U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                    FORM 10-K

[ ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 for the fiscal year ended

[X]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 for the transition period from MAY 1, 2006 to
     DECEMBER 31, 2006

     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 under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$1.00 PAR VALUE

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, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [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, 2006 was $33,666,528. 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 15, 2007 1,242,310 shares of the Registrant's common stock, par
value $1 per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report on Form 10-K incorporates information by reference from
the registrant's proxy statement for its Annual Meeting of Shareholders - Items
10, 11, 12, 13 and 14.


                                       1
<PAGE>

                         TABLE OF CONTENTS TO FORM 10-K
                         ------------------------------
     FOR THE TRANSITION PERIOD FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2006
     ----------------------------------------------------------------------


ITEM #                                                                      PAGE
------                                                                      ----

PART I
          1 -Business                                                         3
         1A -Risk Factors                                                     7
         1B -Unresolved Staff Comments                                       10
          2 -Properties                                                      11
          3 -Legal Proceedings                                               12
          4 -Submission of Matters to a Vote of Security Holders             12

PART II
          5 -Market for Registrant's Common Equity, Related Stockholder
             Matters and Issuer Purchases of Equity Securities               13
          6 -Selected Financial Data                                         15
          7 -Management's Discussion and Analysis of Financial Condition
             and Results of Operation                                        18
         7A -Quantitative and Qualitative Disclosures About Market Risk      26
          8 -Financial Statements and Supplementary Data                     26
          9 -Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                             27
         9A -Controls and Procedures                                         27
         9B -Other Information                                               27

PART III
         10 -Directors, Executive Officers and Corporate Governance
             of the Registrant                                               27
         11 -Executive Compensation                                          27
         12 -Security Ownership of Certain Beneficial Owners and
             Management and Related Stockholder Matters                      27
         13 -Certain Relationships and Related Transactions                  27
         14 -Principal Accounting Fees and Services, and Director
             Independence                                                    27


PART IV
         15 -Exhibits, Financial Statement Schedules                         28
            -Signatures


                                       2
<PAGE>

                                     PART I

Item 1 Business

The statements made in this Form 10-K that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes," "seeks," "could,"
"should," or "continue," the negative thereof, other variations or comparable
terminology. Important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward-looking statements
include, but are not limited to, the effect of economic and business conditions,
including risks inherent in the Long Island, New York and Palm Beach County,
Florida real estate markets, the ability to obtain additional capital in order
to develop the existing real estate and other risks detailed from time to time
in the Company's SEC reports. For a discussion of additional risk factors that
are particular to our business, please refer to Part I, Item 1A Risk Factors.
These and other matters we discuss in this Report, or in the documents we
incorporate by reference into this Report, may cause actual results to differ
from those we describe. The Company assumes no obligation to update or revise
any forward-looking information, whether as a result of new information, future
events or otherwise.

Business Development
--------------------

Gyrodyne Company of America, Inc. (the "Company") was organized in 1946 as a
corporation under the laws of the State of New York. The Company's headquarters
are located at 1 Flowerfield, Suite 24, St. James, New York 11780. Its main
phone number is (631) 584-5400. The Company maintains a website at
www.gyrodyne.com.

The Company was, from its inception and for the next 25 years, engaged in
design, testing, development, and production of coaxial helicopters primarily
for the U.S. Navy. Following a sharp reduction in the Company's helicopter
manufacturing business and its elimination by 1975, the Company began converting
its vacant manufacturing facilities and established its rental property
operation. The Company has since concentrated its efforts on the development of
its real estate holdings in St. James, New York. The converted buildings consist
of approximately 127,392 rentable square feet housing 46 tenants in space
suitable for office, engineering, manufacturing, and warehouse use. The
property, which is known as Flowerfield, consists of 68 acres. Approximately 10
acres are utilized for the rental property and the balance of 58 remains
undeveloped.

In 2007, effective May 1, 2006, the Company intends to elect to be taxed as a
real estate investment trust ("REIT") for federal and state income tax purposes.
The Company plans to acquire, manage and invest in a diversified portfolio of
real estate composed of office, industrial, retail and service properties
primarily in the New York City Metropolitan area.

As a REIT, the Company is required to have a December 31, 2006 year end. As a
result, the Company's financial statements have been prepared for the eight
months ended December 31, 2006. In view of this change, this Form 10-K is a
transition report and includes financial information for the eight month
transition period ended December 31, 2006 and for the twelve month periods ended
April 30, 2006, 2005 and 2004.

In 1965, the Company acquired a 20% limited partnership interest in
Callery-Judge Grove, L.P., a New York limited partnership, which owns a 3,500+
acre citrus grove located in Palm Beach County, Florida, for a purchase price of
$1.1 million. The Company's percentage interest has since been diluted to
approximately 11%. The investment has yielded distributions of approximately
$5.5 million in the aggregate. The property is the subject of a plan for a mixed
use of residential, commercial, and industrial development which is under review
by state and local municipal authorities.

