.

      Our products are used as components of optical
instruments, lasers, analytical instruments,
semiconductor/electronic devices, automotive components,
spacecraft/aircraft components, and in devices for the energy
industry. These applications include:
     Optical components - diffraction gratings, interference filters, lenses,
     prisms, reflectors, mirrors, filters, optical flats, beam splitters,
     windows

     Lasers - beam splitters, brewster windows, q-switches, medical/industrial
     lasers, exciter systems, diffraction gratings

     Analytical Instruments - Spectrometers, fire control devices, reticle
     substrates, and interferometer plates

     Semiconductor/Electronic - Microcircuit substrates, microwave devices,
     photomasks, sputter plates, microlithography optics

     Spacecraft/Aircraft - Docking light covers, windows, re-entry heat shields,
     ring laser gyros

     We also produce several analytical instruments including an
instrument designed to measure the "Sun Protection Factor"
("SPF") of sunscreens.

     Our products are distributed through direct sales and
delivered by commercial carriers. We have eight sales and
marketing people who handle all sales. We also use
manufacturer's representatives in various foreign countries for
international sales. Marketing efforts include direct customer
contact through sales visits, advertising in trade publications
and presentations at trade shows.

     We compete for business in the optics industry primarily
with fabricators of industrial optical material, other optical
components manufacturers and other optical coaters. Market share
in the optics industry is largely a function of quality, price
and speed of delivery.  We believe that we compete effectively
in all three areas.

     Our largest supplier is Corning Incorporated.

     We presently have over 400 customers with approximately 31%
of our business concentrated in our top 10 customers. Our five
largest customers (including EMF

                                      -2-
<PAGE>
customers) accounted for approximately 6.9%, 6.3%, 3.7%, 3.0%
and 2.8%, respectively, of our revenues during fiscal year 2006.
The loss of any of these top five customers would likely have a
material adverse effect on our business, financial condition and
results of operations. Generally, our customers provide purchase
orders for a specific part, quantity and quality. Orders are
normally filled over a period ranging from one to six weeks. We
have blanket orders that call for monthly deliveries of a
predetermined amount.

     We have no patents or patent applications filed or pending.

     Other than federal, state and local environmental and
safety laws as well as ITAR requirements, our operations are not
subject to direct governmental regulation. We do not have any
pending notices of environmental violations and are aware of no
potential violations. There are no buried storage tanks on our
properties. Environmental costs for fiscal year 2006 did not
exceed $50,000.

     Our research and development activities primarily involve
new product development, changes to our manufacturing process
and the introduction of improved methods and equipment.
Improvements to our processes are ongoing and related costs are
incorporated into our manufacturing expenses.

     Our total work force, including EMF, consists of 75
employees: 8 administrative; 8 sales; 12 engineering, and 47
manufacturing personnel. The operations are non-union.

     The public may read and copy any materials we have filed
with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549.  Information on the
operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an
internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC. The address of the internet site is
http://www.sec.gov. The public can also contact Mr. Craig T.
Dunham at Dynasil Corporation of America, 385 Cooper Road, West
Berlin, NJ 08091 or through the internet web address
http://www.Dynasil.com.

ITEM 2.    DESCRIPTION OF PROPERTY

Facilities

     We own a manufacturing and office facility consisting of a
one-story, masonry and steel building containing approximately
15,760 square feet, located at 385 Cooper Road, West Berlin, New
Jersey 08091. The building is situated on a 3.686-acre site. It
contains eight inactive furnaces with attendant pollution
control systems, glass processing equipment, quality control
functions and administrative office space.  We also lease a
10,000 square foot building in Ayer, MA from a related party
with a lease that expires in March 2013. As part of the EMF
acquisition, we acquired a 44,000 square foot facility in
Ithaca, New York.  We believe the properties are in satisfactory
condition and suitable for our purposes.  The New Jersey and New
York properties are mortgaged as collateral against notes
payable to banks.

ITEM 3.  LEGAL PROCEEDINGS

     On August 30, 2004, the Company was served with a Summons
and Complaint in an action entitled Torrero v. Alcoa, Inc., et
al filed on August 19, 2004 in the Los Angeles (CA) Superior
Court. In that case, the plaintiffs, Lucy Torrero and Juan
Pedrosa Torrero, allege that glass blanks manufactured and sold
by the Company, along with the products or tools made and sold
by approximately twenty other defendants including General
Electric, ALCOA, Corning Incorporated and Raytheon, caused
plaintiff Lucy Torrero to develop lung cancer and other injuries
during her employment as an optical lens grinder and laborer by
companies that purchased or used those products or tools. The
plaintiffs seek compensatory and punitive damages aggregating
approximately $31,500,000. The lawsuit was refiled as a wrongful
death suit following the death of Lucy Torrero on April 11,
2006. To date, Dynasil has not been mentioned in any significant
way in the depositions of the plaintiffs' or her former
employer. The Company has referred the matter to its commercial
general liability insurance carriers which are defending the
Company

                                      -3-
<PAGE>
under reservations of rights. At this time, the Company does not
believe that an adverse outcome on this matter will have any
material adverse effect on the Company, its financial condition
or prospects.

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

     During the Fourth Quarter of the Fiscal Year covered by
this report, no matter was submitted to a vote of security
holders through solicitation of proxies or otherwise.

                                  PART II

ITEM 5.  MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The Registrant's Common Stock is quoted on the NASD-OTC
Bulletin Board under the symbol "DYSL.OB". The Company's Common
Stock has been traded publicly since April 22, 1981. The "high"
and "low" bid quotations for the Company's Common Stock as
reported by the OTC Bulletin Board for each quarterly period for
the fiscal years ended September 30, 2005 and September 30, 2006
were as follows:

  Fiscal Quarter        High Bid Price        Low Bid Price
  --------------        --------------        -------------

       2005
       First              $0.64                 $0.11
       Second              0.82                  0.40
       Third               0.79                  0.40
       Fourth              0.85                  0.59

       2006
       First              $0.89                 $0.70
       Second              0.91                  0.55
       Third               0.90                  0.52
       Fourth              0.85                  0.55


     The above listed quotes reflect inter-dealer prices without
retail mark-up, mark-down, or commissions, and may not represent
actual transactions.

The "high" and "low" sale prices for trades of the Company's
Common stock on the OTC bulletin board were as follows for each
quarterly period:

  Fiscal Quarter        High Sale Price       Low Sale Price
  --------------        --------------        -------------

       2005
       First              $0.75                 $0.13
       Second              0.99                  0.40
       Third               0.83                  0.41
       Fourth              0.95                  0.59

       2006
       First              $0.89                 $0.70
       Second              0.99                  0.55
       Third               1.01                  0.53
       Fourth              0.99                  0.60


     As of September 30, 2006, there were 3,888,293 shares of
common stock outstanding held by approximately 500 holders of
record of the Common Stock of the Company (including
shareholders whose stock is held in street name and who have
declined disclosure of such information).

     The Company has paid no cash dividends on common stock
since its inception. The Company intends to retain any future
earnings for use in its business and does not intend to pay cash
dividends on common stock in the foreseeable future.

                                      -4-
<PAGE>

Holders of the Common stock are entitled to share ratably in
dividends when and as declared by the Board of Directors out of
funds legally available therefore.  Preferred Stock dividends of
$70,000 and $39,410 were paid during the years ended September
30, 2006 and 2005 respectively.

     The Company adopted Stock Incentive Plans in 1996 and 1999
that permit, among other incentives, grants and options to
officers, directors, employees and consultants to purchase up to
2,250,000 shares of the Company's common stock. At September 30,
2006, 1,180,783 shares of common stock are available for
issuance under the Plans. Options are generally exercisable at
the fair market value on the date of grant over a five-year
period.  To date, options have been granted at exercise prices
ranging from $.40 to $4.25 per share. On September 30, 2006,
261,459 options were outstanding.

     The securities authorized for issuance under equity
compensation plans are set forth in a tabular format in response
to Item 11.

     The Company adopted an Employee Stock Purchase Plan that
permits substantially all employees to purchase common stock.
Employees have an opportunity to acquire common stock at a
purchase price of 85% of the fair market value of the shares.
Under the plan, a total of 450,000 shares had been reserved for
issuance. Of these, 147,094 shares have been purchased by
employees at purchase prices ranging from $.06 to $2.68 per
share. During any twelve-month period, employees are limited to
a total of $5,000 of stock purchases.

     On September 19, 2000 the Company filed a Form S-8 with the
United States Securities and Exchange Commission to register the
shares associated with the Stock Incentive Plans and the
Employee Stock Purchase Plan. Prior to that date the shares were
restricted and subject to the holding periods of Rule 144.

     On September 23, 2004, the Company entered into a
Subscription Agreement with Mr. Craig T. Dunham pursuant
to which Mr. Dunham agreed to acquire 1,000,000 shares of
Dynasil's common stock at $0.15 per share for $150,000
including a Stock Purchase Warrant pursuant to which Mr.
Dunham may acquire, at any time prior to January
31, 2008, up to an additional 1,200,000 shares of the Company's
common stock at an exercise price of $0.225 or $0.25 per share
dependent upon certain conditions.


ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

      The following management's discussion and analysis should
be read in conjunction with our financial statements and the
notes thereto appearing elsewhere in this Form 10-KSB.

General Business Overview

     Fiscal year 2006 was another year of major progress for
Dynasil.  Compared to fiscal year 2005, revenues increased by
36.6% to $6.9 million, net income increased by 166% to $460,156,
net cash from operations was nearly four times higher, and the
EMF acquisition was completed on the first business day of
fiscal year 2007.   The EMF acquisition significantly increases
our optical coating capabilities and is expected to increase our
revenues by 40-50% in fiscal year 2007 to more than $10 million
overall.  Management is pleased with the results compared to a
starting point of $2.3 million in revenues and a $176,000 loss
for fiscal year 2004. The markets for our optical materials,
coatings and components businesses are currently strong and our
businesses appear to be gaining market share.  We remain focused
on continuing to effectively execute our internal growth as well
as growing through further acquisitions and strategic alliances.

Results of Operations

          Revenues for the fiscal year ended September 30, 2006
were $6,936,631. This represents an increase of 36.6% over
revenues for the fiscal year ended September 30, 2005 of
$5,078,436. The revenue increases were driven by growth in both
our optical components and materials businesses as well as
inclusion of the

                            -5-
<PAGE>
Optometrics acquisition for the full year.  For organic growth,
we continue to focus on retaining our existing customers by
consistently meeting their requirements while gaining market
share and penetrating adjacent markets.

