U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                  FORM 10-K/A
                                Amendment No. 1
                                   (Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2007
                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ______________ to _______________.

                          Commission file number 0-1684

                        GYRODYNE COMPANY OF AMERICA, INC.
                        ---------------------------------
             (Exact name of registrant as specified in its charter)

             NEW YORK                                        11-1688021
             --------                                        ----------
  (State or other jurisdiction of                         (I.R.S. Employer
   incorporation or organization)                        Identification No.)

       1 FLOWERFIELD, SUITE 24, ST. JAMES, NY                  11780
       --------------------------------------                  -----
      (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code (631) 584-5400

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $1.00 PAR VALUE
                                (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]              Accelerated filer [ ]
Non-accelerated filer [ ]                Smaller reporting company [X]

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

The aggregate market value of voting common stock held by non-affiliates of the
registrant on June 30, 2007 was $32,718,260. The aggregate market value was
computed by reference to the closing price on such date of the common stock as
reported on the NASDAQ Stock Market. Shares of common stock held by each
executive officer and director and by each person who to the registrant's
knowledge owns 5% or more of the outstanding voting stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

On February 18, 2008 1,289,878 shares of the Registrant's common stock, par
value $1 per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
                                      ----

                                       1
<PAGE>

                                EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A amends the original Report on Form 10-K of
Gyrodyne Company of America, Inc. for the fiscal year ended December 31, 2007,
filed with the Securities and Exchange Commission on March 28, 2008, to add
certain information required on Form 10-K:

Report of Independent Registered Public Accounting Firm signature.


<PAGE>

                              GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES
                              --------------------------------------------------
                                                REPORT ON AUDITS OF CONSOLIDATED
                                                            FINANCIAL STATEMENTS

                                          Years Ended December 31, 2007 and 2006


<PAGE>


                                                GYRODYNE COMPANY OF AMERICA, INC
                                                                AND SUBSIDIARIES


Contents
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006                                  Pages
--------------------------------------------------------------------------------

Report of Independent Registered Public Accounting Firm                  F-1

Consolidated Balance Sheets                                              F-2

Consolidated Statements of Operations                                    F-3

Consolidated Statement of Stockholders' Equity                           F-4

Consolidated Statements of Cash Flows                                    F-5

Notes to Consolidated Financial Statements                            F-6 - F-21



--------------------------------------------------------------------------------
<PAGE>

Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
Gyrodyne Company of America, Inc. and Subsidiaries
St. James, New York

We have audited the accompanying consolidated balance sheets of Gyrodyne Company
of America, Inc. and Subsidiaries (the "Company") as of December 31, 2007 and
December 31, 2006 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2007 and
December 31, 2006. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, audits of its internal control
over financial reporting. Our audits include consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 Gyrodyne Company of
America, Inc. and Subsidiaries as of December 31, 2007 and December 31, 2006 and
the results of their operations and their cash flows for the years ended
December 31, 2007 and December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America.


/s/ Holtz Rubenstein Reminick LLP


Melville, New York
March 27, 2008

--------------------------------------------------------------------------------
                                                                             F-1
<PAGE>

<TABLE>
<S>     <C>
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets                                                                            December 31,
--------------------------------------------------------------------------------------------------------------------------
                                                                                                  2007            2006
--------------------------------------------------------------------------------------------------------------------------

Assets

Real Estate:
  Rental property:
    Land                                                                                     $  2,303,017    $      3,017
    Building and improvements                                                                  10,345,449       3,140,332
    Machinery and equipment                                                                       179,335         179,335
                                                                                            ------------------------------
                                                                                               12,827,801       3,322,684
Less Accumulated Depreciation                                                                   2,651,084       2,500,907
                                                                                            ------------------------------
                                                                                               10,176,717         821,777
                                                                                            ------------------------------
  Land held for development:
    Land                                                                                          558,466         558,466
    Land development costs                                                                        781,426         321,514
                                                                                            ------------------------------
                                                                                                1,339,892         879,980
                                                                                            ------------------------------
Total Real Estate, net                                                                         11,516,609       1,701,757

Cash and Cash Equivalents                                                                       3,455,141       2,951,287
Investment in Marketable Securities                                                            10,816,269      23,797,515
Deposits on Property                                                                                    -         504,000
Rent Receivable, net of allowance for doubtful
  accounts of $14,000 and $46,000, respectively                                                    94,693         106,959
Interest Receivable                                                                                64,712         468,679
Prepaid Expenses and Other Assets                                                                 352,477         337,045
Prepaid Pension Costs                                                                           1,125,328       1,080,473
                                                                                            ------------------------------
Total Assets                                                                                 $ 27,425,229    $ 30,947,715
                                                                                            ==============================

Liabilities and Stockholders' Equity

Liabilities:
  Accounts payable                                                                           $    617,558    $    687,384
  Accrued liabilities                                                                             174,007       2,174,460
  Tenant security deposits payable                                                                275,343         159,785
  Mortgage Payable                                                                              5,502,623               -
  Deferred income taxes                                                                         7,832,000       8,135,000
                                                                                            ------------------------------
Total Liabilities                                                                              14,401,531      11,156,629
                                                                                            ------------------------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, $1 par value; authorized 4,000,000 shares; 1,531,086
    shares issued; 1,289,878 and 1,237,219 shares outstanding, respectively                     1,531,086       1,531,086
  Additional paid-in capital                                                                    7,978,395       8,205,134
  Accumulated Other Comprehensive Income
     Unrealized Gain from Marketable Securities                                                   148,415         280,042
  Balance of undistributed income from other than gain or loss on sales of properties           4,903,499      11,615,310
                                                                                            ------------------------------
                                                                                               14,561,395      21,631,572
Less Cost of Shares of Common Stock Held in Treasury; 241,208 and
  293,867, respectively                                                                        (1,537,697)     (1,840,486)
                                                                                            ------------------------------
Total Stockholders' Equity                                                                     13,023,698      19,791,086
                                                                                            ------------------------------
Total Liabilities and Stockholders' Equity                                                   $ 27,425,229    $ 30,947,715
                                                                                            ==============================

--------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                                                        F-2
</TABLE>

<PAGE>

<TABLE>
<S>     <C>
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations                          Years Ended December 31,
-----------------------------------------------------------------------------------------
                                                                 2007           2006
-----------------------------------------------------------------------------------------

Revenues
  Rental income                                             $  1,879,882    $  1,313,970
  Interest income                                              1,038,150       1,594,988
                                                           ------------------------------

                                                               2,918,032       2,908,958
                                                           ------------------------------

Expenses
  Rental expenses                                                896,340         731,530
  General and administrative expenses                          3,332,332       2,553,142
  Depreciation                                                   150,176          48,402
  Provison for loss of interest on condemnation proceeds         332,377               -
  Interest expense                                               162,450               -
                                                           ------------------------------
                                                               4,873,675       3,333,074
                                                           ------------------------------