On June 17, 2005, the Company retained the investment banking firm of Coady
Diemar Partners to assist management and the Board of Directors in reviewing the
Company's strategic options. On December 9, 2005, the Company presented at its
2005 annual shareholders meeting a strategic plan for the future direction of
the Company. The objective of the plan is to position the Company so that it is
best able to achieve one or more shareholder liquidity events in a reasonable
period of time that would put the maximum amount of cash or marketable
securities in the hands of the Company's shareholders in a tax efficient manner.
The plan calls for achieving this objective by pursuing a conversion to a real
estate investment trust, disposition and redeployment of the assets of the
Company in a tax efficient manner, maximization of the value for the remaining
68 acres at Flowerfield, and vigorous pursuit of maximum value from the State of
New York for the 245.5 acres of Flowerfield taken by eminent domain. Following
the Company's planned conversion to a REIT, which the Company intends to
complete in 2007, effective May 1, 2006, and so long as Gyrodyne qualifies for
REIT tax status, the Company generally will not be subject to New York State and
U.S. federal corporate income taxes on income and gain generated after May 1,
2006, the effective date of our REIT election, from investments in real estate,
thereby reducing


                                       3
<PAGE>

the Company's corporate-level taxes and substantially eliminating the double
taxation on income and gain that usually results in the case of distributions as
a C corporation.

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 approximately 245.5 acres of the 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 subject to the courts discretion.

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 State of New York
resulting from the eminent domain taking by the University of the 245.5 acres of
the Flowerfield property. See "Legal Proceedings".

The Company invested the advance payment from the condemnation of $26,315,000 in
short term U.S. Government securities and interest bearing deposits which were
valued at $26,184,383 and $238,593, respectively, as of April 30, 2006.
Subsequently, the Company invested in agency hybrid mortgage-backed securities
which are qualified REIT investments; at December 31, 2006, those investments,
including related interest receivable, totaled $23,937,093. The balance of the
funds were placed in short term U.S. Government securities and interest bearing
deposits which totaled $2,617,565 at December 31, 2006.

On October 12, 2006, the Company entered into a Contract of Sale (the
"Contract"), which was amended on January _, 2007, by and between the Company
and Frank M. Pellicane Realty, LLC and Pelican Realty, LLC (collectively, the
"Seller") to acquire land and buildings comprising, in significant part, a
medical office complex known as Port Jefferson Professional Park in Port
Jefferson Station, New York. The Contract relates specifically to ten office
buildings, located at 1-6, 8, 9 and 11 Medical Drive and 5380 Nesconset Highway,
which are situated on 5.16 acres with approximately 40,000 square feet of
rentable space (the "Property") with a current occupancy rate of 97%. The
purchase price per square foot is $221.25 and the aggregate monthly rent flow
from the property is currently $73,941.50. Other than with respect to the
Contract itself, there is no material relationship between the Company and the
Seller.

The purchase price for the Property is $8.85 million, $500,000 of which was paid
as a refundable deposit upon the signing of the Contract, and the remainder,
subject to any adjustments, is required to be paid at closing. Under the
Contract, the Company has the right to elect either to pay all cash at closing
or apply to assume the terms of an existing mortgage loan due February 1, 2022
at a current interest rate of 5.75%. The Company has applied for and has been
approved to assume the mortgage if it so desires. The bank required an
additional deposit of $4,000 relating to the assumption of the existing
mortgage. Upon acquisition, the Company intends to continue to operate the
office space pursuant to existing leases. It is anticipated that the transaction
will close in April 2007. The contract was amended in January 2007 to provide
that the seller will be responsible for the cost of remediating the contaminated
on-site sanitary waste disposal systems and stormwater drywells, which was
discovered by the Company during the due diligence examination.

In accordance with the Internal Revenue Code ("IRC") section 1033, in on order
to defer federal and state taxes on the gain from condemnation of the
Flowerfield property, the Company must replace the condemned property by April
2009. The Port Jefferson Professional Park qualifies as replacement property
under IRC section 1033.

The Company has filed an application to develop a gated, age restricted
community on the remaining Flowerfield property that includes 39 single-family
homes, 60 townhouses and 210 condominiums. Living space would range from 1,600
square feet for the smallest condominiums to 2,800 square feet for detached
single-family homes. Amenities would include a clubhouse with recreation
facilities, pedestrian and bicycle paths, and extensive landscaping. Prices are
currently expected to range from $850,000 to $1.45 million per home.