     Cost of sales for the fiscal year ended September 30, 2006
was $4,500,791, or 64.8% of sales, versus $3,519,845 or 69.3% of
sales for fiscal year ended September 30, 2005. Gross profit
nearly doubled to $2,435,840, or 35.2% of sales, for fiscal year
2006 from $1,558,591 or 30.7% of sales for fiscal year 2005. The
gross profit increase was primarily a result of the 36.6%
increase in revenues combined with Optometrics having higher
gross profit margins than our historical optical materials
business.  The gross profit percentage in our historical optical
materials business also significantly improved.  We continue to
focus on process improvements such as the 50% yield increase
that we delivered on one of our key product lines.  Corning
Incorporated, our largest fused silica supplier, is implementing
major policy changes in early 2007 which we expect to benefit
our fused silica business.  However, as with any significant
shift in our markets, there are always risks.

      Selling, general and administrative ("SG&A") expenses
increased to $1,911,283 or 27.5% of sales for fiscal year 2006
from $1,341,834 or 26.4% of sales for fiscal year 2005. The
primary reason for the dollar increase was the inclusion of a
full year of Optometrics SG&A expenses.  The primary reasons for
the increase in SG&A expenses as a percentage of sales were the
addition of a Sales Manager at Optometrics to drive growth and
higher profit sharing payments relating to the 166% net income
increase.  Every Company employee currently participates in
profit sharing based on a percentage of net income for their
business unit.

     Interest Expense-net, increased to $64,376 or 0.9% of sales
for fiscal year 2006 from $54,488 or 1.0% of sales for fiscal
year 2005. The dollar increase was a result of a full year of
interest costs for Optometrics.

     For fiscal year 2006, the Company had net income tax
expense of $25. The Company had a $37,275 provision for fiscal
year 2006 state income taxes, largely related to Optometrics'
profits in Massachusetts. This was offset by a $37,250 increase
in the deferred tax asset to recognize that the Company's return
to profitability means that the Company's net operating loss
carry-forwards are likely to have future value. Current federal
and some New Jersey state taxes for fiscal year 2006 were offset
by utilization of net operating loss carry-forwards.  As of
September 30, 2006 we have approximately $900,000 of net
operating loss carry-forwards to offset future taxable income
for federal tax purposes expiring in various years through 2021.
In addition, the Company has approximately $550,000 of net
operating loss carry-forwards to offset certain future New
Jersey state taxable income, expiring in various years through
2013.

     The Company had net income of $460,156 for the year ended
September 30, 2006 compared to net income of $173,019 for the
fiscal year ended September 30, 2005.  Our historical optical
materials business showed significant profitability improvement
and the results included a full year of strong Optometrics
profitability.

Liquidity and Capital Resources

     The net cash increase for fiscal year 2006 was $43,929
compared to $53,302 for fiscal year 2005.  Repayment of long
term debt and notes payable totaled $170,744.

     Net cash provided by operating activities was $403,365 for
fiscal year 2006 versus $102,444 for fiscal year 2005. The
$287,137 increase in net income was the largest driver of the
increased cash flow. Accounts receivable were up $214,019 due
primarily to the higher revenues and the timing of customer
payments.  Inventories increased $289,499 due primarily to the
Company owning fused silica raw material inventory that had
previously been Corning Incorporated's consignment inventory.
Corning initially reduced the availability of consignment
inventory on a temporary basis but they recently informed us
that they plan to permanently eliminate consignment inventory in
2007.  Therefore, it now appears that our fused silica raw
material inventory will remain at the higher level.

                                      -6-
<PAGE>
     Cash flows used in investing activities were ($154,233) for
fiscal year 2006 compared to ($865,955) for fiscal year 2005.
During 2006, $63,693 was paid for EMF acquisition costs.  Cash
paid for the Optometrics acquisition and acquisition costs was
$767,976 during fiscal year 2005. Capital expenditures to
purchase property, plant and equipment of $93,140 for fiscal
year 2006 were down slightly from $97,979 for 2005.

     Cash flows from (used in) financing activities were
($205,203) for fiscal year 2006 and $816,813 for fiscal year
2005. Cash used in financing activities for 2006 was primarily
used to reduce bank debt by $170,744 and to pay $70,000 of
preferred stock dividends.  Cash from 2006 issuance of common
stock was $42,387 which came primarily from employee
compensation paid in stock and the exercise of stock options.
Cash from financing activities for fiscal year 2005 came largely
from the sale of $700,000 of Preferred stock and bank financing
which were completed as part of the Optometrics acquisition.
These amounts in 2005 were offset by bank debt repayments of
$163,882 and dividends on preferred stock of $39,410.

     The Company believes that its current cash and cash
equivalent balances, and net cash generated by operations, will
be sufficient to meet its anticipated cash needs for working
capital for at least the next 12 months. Any business
acquisitions or major expansions may require the Company to seek
additional debt or equity financing.

EMF Acquisition
     The acquisition of EMF was completed on October 2, 2006.
Audited financial results will be reported on Form 8-K/A in
December 2006.  For fiscal year 2006, EMF had revenues just
under $3 million.  Dynasil purchased 100% of EMF stock for
$1.1 million.  For fiscal year 2007, we are targeting break-even
profitability at EMF due to transition costs and we may incur a
loss in the early quarters. Management believes that EMF has
capabilities which will lead to for significant profitability
over the longer term.

STRATEGIC PLAN

Long Term Vision:
The strategy for Dynasil is to significantly increase revenues
and profits both organically and through strategic acquisitions.
Our vision is to grow Dynasil over a ten year period into a
highly profitable optics/photonics company with revenues
approaching $100 million.

Strategy:
Have a small corporate staff that centralizes selected
activities and coordinates development of key competencies for a
group of decentralized business units including:
  -    Provide overall corporate leadership and coordination
  -    Consolidate financial results as well as handling outside
     reporting, investor relations and SEC compliance
  -    Use public company status to raise equity for growth
  -    Drive acquisition activities
  -    Provide human resource skills
  -    Purchase common items (such as insurance)
  -    Drive key corporate competencies into the business units including:
       o    Management by objectives
       o    Effective decision making, problem solving and prioritization
       o    Disciplined manufacturing systems
       o    Continuous revenue growth and operations improvement

Grow organically through decentralized business units that
function as market focused businesses to provide clear focus and
ownership for meeting key business goals. Each business unit is
planned to be headed by a General Manager with overall
responsibility for that unit as well as for managing the
interfaces to other business units and the corporate staff.

                                      -7-
<PAGE>



Grow strategically through acquisitions.  Target two types of
acquisition candidates: 1) Mature optics companies with moderate
growth prospects and strong cash flow potential and 2) Photonics
acquisitions or strategic alliances with high growth potential.

Here are some key elements of our strategy for the three
existing Dynasil business units and for acquisitions:

1)    Grow  Optometrics  revenues  at  least  10%  per  year  by
concentrating on our core capabilities in optical components.
  a)    Retain  our  existing customers through strong  customer
     service, quality, competitive pricing and value-added services.
  b)    Focus on yield improvement, process discipline and  cost
     reduction in manufacturing.
  c)   Gain market share through improved international
     distribution and by pursuing additional OEM and distribution
     business.
  d)   Utilize market position to penetrate adjacent markets with
     broader filter and gratings capabilities as well as instruments
     that utilize our component capabilities.

2)    Run  the New Jersey Optical Materials Business to Maximize
Cash.  Maintain recent revenue gains while moderately increasing
gross margins and adding additional revenue growth of 3-5% per
year.
  a)    Focus  sales and marketing efforts on fused  silica  and
     quartz  blanks  where  we have a strong  reputation  and  a
     competitive offering.  Enhance relationships with  existing
     customers as well as pursuing other customers with attractive
     fused silica business.
  b)   Selectively expand the Company's product line into other
     high value optical materials.
  c)   Actively manage international sales representatives and add
     representatives in underserved regions.
  d)   Moderately increase gross margins through improved quoting,
     thoughtful selection of business and systematic cost reduction.

3)  Grow  EMF optical coating revenues at least 8-10%  per  year
while increasing profitability.
  a)    Grow  revenues  by increasing capabilities  and  through
     "CustomCare".  CustomCare focuses on retaining and  growing
     existing customers by delivering quality, responsive service and
     engineering   assistance  to  consistently  meet   customer
     requirements.
  b)   Selectively integrate activities with other Dynasil
     operations where there are significant benefits such as revenue
     growth or cost savings.  Utilize the market contacts from other
     Dynasil business units to sell EMF products and services.
  c)   Systematically improve processes for better quality,
     service and cost.
  d)   Pursue significant new business opportunities for optical
     coatings.

4) Achieve significant growth through strategic acquisitions and
alliances with a     target  of  one  per year. Target two types
of  acquisition candidates: 1) Mature optics companies with moderate
growth prospects and strong cash flow potential and   2)  Photonics
acquisitions or strategic alliances with high growth potential.

  a)   Complete acquisitions of mature optics companies that can
     quickly add to financial results and provide strong cash flow to
     fund  growth.  The Optometrics acquisition is an  excellent
     example.   Dynasil expects that EMF will be  a  solid  next
     acquisition step and Management has identified several other
     potential  acquisition  candidates.  Target  companies  are
     manufacturers in optics related industries that can be purchased
     on  attractive financial terms. Of particular interest  are
     companies where a combination with Dynasil offers increased
     customer access, complementary capabilities that can expand
     revenues,  cost  savings or where companies have  developed
     capabilities that can be rapidly brought to market given access
     to growth capital and leadership assistance.

  b)   Pursue acquisitions and strategic alliances in high growth
     markets. The objective is to enter into attractive, high growth
     markets with sustainable competitive advantage. Photonics
     companies with investors a seeking an exit plan are a particular
     interest.

                                     -8-
<PAGE>



"Off Balance Sheet" Arrangements

     The Company has no "Off Balance Sheet" arrangements.

Critical Accounting Policies and Estimates
      There  have  been  no  material changes  in  our  critical
accounting  policies  or  critical  accounting  estimates  since
September  30,  2005, nor have we adopted an  accounting  policy
that  has  or  will  have a material impact on our  consolidated
financial  statements.  For further discussion of our accounting
policies  see  Footnote  1 " Summary of  Significant  Accounting
Policies"  in this Annual Report on Form 10-KSB for  the  fiscal
year ended September 30, 2006.

      The  accounting policies that reflect our more significant
estimates,  judgments and assumptions and which we  believe  are
the  most  critical to aid in fully understanding and evaluating
our  reported financial results include the following: valuation
of  deferred  tax assets, estimated current and deferred  taxes,
and evaluation of other assets, primarily the recoverability  of
intangible  assets.  The actual results could differ  materially
from estimates.

Forward-Looking Statements

     The statements contained in this Annual Report on Form
10-KSB which are not historical facts, including, but not
limited to, certain statements found under the captions
"Business," "Results of Operations," "Strategic Plan," and
"Liquidity and Capital Resources" above, are forward-looking
statements that involve a number of risks and uncertainties. The
actual results of the future events described in such
forward-looking statements could differ materially from those
stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are the risks and
uncertainties discussed in this Annual Report on Form 10-KSB,
including, without limitation, the portions of such reports
under the captions referenced above, and the uncertainties set
forth from time to time in the Company's filings with the
Securities and Exchange Commission, and other public statements.
Such risks and uncertainties include, without limitation,
seasonality, interest in the Company's products, consumer
acceptance of new products, general economic conditions,
consumer trends, costs and availability of raw materials and
management information systems, competition, litigation and the
effect of governmental regulation. The Company disclaims any
intention or obligation to update any forward-looking
statements, whether as a result of new information, future
events or otherwise.