Loss from operations before loss on condenmation
of rental property                                            (1,955,643)       (424,116)

  Loss on condemnation of rental property                              -      (1,500,000)
                                                           ------------------------------

Loss Before Benefit for Income Taxes                          (1,955,643)     (1,924,116)
Benefit for Income Taxes                                        (403,989)     (1,747,814)
                                                           ------------------------------
Net Loss                                                    $ (1,551,654)   $   (176,302)
                                                           ==============================

Net Loss Per Common Share:
  Basic                                                     $      (1.21)   $      (0.14)
                                                           ==============================

  Diluted                                                   $      (1.21)   $      (0.14)
                                                           ==============================

Weighted Average Number of Common Shares Outstanding:
  Basic                                                        1,279,867       1,237,201
                                                           ==============================

  Diluted                                                      1,279,867       1,237,201
                                                           ==============================


-----------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                       F-3
</TABLE>

<PAGE>

<TABLE>
<S>     <C>
                                                                                                  GYRODYNE COMPANY OF AMERICA, INC.
                                                                                                                   AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
------------------------------------------------------------------------------------------------------------------------------------

                               $1 Par Value
                               Common Stock                       Accumulated
                          ------------------------   Additional      Other                        Treasury Stock
                                          Par         Paid in    Comprehensive    Income     -------------------------     Total
                            Shares       Value        Capital       Income       (Deficit)      Shares       Cost          Equity
                          ----------- ------------ ----------------------------------------- ----------- ------------- -------------
Balance, January 1,
  2006                     1,531,086  $ 1,531,086  $ 8,399,134     $       -   $ 11,791,612     293,867  $ (1,840,486) $ 19,881,346
Tax Reduction - Stock
  Options                          -            -     (194,000)            -              -           -             -      (194,000)
Unrealized Gain from
  Marketable Securities            -            -            -       280,042              -           -             -       280,042
Net Loss                           -            -            -             -       (176,302)          -             -      (176,302)
                          ----------- ------------ ----------------------------------------- ----------- ------------- -------------
Balance, December 31,
  2006                     1,531,086    1,531,086    8,205,134       280,042     11,615,310     293,867    (1,840,486)   19,791,086
Exercise of Stock
  Options                                             (226,739)                                 (52,659)      302,789        76,050
Unrealized Loss from
 Marketable Securities                                              (131,627)                                              (131,627)
Cash Distribution Payment                                                        (5,160,157)                             (5,160,157)
Net Loss                                                                         (1,551,654)                             (1,551,654)
                          ----------- ------------ ----------------------------------------- ----------- ------------- -------------
Balance, December 31,
  2007                      1,531,086  $ 1,531,086  $ 7,978,395    $  148,415  $  4,903,499     241,208  $ (1,537,697) $ 13,023,698
                          =========== ============ ========================================= =========== ============= =============


------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                                                                  F-4

</TABLE>
<PAGE>

<TABLE>
<S>     <C>
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows                                  Years Ended December 31,
-------------------------------------------------------------------------------------------------
                                                                        2007            2006
-------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
  Net loss                                                          $ (1,551,654)   $   (176,302)
                                                                   ------------------------------
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
    Depreciation and amortization                                        164,594          76,038
    Deferred income taxes                                               (303,000)     (1,581,135)
    Bad debt expense                                                      34,000          24,000
    Net periodic pension benefit (income) cost                           (44,855)         91,700
    Provision for loss of interest on condemnation proceeds              332,377               -
    Changes in operating assets and liabilities:
     (Increase) decrease in assets:
      Land development costs                                            (459,912)       (321,514)
      Accounts receivable                                                (21,734)        (18,876)
      Interest receivable                                                 71,590         (64,429)
      Condemnation receivable                                                  -      26,315,000
      Prepaid expenses and other assets                                   83,395        (249,614)
     (Decrease) increase in liabilities:
      Accounts payable                                                   (69,825)        295,818
      Accrued liabilities                                             (2,000,453)      1,555,910
      Income taxes payable                                                     -        (238,548)
      Tenant security deposits                                           115,558         (52,354)
                                                                   ------------------------------
  Total adjustments                                                   (2,098,265)     25,831,996
                                                                   ------------------------------
Net Cash (Used in) Provided by Operating Activities                   (3,649,919)     25,655,694
                                                                   ------------------------------

Cash Flows from Investing Activities:
  Costs associated with property, plant and equipment                 (3,449,926)       (383,037)
  Deposits on property                                                         -        (504,000)
  Proceeds from sale of marketable securities                          7,199,204               -
  Purchases of marketable securities                                           -     (24,784,143)
  Principal repayments on investment in marketable securities          5,650,415       1,266,669
                                                                   ------------------------------
Net Cash Provided by (Used in) Investing Activities                    9,399,693     (24,404,511)
                                                                   ------------------------------

Cash Flows from Financing Activities:
  Cash Distribution Payment                                           (5,160,157)              -
  Principal payments on mortgage                                         (48,601)              -
  Loan origination fees                                                 (113,211)              -
  Proceeds from exercise of stock options                                 76,049          74,052
                                                                   ------------------------------
Net Cash (Used in) Provided by Financing Activities                   (5,245,920)         74,052
                                                                   ------------------------------

Net Increase in Cash and Cash Equivalents                                503,854       1,325,235
Cash and Cash Equivalents, beginning of year                           2,951,287       1,626,052
                                                                   ------------------------------
Cash and Cash Equivalents, end of year                              $  3,455,141    $  2,951,287
                                                                   ==============================

Supplemental cash flow information:
Interest paid                                                       $    162,450    $          -
                                                                   ==============================
Assumption of mortgage payable                                      $  5,551,191    $          -
                                                                   ==============================
Income taxes                                                        $     12,918    $     31,193
                                                                   ==============================

-------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                               F-5
</TABLE>

<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies

     Organization and nature of operations - Gyrodyne Company of America, Inc.
     and Subsidiaries (the "Company") is primarily a lessor of industrial and
     commercial real estate to unrelated diversified entities located in Long
     Island, New York, and is also pursuing development plans of its remaining
     real estate holdings. Effective May 1, 2006, the Company elected to be
     taxed as a real estate investment trust ("REIT") under the Internal Revenue
     Code of 1986, as amended and as such has changed its fiscal year end to
     December 31.

     The State University of New York at Stony Brook has acquired part of the
     Company's real estate property located in Stony Brook/St. James, New York
     through eminent domain. See Note 18.

     Principles of consolidation - The accompanying consolidated financial
     statements include the accounts of Gyrodyne Company of America, Inc.
     ("GCA") and all majority owned subsidiaries. Investments in affiliates in
     which the Company has the ability to exercise significant influence, but
     not control, would be accounted for under the equity method. Investment
     interests in excess of 5% in limited partnerships are accounted for under
     the equity method.