The Company has engaged the firm of Platt Byard Dovell White Architects for
design work. The firm enjoys an outstanding reputation for designing attractive
residential and commercial properties. Leading the project will be Sam White,
FAIA, a partner at the firm who is known specifically for his proven ability to
blend historic context into new architecture.

The application asks for the zoning of approximately 62.4 acres to be changed
from "light industrial" (approx. 55.5 acres) and "residential" (approx. 6.9
acres) to "planned residential." Another 4.3 acres of the property owned by the
Company, while already zoned as "residential," would remain undeveloped. Total
amount of open space remaining after development is expected to exceed 40 acres.
As indicated in the application, the Company plans in the future to remove the
industrial buildings currently in use at the appropriate time.


                                       4
<PAGE>

According to an analysis obtained by the Company, the local road traffic caused
by the residential development would be lower than the levels attributed to the
current industrial operations. The development also would have a positive impact
on the municipal tax base since the age-restricted nature of the community would
not affect the local school population. The company estimates that 100
construction jobs and 15 permanent jobs would be created by the project.

On February 12, 2007, 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 Landmark agreeing
not to pursue any claim under those agreements for 10% of all proceeds related
to the condemnation and any future sale and/or development of the remaining
Flowerfield acreage, Landmark agreed to provide consulting services in
connection with the eminent domain litigation. In consideration for Landmark's
agreement not to pursue the foregoing claims, for services previously provided,
the Company paid Landmark $2,000,000, $500,000 of which was accrued by the
Company during its year ended April 30, 2006. Landmark will receive an
additional $1,000,000 over the next thirty-six months, commencing on March 1,
2007, 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. The Company has accrued $1,500,000 as additional condemnation
expense as of December 31, 2006. The Company intends to add the $2,000,000 to
the existing claim for additional compensation with regard to the condemnation.

Neither the Company nor any of its subsidiaries have ever been in any
bankruptcy, receivership or similar proceeding.

References to the Company contained herein include its wholly owned
subsidiaries, except where the context otherwise requires.

Description of the Company's Business
-------------------------------------

The Company manages its real estate operations and is a passive investor as a
limited partner in the Callery Judge Grove, L.P., which owns a large citrus
grove in Palm Beach County, Florida. The Company currently has a total of 8 full
time employees involved in support of the real estate operation and development
plans. Competition among industrial and office rental properties on Long Island
is intense. There are numerous commercial property owners that compete with the
Company in attracting tenants, many of which are substantially larger than the
Company. See Item 1A, "Risk Factors" for a discussion of risk factors, and Item
2, "Properties" for a discussion regarding dependence on major tenants.

Real Estate
-----------

Gyrodyne owns a 68 acre site called Flowerfield, primarily zoned for light
industry, which is located approximately 50 miles east of New York City on the
north shore of Long Island. Flowerfield's location also places it in
hydrological zone VIII, one of the most liberal with respect to effluent
discharge rates.

The Company currently has 127,392 square feet of rentable space located on
approximately 10 acres of developed property at Flowerfield. As of December 31,
2006, there were 46 tenants, comprising 49 leases, renting space with an annual
base rent of $1,280,026. The majority of the Company's leases, 38 out of 49, are
one year leases and represent approximately 55.6% of the total annual rent.

The Flowerfield property is located in Smithtown Township. Environmental studies
have been updated and numerous other studies including archeological,
ecological, and traffic have been conducted in connection with development plans
-- all with no significant adverse findings. The Company believes that it does
not incur material costs in connection with compliance with environmental laws.
During the fiscal year ended April 30, 2006 ("Fiscal Year 2006") and the eight
months ended December 31, 2006, the Company had no material expenses related to
environmental issues.

Limited Partnership Investment in Callery-Judge  Grove, L.P. (the "Grove")
-----------------------------------------------  -------------------------

The Company's initial participation in the Grove through its wholly owned
subsidiary, Flowerfield Properties, Inc., represented a 20% limited partner's
interest in the Grove. Based on three subsequent capital infusions in which the
Company did not participate, the Company's share is now approximately 11%.

The original limited partner investment of $1.1 million, which was made in 1965,
has since yielded distributions of approximately $5.5 million in the aggregate.
Due to recurring losses of the Grove, the investment is carried on the books of
the Company at $0 as a result of recording the Company's pro-rata share of
losses under the equity method of accounting. In fiscal 2000, when the Company's
share


                                       5
<PAGE>

of losses equaled the carrying value of the investment, the equity method of
accounting was suspended, and no additional losses have been charged to
operations.

Tax Status
----------

In 2007, effective May 1, 2006, the Company intends to elect 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 will convert 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.