                                      -9-
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS


           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM



To the Board of Directors and Stockholders
Dynasil Corporation of America and Subsidiaries
Berlin, New Jersey

      We  have  audited  the  accompanying consolidated  balance
sheets  of DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES  (the
"Company")  as of September 30, 2006 and 2005, and  the  related
consolidated  statements of operations, changes in stockholders'
equity,  and  cash  flows  for  the  years  then  ended.   These
consolidated financial statements are the responsibility of  the
Company's  management.   Our responsibility  is  to  express  an
opinion on these consolidated financial statements 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 are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts  and
disclosures in the financial statements.  An audit also includes
assessing   the  accounting  principles  used  and   significant
estimates made by management, as well as evaluating the  overall
financial  statement presentation.  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  DYNASIL  CORPORATION  OF  AMERICA   AND
SUBSIDIARIES as of September 30, 2006 and 2005 and  the  results
of  their  operations and their cash flows for  the  years  then
ended   in   conformity  with  accounting  principles  generally
accepted in the United States of America.


HAEFELE, FLANAGAN & CO., p.c.

Moorestown, New Jersey
November 20, 2006






                                      F-1
<PAGE>


                 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 2006 AND 2005

                                     ASSETS
<TABLE>
<S>                                                   <C>               <C>
                                                            2006            2005
                                                        ----------      ----------
Current assets
   Cash and cash equivalents                            $  352,139      $  308,210
   Accounts receivable, net of allowance for doubtful
     accounts of $12,530 for 2006 and $7,530 for 2005    1,086,394         877,375
   Inventories                                           1,131,648         842,149
   Deferred tax asset                                       61,500          24,250
   Prepaid expenses and other current assets               128,957         100,298
                                                        ----------      ----------
        Total current assets                             2,760,638       2,152,282

Property, Plant and Equipment, net                         626,790         744,764

Other Assets, net                                           78,812          87,735
                                                        ----------      ----------
        Total Assets                                    $3,466,240      $2,984,781
                                                        ==========      ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY



Current Liabilities
   Note payable to bank                                 $  190,000      $  250,000
   Current portion of long-term debt                        72,482         184,403
   Accounts payable                                        390,110         322,094
   Accrued expenses and other current liabilities          368,977         232,476
                                                        ----------      ----------

        Total current liabilities                        1,021,569         988,973

Long-term Debt, net                                        593,889         592,712

Stockholders' Equity
   Common Stock, $.0005 par value, 25,000,000 shares
    authorized, 4,698,453 and 4,566,946 shares issued,
    3,888,293 and 3,756,786 shares outstanding
    for 2006 and 2005, respectively                          2,350           2,283
   Preferred Stock, $.001 par value, 10,000,000
     Shares authorized, 700,000 and 700,000 shares issued
     and outstanding for 2006 and 2005 respectively,
     10% Cumulative, Convertible                               700             700
   Additional paid in capital                            2,100,098       2,042,635
   Retained earnings                                       733,976         343,820
                                                        ----------      ----------
                                                         2,837,124       2,389,438
   Less 810,160 shares of treasury stock, at cost         (986,342)       (986,342)
                                                        ----------      ----------
        Total stockholders' equity                       1,850,782       1,403,096
                                                        ----------      ----------
        Total Liabilities and Stockholders' Equity      $3,466,240      $2,984,781
                                                        ==========      ==========

</TABLE>
The accompanying notes are an integral part of these
consolidated financial
statements.

                                      F-2
<PAGE>



                 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

                                                    2006         2005
                                                 ----------   ----------

Net sales                                       $6,936,631    $5,078,436
Cost of sales                                    4,500,791     3,519,845
                                                 ----------   ----------
Gross profit                                     2,435,840     1,558,591

Selling, general and administrative expenses     1,911,283     1,341,834
                                                 ----------   ----------
Income from operations                             524,557       216,757

Interest expense, net                             ( 64,376 )    ( 54,488)
                                                 ----------   ----------
Income before income taxes                         460,181       162,269

Income tax (expense) benefit                        (   25 )      10,750
                                                 ----------   ----------
Net income                                      $  460,156     $ 173,019
                                                 ==========   ===========


Basic net income per common share                 $   0.10     $    0.04
Diluted net income per common share               $   0.07     $    0.03
                                                ===========   ===========




The accompanying notes are an integral part of these
consolidated financial statements.

























                                      F-3
<PAGE>

                 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
                                                                   Additional
                    Common      Common     Preferred   Preferred    Paid-in
                    Shares      Amount     Shares       Amount      Capital
                    ---------   ------     ---------   ---------    ---------
Balance,
October 1, 2004     4,050,180    $2,025        -0-     $   -0-     $1,239,736

Issuance of shares
of common stock
under employee
stock purchase
plan                   50,777       25         -0-         -0-         10,566

Issuance of shares
of common stock in
lieu of compensation
to directors          165,989       83         -0-         -0-         33,134

Issuance of shares
of common stock in
conjunction with the
acquisition of
Optometrics           300,000      150         -0-         -0-         68,229

Issuance of shares
of preferred stock
net of stock
issuance costs
of $10,000               -0-        -0-       700,000       700       689,300


Stock compensation
expense relating to
outstanding stock
options                  -0-        -0-         -0-         -0-         1,670

Preferred stock
dividends paid           -0-        -0-         -0-         -0-           -0-

Net income               -0-        -0-         -0-         -0-           -0-
                    ---------   ------     ---------   ---------    ---------
Balance,
September 30, 2005  4,566,946   $2,283       700,000    $   700    $2,042,635


Issuance of shares
of common stock
under employee
stock purchase
plan                      739        1          -0-         -0-           530

Issuance of shares
of common stock in
lieu of compensation
to directors            2,817        1          -0-         -0-         1,999

Issuance of shares
of common stock
under stock
option plan            99,640       51          -0-         -0-        39,805

Stock based
compensation           28,311       14          -0-         -0-        15,129

Preferred stock
dividends paid            -0-       -0-         -0-         -0-           -0-

Net income                -0-       -0-         -0-         -0-           -0-
                    ---------   ------     ---------   ---------    ---------
Balance,
September 30, 2006  4,698,453   $2,350      $700,000    $  700     $2,100,098
                    =========   ======       =======     =====     ==========


                                      F-4
<PAGE>




                 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 (continued)

                                    Treasury Stock             Total
                   Retained      -----------------------    Stockholders'
                   Earnings        Shares      Amount         Equity
                   --------      ---------   ----------    -------------
Balance,
October 1, 2004    $ 210,211      $810,160   $(986,342)      $ 465,630

Issuance of shares
of common stock
under employee
stock purchase
plan                 -0-            -0-          -0-            10,591

Issuance of shares
of common stock in
lieu of compensation
to directors         -0-            -0-          -0-            33,217

Issuance of shares
of common stock in
conjunction with the
acquisition of
Optometrics          -0-            -0-          -0-            68,379

Issuance of shares
of preferred stock
net of stock
issuance costs
of $10,000           -0-            -0-          -0-           690,000


Stock compensation
expense relating to
outstanding
stock options        -0-            -0-          -0-             1,670

Preferred stock
dividends paid    (39,410)          -0-          -0-           (39,410)

Net income        173,019           -0-          -0-           173,019
               ----------        -------     ----------    ------------
Balance,
September 30,
2004             $343,820        $810,160     $(986,342)     $1,403,096

Issuance of shares
of common stock
under employee
stock purchase
plan                 -0-            -0-           -0-               531

Issuance of shares
of common stock in
lieu of compensation
to directors         -0-            -0-           -0-             2,000

Issuance of shares
of common stock
under stock
option plans         -0-            -0-           -0-            39,856

Stock based
compensation         -0-            -0-           -0-            15,143

Preferred stock
dividends paid    (70,000)          -0-           -0-           (70,000)

Net income        460,156           -0-           -0-           460,156
               ----------        -------     ----------    ------------
Balance,
September 30,
2006              733,976        810,160     $(986,342)      $1,850,782
               ==========      =========     ==========    ============

The accompanying notes are an integral part of these
consolidated financial statements.

                                      F-5
<PAGE>

                 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

                                                   2006              2005
                                                ---------        -----------

Cash flows from operating activities:
    Net income                                   $ 460,156         $173,019
    Adjustments to reconcile net
     income to net cash
     provided by operating activities
      Stock compensation expense                    15,143            1,670
      Provision for doubtful accounts                5,000             -0-
      Depreciation and amortization                222,185          194,782
      Deferred taxes                               (37,250)         (24,250)
      Loss on Disposal of assets                     2,098             -0-
      (Increase) decrease in:
         Accounts receivable                      (214,019)        (216,554)
         Inventories                              (289,499)         (43,466)
         Prepaid expenses and
          other current assets                      35,034           13,882
       Increase (decrease) in:
         Accounts payable                           68,016           (3,944)
         Accrued expenses and
          other current liabilities                136,501            7,305
                                                 ----------        ----------
Net cash provided by operating activities          403,365          102,444
                                                 ----------        ----------
Cash flows from investing activities:
     Purchases of property, plant and equipment    (93,140)         (97,979)
     Proceeds from sale of fixed assets              2,000              -0-
     Cash paid for acquisition of
      Optometrics, LLC asset                          -0-          (700,000)
     Cash paid for acquisition costs               (63,693)         (67,976)
     Other assets                                      600             -0-
                                                 ----------        ----------
Net cash used in investing activities             (154,233)        (865,955)
                                                 ----------        ----------
Cash flows from financing activities:
     Issuance of common stock                       42,387           51,930
     Issuance of preferred stock                      -0-           690,000
     Proceeds from short-term debt                    -0-           102,143
     Proceeds from long-term debt                     -0-           193,305
     Repayment of long-term debt                  (110,744)        (163,882)
     Repayment of note payable to bank             (60,000)            -0-
     Deferred financing costs incurred             ( 6,846)         (17,273)
     Preferred stock dividends paid                (70,000)         (39,410)
                                                 ----------        ----------
Net cash provided by (used in)
  financing activities                            (205,203)         816,813
                                                 ----------        ----------
Net increase in cash and cash equivalents           43,929           53,302
Cash and cash equivalents, beginning               308,210          254,908
                                                 ----------        ----------
Cash and cash equivalents, ending                $  352,139       $ 308,210
                                                 ==========        ===========

The accompanying notes are an integral part of these
consolidated financial statements.