     All consolidated subsidiaries are wholly owned. All significant
     inter-company transactions have been eliminated.

     Rental real estate - Rental real estate assets, including land, buildings
     and improvements, furniture, fixtures and equipment, are stated at cost,
     and reported net of accumulated depreciation and amortization. Tenant
     improvements, which are included in buildings and improvements, are also
     stated at cost. Expenditures for ordinary maintenance and repairs are
     expensed to operations as they are incurred. Renovations and or
     replacements, which improve or extend the life of the asset are capitalized
     and depreciated over their estimated useful lives.

     Real estate held for development - Real estate held for development is
     stated at the lower of cost or net realizable value. In addition to land,
     land development and construction costs, real estate held for development
     includes interest, real estate taxes and related development and
     construction overhead costs which are capitalized during the development
     and construction period.

     Net realizable value represents estimates, based on management's present
     plans and intentions, of sale price less development and disposition cost,
     assuming that disposition occurs in the normal course of business.

     Long-lived assets - On an annual basis, management assesses whether there
     are any indicators that the value of the real estate properties may be
     impaired. A property's value is impaired only if management's estimate of
     the aggregate future cash flows (undiscounted and without interest charges)
     to be generated by the property are less than the carrying value of the
     property. Such cash flows consider factors such as expected future
     operating income, trends and prospects, as well as the effects of demand,
     competition and other factors. To the extent impairment occurs, the loss
     will be measured as the excess of the carrying amount of the property over
     the fair value of the property.

     The Company is required to make subjective assessments as to whether there
     are impairments in the value of its real estate properties and other
     investments. These assessments have a direct impact on the Company's net
     income, since an impairment charge results in an immediate negative
     adjustment to net income.

     Depreciation and amortization - Depreciation and amortization are provided
     on the straight-line method over the estimated useful lives of the assets,
     as follows:

--------------------------------------------------------------------------------
                                                                             F-6
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     Buildings and Improvements                                10 to 39 years
     Machinery and Equipment                                   3 to 20 years

     Expenditures for maintenance and repairs are charged to operations as
     incurred. Significant renovations are capitalized.

     Revenue recognition - Minimum revenues from rental property are recognized
     on a straight-line basis over the terms of the related leases. The excess
     of rents recognized over amounts contractually due, if any, are included in
     deferred rents receivable on the Company's balance sheets. Certain leases
     also provide for tenant reimbursements of common area maintenance and other
     operating expenses and real estate taxes. Ancillary and other property
     related income is recognized in the period earned.

     Allowance for doubtful accounts - Management must make estimates of the
     uncollectability of accounts receivable. Management specifically analyzes
     accounts receivable and analyzes historical bad debts, customer
     concentrations, customer credit-worthiness, current economic trends and
     changes in customer payment terms when evaluating the adequacy of the
     allowance for doubtful accounts.

     Investments - The Company has a 10.93% limited partnership interest in
     Callery-Judge Grove, L.P. (the "Grove") that owns a 3500+ acre citrus grove
     in Palm Beach County, Florida. The Company is accounting for this
     investment under the equity method in accordance with Emerging Issue Task
     Force ("EITF") Topic D-46 "Accounting for Limited Partnership Investments"
     and the guidance in paragraph 8 of AICPA Statement of Position ("SOP")
     78-9, "Accounting for Investments in Real Estate Ventures."

     Cash equivalents - The Company considers all highly liquid debt instruments
     purchased with maturities of three months or less to be cash equivalents.

     Investment in Marketable Securities - Marketable securities are carried at
     fair value and consist primarily of investments in marketable equity
     securities. The Company classifies its marketable securities portfolio as
     available-for-sale. This portfolio is continually monitored for differences
     between the cost and estimated fair value of each security. If the Company
     believes that a decline in the value of an equity security is temporary in
     nature, the Company records the change in other comprehensive income (loss)
     in stockholders' equity. If the decline is believed to be other than
     temporary, the equity security is written down to the fair value and a
     realized loss is recorded on the Company's statement of operations. There
     was no realized loss recorded by the Company's due to the write down in
     value for the years ended December 31, 2007 and 2006. The Company's
     assessment of a decline in value includes, among other things, the
     Company's current judgment as to the financial position and future
     prospects of the entity that issued the security. If that judgment changes
     in the future, the Company may ultimately record a realized loss after
     having initially concluded that the decline in value was temporary.

     Deposits on Property - Deposits are paid on properties the Company is
     evaluating for purchase. Real estate deposits are capitalized when paid and
     may become nonrefundable under certain circumstances. When properties are
     acquired, the deposits paid by the Company are applied to the total
     purchase price.

     Net loss per common share and per common equivalent share - The
     reconciliations for the years ended December 31, 2007 and 2006 are as
     follows:


--------------------------------------------------------------------------------
                                                                             F-7
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

<TABLE>
<S>     <C>
                                                                             Weighted
                                                                              Average     Net Loss
     Year Ended December 31, 2007                            Net Loss         Shares      Per Share
     ------------------------------------------------------------------------------------------------

     Basic EPS                                              $(1,551,654)     1,279,867   $     (1.21)
     Effect of Dilutive Securities - common stock options             -              -             -
                                                            -----------------------------------------
     Diluted EPS                                            $(1,551,654)     1,279,867   $     (1.21)
                                                            =========================================

                                                                             Weighted
                                                                              Average     Net Loss
     Year Ended December 31, 2006                            Net Loss         Shares      Per Share
     -----------------------------------------------------------------------------------------------

     Basic EPS                                              $  (176,302)     1,237,201   $      (.14)
     Effect of Dilutive Securities - common stock options             -              -             -
                                                            -----------------------------------------
     Diluted EPS                                            $  (176,302)     1,237,201   $      (.14)
                                                            =========================================
</TABLE>

     Income taxes - Effective May 1, 2006, the Company operated as a real estate
     investment trust for federal and state income tax purposes. As a REIT, the
     Company is generally not subject to income taxes. To maintain its REIT
     status, the Company is required to distribute annually as dividends at
     least 90% of its REIT taxable income, as defined by the Internal Revenue
     Code ("IRC"), to its shareholders, among other requirements. If the Company
     fails to qualify as a REIT in any taxable year, the Company will be subject
     to Federal and state income tax on its taxable income at regular corporate
     tax rates. Although the Company qualified for taxation as a REIT, the
     Company may be subject to certain state and local taxes on its income and
     property and Federal income and excise taxes on its undistributed income.
     The Company believes that it has met the REIT distribution and technical
     requirements for the year ended December 31, 2007 and the eight months
     ended December 31, 2006 and therefore, qualified as a REIT and was not
     subject to any federal and state income taxes. Management intends to
     continue to adhere to these requirements and maintain the Company's REIT
     status. See Note 18 with regard to contingencies.