Competition
-----------

All of the rental properties owned by the Company are located in St. James, New
York on the North Shore of Long Island in Smithtown Township. The Company
competes in the leasing of office, engineering, manufacturing and warehouse
space with a considerable number of other real estate companies, some of which
may have greater marketing and financial resources than the Company. Principal
factors of competition in the Company's rental property business are: the
quality of properties, leasing terms (including rent and other charges and
allowances for tenant improvements), attractiveness and convenience of location,
the quality and breadth of tenant services provided and reputation as an owner
and operator of quality office properties in its relevant market. Additionally,
the Company's ability to compete depends upon, among other factors, trends in
the national and local economies, investment alternatives, financial condition
and operating results of current and prospective tenants, availability and cost
of capital, construction and renovation costs, taxes, governmental regulations,
legislation and population trends.

In seeking new investment opportunities, the Company competes with other real
estate investors, including pension funds, insurance companies, foreign
investors, real estate partnerships, other public and private real estate
investment trusts, private individuals and other domestic real estate companies,
many of which have greater financial and other resources than the Company. With
respect to properties presently owned or to be owned by the Company, it competes
with other owners of like properties for tenants.

Environmental Matters
---------------------

The Company believes that each of its properties is in compliance, in all
material respects, with federal, state and local regulations regarding hazardous
waste and other environmental matters and is not aware of any environmental
contamination at any of its properties that would require any material capital
expenditure by the Company for the remediation thereof. No assurance can be
given, however, that environmental regulations will not in the future have a
materially adverse effect on the Company's operations.

Insurance
---------

The Company carries comprehensive liability, property and umbrella insurance
coverage which includes fire and business interruption insurance and covers all
of its rental properties. The Company believes the policy specifications,
insurance limits and deductibles are appropriate given the relative risk of
loss, the cost of the coverage and industry practice and, in the opinion of the
company's management, its rental properties are adequately insured.

Major Customers
---------------

For the eight months ended December 31, 2006, rental income from the three
largest tenants represented 14%, 11% and 11% of total rental income. For the
year ended April 30, 2006, rental income from the three largest tenants
represented 11%, 9% and 9% of total rental income. For the year ended April 30,
2005, rental income from the three largest tenants represented 14%, 13% and 10%
of total rental income. For the year ended April 30, 2004, rental income from
the three largest tenants represented 17%, 13% and 12% of total rental income.


                                       6
<PAGE>

Item 1A Risk Factors

An investment in our common stock involves various risks. All investors should
carefully consider the following risk factors in conjunction with the other
information contained in this Annual Report before trading in our securities. If
any of these risks actually occur, our business, operating results, prospects
and financial condition could be harmed.

RISKS ASSOCIATED WITH OUR REAL PROPERTY BUSINESS GENERALLY

Our real property business is subject to General Risks Associated With Ownership
of Real Property for Investment

We are subject to all of the risks inherent in investing in real estate, which
may include, without limitation, neighborhood property values, general and local
economic and social conditions, financial resources of tenants, vacancies, rent
strikes, changes in tax, zoning, building, environmental and other applicable
laws, federal and local rent control laws, real property tax rates, changes in
interest rates and the availability of mortgage funds which may render the sale
of properties difficult or unattractive. Such risks also include fluctuations in
occupancy rates, rent schedules and operating expenses which could adversely
affect the value of our real property interests. There can be no assurance of
profitable operations from the ownership and management of the Company's real
property interests.

We have filed an application to develop a gated, age restricted community on the
remaining Flowerfield property that includes 39 single-family homes, 60
townhouses and 210 condominiums. Living space would range from 1,600 square feet
for the smallest condominiums to 2,800 square feet for detached single-family
homes. Amenities would include a clubhouse with recreation facilities,
pedestrian and bicycle paths, and extensive landscaping. Prices are currently
expected to range from $850,000 to $1.45 million per home.

We have engaged the firm of Platt Byard Dovell White Architects for design work.
The firm enjoys an outstanding reputation for designing attractive residential
and commercial properties. Leading the project will be Sam White, FAIA, a
partner at the firm who is known specifically for his proven ability to blend
historic context into new architecture.

The application asks for the zoning of approximately 62.4 acres to be changed
from "light industrial" (approx. 55.5 acres) and "residential" (approx. 6.9
acres) to "planned residential." Another 4.3 acres of the property owned by us,
while already zoned as "residential," would remain undeveloped. Total amount of
open space remaining after development is expected to exceed 40 acres. As
indicated in the application, we plan in the future to remove the industrial
buildings currently in use at the appropriate time.

According to an analysis obtained by us, the local road traffic caused by the
residential development would be lower than the levels attributed to the current
industrial operations. The development also would have a positive impact on the
municipal tax base, while the age-restricted nature of the community would not
affect the local school population. We estimate that 100 construction jobs and
15 permanent jobs would be created by the project.