                                      F-6
<PAGE>
















         DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Accounting Policies

Nature of Operations

      The  Company  is primarily engaged in the fabrication  and
marketing   of   customized  optical  components   and   optical
materials.   The  Company's products and services  are  used  in
optical  instrument and laser manufacturing industries, as  well
as in the medical industry.  Other applications include usage in
the  manufacturing  of  optical lenses and  spectrometers.   The
Company's  products and services are sold throughout the  United
States and internationally.

Principles of Consolidation

      The accompanying consolidated financial statements include
the  accounts of Dynasil Corporation of America and its  wholly-
owned    subsidiaries,    Optometrics    Corporation,    Dynasil
International  Incorporated,  and  Hibshman  Corporation.    All
significant intercompany transactions have been eliminated.

Use of Estimates

      The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America  requires management to make estimates  and  assumptions
that  affect  the  amounts  of assets and  liabilities  and  the
disclosures of contingent assets and liabilities at the date  of
the  financial statements and the reported amounts  of  revenues
and  expenses during the reporting period.  Actual results could
differ from those estimates.

Business Acquisition

      On  March 8, 2005, Dynasil Corporation of America, through
its   newly   formed   wholly   owned  subsidiary,   Optometrics
Corporation,  acquired the operating assets and assumed  certain
liabilities of Optometrics, LLC, a worldwide supplier of optical
components.   The  assets  acquired from  Optometrics,  LLC  are
operated  under  the  Optometrics Corporation  name.  The  total
purchase  price  for  Optometrics, LLC was  $877,946.   Cash  of
$700,000  was  paid  by the Company and 300,000  shares  of  the
Company's  common  stock were issued to  the  former  owners  of
Optometrics,  LLC,  valued  at  $0.23  per  share,  or  $68,400.
Acquisition  costs  of  $109,546 were  incurred.   The  business
acquisition was recorded under the purchase method of accounting
which requires that the total consideration be allocated to  the
assets  acquired  and liabilities assumed based  on  their  fair
values.  The excess of the purchase price over the fair value of
the  net  tangible assets acquired of $78,414 was  allocated  to
intangibles, specifically to  the acquired customer base.

     The  results of operations of Optometrics Corporation  have
been  included  in  the consolidated financial  statements  from
March   9,  2005,  the  effective  date  of  acquisition.    The
allocation of purchase price is summarized below:


     Cash and cash equivalents                  $   50,585
     Accounts receivable                           310,461
     Inventories                                   428,871
     Prepaid expenses and other current assets     128,150
     Property and equipment                        410,575
     Intangibles- acquired customer base            78,414
     Current Liabilities assumed                  (242,449)
     Long-term debt liabilities assumed           (286,661)
                                                  --------
     Total purchase price                         $877,946


                                      F-7
<PAGE>




         DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Accounting Policies (continued)

     The  following  unaudited pro forma results  of  operations
assume  that  Optometrics Corporation had been acquired  at  the
beginning of fiscal year 2005.

                                           Twelve Months Ended
                                            September 30, 2005
                                           --------------------
      Sales                                       $6,421,314
      Net income                                  $  248,024
      Net income per common share - Basic           $   0.05
      Net income per common share - Diluted         $   0.04


Revenue Recognition

     The   Company  records  sales  revenue  upon  shipment   to
customers as the terms are generally FOB shipping point at which
time  title  and  risk  of  loss have been  transferred  to  the
customer,  pricing  is fixed or determinable and  collection  of
the  resulting  receivable is reasonably  assured.   Returns  of
products  shipped are and have historically not  been  material.
Optometrics,  however, provides an allowance for  sales  returns
based upon historical experience.  The Company also provides  an
allowance  for doubtful accounts based on historical  experience
and a review of its receivables.


Shipping and Handling Costs

     The Company includes some shipping and handling fees billed
to  customers in sales and shipping and handling costs  incurred
in cost of sales.

Inventories

     Inventories are stated at the lower of average cost or
market.  Cost is determined using the first-in, first-out (FIFO)
method.  Inventories consist primarily of raw materials, work-in-
process and finished goods.  The Company evaluates inventory
levels and expected usage on a periodic basis and records
adjustments for impairments as required.

Property, Plant and Equipment and Depreciation and Amortization

      Property,  plant  and  equipment  are  recorded  at  cost.
Depreciation  is  provided  using the straight-line  method  for
financial reporting purposes and accelerated methods for  income
tax  purposes over the estimated useful lives of the  respective
assets.

     The   estimated  useful  lives  of  assets  for   financial
reporting purposes are as follows:  building and improvements, 8
to  25  years;  machinery and equipment, 5 to 10  years;  office
furniture  and fixtures, 5 to 10 years; transportation equipment
5  years.  Maintenance  and repairs are charged  to  expense  as
incurred; major renewals and betterments are capitalized.   When
items of property, plant and equipment are sold or retired,  the
related costs and accumulated depreciation are removed from  the
accounts and any gain or loss is included in income.

Impairment of Long-Lived Assets

     The  Company  reviews its long-lived assets 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  undiscounted
future  net cash flows to be generated by the assets.  If  these
assets  are  considered to be impaired,  the  impairment  to  be
recognized  is  measured by the amount  by  which  the  carrying
amount of

                                      F-8
<PAGE>


         DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Accounting Policies (continued)

the  assets  exceeds the fair value of the  assets.    Based  on
these  reviews,  no asset impairment charges were  made  to  the
carrying  value  of  long-lived assets during  the  years  ended
September 30, 2006 and 2005.

Other Assets

     Other assets include an intangible asset consisting of  the
acquired  customer base of Optometrics, LLC and are  carried  at
cost  less  accumulated amortization. Amortization  is  computed
using  the  straight-line method over the economic life  of  the
respective asset, or seven years. It is the Company's policy  to
assess periodically the carrying amount of its intangible assets
to  determine if there has been an impairment to their  carrying
value.  There was no impairment at September 30,  2006.    Other
assets also include deferred financing costs which are amortized
using the straight-line method over 5 and 7 years.

Advertising

       The   Company  expenses  all  advertising  as   incurred.
Advertising expense for the years ended September 30,  2006  and
2005 was $94,960 and $83,868.

Income Taxes

     Dynasil   Corporation  of  America  and  its   wholly-owned
subsidiaries file a consolidated federal income tax return.

      The  Company  uses  the  asset and liability  approach  to
account for income taxes.  Under this approach, deferred  income
taxes  reflect  the  net  tax effects of  temporary  differences
between  the  carrying  amounts of assets  and  liabilities  for
financial reporting purposes and the amounts used for income tax
purposes  and  net operating loss and tax credit  carryforwards.
The  amount of deferred taxes on these temporary differences  is
determined using the tax rates that are expected to apply to the
period  when the asset is realized or the liability is  settled,
as  applicable,  based  on  tax rates,  and  tax  laws,  in  the
respective   tax   jurisdiction  then  in   effect.    Valuation
allowances are provided if it is more likely than not that  some
or  all  of  the deferred tax assets will not be realized.   The
provision for income taxes includes taxes currently payable,  if
any,  plus the net change during the year in deferred tax assets
and liabilities recorded by the Company.

Net Income Per Common Share

      Basic  net income per common share is computed by dividing
the  net  income  applicable to common  shares  after  preferred
dividend  requirements, if applicable, by the  weighted  average
number of common shares outstanding during each period.  Diluted
net  income  per common share adjusts basic net income  for  the
effects   of  common  stock  options,  common  stock   warrants,
convertible preferred stock and other potential dilutive  common
shares  outstanding during the periods. For periods with  a  net
loss, diluted net income per common share exclude the impact  of
potential  shares  since they would have resulted  in  an  anti-
dilutive effect.

Net Income Per Share

     Common stock options of 261,459 and 526,459 as of September
30,  2006  and 2005, and common stock warrants of 1,200,000  and
700,000  shares of convertible preferred stock as  of  September
30, 2006 and 2005 represent common stock equivalents included in
the calculation of the diluted net income per common share.  The
computation of basic and diluted net income per common share  is
as follows:



                                      F-9
<PAGE>

         DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Accounting Policies (continued)

                                                      2006        2005
                                                    ---------  ----------
    Net income                                       $460,156   $173,019
    Less:  Preferred stock dividends                $ (70,000)   (39,410)
                                                    ---------  ----------
    Income allocable to common shareholders          $390,156  $ 133,609

    Weighted average shares outstanding
     Basic                                          3,829,198  3,603,315
     Effect of dilutive securities
       Stock Options                                   43,297     61,802
       Stock Warrants                                 862,500    606,112
       Convertible Preferred Stock                    680,555    300,033
                                                    ---------  ----------
     Dilutive                                       5,415,550  4,571,262


Stock Based Compensation

   The Company accounts for its stock compensation under the
provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", ("SFAS No.
123"), as amended by SFAS No. 148, "Accounting for Stock-based
Compensation - Transition and Disclosure."  As permitted by SFAS
No. 123, the Company measures compensation cost in accordance
with Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and related
interpretations.  For stock options and warrants, no
compensation expense is reflected in net income, as all stock
options and warrants granted had an exercise price equal to or
greater than the market value of the underlying common stock on
the date of grant.  In addition, no compensation expense is
recognized for common stock purchases under the Employee Stock
Purchase Plan.  Stock options granted to consultants and other
non-employees are reported at fair value in accordance with SFAS
No. 123.

     Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 and has been determined as  if
the  Company  had accounted for its stock plans under  the  fair
value  method of SFAS No. 123.  The following table  illustrates
the  effect on net income and net income per common share if the
Company  had  recorded  the  fair value  of  stock  options  and
warrants as compensation expense.

                                                       2006       2005
                                                      --------  --------
     Net income, as reported                          $460,156  $173,019
     Add:  Stock-based employee compensation
           expense included in reported net income        -0-      1,670
     Less: Total stock-based employee
          compensation expense determined under
          fair value based method for all options      (4,636)   (33,668)
                                                      --------  --------

     Pro forma net income                            $455,520   $141,021

     Net income per common share, as reported
       Basic                                           $  0.10    $ 0.04
       Diluted                                         $  0.07    $ 0.03
      Pro forma net income per common share
        Basic                                          $  0.10    $ 0.03
        Diluted                                        $  0.07    $ 0.02

                                      F-10
<PAGE>

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Policies (continued)

Financial Instruments

     The carrying amount reported in the balance sheets for cash
and  cash equivalents, accounts receivable and accounts  payable
approximates  fair value because of the immediate or  short-term
maturity of these financial instruments. The carrying amount for
long-term  debt  approximates fair value because the  underlying
instruments are primarily at current market rates.

     Financial instruments that potentially subject the  Company
to concentrations of credit risk consist of accounts receivable.
In  the normal course of business, the Company extends credit to
certain  customers.  Management  performs  initial  and  ongoing
credit  evaluations  of their customers and generally  does  not
require collateral.

Concentration of Credit Risk

     The  Company  maintains  allowances  for  potential  credit
losses and has not experienced any significant losses related to
the  collection of its accounts receivable.  As of September 30,
2006  and 2005, approximately $300,581 and $269,735 or  28%  and
31%  of  the Company's accounts receivable are due from  foreign
sales.