     The Company's investment in the Grove is held as a taxable REIT subsidiary
     of the Company and is subject to federal and state income taxes. Taxable
     REIT subsidiaries perform non-customary services for tenants, hold assets
     that the Company cannot hold directly and generally may engage in any real
     estate or non-real estate related business. Accordingly, through the
     investment in the Grove, the Company is subject to corporate federal and
     state income taxes on the Company's share of the Grove's taxable income for
     the year ended December 31, 2007 and the eight months ended December 31,
     2006.

     Deferred tax assets and liabilities are determined based on differences
     between financial reporting and tax bases of assets and liabilities, and
     are measured using the enacted tax rates and laws that will be in effect
     when the differences are expected to reverse.

     Stock-based compensation - Effective January 1, 2006, the Company's stock
     options are accounted for in accordance with the recognition and
     measurement provisions of Statement of Financial Accounting Standards
     ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which
     replaces FAS No. 123, Accounting for Stock-Based Compensation, and
     supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting
     for Stock Issued to Employees, and related interpretations. FAS 123 (R)
     requires compensation costs related to share-based payment transactions,
     including employee stock options, to be recognized in the financial
     statements. In addition, the Company adheres to the guidance set forth

--------------------------------------------------------------------------------
                                                                             F-8
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
     ("SAB") No. 107, which provides the Staff's views regarding the interaction
     between SFAS No. 123(R) and certain SEC rules and regulations and provides
     interpretations with respect to the valuation of share-based payments for
     public companies.

     Prior to January 1, 2006, the Company accounted for similar transactions in
     accordance with APB No. 25 which employed the intrinsic value method of
     measuring compensation cost. Accordingly, compensation expense was not
     recognized for fixed stock options if the exercise price of the option
     equaled or exceeded the fair value of the underlying stock at the grant
     date.

     While FAS No. 123 encouraged recognition of the fair value of all
     stock-based awards on the date of grant as expense over the vesting period,
     companies were permitted to continue to apply the intrinsic value-based
     method of accounting prescribed by APB No. 25 and disclose certain
     pro-forma amounts as if the fair value approach of SFAS No. 123 had been
     applied.

     In adopting FAS 123(R), the Company applied the modified prospective
     approach to transition. Under the modified prospective approach, the
     provisions of FAS 123 (R) are to be applied to new awards and to awards
     modified, repurchased, or cancelled after the required effective date.
     Additionally, compensation cost for the portion of awards for which the
     requisite service has not been rendered that are outstanding as of the
     required effective date shall be recognized as the requisite service is
     rendered on or after the required effective date. The compensation cost for
     that portion of awards shall be based on the grant-date fair value of those
     awards as calculated for either recognition or pro-forma disclosures under
     FAS 123.

     As the requisite service period had been rendered for the outstanding
     stock-based awards prior to the adoption of FAS 123(R), the Company's
     results for the years ended December 31, 2007 and 2006 do not include any
     share-based compensation expense.

     Use of estimates - The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure 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. The most significant assumptions and estimates relate to
     depreciable lives and the valuation of real estate.

     Comprehensive Income - The Company reports comprehensive income in
     accordance with SFAS No. 130, Reporting Comprehensive Income. This
     statement defines comprehensive income as the changes in equity of an
     enterprise except those resulting from stockholders' transactions.
     Accordingly, comprehensive income includes certain changes in equity that
     are excluded from net income. The Company's only comprehensive income items
     were net income and the unrealized change in fair value of marketable
     securities.

     New accounting pronouncements - In February 2007, the FASB issued Statement
     No. 159, "The Fair Value Option for Financial Assets and Financial
     Liabilities--Including an amendment of FASB Statement No. 115". This
     Statement applies to all entities, including not-for-profit organizations.
     Most of the provisions of this Statement apply only to entities that elect
     the fair value option. However, the amendment to FASB Statement No. 115,
     Accounting for Certain Investments in Debt and Equity Securities, applies
     to all entities with available-for-sale and trading securities. Some
     requirements apply differently to entities that do not report net income.
     This Statement is effective as of the beginning of an entity's first fiscal
     year that begins after November 15, 2007. The Company does not believe this
     pronouncement will have a material effect on its financial statements.


--------------------------------------------------------------------------------
                                                                             F-9
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     In December 2007, the FASB issued Statement No. 141R ("FAS 141R") "Business
     Combinations". This Statement replaces FASB Statement No. 141, "Business
     Combinations". This Statement defines the acquirer as the entity that
     obtains control of one or more businesses in the business combination and
     establishes the acquisition date as the date that the acquirer achieves
     control. This Statement's scope is broader than that of Statement 141,
     which applied only to business combinations in which control was obtained
     by transferring consideration. By applying the same method of
     accounting--the acquisition method--to all transactions and other events in
     which one entity obtains control over one or more other businesses, this
     Statement improves the comparability of the information about business
     combinations provided in financial reports. This Statement requires the
     acquiring entity in a business combination to recognize all (and only) the
     assets acquired and liabilities assumed in the transaction and establishes
     the acquisition-date fair value as the measurement objective for all assets
     acquired and liabilities assumed in a business combination. Certain
     provisions of this statement will, among other things, impact the
     determination of acquisition-date fair value in a business combination
     (including contingent consideration); exclude transaction costs from
     acquisition accounting and change accounting practice for acquired
     contingencies, acquisition-related restructuring costs and tax benefits.
     This Statement applies prospectively to business combinations for which the
     acquisition date is on or after the beginning of the first annual reporting
     period beginning on or after December 15, 2008. An entity may not apply it
     before that date. The effective date of this Statement is the same as that
     of the related FASB Statement No. 160, "Noncontrolling Interests in
     Consolidated Financial Statements".

     In December 2007, the FASB issued Statement No. 160 ("FAS 160")
     "Noncontrolling Interests in Consolidated Financial Statements--an
     amendment of ARB No. 51". This Statement amends ARB 51 to establish
     accounting and reporting standards for the noncontrolling interest ("NCI")
     in a subsidiary and for the deconsolidation of a subsidiary. It clarifies
     that a noncontrolling interest in a subsidiary is an ownership interest in
     the consolidated entity that should be reported as equity in the
     consolidated financial statements. This Statement requires disclosure, on
     the face of the consolidated statement of income, of the amounts of
     consolidated net income attributable to the parent and to the
     noncontrolling interest. The Statement requires that losses of a partially
     owned consolidated subsidiary be allocated to the NCI even when such
     allocation might result in a deficit balance. This Statement is effective
     for fiscal years, and interim periods within those fiscal years, beginning
     on or after December 15, 2008 (that is, January 1, 2009, for entities with
     calendar year-ends). Earlier adoption is prohibited. The effective date of
     this Statement is the same as that of the related Statement 141R. The
     Company is currently evaluating the future impacts and disclosures of FAS
     141R and FAS 160.