Illiquidity of real estate investments could significantly impede our ability to
sell assets or to respond to favorable or adverse changes in the performance of
our properties.

Because real estate investments are relatively illiquid, our ability to sell
promptly all or any portion of our Flowerfield property in response to changing
economic, financial and investment conditions may be limited.

We may sell some of our properties from time to time in the future. However, we
cannot predict whether we will be able to sell any property for the price or on
the terms we set, or whether any price or other terms offered by a prospective
purchaser would be acceptable to us. We also cannot predict the length of time
needed to find a willing purchaser and to close the sale of a property.

RISKS ASSOCIATED WITH OUR RENTAL PROPERTY OPERATIONS

Costs of operating our properties can rise faster than our ability to increase
rental income.

Costs of operating our properties, such as real estate taxes, utilities,
insurance, maintenance and other costs, can rise faster than our ability to
increase rental income. While we do receive some additional rent from our
tenants that is based on recovering a portion of operating expenses, generally
increased operating expenses will negatively impact our net operating income
from the properties. Our revenues and expense recoveries are subject to leases
and may not be quickly increased sufficient to recover an increase in operating
costs and expenses. As leases expire, we try either to relet the space to the
existing tenant or attract a new tenant to occupy the space. In either case, we
likely will incur significant costs in the process, including potentially
substantial tenant improvement expense or lease incentives. In addition, if
market rents have declined since the time the expiring lease was executed, the
terms of any new lease


                                       7
<PAGE>

signed likely will not be as favorable to us as the terms of the expiring lease,
thereby reducing the rental revenue earned from that space.

The profitability of our rental operations could be materially impacted by the
financial health of the regional economy generally.

All of our rental properties are located on Long Island in St. James, New York.
The concentration of all our rental properties in one location exposes us to
greater economic risks than if we owned properties in several geographic
regions. We are susceptible to the potential for adverse developments in the
Long Island economy (such as business layoffs or downsizing, industry slowdowns,
relocations of businesses, changing demographics, increased telecommuting,
infrastructure quality, New York state budgetary constraints and priorities,
increases in real estate and other taxes, costs of complying with government
regulations or increased regulation and other factors) and the national and New
York regional commercial rental space market (such as oversupply of or reduced
demand for commercial rental space). The State of New York in general, and Long
Island in particular, is also generally regarded as more litigious and more
highly regulated and taxed than many states, which may reduce demand for
commercial rental space in New York. Long Island is also characterized by a
recognized shortage of affordable workforce housing, which could adversely
impact the location decisions of businesses. Any adverse economic or real estate
developments on Long Island, or any decrease in demand for office space
resulting from New York's regulatory environment or business climate, could
adversely impact our financial condition, results of operations, cash flow, and
the per share trading price of our common stock. We cannot assure you of the
continued growth of the Long Island economy or our future growth rate.

We are subject to Federal, state and local laws and regulations that could
impact our operations and profitability.

There are a number of government regulations, including zoning, tax and
accessibility laws that apply to the ownership and operation of real estate
properties. Compliance with existing and newly adopted regulations may require
us to incur significant costs on our properties. Federal, state and local laws
and regulations relating to the protection of the environment may require an
owner or operator of real property to investigate and clean up hazardous or
toxic substances or petroleum product releases at the property. The clean up can
be costly. The presence of or failure to clean up contamination may adversely
affect our ability to sell or lease a property or to borrow funds using a
property as collateral.

The market for commercial rental space is highly competitive.

An oversupply of space in our geographic market would typically cause rental
rates and occupancies to decline, making it more difficult for us to lease space
at attractive rental rates. In order to maintain the quality of our rental
properties and successfully compete against other rental properties, we
periodically spend money to maintain, repair and renovate our rental properties.
If our properties are not as attractive to tenants (in terms of rents, services,
condition or location) as other properties that compete with it, we could lose
tenants to those properties or receive lower rental rates.

RISKS ASSOCIATED WITH OUR INVESTMENT IN CALLERY-JUDGE GROVE, L.P.

We own a 10.93% limited partnership interest in Callery-Judge Grove, L.P., a New
York limited partnership (the "Partnership"), which owns a 3,500+ acre citrus
grove located in Palm Beach County, Florida. The property is the subject of a
plan for a mixed use of residential, commercial, and industrial development
which is under review by state and local municipal authorities. We face several
risks inherent in ownership of a minority interest in a limited partnership.

We are limited in our ability to transfer our interest in the Partnership.

Interests in the Partnership are not freely transferable. They can only be
assigned or transferred upon the terms and conditions set forth in the limited
partnership agreement. Those restrictions may at times preclude a transfer of
our interest. We may not transfer our interest without prior written notice to,
and receiving consent, in writing and at the sole discretion, of the
Partnership's managing partner. The transferee must also provide the
Partnership's general partner with an opinion of counsel that the transfer will
not violate any securities, tax or other laws or rules and will not affect the
tax status or treatment of the Partnership. No public market for the
Partnership's interests exists or is contemplated in the foreseeable future.