     The Company maintains cash and cash equivalents at various
financial institutions in New Jersey, Pennsylvania and
Massachusetts.  Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000.  At
September 30, 2006, the Company's uninsured bank balances
totaled $289,672. The Company has not experienced any
significant losses on its cash and cash equivalents

Recent Accounting Pronouncements

The   following   is   a   summary   of   recent   authoritative
pronouncements that affect accounting, reporting, and disclosure
of financial information by the Company:

In  December  2004, the FASB issued SFAS No. 123(R), Share-Based
Payment,  which establishes standards for transactions in  which
an   entity  exchanges  its  equity  instruments  for  goods  or
services. This standard requires an issuer to measure  the  cost
of employee services received in exchange for an award of equity
instruments  based on the grant-date fair value  of  the  award.
This  eliminates the exception to account for such awards  using
the  intrinsic  method  previously  allowable  under  Accounting
Principles  Board  (APB)  Opinion No. 25.  SFAS  No.  123(R)  is
effective  beginning as of the Company's next fiscal  year  that
begins  after December 15, 2005. The Company intends  to  comply
with  this  statement  effective October  1,  2006.   Management
believes the effects of adopting this revision to FASB 123  will
not  have  a  material  impact  on its  consolidated   financial
position,  results of operations and cash flows. The  cumulative
effect  of adoption, if any, will be measured and recognized  in
the statement of operations on the date of adoption.

In  May  2005, the FASB issued SFAS No. 154 "Accounting  Changes
and  Error Corrections - a replacement of APB Opinion No. 20 and
FASB  Statement No. 3." This Statement replaces APB Opinion  No.
20,  "Accounting Changes", and FASB Statement No. 3,  "Reporting
Accounting Changes in Interim Financial Statements" and  changes
the  requirements  for the accounting for  and  reporting  of  a
change  in accounting principle. This Statement applies  to  all
voluntary  changes in accounting principle. It also  applies  to
changes  required by an accounting pronouncement in the  unusual
instance  that  the  pronouncement  does  not  include  specific
transition  provision.  When a pronouncement  includes  specific
transition provisions, those provisions should be followed.  The
Company has no transactions that would be subject to SFAS 154.

In  June 2006 the FASB issued Interpretation No. 48, "Accounting
for Uncertainty in
                                      F-11
<PAGE>

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 1 - Summary of Significant Policies (continued)

Income  Taxes,"  (FIN 48) effective for fiscal  years  beginning
after  December  15,  2006.  This interpretation  clarifies  the
accounting  for  uncertainty in income taxes in accordance  with
FASB  Statement  No. 109 "Accounting for Income Taxes."  FIN  48
provides  a  recognition threshold and measurement guidance  for
the  financial statement recognition of a tax position taken  or
expected  to be taken in a tax return. The Company is  currently
reviewing FIN 48 and is not certain as to its impact, if any, on
the financial statements.

In  September  2006, the FASB issued SFAS No. 157,  "Fair  Value
Measurements" , which defines fair value, establishes guidelines
for  measuring fair value and expands disclosures regarding fair
value  measurements. SFAS No. 157 does not require any new  fair
value  measurements  but  rather eliminates  inconsistencies  in
guidance found in various prior accounting pronouncements.  SFAS
No.   157   is  effective  for  fiscal  years  beginning   after
November  15, 2007. The Company does not expect the adoption  of
SFAS  No.  157  will have a material impact on its  consolidated
financial position, results of operations or cash flows.

In  September  2006,  the  FASB issued  Statement  of  Financial
Accounting Standards No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment  of
FASB  Statements No. 87, 88, 106 and 132(R)" ("SFAS 158").  This
statement  requires  balance sheet  recognition  of  the  funded
status,  which is the difference between the fair value of  plan
assets and the benefit obligation, of pension and postretirement
benefit  plans  as a net asset or liability, with an  offsetting
adjustment   to  accumulated  other  comprehensive   income   in
shareholders'  equity.  In addition, the measurement  date,  the
date  at  which  plan  assets  and the  benefit  obligation  are
measured, is required to be the company's fiscal year  end.  The
Company is currently evaluating the Statement to determine  what
impact, if any, it will have on the Company.

In September 2006, the Securities and Exchange Commission issued
Staff  Accounting Bulletin No. 108, Considering the  Effects  of
Prior  Year  Misstatements  when  Quantifying  Misstatements  in
Current Year Financial Statements ("SAB 108"). SAB 108 addresses
diversity   in  practice  in  quantifying  financial   statement
misstatements.   It also addresses the facts  to  consider  when
evaluating the materiality of the error and the need to  restate
the financial statements.  SAB 108 is effective for fiscal years
ending after November 15, 2006. The Company does not expect  the
adoption  of  SAB  108  will  have  a  material  impact  on  its
consolidated financial position, results of operations  or  cash
flows.

Other  recent  accounting  pronouncements  issued  by  the  FASB
(including its Emerging Issues Task Force), the AICPA,  and  the
SEC did not or are not believed by management to have a material
impact on the Company's present or future consolidated financial
statements.

Statement of Cash Flows

     For purposes of the statement of cash flows, the Company
generally considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Note 2 - Inventories

     Inventories at September 30, 2006 and 2005 consisted of the
following
                                2006            2005
                              --------       ---------
          Raw Materials       $600,451       $322,902
          Work-in-Process      259,425        246,921
          Finished Goods       271,772        272,326
                              --------       ---------
                            $1,131,648       $842,149
                              =========      =========

                                      F-12
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 3 - Property, Plant and Equipment

     Property, plant and equipment at September 30, 2006 and
2005 consist of the following:
                                            2006           2005
                                         -----------  ------------
          Land                          $      261     $     261
          Building and improvements      1,053,763     1,047,758
          Machinery and equipment         2,886,666    2,914,224
          Office furniture and fixtures     209,479      268,326
          Transportation equipment           53,419       53,419
                                         -----------  ------------
                                          4,203,588    4,283,988
          Less accumulated depreciation   3,576,798    3,539,224
                                         -----------  ------------
                                          $ 626,790    $ 744,764
                                         ===========  ===========

     Included  in  the  cost  of  machinery  and  equipment   at
September  30, 2006 and 2005 is $47,984 and $53,981 representing
the   cost   of  assets  under  capitalized  lease  obligations.
Accumulated depreciation at September 30, 2006 and 2005 for  the
capitalized leases was $13,691 and $5,744.

     Depreciation expense for the years ended September 30, 2006
and 2005 was $207,016 and $183,509 of which $9,846 and $5,744
represents depreciation of assets under capitalized lease
obligations.


Note 4 - Other Assets

     Other assets at September 30, 2006 and 2005 consist of the
following:

                                                      2006        2005
                                                 -----------  ------------

      Deferred financing costs                      $ 41,010     $  41,010
      Loan origination fees                            6,846          -0-
      Intangible asset - acquired customer base       78,414        78,414
      Deposits                                          -0 -           600
                                                 -----------  ------------
                                                     126,270       120,024
                                                 -----------  ------------
      Less accumulated amortization                   47,458        32,289
                                                    $ 78,812     $  87,735
                                                 ===========  ============

     Amortization expense for the years ended September 30, 2006
and 2005 was $15,169 and $11,273.

Note 5 - Debt

     On  January 5, 2006, Dynasil Corporation of America entered
into  loan  agreements permitting borrowings up to  a  total  of
$649,346  with  Susquehanna Patriot Bank  ("Susquehanna  Bank").
The  terms  of  the Loan Agreements provide the Company  with  a
$449,345  term  loan (the "Term Loan") and a $200,000  revolving
credit facility (the "Line of Credit").  The proceeds were  used
to  refinance the term note for the New Jersey real  estate  and
for general working capital purposes.

     On March 8, 2005, Optometrics Corporation entered into loan
agreements permitting borrowings up to a total of $700,000  with
Citizens  Bank of Massachusetts ("Citizens Bank") in  connection
with  the  acquisition of Optometrics, LLC of which the  initial
borrowing  was  $550,000.   The terms  of  the  Loan  Agreements
provide the Company with a $300,000 term loan (the "Term  Loan")
and a $400,000 revolving credit facility (the "Line of Credit").
The  proceeds  were  used  to payoff  the  debt  of  the  former
Optometrics,  LLC,  to  fund the acquisition,  and  for  general
working capital purposes.
                                      F-13
<PAGE>

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 5 - Debt (continued)

Dynasil  Corporation  of America has guaranteed  the  debt  with
Citizens  Bank  of Massachusetts and those loans are  guaranteed
and  partially collateralized by a second lien position  on  the
Company's  operating assets in New Jersey.   Citizens  Bank  has
agreed  to  subordinate its second lien position to  permit  the
Susquehanna Bank loan facilities.   Susquehanna Bank has  agreed
to modify the standard terms and conditions of its business loan
agreement  form  to  take account of and not conflict  with  the
terms  and  provisions  of Citizen Bank's loans  to  Optometrics
Corporation.

Notes Payable to Bank

     Dynasil  Corporation has a note payable to  the  bank  that
represents  borrowings  under the Line  of  Credit,  which  bear
interest at a variable rate equal to Susquehanna Patriot  Bank's
prime  rate  plus  0.5%  (8.75%  as  of  9/30/06).   The  amount
available under this agreement is $200,000.  As of September 30,
2006,  there were no outstanding balances.  This note is secured
by a second mortgage on the Company's New Jersey real estate and
a third lien on the Company's operating assets in New Jersey. As
part  of the credit agreement, the Company is required to comply
with  certain financial covenants.  At September 30,  2006,  the
Company is in compliance with its financial covenants related to
its credit agreement with Susquehanna Patriot Bank.

     Optometrics Corporation has a note payable to the bank that
represents  borrowings  under the Line  of  Credit,  which  bear
interest at a variable rate equal to Citizens Bank's prime  rate
plus  0.5% (8.75% as of 9/30/06).  The initial borrowing on  the
Line  of  Credit  was  $250,000.  The  outstanding  balances  at
September   30,  2006  and  2005  were  $190,000  and  $250,000,
respectively.  The performance of this obligation and  the  Term
Loan are secured by the assets of Optometrics Corporation with a
corporate  guarantee by the Company and a  second  lien  on  the
Company's New Jersey assets other than real estate.  As part  of
the  credit  agreement, the Company is required to  comply  with
certain  financial  covenants for Optometrics  Corporation.   At
September  30, 2006 and 2005, the Company is in compliance  with
its  financial  covenants related to its credit  agreement  with
Citizens Bank.