2.   Investment in Marketable Securities

     The historical cost and estimated fair value of investments in marketable
     securities available for sale as of December 31, 2007 and 2006 are as
     follows:

<TABLE>
<S>     <C>
                                                           Gross          Gross
                                           Amortized     Unrealized     Unrealized       Fair
                                             Cost          Gains          Losses         Value
                                         ---------------------------------------------------------
     Mortgage-backed Securities - 2007   $ 10,667,854   $    148,415   $          -   $ 10,816,269
                                         =========================================================
     Mortgage-backed Securities - 2006   $ 23,517,473   $    280,042   $          -   $ 23,797,515
                                         =========================================================
</TABLE>

     There was a realized gain of $40,651 for the year ended December 31, 2007
     and no realized gains or losses on sales of securities available-for-sale
     for the year ended December 31, 2006. The fair value of mortgage-backed
     securities was estimated using quoted market prices. None of the securities
     with an unrealized loss at December 31, 2007 and 2006 are considered to be
     other-than-temporarily impaired. The Company's investment is in hybrid
     mortgage-backed securities, with a AAA rating fully guaranteed by agencies
     of the U.S. Government. At December 31, 2007, marketable securities had an
     average life of approximately two years.

--------------------------------------------------------------------------------
                                                                            F-10
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

3.   Interest Receivable

     In connection with the condemnation of the Flowerfield property, the
     Company had accrued interest commencing with the date Stony Brook
     University took title to the property, in November 2005, until the time the
     Company received the advance payment, in March 2006. Pursuant to the New
     York State Eminent Domain Procedure Law, both the advance payment and any
     additional award from the Court of Claims bear interest at the current
     statutory rate of 9% simple interest from the date of the taking.

     As of December 31, 2007, the Company recorded a provision for loss of
     interest on condemnation proceeds amounting to $332,377 which represents a
     portion of the previously recorded interest receivable of $921,385
     pertaining to the Advance Payment in connection with the 2005 condemnation
     of 245 acres of property and certain buildings by the State University of
     New York at Stony Brook. During the year ended December 31, 2006, the
     Company received $589,008 of interest on the Advance Payment. Although the
     Company had been assured by counsel representing the State that a statutory
     interest rate of 9% was due and payable on the Advance Payment of $26.3
     million, the State of New York has now taken the position that a lesser
     interest rate was applicable. The Company plans on pursuing the loss of
     interest on condemnation along with its claim for $158 million in
     additional compensation in the Court of Claims of the State of New York.
     See Note 18.

4.   Investment in Grove Partnership

     The Company has a 10.93% limited partnership interest in the Callery-Judge
     Grove, L.P. (the "Grove"). As of December 31, 2007 and 2006, the carrying
     value of the Company's investment, under the equity method, was $0. As a
     result, the Company did not record any of the losses for either fiscal
     year.

     The Grove has reported to its limited partners that in June 2007 it
     received an independent appraisal report of the citrus grove property,
     which is now the subject of development applications. Based upon the
     appraised value of the citrus grove operations and property, at December
     31, 2007 and 2006, strictly on a pro-rata basis, the estimated fair value
     of the Company's interest in the Grove would be approximately $22,400,000
     and $22,500,000 respectively, without adjustment for minority interest and
     lack of marketability discount. The Company cannot predict what, if any,
     value it will ultimately realize from this investment.

     The fiscal year end of the Grove is June 30. Summarized financial
     information of the Grove as of June 30, 2007 and 2006 is as follows:

     Years Ended June 30,                              2007            2006
     ---------------------------------------------------------------------------
                                                  (in thousands)  (in thousands)

     Total Current Assets                          $      9,686    $      6,306
     Total Assets                                        21,234          23,572
     Total Current Liabilities                            1,687           1,280
     Total Liabilities                                   34,730          24,345
     Total Partners' Capital                            (13,496)           (773)
     Total Revenues                                       2,420           2,588
     Net Loss                                           (12,668)         (3,463)

--------------------------------------------------------------------------------
                                                                            F-11
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

5.   Accrued Liabilities

                                                          December 31,
     -----------------------------------------------------------------------
                                                       2007         2006
     -----------------------------------------------------------------------

     Condemnation costs  - termination fee          $        -   $2,000,000
     Payroll and related taxes                          83,542       72,339
     Professional fees                                  64,700       66,603
     Directors fees                                     24,500       30,500
     Other                                               1,265        5,018
                                                    ------------------------

     Total                                          $  174,007   $2,174,460
                                                    ========================

6.   Mortgage Payable

     In June 2007, in connection with the purchase of the Port Jefferson
     Professional Park, the Company assumed a $5,551,191 mortgage payable to a
     bank (the "Mortgage"). The Mortgage bears interest at 5.75% through
     February 1, 2012 and adjusts to the higher of 5.75% or 275 basis points in
     excess of the Federal Home Loan Bank's five year Fixed Rate Advance ("Fixed
     Rate Advance") thereafter. The Mortgage is payable in monthly installments
     of principal and interest totaling $33,439 through February 2012. From
     March 1, 2012 through February 1, 2022, the minimum monthly installment
     will be no less than $33,439 and will vary based upon the Fixed Rate
     Advance. In February 2022, a balloon payment is due of approximately
     $3,668,000. The Mortgage is collateralized by the Port Jefferson
     Professional Park in Port Jefferson Station, New York.

     Interest expense for the year ended December 31, 2007 approximated
     $162,000.

     The mortgage payable matures as follows:

     Years Ending December 31,                                           Amount
     ---------------------------------------------------------------------------

     2008                                                                $86,721
     2009                                                                 91,841
     2010                                                                 97,263
     2011                                                                103,006
     2012                                                                109,087
     Thereafter                                                        5,014,705

7.   Income Taxes

     The Company files a federal and state income tax return that includes all
     100% owned non taxable REIT subsidiaries. The Company files separate state
     income tax returns for its taxable REIT subsidiary.

     The benefit for income taxes is comprised of the following:


--------------------------------------------------------------------------------
                                                                            F-12
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

                                    Year Ended December 31,
     -------------------------------------------------------
                                     2007           2006
     -------------------------------------------------------

     Current:
        Federal                  $  (100,989)   $  (141,677)
        State                              -        (25,002)
                                 ---------------------------
                                    (100,989)      (166,679)
                                 ---------------------------
     Deferred:
        Federal                     (143,000)      (599,135)
        State                       (160,000)      (982,000)
                                 ---------------------------
                                    (303,000)    (1,581,135)
                                 ---------------------------
                                 $  (403,989)   $(1,747,814)
                                 ===========================

                                                             December 31,
     ---------------------------------------------------------------------------
                                                         2007            2006
     ---------------------------------------------------------------------------

     Deferred Tax Liabilities:
     Unrealized gain on investment in Citrus Grove   $  (905,000)   $  (502,000)
     Gain on condemnation (a)                         (6,927,000)    (7,633,000)
                                                     ---------------------------
     Total Deferred Tax Liabilities                   (7,832,000)    (8,135,000)
                                                     ---------------------------
     Net Deferred Income Taxes                       $(7,832,000)   $(8,135,000)
                                                     ===========================

     Effective May 1, 2006, the Company elected to be taxed as a REIT for state
     income tax and federal income tax purposes under section 856(c)(1) of the
     Internal Revenue Code (the "Code"). As a result of the election, the
     Company converted to a December 31, fiscal year end. As long as the Company
     qualifies for taxation as a REIT, it generally will not be subject to
     federal and state income tax. If the Company fails to qualify as a REIT in
     any taxable year, it will be subject to federal and state income tax on its
     taxable income at regular corporate rates. Unless entitled to relief under
     specific statutory provisions, the Company will also be disqualified for
     taxation as a REIT for the four taxable years following the year in which
     it loses its qualification. Even if the Company qualifies as a REIT, it may
     be subject to certain state and local taxes on its income and property and
     to federal income and excise taxes on its undistributed income.