Since limited partners do not participate in management of the Partnership's
business, we must rely on the Managing Partner to adequately manage the
Partnership's affairs.


                                       8
<PAGE>

We do not participate in the management or control of the Partnership or the
conduct of its business. We have only limited voting rights with respect to the
Partnership's affairs. We must rely upon the fiduciary responsibility and
judgment of the managing partner of the Partnership to manage the Partnership's
affairs in the best interests of the limited partners.

RISKS ASSOCIATED WITH OUR INVESTMENT IN AGENCY HYBRID MORTGAGE-BACKED SECURITIES

Changes in interest rates could negatively affect the value of our
mortgage-backed securities, which could result in reduced earnings or losses and
negatively affect the cash available for distribution to our shareholders under
a REIT structure.

We invest in agency hybrid mortgage-backed securities and we currently intend to
continue to include them in our investment strategy. Under a normal yield curve,
an investment in mortgage-backed securities will decline in value if long-term
interest rates increase. Despite Fannie Mae, Freddie Mac or Ginnie Mae
guarantees of the mortgage-backed securities we own, those guarantees do not
protect us from declines in market value caused by changes in interest rates.
Declines in market value may ultimately reduce earnings or result in losses to
us, which may negatively affect cash available for distribution to the
shareholders under a REIT structure.

Market values of mortgage-backed securities may decline without any general
increase in interest rates for a number of reasons, such as increases in
defaults, increases in voluntary prepayments and widening of credit spreads.

Increased levels of prepayments from mortgage-backed securities may decrease our
net interest income.

Pools of mortgage loans underlie the mortgage-backed securities that we acquire.
We generally receive payments from principal payments that are made on these
underlying mortgage loans. When borrowers prepay their mortgage loans faster
than expected, this results in repayments of principal that are faster than
expected on the mortgage-backed securities. Faster than expected prepayments
could harm our profitability. Prepayment rates generally increase when interest
rates fall and decrease when interest rates rise, but changes in prepayment
rates are difficult to predict. Prepayment rates also may be affected by
conditions in the housing and financial markets, general economic conditions and
the relative interest rates on fixed-rate and adjustable-rate mortgage loans.

While we seek to minimize prepayment risk to the extent practical, in selecting
investments we must balance prepayment risk against other risks and the
potential returns of each investment. No strategy can completely insulate us
from prepayment risk.

RISKS RELATING TO OUR REAL ESTATE INVESTMENT TRUST (REIT) CONVERSION STRATEGY

If we fail to qualify as a REIT or fail to remain qualified as a REIT, we will
have reduced funds available for distribution to our shareholders and our income
will be subject to taxation at regular corporate rates.

We may be unsuccessful in our efforts to qualify as a REIT.

Our Board of Directors has authorized us to take the steps necessary to elect to
be taxed as a REIT. Currently, we plan on electing REIT status in 2007,
effective as of May 1, 2006. There can be no assurance that we will be organized
in conformity with the requirements for qualification as a REIT under the
Internal Revenue Code of 1986, as amended, or the Code, or that our proposed
method of operation will enable us to meet the requirements for qualification
and taxation as a REIT. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given that we will so
qualify for any particular year. We do not intend to request a ruling from the
Internal Revenue Service as to our qualification as a REIT.

Furthermore, our qualification as a REIT will depend on its satisfaction of
certain asset, income, organizational, distribution, shareholder ownership and
other requirements on a continuing basis. Our ability to satisfy the asset tests
will depend upon our analysis of the fair market values of our assets, some of
which are not susceptible to a precise determination. Our compliance with the
REIT income and quarterly asset requirements also depends upon our ability to
manage successfully the composition of our income and assets on an ongoing
basis.


                                       9
<PAGE>

Our management team has never operated a REIT, which may result in additional
administrative costs.

Although our management team has significant experience relating to the
ownership and management of real property, no member of its management team has
prior experience managing or operating a REIT. The federal and state income tax
laws impose numerous constraints on the operations of REITs. Our management
team's lack of experience in managing a portfolio of assets under such
constraints may hinder our ability to manage Gyrodyne as a REIT successfully
without the engagement of additional expertise. In addition, maintaining the
REIT qualification will limit the types of investments or business expansions we
will be able to make.

Legislative or other actions affecting REITs could have a negative effect on our
business and our stock price.