Long-term Debt

     Long-term debt at September 30, 2006 and 2005 consisted  of
the following:

                                                             2006         2005
                                                            ------       ------
  Note payable to bank in monthly installments of $3,580
  including interest at the rate of 7.25% through February
  2011 (after February 2011, the interest rate will adjust
  to theUnited States Treasury Average Weekly Yield
  rate plus 3.0%), final payment of $305,181 due January 5,
  2016, secured by first mortgage on Berlin, New Jersey
  property and substantially all of the New Jersey assets
  of the Company.                                         $ 442,549   $   -0-

  Note payable to bank in monthly installments of
  $10,000 plus interest at the Bank's prime rate plus
  0.5%(6.75% at September 30, 2005), final payment of
  $278,889 due July 1, 2007, secured by first
  mortgage on Berlin, New Jersey property and
  substantially all of the New Jersey assets
  of the Company, refinanced January 2006                     -0-       488,889

  Capital lease obligations payable in total monthly
  installments of $1,409 including interest at rates
  ranging from 5.5% to 12.9% due and payable through
  June 2007 secured by related equipment                      3,848      14,047

                                     F-14
<PAGE>


DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 5 - Debt (continued)

  Note payable to bank in monthly installments of
  $5,835 including interest at 6.25%, through March
  2010, secured by the assets of Optometrics Corporation
  with a Corporate guarantee by the Company and a second
  lien on New Jersey assets other than real estate.         219,974     274,179
                                                          -----------  ---------
                                                           $666,371     777,115
     Less current portion                                    72,482     184,403
                                                          -----------  ---------
                                                         $  593,889     592,712
                                                          =========== ==========

     As of September 30, 2006, the current portion includes
$3,848 payable under capital lease obligations.

     The aggregate maturities of long-term debt, as of September
30, 2006 are as follows:
             September 30, 2008                    $ 73,194
             September 30, 2009                      79,198
             September 30, 2010                      48,843
             September 30, 2011                      14,634
             September 30, 2012                      15,731
          Thereafter                                362,289
                                                   --------
                   Total                           $593,889
                                                   ========

Note 6 - Income Taxes

      The  Company's income tax expense (benefit) for the  years
ended September 30, 2006 and 2005 are as follows:

                                  2006               2005
                                --------------   -------------
   Current
       Federal                   $150,400              $34,900
       State                       47,375               14,600
       Utilization of NOL
         carryforwards           (160,500)             (36,000)
                                 --------              --------
                                $  37,275               13,500
                                 --------              --------
     Deferred
       Federal                   (37,250)              (22,250)
       State                       -0-                  (2,000)
                                 --------              --------
                                $(37,250)             $(24,250)
      Income tax expense
         (benefit)             $      25              $(10,750)

     The  reasons  for the difference between total tax  expense
and the amount computed by applying the statutory federal income
tax  rates to income before income taxes at September  30,  2006
and 2005 are as follows:

                                                    2006       2005
                                                 ----------  ----------
Taxes at statutory rates applied to income
 before income taxes                              $156,700   $  54,200
Increase (reduction) in tax resulting from:
  Depreciation                                    ( 19,600)    (18,400)
  Accounts receivable                                1,800      (8,600)
  Inventories                                       10,700       2,300
  Vacation pay                                       2,400       3,900
  Other                                             (1,600)      1,700
  State income taxes                                47,375      14,400
  Benefit of net operating loss carryforwards     (160,500)    (36,000)
  Adjustments to valuation allowance              ( 37,250)    (24,250)
                                                 ----------  ----------
                                                   $    25    ($10,750)
                                      F-15
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 6 - Income Taxes (continued)

     Deferred income taxes (benefit) reflect the net tax effects
of  temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used  for  income  tax  purposes, and the  tax  effects  of  net
operating  losses  that are available to offset  future  taxable
income.   Significant components of the Company's  deferred  tax
assets  (liabilities)  at September 30, 2006  and  2005  are  as
follows:

                                      2006                 2005
                                   ---------           ----------
Inventories                        $  22,700           $  15,300
Vacation pay                           2,800               2,900
Accounts receivable                    2,000               2,000
Depreciation                         145,100              99,000
Net operating loss carryforwards     357,600             512,300
Less valuation allowance            (468,700)           (607,250)
                                   ---------           ----------
                                    $ 61,500           $  24,250

     Based  on the company's history of significant fluctuations
in  net  earnings,  the  Company established  a  full  valuation
allowance  as  of  September  30, 2004  and  prior  due  to  the
uncertainty as to the realization of certain net operating  loss
carryforwards. With the asset acquisition of Optometrics LLC  in
March  2005,  the  Company  now  believes  that  some  of  these
carryforwards  will be realized, and has adjusted the  valuation
allowance accordingly.

     At  September  30,  2006,  the  Company  has  approximately
$900,000  of  net operating loss carryforwards to offset  future
taxable  income  for  federal tax purposes expiring  in  various
years through 2021.  In addition, the main operating Company has
approximately  $550,000 of net operating loss  carryforwards  to
offset  certain future state taxable income, expiring in various
years through 2013.

Note 7 - Stockholders' Equity

     On   September   23,   2004,  in  a  privately   negotiated
transaction,  the Company entered into a Subscription  Agreement
(the  "Agreement")  with  Mr. Craig T.  Dunham,  an  individual,
pursuant to which Mr. Dunham agreed to acquire 1,000,000  shares
of  the Company's common stock at a cash purchase price of  $.15
per  share.  The aggregate dollar amount of the transaction  was
$150,000.   In  connection with the Agreement, the Company  also
granted  to  Mr. Dunham a Stock Purchase Warrant (the "Warrant")
pursuant  to which he may acquire, at any time prior to  January
31,  2008, up to an additional 1,200,000 shares of the Company's
common  stock at an exercise price per share of either $.225  or
$.25  dependent upon certain conditions as further described  in
the  Agreement.    Effective October 1, 2004, the  Company  also
entered into an Employment Agreement with Mr. Dunham pursuant to
which  Mr.  Dunham  became  the Company's  President  and  Chief
Executive Officer.

Convertible Preferred Stock

     On March 8, 2005, the Company completed a private placement
of  700,000  shares  of  Series  A  10%  Cumulative  Convertible
preferred  stock for cash proceeds of $700,000.  The  stock  was
sold  at  a  price of $1.00 per share.  Total expenses  for  the
stock  placement  were $10,000.  Each share of  preferred  stock
carries  a  10% per annum cumulative dividend payable  quarterly
and  is convertible to 2.2222 shares of common stock at any time
by  holders, subject to adjustment for certain subsequent  sales
of  common  stock or securities convertible into or exchangeable
for  common stock, and is callable starting March 9, 2007 by the
Company at a redemption price of $1.00 per share.

Stock Based Compensation

      The Company adopted Stock Incentive Plans in 1996 and 1999
which provide for,

                                      F-16
<PAGE>


DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 7 - Stockholders Equity (continued)

among  other  incentives, the granting to  officers,  directors,
employees  and  consultants options to purchase  shares  of  the
Company's common stock.  The Company's 1999 Stock Incentive Plan
was  amended on July 25, 2000, with an effective date of January
1,  1999.  Options are generally exercisable at the fair  market
value  on  the  date of grant over a five year period  currently
expiring through 2010.

     The  Plans also allow eligible persons to be issued  shares
of  the  Company's common stock either through the  purchase  of
such  shares or as a bonus for services rendered to the Company.
Shares are generally issued at the fair market value on the date
of  issuance.  The maximum shares of common stock which  may  be
issued  under the plans are 2,250,000 shares, of which 1,180,783
shares of common stock are available for future purchases  under
the plan at September 30, 2006.

     A  summary  of  stock option activity for the  years  ended
September 30, 2006 and 2005 is presented below:
                                                   Exercise Price
                                          Shares      Per Share
                                         --------- --------------
Options outstanding at October 1, 2004   135,000        $1.50
Granted in 2005                           436,459    $.40-$.65
Exercised in 2005                          -0-
Cancelled in 2005                         (45,000)      $1.50
                                         ---------
Options outstanding at September 30, 2005  526,459   $.40-$1.50

Granted in 2006                            130,000   $.85-$1.50
Exercised in 2006                         (120,000)       $.40
Cancelled in 2006                         (275,000)  $.65-$1.50
                                         ---------
Options outstanding at September 30, 2006  261,459   $.40-$1.50

Options exercisable at September 30, 2006  261,459   $.40-$1.50
                                         =========

     During  the  year ended September 30, 2006,  130,000  stock
options  were granted at prices ranging from $0.85 to $1.50  per
share  and 120,000 options were exercised at the price  of  $.40
per  share  totaling  $48,000 of which  20,358  shares  totaling
$8,143  were issued to the President in partial satisfaction  of
his accrued bonus at September 30, 2006.

     During  the  year ended September 30, 2005,  436,459  stock
options were granted at prices ranging from $0.40 to $.65 and no
options were exercised. The Company cancelled 275,000 and 45,000
options  during  the years ended September 30,  2006  and  2005,
respectively.   Compensation expense  relating  to  non-employee
stock options granted during the years ended September 30,  2006
and 2005 were $-0- and $1,670, respectively.

     During  the  year  ended September 30,  2005,  the  Company
issued  165,987 shares of common stock valued at $0.14 to  $0.66
per  share to the Board of Directors in satisfaction of  accrued
and 2005 directors' fees totaling $33,217.

     During  the  year  ended September 30,  2006,  the  Company
issued 2,817 shares of common stock valued at $0.71 per share to
a  director in lieu of directors fees totaling $2,000 and  7,954
shares of common stock valued at $0.88 per share totaling $7,000
to an employee as compensation.

     As  discussed  above, on September 23,  2004,  the  Company
issued warrants to

                                      F-17
<PAGE>

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005

Note 7 - Stockholders Equity (continued)

purchase  1,200,000 of the Company's common stock at an exercise
price  of  either  $.225 or $.25 per share.  The  warrants  will
expire  January  31,  2008.  No warrants were  exercised  as  of
September 30, 2006.

     The  fair  value of the stock options granted and  warrants
issued  were  estimated  on the date of grant  using  the  Black
Scholes   option-pricing  model.   Based  on   the   assumptions
presented below, the weighted average fair values of the options
granted  during the years ended September 30, 2006 and  2005  is
$.08 and $.17 per share, respectively.

                                     2006         2005
                                  ---------     ----------

      Expected life in years            5         5
      Risk-free interest rate        4.60%        4.80%
      Expected volatility           16.00%       16.47%
      Dividend yield                 0.00%        0.00%


Employee Stock Purchase Plan

     The  Company  has  an  Employee Stock Purchase  Plan  which
permits substantially all employees to purchase common stock  at
a  purchase price of 85% of the fair market value of the shares.
Under the plan, a total of 450,000 shares have been reserved for
issuance  of  which  147,094  shares  have  been  issued  as  of
September 30, 2006.

     During any twelve month period, employees may not purchase
more than the number of shares for which the total purchase
price exceeds $5,000.  During the years ended September 30, 2006
and 2005, 739 shares, and 50,777 shares of common stock were
issued under the plan for aggregate purchase prices of $531, and
$10,570, respectively.