     (a)  In accordance with Section 1033 of the Internal Revenue Code, the
          Company has deferred recognition of the gain on the condemnation of
          its real property for income tax purposes. If the Company replaces the
          condemned property with like kind property within three years (or such
          extended period if requested and approved by the Internal Revenue
          Service at its discretion) after April 30, 2006, recognition of the
          gain is deferred until the newly acquired property is disposed of. On
          June 27, 2007 the Company acquired the Port Jefferson Professional
          Park and replaced a portion of the condemned property totaling
          $8,914,344 which represents a reinvestment of only a portion of the
          condemnation proceeds. The Company will continue to recognize a
          deferred tax liability for the potential effect of the gain on
          condemnation. As of December 31, 2007, the remaining balance of
          condemnation proceeds to be reinvested is approximately $17,401,000.

--------------------------------------------------------------------------------
                                                                            F-13
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     A reconciliation of the federal statutory rate to the Company's effective
     tax rate is as follows:

                                                    Year Ended December 31,
     -----------------------------------------------------------------------
                                                      2007           2006
     -----------------------------------------------------------------------

     U.S. Federal Statutory Income Rate                  -              -
     State Income Tax, net of federal
       tax benefits                                      -              -
     Reversal of Deferred Taxes
       Resulting from REIT
       Election and Reinvestment of
       Condemnation Proceeds                         (15.4)%        (90.8)%
     Other Differences, net                           (5.3)%            -
                                                ---------------------------
                                                     (20.7)%        (90.8)%
                                                ===========================

8.   Retirement Plans

     The Company has a noncontributory defined benefit pension plan covering
     substantially all of its employees. The benefits are based on annual
     average earnings for the highest sixty (60) months (whether or not
     continuous) immediately preceding the Participant's termination date.
     Annual contributions to the plan are at least equal to the minimum amount,
     if any, required by the Employee Retirement Income Security Act of 1974 but
     no greater than the maximum amount that can be deducted for federal and
     state income tax purposes. Contributions are intended to provide not only
     for benefits attributed to service to date but also those expected to be
     earned in the future. During the years ended December 31, 2007 and 2006,
     the Company was not required and did not make any contributions to the
     Plan.

     The following tables provide a reconciliation of the changes in the plan's
     benefit obligations and fair value of assets over years ended December 31,
     2007 and 2006 and a statement of the funded status as of December 31, 2007
     and 2006:


--------------------------------------------------------------------------------
                                                                            F-14
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

                                                             December 31,
     --------------------------------------------------------------------------
                                                          2007          2006
     --------------------------------------------------------------------------

     Pension Benefits
     Reconciliation of Benefit Obligation:
        Obligation                                   $  2,341,336  $  2,058,304
        Service cost                                      121,392        86,496
        Interest cost                                     132,108        85,398
        Actuarial (gain) loss                            (195,242)      198,197
        Benefit payments                                 (173,637)      (87,059)
                                                     --------------------------
     Obligation                                      $  2,225,957  $  2,341,336
                                                     ==========================


     Reconciliation at Fair Value of Plan Assets:
       Fair value of plan assets, beginning of year  $  3,808,671  $  3,039,786
       Actual return on plan assets                      (780,471)      855,944
       Benefit payments                                  (173,637)      (87,059)
                                                     --------------------------
     Fair Value of Plan Assets, end of year             2,854,563     3,808,671
                                                     --------------------------


     Funded Status:
        Funded status                                     628,606     1,467,335
        Unrecognized (gain) loss                          496,722      (386,862)
                                                     --------------------------
     Net Amount Recognized                           $  1,125,328  $  1,080,473
                                                     ==========================

     The accumulated benefit obligation was $1,883,163 and $2,010,555 as of
     December 31, 2007 and 2006, respectively.

     The following table provides the components of net periodic benefit cost
     for the plans for the years ended December 31, 2007 and 2006 :

                                                            December 31,
                                                    ---------------------------
                                                         2007          2006
                                                    ---------------------------

     Pension Benefits
     Service Cost                                   $   121,392    $    86,496
     Interest Cost                                      132,108         85,398
     Expected Return on Plan Assets                    (298,355)      (159,100)
     Amortization of Prior-Service Cost                       -         40,230
                                                    --------------------------
     Net Periodic Benefit Cost After
      Curtailments and Settlements                  $   (44,855)   $    53,024
                                                    ==========================

                                                            December 31,
     --------------------------------------------------------------------------
                                                         2007           2006
     --------------------------------------------------------------------------
     Pension Benefits
     Weighted-Average Assumptions
       Discount rate                                     6.59%          5.77%
       Expected return on plan assets                    8.00%          8.00%
       Rate of compensation increase                     5.00%          5.00%


--------------------------------------------------------------------------------
                                                                            F-15
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     The Plan's investment objectives are expected to be achieved through a
     portfolio mix of Company stock, other investments, and cash and cash
     equivalents which reflect the Plan's desire for investment return.

     The defined benefit plan had the following asset allocations as of their
     respective measurement dates:

                                                               December 31,
     --------------------------------------------------------------------------
                                                            2007          2006
     --------------------------------------------------------------------------

     Common Stock - Gyrodyne Company of America, Inc.       97.6%         98.6%
     Other Funds                                             2.4%          1.4%
                                                      -------------------------
     Total                                                 100.0%        100.0%
                                                      =========================

     Securities of the Company included in plan assets are as follows:

                                                               December 31,
     --------------------------------------------------------------------------
                                                            2007          2006
     --------------------------------------------------------------------------

     Number of Shares                                       60,580       60,580
     Market Value                                      $ 2,784,863  $ 3,755,960

     Expected approximate future benefit payments are as follows:

     Years Ending December 31,                                          Amount
     --------------------------------------------------------------------------

     2008                                                             $ 171,331
     2009                                                               161,143
     2010                                                               151,098
     2011                                                               168,764
     2012                                                               159,167
     2013 - 2017                                                        670,125

9.   Stock Option Plans

     Incentive Stock Option Plan - The Company had a stock option plan (the
     "Plan") which expired in October 2003, under which participants were
     granted Incentive Stock Options ("ISOs"), Non-Qualified Stock Options
     ("NQSOs") or Stock Grants. The purpose of the Plan was to promote the
     overall financial objectives of the Company and its shareholders by
     motivating those persons selected to participate in the Plan to achieve
     long-term growth in shareholder equity in the Company and by retaining the
     association of those individuals who were instrumental in achieving this
     growth. Such options or grants became exercisable at various intervals
     based upon vesting schedules as determined by the Compensation Committee.
     The options were to expire between April 2007 and May 2008.