The rules dealing with federal and state income taxation are constantly under
review by persons involved in the legislative process and by the IRS and the
U.S. Department of the Treasury. Changes to the tax laws affecting REITs, which
may have retroactive application, could adversely affect Gyrodyne or our
investors. We cannot predict how changes in the tax laws might affect Gyrodyne
or our investors. Accordingly, we cannot assure you that new legislation,
Treasury regulations, administrative interpretations or court decisions will not
significantly affect our ability to qualify as a REIT or the federal and state
income tax consequences of such qualification.

Future acquisitions of properties may fail to perform in accordance with our
expectations and may require development and renovation costs exceeding its
estimates.

On March 27, 2006, we received payment from the State of New York in the amount
of $26,315,000, which we had previously elected to accept as an advance payment
for property condemned by the State University of New York. See Note 20 to the
consolidated financial statements. We plan to invest these proceeds in
securities and other assets, including real estate, consistent with our
objective of qualifying as a REIT under the Internal Revenue Code of 1986.
Changing market conditions may diminish our opportunities for making attractive
investments. Once made, our investments may fail to perform in accordance with
its expectations.

RISKS ASSOCIATED WITH ANTITAKEOVER PROVISIONS

Because of provisions contained in New York law, the Company's charter and
shareholder rights plan may have an anti-takeover effect, investors may be
prevented from receiving a "control premium" for their shares.

Provisions contained in the Company's charter and shareholder rights plan as
well as under New York Business Corporation Law may have anti-takeover effects
that delay, defer or prevent a takeover attempt, and thereby prevent
shareholders from receiving a "control premium" for their shares. For example,
these provisions may defer or prevent tender offers for our Common Stock or
purchases of large blocks of its Common Stock, thus limiting the opportunities
for our shareholders to receive a premium for their Common Stock over
then-prevailing market prices. These provisions include the following:

     o    Staggered board. Our Board of Directors is divided into three classes.
          As a result, each director generally serves for a three-year term.
          This staggering of the Board may discourage offers for Gyrodyne or
          make an acquisition of Gyrodyne more difficult, even when an
          acquisition is in the best interest of its shareholders.

     o    New York anti-takeover statute. Under New York's anti-takeover
          statute, any person who acquires 20% or more of our common stock is
          prohibited from engaging in a business combination with us for five
          years unless the Board has approved (i) the particular business
          combination or (ii) the stock purchase that put the shareholder over
          the 20% threshold.

     o    Dilutive effect of shareholder rights plan. We have in effect a
          shareholder rights plan, which is currently scheduled to expire on
          August 11, 2014, and is designed to deter a hostile takeover by
          increasing the takeover cost. As a result, the plan could discourage
          offers for Gyrodyne or make an acquisition of Gyrodyne more difficult,
          even when an acquisition is in the best interest of our shareholders.
          The rights plan should not interfere with any merger or other business
          combination the Board of Directors approves since we may generally
          terminate the plan at any time at nominal cost.

Item 1B Unresolved Staff Comments

None


                                       10
<PAGE>

Item 2 Properties

The executive office of the Company is located at 1 Flowerfield, Suite 24, St.
James, New York and consists of approximately 3,256 square feet.

Real Estate Investments

The Company owns a 68 acre tract of land located on the north shore of Suffolk
County, Long Island, New York. The Company currently has approximately 127,392
square feet of rental space and has 46 tenants.

The land is carried on the Company's balance sheet at cost in the amount of
$561,483 while the buildings and improvements are carried at a depreciated cost
of $735,305. The Company has a secured revolving line of credit in the amount of
$1,750,000. The outstanding balance was zero as of December 31, 2006 and April
30, 2006. Collateral for the credit line consists of Building #7 and the
surrounding 6 1/2 acres.

The average age of all the buildings is approximately 47 years and the
facilities continually undergo maintenance repair cycles for roofs, paved areas,
and building exteriors. The general condition of internal infrastructure, HVAC,
electrical, and plumbing is considered above average for facilities of this age.
The grounds feature extensive landscaping, are neatly groomed and well
maintained.

There are four main buildings with rental unit sizes ranging from 105 to 12,980
square feet. Given the location and size of rental units, the Flowerfield
Industrial Park attracts many smaller companies that are not dependent on
extensive material or product handling.

The Company currently maintains a $100 million dollar liability umbrella policy
and has insured certain buildings and rent receipts predicated on an analysis of
risk, exposure, and loss history. It is Management's opinion that the premises
are adequately insured.