Note 8 - Profit Sharing Plan

      The  Company has two 401(k) Plans for the benefit  of  its
employees.   The Company made contributions to the plans  during
the  years  ended  September 30, 2006 and 2005  of  $36,183  and
$20,246, respectively.

Note 9 - Related Party Transactions

      During  the years ended September 30, 2006 and  2005,  the
Company made sales of $21,572 and $106,347, respectively,  to  a
company  in which a member of the board of directors is also  an
officer.    As of September 30, 2006 and 2005, amounts due  from
this customer included in accounts receivable were $1,612 and $-
0-, respectively.  During the years ended September 30, 2006 and
2005,   building  lease  payments  of  $114,000   and   $65,710,
respectively, were paid to Optometrics Holdings,  LLC  in  which
the Company's Chief Financial Officer has an interest.


Note 10 - Vendor Concentration

      The  Company purchased $1,228,021 and $887,898 of its  raw
materials from one supplier during the years ended September 30,
2006 and 2005. As of September 30, 2006 and 2005, amounts due to
that  supplier  included in accounts payable were  $192,071  and
$134,854.


                                      F-18
<PAGE>





DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005


Note 11 - Supplemental Disclosure of Cash Flow Information:

                                       2006          2005

     Cash paid during the year for:
        Interest                      $70,592       $51,289
                                      ========       =======
        Income taxes                  $23,667       $ 5,193
                                      ========       =======

     Non-cash investing and financing activities:

      In  January,  the  Company refinanced  its  mortgage  note
payable in the amount of $449,346 with another bank.

Acquisition of Assets of Optometrics, LLC on March 8, 2005:

    Fair market value of current assets acquired       $ 918,067
    Property, plant and equipment                        410,575
    Intangible asset - acquired customer base             78,414
    Fair market value of liabilities assumed           ( 529,110)
    Acquisition costs  incurred                        ( 109,546)
    Issuance of 300,000 shares of
      common stock to sellers                          (  68,400)
                                                       ----------
    Net  cash paid for Optometrics, LLC                $ 700,000
                                                       ==========

      In  connection  with  the asset acquisition,  the  Company
issued  700,000 shares of preferred stock, valued at  $1.00  per
share,  and  received  cash of $700,000.  The  Company  incurred
stock issuance costs of $10,000 for net proceeds of $690,000, of
which   $600,000   was  used  to  fund  the  Optometrics   asset
acquisition.  The Company also obtained total debt  proceeds  of
$550,000,  of  which  $100,000 funded the balance  of  the  cash
payment  to  the sellers, $67,976 funded the acquisition  costs,
$264,751 paid off the debt assumed of Optometrics, LLC,  $17,273
paid  the  deferred financing costs, and $100,000 was  used  for
general working capital purposes.

Note 12 - Subsequent Events

     On October 2, 2006, the Company acquired 100% of the common
stock of Evaporated Metal Films Corp. ("EMF") for $1,100,000  in
a  transaction  that will be accounted for as  a  purchase.   In
connection  with  the  acquisition, the Company  issued  710,000
shares  of  preferred  stock, valued  at  $1.00  per  share  and
received  cash,  net  of stock issuance  costs  of  $10,000,  of
$700,000  on  October 2, 2006.  The proceeds were used  to  fund
acquisition  costs and in partial satisfaction of  the  purchase
price.   The Company, through its wholly owned subsidiary,  also
obtained  debt financing of $1,050,000.  The proceeds were  used
to  refinance EMF's existing debt of $530,000 and the balance of
$520,000 satisfied the purchase price due to the seller.




                              F-19
<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
         FINANCIAL DISCLOSURE

     There  were  no  disputes or disagreements  of  any  nature
between  the  Company or its management and its public  auditors
with   respect   to  any  aspect  of  accounting  or   financial
disclosure.

ITEM 8A CONTROLS AND PROCEDURES

       The   Company  carried  out  an  evaluation,  under   the
supervision  and  the participation of its  management,  of  the
effectiveness  of  its disclosure controls  and  procedures  (as
defined  in  Exchange Act Rules 13a-15(e) and 15d-15(e)  of  the
Securities  Exchange  Act  of 1934, as  amended  (the  "Exchange
Act"))  as of the period covered by this report. Based  on  this
evaluation,  the  Company's  principal  executive  officer   and
principal   financial  officer  concluded  that  its  disclosure
controls and procedures were effective. It should be noted  that
design  of  any  system controls is based in part  upon  certain
assumptions, and there can be no assurance that any design  will
succeed in achieving its stated goal.

     There were no significant changes in the Company's internal
controls or in other factors that could significantly affect the
internal  controls subsequent to the date the Company  completed
its evaluation, including any corrective actions with regard  to
significant deficiencies and material weaknesses.

                                PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      All  of our directors were elected to serve for a one-year
term  at our Annual meeting of the shareholders held on February
14, 2005.  All directors will hold office until their successors
are elected at the next annual meeting of the shareholders.

     Our executive officers and directors, and their ages at
November 30, 2006, are as follows:

Name                                Age       Position
---------------                     ---       --------
James Saltzman                      63        Chairman of the Board
Craig T. Dunham                     50        President, CEO, Director
David Manzi                         45        Director
Laura Lunardo                       54        CFO, COO Optometrics
Bruce Leonetti                      52        Vice President
Megan Shay                          41        CEO EMF

      None  of the above persons is related to any other of  the
above-named persons by blood or marriage.

      The  Company's Board of Directors does not have  an  audit
committee financial expert. Although it would like to attract  a
qualified person to serve in that capacity, the Company's  small
size and limited resources have precluded it from attracting  an
appropriate individual.

      Based  upon  a  review of filings with the Securities  and
Exchange  Commission and written representations that  no  other
reports  were  required, the Company believes that  all  of  the
Company's  directors  and  executive  officers  complied  during
fiscal 2006 with the reporting requirements of Section 16(a)  of
the Securities Exchange Act of 1934.

    Craig T. Dunham, 50, President and CEO, has been with the
Company since October 1, 2004 when he replaced John Kane as a
Director. Prior to joining the Company, he spent about one year
partnering with a private equity group to pursue acquisitions of
mid-market manufacturing companies.  From 2000 to 2003, he was
Vice President/ General Manager of the Tubular Division at
Kimble Glass Incorporated.  From 1979 to 2000, he held
progressively increasing leadership responsibilities at Corning
Incorporated in manufacturing, engineering, commercial,

                               -10-
<PAGE>

and  general  management positions.  At  Corning,  he  delivered
results  in  various  glass  and ceramics  businesses  including
optics  and photonics businesses.  Mr. Dunham earned a  B.S.  in
mechanical engineering and an M.B.A. from Cornell University.

     James  Saltzman,  Chairman, 63, has been a  member  of  the
Board  since  February 1998.  Mr. Saltzman has been involved  in
the investment community since October 1969. He has invested  in
both  public and private corporations.  He was on the  Board  of
Directors of IMCS Partmaker which was recently sold to Delcam, a
public corporation specializing in software for the machine tool
industry.   From January 1997 to June 2000, Mr. Saltzman  served
as  Vice Chairman of the Board and a director of Madison Monroe,
Inc., a private company engaged in investments.

      David Manzi, 45, has been a member of the Board since June
2002.   Since  November 1999, Mr. Manzi has served as  President
and  CEO  of Special Optics Inc., a Wharton, New Jersey  company
that  specializes in the design and manufacture of  diffraction-
limited  lens systems used in high resolution imaging and  laser
applications.  Mr. Manzi served as General Manager and  as  Vice
President  of Special Optics from 1991 through 1999.   Prior  to
Special Optics he served in various capacities from 1988 through
1991,  including Product Manager, for Synoptics, a  division  of
Litton Corporation.  Mr. Manzi earned his B.S. degree in Physics
from the Pennsylvania State University in 1986.

      Laura Lunardo, 54, CFO and Chief Operating Officer of
Optometrics Corporation, has been with the Company since the
March 2005 Optometrics acquisition. Previously, she had been a
partner in Optometrics LLC with primary responsibilities for
Sales & Marketing, Accounting, Finance and Administration and
she was the CFO of Optometrics USA, Inc., the predecessor
corporation to Optometrics LLC, since 1984.  Ms. Lunardo earned
her B.S. degree in Business and Accounting from Boston
University in 1976.

      Bruce  Leonetti, 52, Vice President of Sales and Marketing
has  been  with  the Company since January  23,  2006.   He  was
previously  with  the Company for 14 years prior  to  1993,  and
again from 1999 to 2002.  In the interim periods, he worked as a
development officer with the University of Pennsylvania and  was
owner/operator  of  a restaurant on the New  Jersey  shore.   He
graduated from the University of Pennsylvania.

      Megan  Shay, 41, CEO of EMF joined the Company as  of  the
October  2, 2006 acquisition of EMF.  She joined EMF in 1995  to
lead  a  business turn-around and has been owner and  CEO  since
1998.   She  was  Administrator for the Andy  Warhol  museum  in
Pittsburgh from 1991-1995.  She has a BA in Ceramics from  Wells
College and an MFA in Sculpture from Carnegie Mellon University.


Code of Ethics

        The  Company has adopted a Code of Ethics for  Principal
Executives  and  Senior Financial Officers that applies  to  its
Chief Executive Officer and Chief Financial Officer. The Company
will provide a copy to any person without charge upon request in
the manner set forth under item 1 on page 3.

                                   -11-
<PAGE>



 ITEM 10. EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>
                            Summary Compensation Table

                                                                     Long Term Compensation
                                                                     ----------------------
                           Annual Compensation                  Awards             Payouts
                           -------------------                  ------             -------
<S>          <C>     <C>          <C>        <C>          <C>           <C>         <C>        <C>
                                             Other                                  Long-
Name and                                      Annual       Restricted    Securities  Term       All other
Principle                                     Compen-      Stock         Underlying  Incentive  compen-
Position      Year    Salary ($)    Bonus ($) sation ($)   Awards ($)    Options ($) Plans ($)  sation($)
---------     ----    ---------    ---------  ----------   -----------   ---------   --------- ----------

Craig Dunham   2006     110,000      82,881
President      2005     110,000      12,214
And CEO


John Kane      2005*     28,590
Former         2004     110,000
President
CEO, CFO,
Treasurer

Laura Lunardo  2006     92,689       16,514    14,209
CFO, COO-      2005*    51,923        8,394     7,452
Optometrics

* Worked for Dynasil only part of the year.


</TABLE>


Employment Agreements

The  employment  agreement with Craig T. Dunham,  President  and
CEO,  commenced  on  October 1, 2004 and  will  continue  for  a
three-year  period, after which the agreement will automatically
renew for one-year terms, unless terminated by either party upon
ninety days written notice prior to the end of any term, or  for
cause. Under the employment agreement, Mr. Dunham has agreed  to
work  for  us full time, and receives an annual base  salary  of
$110,000. Mr. Dunham's agreement also provides for a performance
bonus  of  20% of the Company net income above $100,000  and  an
additional  annual  bonus  at the discretion  of  our  Board  of
Directors.  The annual performance bonus is paid  one  third  in
cash  and the other two thirds is paid in stock where Mr. Dunham
has  the  option to utilize his existing warrants or options  to
set  the  share price. The agreement also provides for  standard
Dynasil N.J. benefits and a company car (or car allowance).