     The ISOs were granted to employees and consultants of the Company at a
     price not less than the fair market value on the date of grant. All such
     options were authorized and approved by the Board of Directors, based on
     recommendations of the Compensation Committee.

     ISOs were granted along with Stock Appreciation Rights, which permitted the
     holder to tender the option to the Company in exchange for stock, at no
     cost to the optionee, that represented the difference between the option
     price and the fair market value on date of exercise. NQSOs were issued with
     Limited Stock Appreciation Rights, which were exercisable, for cash, in the
     event of a change of control. In addition, an incentive kicker was provided
     for Stock Grants, ISOs and NQSOs, which increased the number of grants or
     options based on the market price of the shares at exercise versus the
     option price.

--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     Non-Employee Director Stock Option Plan - The Company adopted a
     non-qualified stock option plan for all non-employee Directors of the
     Company in October 1996. The plan expired in September 2000. Each
     non-employee Director was granted an initial 2,500 options on the date of
     adoption of the plan. These options were exercisable in three equal annual
     installments commencing on the first anniversary date subsequent to the
     grant. Additionally, each non-employee Director was granted 1,250 options
     on each January 1, 1997 through 2000, respectively. These additional
     options were exercisable in full on the first anniversary date subsequent
     to the date of grant. The options were to expire in January 2007.

     A summary of the Company's various fixed stock option plans as of December
     31, 2007 and 2006 and changes during the years then ended is presented
     below:

<TABLE>
<S>     <C>
                                                                      December 31,
     -------------------------------------------------------------------------------------------------------
                                                          2007                           2006
     -----------------------------------------------------------------------------------------------------
                                                              Weighted                         Weighted
                                                               Average                         Average
     Fixed Stock Options                                      Exercise                         Exercise
                                                  Shares        Price           Shares          Price
     -----------------------------------------------------------------------------------------------------

     Outstanding, beginning of period             67,105       $ 16.42          73,980         $ 16.14
     Granted                                        -
     Exercised                                   (67,105)      $ 16.42          (6,875)        $ 13.46
     Forfeited                                      -                             -
     Canceled                                       -                             -
                                              -------------                 --------------
     Outstanding, end of period                     -             -             67,105         $ 16.42
                                              =============                 ==============
     Options Exercisable, year end                  -             -             67,105         $ 16.42
                                              =============                 ==============
</TABLE>

     Incentive Compensation Plan - The Company has an incentive compensation
     plan for all full-time employees and members of the Board in order to
     promote shareholder value. The benefits of the incentive compensation plan
     are realized only upon a change in control of the Company.
     Change-in-control is defined as the accumulation by any person, entity or
     group of 30% or more of the combined voting power of the Company's voting
     stock or the occurrence of certain other specified events. In the event of
     a change in control, the Company's plan provides for a cash payment equal
     to the difference between the plan's "establishment date" price of $15.39
     per share and the per share price of the Company's common stock on the
     closing date, equivalent to 100,000 shares of Company common stock, such
     number of shares and "establishment date" price per share subject to
     adjustments to reflect changes in capitalization. The payment amount would
     be distributed to eligible participants based upon their respective
     weighted percentages (ranging from .5% to 18.5%).

10.  Revolving Credit Line

     The Company's line of credit has a borrowing limit of $1,750,000, bears
     interest at the lending institution's prime-lending rate (7.25% at December
     31, 2007) plus 1%, and is subject to certain financial covenants. The line
     is secured by certain real estate and expires on June 1, 2009. As of
     December 31, 2007, and 2006, $1,750,000 was available under this agreement
     and the Company was in compliance with the financial covenants.


--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

11.  Concentration of Credit Risk

     Financial instruments, which potentially subject the Company to
     concentrations of credit risk, consist principally of cash and cash
     equivalents and U.S. Government securities. The Company places its
     temporary cash investments with high credit quality financial institutions
     and generally limits the amount of credit exposure in any one financial
     institution. At times the Company maintains bank account balances, which
     exceed FDIC limits. The Company has not experienced any losses in such
     accounts and believes that it is not exposed to any significant credit risk
     on cash. Management does not believe significant credit risk exists at
     December 31, 2007 and 2006.

12.  Commitments

     Lease revenue commitments - The future minimum revenues from rental
     property under the terms of all noncancellable tenant leases, assuming no
     new or renegotiated leases are executed for such premises, for future years
     are approximately as follows:

     Years Ending December 31,                                         Amount
     --------------------------------------------------------------------------

     2008                                                           $1,688,000
     2009                                                              811,000
     2010                                                              603,000
     2011                                                              214,000
     2012                                                               66,000
     Thereafter                                                         15,000
                                                                    -----------
                                                                    $3,397,000
                                                                    ===========

     The Company was leasing office space in St. James, New York on a
     month-to-month basis through April 30, 2006. Rental expense for the year
     ended December 31, 2006 was $18,594. On May 1, 2006, the Company moved into
     its current facility which it owns and therefore no longer has rent
     expense.

     Employment agreements - Effective January 23, 2003, the Company amended the
     existing employment contracts with two officers, which provide for annual
     salaries aggregating approximately $381,000. The terms of the agreements
     were extended from one to three years and provide for a severance payment
     equivalent to three years salary in the event of a change in control.

     Land development contract - The Company entered into a Golf Operating and
     Asset Management Agreement (the "Agreement") with Landmark National
     ("Landmark") for the design and development of an 18-hole championship golf
     course community. On February 12, 2007, as a result of the State University
     of New York at Stony Brook's ("the University's") condemnation of the
     Flowerfield property, the Company entered into an agreement with Landmark
     National to terminate two agreements, the Golf Operating Agreement and the
     Asset Management Agreement, both dated April 9, 2002. In addition to
     abandoning its claim for 10% of all proceeds related to the condemnation
     and any sale and/or development of the remaining Flowerfield acreage,
     Landmark agreed to provide consulting services in connection with the
     eminent domain litigation. The agreement also includes consideration for
     previously provided services. The Company paid Landmark $2,000,000, of
     which $500,000 was accrued by the Company during its year ended December
     31, 2005 as a termination fee. In addition the Company retained Landmark
     and will pay them $1,000,000 over the next thirty-six months, commencing on
     March 1, 2007, in recognition of services rendered between 2004 and 2006,
     and for general consulting, review of pertinent documents, consultations
     regarding land planning and economic feasibility studies and coordination
     with project engineers associated with the Company's claim for additional
     compensation. As a result of the initial payment due of $2,000,000, the

--------------------------------------------------------------------------------
                                                                            F-18
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     Company had accrued $1,500,000 as additional condemnation expense for the
     eight months ended December 31, 2006. As is the case with various other
     expenses relating to the condemned property, the Company intends to add the
     $2,000,000 to the existing claim for additional compensation with regard to
     the condemnation.