An   employment   agreement   with   Frank   Denton,   President
Optometrics, commenced on March 9, 2005 and ended following  his
death on March 23, 2005.

The  employment  agreement  with  Laura  Lunardo,  CFO  and  COO
Optometrics, commenced on March 9, 2005 and continues for a  two
year period, after which the agreement is subject to renewal for
one  year terms. Under the employment agreement, Ms. Lunardo has
agreed  to  work for us full time, and receives an  annual  base
salary  of  $90,000 for the first twelve months and $95,000  for
the  second twelve months. Ms. Lunardo's agreement also provides
for  performance bonuses, and an additional annual bonus at  the
discretion  of  our  Board  of  Directors.  The  agreement  also
provides  for  a 401(k) pension plan, health insurance  benefits
and a company car (or car allowance).

The  employment  agreement with Bruce Leonetti,  Vice  President
Sales  and  Marketing, commenced on January 23,  2006  and  will
continue  for a three year period, after which the agreement  is
subject  to  renewal for one year terms.  Under  the  employment
agreement,  Mr. Leonetti has agreed to work for  us  full  time,
receives  an  annual  base  salary of  $87,500  with  annual  3%
increases and an annual incentive bonus targeted at 10% of  base
pay.  The  agreement  also provides for standard  Dynasil,  N.J.
benefits and a car allowance.

The employment agreement with Megan Shay, CEO, EMF, commenced on
October 2, 2006 and will continue for a one year period, after
which the agreement is subject to a six month renewal under
certain circumstances.  Under the agreement, Ms. Shay has agreed
to work for us full time for at least the first six months,
receives an annual base salary of $95,400, an annual incentive
bonus based on 10% of EMF Net Income, and standard EMF benefits.

                              -12-
<PAGE>




ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

      The following table sets forth the beneficial ownership of
the Common Stock of the Company as of September 30, 2006 by each
person  who  was known by the Company to beneficially  own  more
than  5%  of  the common stock, by each director  and  executive
officer who owns shares of common stock and by all directors and
executive officers as a group:


Title      Name and Address             No. of Shares and nature of   Percent of
of Class   of Beneficial Owner          Beneficial Ownership(1)       Class
--------   -------------------          ---------------------------   ----------

Common     Craig Dunham (1)(4)               2,864,438                  50.5%
           385 Cooper Road
           West Berlin, NJ 08091

Common     Saltzman Partners (1)(2)            367,009                   9.4%
           4 Tower Bridge
           Suite 100
           West Conshohocken, PA  19428

Common     James Saltzman  (1)(2)(3)           312,012                   7.8%
           777 Germantown Pike
           Plymouth Meeting, PA  19437

Common     David Manzi (1)(5)                   80,000                   2.0%
           c/o Special Optics
           315 Richard Mine Road
           Wharton, NJ 07885

Common     Laura Lunardo                       150,000                   3.9%
           8 Nemco Way
           Ayer, MA 01432

Common     Bruce Leonetti, (1)                   8,254                   0.2%
           385 Cooper Road
           West Berlin, NJ 08091


All Officers and Directors
as a Group (1)                               3,414,704                  58.0%

------------
(1)The  numbers and percentages shown include shares  of  common
stock  issuable  to  the  identified person  pursuant  to  stock
options  that  may be exercised within 60 days.  In  calculating
the  percentage  of  ownership, such shares  are  deemed  to  be
outstanding  for  the  purpose of computing  the  percentage  of
shares  of common stock owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of
share  of  common  stock owned by any other  stockholders.   The
number   of  shares  outstanding  on  September  30,  2006   was
3,888,296.

(2)James Saltzman disclaims beneficial ownership of the  367,009
shares owned by Saltzman Partners.

(3)Includes  options to purchase 90,000 shares of the  Company's
common  stock at $1.50 per share and options to purchase  40,000
shares of the companies common stock at $0.40 per share.

(4)Includes  warrants  to  purchase  1,200,000  shares  of   the
Company's common stock at an exercise price of $0.225 per  share
and  Series  A preferred stock which is convertible  to  584,438
shares of common stock.

(5)Includes options to purchase 80,000 shares of the Company's
stock at $0.40 per share.

                              -13-
<PAGE>



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  NONE.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   The following exhibits are filed pursuant to Item  601  of
Regulation S-B:

Exhibit No.  Description of Document

<TABLE>
<S>       <C>
2.01*      Asset  purchase agreement, dated as of  February  17, 2005 between
           Dynasil Corporation of America, Optometrics LLC, Frank Denton, and
           Laura Lunardo filed on Form 8-K/A dated May 24, 2005.

2.02*      Lease agreement, dated March 8, 2005 between Dynasil Corporation of
           America, Optometrics Corporation, and Optometrics Holdings LLC
           filed on Form 8-K/A dated May 24, 2005.

2.03*      Stock purchase agreement dated August 21, 2006, between Dynasil, Megan
           Shay, and Evaporated Metal Films Corporation, filed on Form 8-K on
           August 22, 2006.

3.01*      By-laws of Registrant, filed as an exhibit to Registrant's
           Registration Statement on Form 10-SB, filed October 1, 1999

3.02*      Restated Certificate of Incorporation of Dynasil Corporation of
           America dated May 6, 2005, filed as an exhibit to Form 10-QSB dated
           May 16, 2005.

3.03*      Restated Certificate of Incorporation of Dynasil Corporation of America
           dated October 13, 2006, filed on Form 8-K dated October 19, 2006.

10.01*    1996 Stock Incentive Plan, filed as an exhibit to Registrant's
          Registration Statement on Form 10-SB, filed October 1, 1999

10.02*    1999 Stock Incentive Plan, filed as an exhibit to Registrant's
          Registration Statement on Form 10-SB, filed October 1, 1999

10.03*    Employee Stock Purchase Plan, filed as an exhibit to Registrant's
          Registration Statement on Form 10-SB, filed October 1, 1999

10.04*    Audit Committee Charter filed as an exhibit on Form 10-KSB dated
          September 30, 2001.

10.05*    Loan Agreement and associated documents dated April 15, 2004 with
          Premier Bank, for a $708,889 term loan, filed as an exhibit
          to Registrant's Registration Statement on Form 10-SB, filed
          May 14, 2004.

10.06*    Employment Agreement of Craig T. Dunham dated October 1, 2004,
          filed on form 10-KSB on December 21, 2004.

10.07*    Employment Agreement of Laura Lunardo effective March 8, 2005,
          filed on Form 10-QSB dated May 16, 2005.

10.08*    Loan agreement dated March 8, 2005 with Citizen's Bank for a
          $400,000 revolving line of credit, filed on Form 10-QSB dated May
         16, 2005.

10.09*    Loan agreement dated March 8, 2005 with Citizen's Bank for a
          $300,000 term loan, filed on Form 10-QSB dated May 16, 2005.

10.10*    Loan agreements dated January 5, 2006 with Susquehanna Patriot Bank
          for a $449,346 term loan and $200,000 line of credit, filed on Form 8-K
          dated January 10, 2006.

</TABLE>


                                      -14-
<PAGE>

<TABLE>
<S>       <C>
10.11*     Employment agreement of Bruce Leonetti, dated January 16, 2006, filed
           on Form 8-K on January 19, 2006.

10.12*     Employment agreement of Megan Shay, filed on Form 8-K on August 22, 2006.

10.13*     Loan documents for loan entered into with Tompkins
           Trust Company on October 2, 2006 by Evaporated Metals
           Film Corporation and guaranteed by
           Dynasil, filed on Form 8-K on October 6, 2006.

21.01*    List of Subsidiaries of Registrant, filed as an exhibit to
          Registrant's Registration Statement on Form 10-SB, filed October
          1, 1999.

99.1      Press release, dated December 12, 2006, issued by Dynasil
          Corporation  of America announcing its financial results for the
          fourth quarter ending September 30, 2006.


</TABLE>

* Incorporated herein by reference

(b)  Reports on Form 8-K:  The following reports on Form 8-K
     were filed during the last quarter of the period covered by this
     report:

     Stock purchase agreement for Evaporated Metal Films Corporation filed
     on August 22, 2006.


ITEM 14. Principal Accountant Fees and Services

 (a)   Audit Fees

The   aggregate  fees  billed  or  to  be  billed   for
professional   services  rendered  by   the   Company's
principal  accountant for the audit  of  the  Company's
annual financial statements for the fiscal years  ended
September  30,  2006 and 2005 and the  reviews  of  the
financial statements included in the Company's Forms 10-
QSB  during those fiscal years are $54,000 and $50,500,
respectively.

(b)  Audit Related Fees

The   aggregate  fees  billed  or  to  be  billed   for
professional   services  rendered  by   the   Company's
principal  accountant for audit related  fees  for  the
fiscal  years  ended September 30, 2006 and  2005  were
$33,000  and  $15,000, respectively.  The  fiscal  year
2006 fees related to due diligence fees of $13,500  for
the EMF acquisition and EMF audit fees of $19,500.  The
2005  fees related to due diligence for the Optometrics
acquisition.

(c)   Tax Fees

The Company incurred fees of $ 4,700 and $12,600 during
the  last  two  fiscal years for professional  services
rendered by the Company's principal accountant for  tax
compliance,  tax  advice and tax planning.  The  fiscal
year  2005 fees included tax analysis relating  to  the
Optometrics acquisition.

                                      -15-
<PAGE>




(d)  All Other Fees

The  Company incurred no other fees during the last two
fiscal years for products and services by the Company's
principal accountant.




(e) Pre-approval Policies and Procedures

The Board of Directors has adopted a pre-approval policy
requiring that the Audit Committee pre-approve the audit and non-
audit services performed by the independent auditor in order to
assure that the provision of such services do not impair the
auditor's independence.


SIGNATURES

In accordance with Section 13 or 15(d) of the Securities
Exchange Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DYNASIL CORPORATION OF AMERICA

BY:      /s/ Craig Dunham
        ---------------------------------
        Craig Dunham, President, CEO

DATED:  December 12, 2006
      ---------------------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

 Signature                   Title                           Date
---------                    -----                           ----
BY:  /s/ James Saltzman      Chairman of the Board of     December 12, 2006
---------------------        Directors
    James Saltzman

BY: /s/ David Manzi          Director                     December 12, 2006
-----------------
    David Manzi

BY: /s/ Craig T. Dunham      President and CEO          December 12, 2006
-----------------
    Craig T. Dunham

BY: /s/ Laura Lunardo        CFO and Principal          December 12, 2006
---------------------        Accounting Officer
    Laura Lunardo

                                      -16-
<PAGE>