13.  Fair Value of Financial Instruments

     The methods and assumptions used to estimate the fair value of the
     following classes of financial instruments were:

     The carrying amount of cash, receivables and payables and certain other
     short-term financial instruments approximate their fair value.

     The estimated fair value of the Company's investment in the Callery Judge
     Grove Partnership at December 31, 2007, based upon an independent third
     party appraisal report, is approximately $22,400,000 without adjustment for
     minority interest and lack of marketability discount, based on the
     Company's ownership percentage.

14.  Related Party Transactions

     A law firm related to a director provided legal services to the Company for
     which it was compensated approximately $1,000 and $8,000 for the years
     ended December 31, 2007 and December 31, 2006, respectively. As of January
     1, 2005, the aforementioned law firm is no longer primary outside legal
     counsel to the Company.

15.  Major Customers

     For the year ended December 31, 2007 rental income from the three largest
     tenants represented 9%, 7% and 5% of total rental income.

     For the year ended December 31, 2006 rental income from the three largest
     tenants represented 15%, 11% and 9% of total rental income.

16.  Supplementary Information - Quarterly Financial Data (Unaudited)

<TABLE>
<S>     <C>
     Year Ended December 31, 2007             First         Second        Third          Fourth
     ---------------------------------------------------------------------------------------------

     Rental Income                        $   286,859    $   314,104   $   613,683    $   665,236
     Rental Property Expense                 (200,258)      (191,320)     (227,198)      (277,564)
                                          --------------------------------------------------------
     Income from Rental Property               86,601        122,784       386,485        387,672
                                          --------------------------------------------------------
     Net (Loss) Income                    $  (185,428)   $   434,842   $  (158,143)   $(1,642,925)
                                          ========================================================

     Net (Loss) Income Per Common Share
         Basic                            $      (.15)   $       .34   $      (.12)   $     (1.28)
                                          ========================================================
         Diluted                          $      (.15)   $       .34   $      (.12)   $     (1.28)
                                          ========================================================
</TABLE>

--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

<TABLE>
<S>     <C>
     Year Ended December 31, 2006            First       Second        Third       Fourth
     --------------------------------------------------------------------------------------

     Rental Income                        $ 311,536    $ 323,071    $ 340,742    $ 338,621
     Rental Property Expense               (210,908)    (169,135)    (163,717)    (187,770)
                                          ------------------------------------------------
     Income from Rental Property            100,628      153,936      177,025      150,851
                                          ------------------------------------------------
     Net Income (Loss)                    $ 115,332    $  84,082    $ (18,123)   $(357,593)
                                          ================================================

     Net Income (Loss) Per Common Share
         Basic                            $     .09    $     .07    $    (.01)   $    (.29)
                                          ================================================
         Diluted                          $     .09    $     .07    $    (.01)   $    (.29)
                                          ================================================
</TABLE>

17.  Interest Income

     Interest income consists of the following:

                                                Year Ended December 31,
     ------------------------------------------------------------------
                                                   2007          2006
     ------------------------------------------------------------------

     Interest on Condemnation Advance
     Payment                                    $        -   $  538,556
     Interest Income on Investments                871,046      911,324
     Interest Income - Other                       167,104      145,108
                                                -----------------------
                                                $1,038,150   $1,594,988
                                                =======================

18.  Contingencies

     On November 2, 2005, the State University of New York at Stony Brook (the
     "University") filed an acquisition map with the Suffolk County Clerk's
     office and vested title in 245.5 acres of the Company's Flowerfield
     Property pursuant to the New York Eminent Domain Procedure Law (the
     "EDPL"). On March 27, 2006, the Company received payment from the State of
     New York in the amount of $26,315,000, which the Company had previously
     elected under the EDPL to accept as an advance payment for the property.
     Under the EDPL, both the advance payment and any additional award from the
     Court of Claims bear interest at the current statutory rate of 9% simple
     interest from the date of the taking through the date of payment. See Note
     3 for a further discussion of the accrued interest on the proceeds on the
     condemnation of the Flowerfield property.

     On May 1, 2006, the Company filed a Notice of Claim with the Court of
     Claims of the State of New York seeking $158 million in damages from the
     University resulting from the condemnation of the 245.5 acres of the
     Company's Flowerfield property. While the Company believes that a credible
     case for substantial additional compensation can be made, it is possible
     that the Company may be awarded a different amount than is being requested,
     including no compensation, or an amount that is substantially lower than
     the Company's claim for $158 million. It is also possible that the Court of
     Claims could ultimately permit the State to recoup part of its advance
     payment to the Company.

     Faith Enterprises ("Faith") a tenant at 7 Flowerfield failed to fulfill its
     rental payment obligation. In February 2007, the Company served Faith with
     a notice of default. Faith subsequently sued the Company in Suffolk Supreme
     Court, seeking $7 million in damages on each of three claims (breach of
     contract, fraudulent inducement and tortuous interference with business)
     and also seeking to enjoin the Company from commencing a non-payment
     eviction proceeding (which the Court denied). The Company thereafter
     commenced a non-payment proceeding, in which Faith agreed to an order to

--------------------------------------------------------------------------------
                                                                            F-20
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------

     vacate the premises and for a judgment of past due rent of $115,051. Faith
     vacated the premises in April 2007. Faith continues to pursue its claims
     for damages in the Suffolk Supreme Court action. In November 2007, the
     Company commenced a third-party action against the guarantors of Faith's
     lease, Thomas O. Dodge, Cathleen Dodge, Michael Maurer and Kelly Maurer. In
     January 2008, Plaintiff (Faith) filed a motion to consolidate this case
     with another matter it had commenced against the entities from whom Faith
     purchased the business. The Court has not yet ruled on this motion.

     If the Company does not reinvest the condemnation proceeds received on the
     condemned property in accordance with Internal Revenue Code section 1033,
     the gain on condemnation of the Company's Flowerfield property will be
     subject to federal and state taxes. The Company must replace the condemned
     property by April 2009. In June 2007, the Company closed on the purchase of
     a medical office complex known as Port Jefferson Professional Park in Port
     Jefferson Station, New York. The acquisition price was $8,914,344. The Port
     Jefferson Professional Park qualifies as replacement property under IRC
     section 1033.


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                                                                            F-21