The following table sets forth certain information as of December 31, 2006 for
the total Company property:

<TABLE>
                                                  Annual                  Number Of
                                                   Base                  Tenants Who
                 Rentable             Annual       Rent       Number      Occupy 10%
                  Square   Percent     Base     Per Leased      Of        Or More Of
    Property       Feet    Leased      Rent      SQ. FT.     Tenants   Rentable Sq. Ft.
    --------       ----    ------      ----      -------     -------   ----------------
<S>              <C>         <C>    <C>           <C>           <C>           <C>
St. James, N.Y.  127,392     71%    $1,280,026    $14.17        46            1
</TABLE>

The Company has one tenant with over 10% of the rentable square footage. The
principal nature of this tenant's business is providing day care for pre-school
children. The principal provisions of its lease include the rental of 12,980
square feet of space with an annual base rent of $183,277, expiring March 31,
2020. See, Item 3 Legal Proceedings.

The following table sets forth the Company's lease expiration table as of
December 31, 2006:

                      Number of    Square       Total     % of Gross Annual
                       Leases       Feet        Annual    Rental Represented
    Fiscal Year End   Expiring    Expiring       Rent       By Such Leases
    ---------------   --------    --------       ----       --------------
          2007           38        53,619      $712,129            55.63%
          2008            8        14,896      $276,617            21.61%
          2010            2         8,864      $108,003             8.44%
          2020            1        12,980      $183,277            14.32%

The Company's property is primarily zoned for light industrial use and is
located in the hamlet of St. James, New York.


                                       11
<PAGE>

Item 3 Legal Proceedings

Gyrodyne Company of America, Inc. v. The State University of New York at Stony
------------------------------------------------------------------------------
Brook
-----

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 approximately 245.5 acres of the Company's property known as
Flowerfield (the "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.

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 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 D.C. LLC v. Gyrodyne Company of America, Inc.
---------------------------------------------------------------

Faith Enterprises, an operator of a child care center as a franchisee of Kiddie
Academy, leases a suite of offices from the Company under a 15-year lease which
commenced in March 2005 with a five-year option. Beginning approximately July
2005 and continuing to the present, Faith Enterprises failed to pay the full
monthly rent due under the lease and remain current with their obligations. The
Company served Faith Enterprises with a series of default notices. The
franchisor was also notified of the default but has not chosen to terminate the
franchise agreement nor pay the rent deficiency on behalf of the franchisee. In
February 2007, the Company served Faith Enterprises with a 10-day notice of
default. Faith Enterprises then commenced this action in New York State Supreme
Court for Suffolk County seeking damages for breach of contract, fraudulent
inducement and tortuous interference with business, claiming that the Company's
issuance of press releases in December 2006 and January 2007 about its
submission of an application to the Town of Smithtown to rezone its property
caused Faith Enterprises financial damages in lost clientele. Faith Enterprises
is seeking $7 million in damages on each of the three claims and is requesting
that it not pay rent during the pendency of the proceeding. Faith Enterprises
also filed an application for a Yellowstone injunction and a preliminary
injunction to forestall the Company from proceeding with the non-payment
eviction proceeding. The Company opposed that application and, in an order dated
February 21, 2007, the Court denied Faith Enterprises' request in its entirety.
The Company also served and filed a motion to dismiss the entire case. That
motion is currently returnable on March 28, 2007. The Company also commenced a
proceeding in district court seeking to evict Faith Enterprises for non-payment
of rent. That proceeding was commenced in March 2007, upon the Supreme Court's
decision denying Faith Enterprises' request for injunctive relief.

In addition, in the normal course of business, the Company is a party to various
legal proceedings. After reviewing all actions and proceedings pending against
or involving the Company, Management considers the aggregate loss, if any, will
not be material.

Item 4 Submission of Matters to a Vote of Security Holders

The Company's annual shareholder meeting for Fiscal Year Ended April 30, 2006
was held on December 7, 2006 (the "2006 Annual Meeting"). On each matter
submitted to shareholders, the votes were as follows:

To elect three directors to serve for a term of three years or until their
successors shall be elected and shall qualify:

                                      For            Withheld
                                      ---            --------
         Paul L. Lamb               500,431           20,772
         Nader G.M. Salour          502,890           18,313
         Richard B. Smith           494,010           27,193

The directors whose term of office as a director continued after the 2006 Annual
Meeting are as follows: Robert H. Beyer, Elliot H. Levine, Ronald J. Macklin,
Stephen V. Maroney and Philip F. Palmedo.

To ratify the engagement of Holtz Rubenstein Reminick, LLP as independent
certified public accountants and auditors for the current fiscal year; votes for
962,925, votes against 19,121, votes abstain 1,614.


                                       12
<PAGE>

                                     PART II

Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

(a)  Market information

The Company's Common Stock, $1 Par Value (symbol: "GYRO") is traded in the
NASDAQ Small-Cap Market. Since June 10, 1948, the NASDAQ Small-Cap Market has
been the principal market in which the Company's stock is publicly traded. Set
forth below are the high and low bid quotations for the Company's stock for each
full quarter within the two most recent fiscal years:

          ---------------------------------------------------------

                  Quarter Ended               Low            High
          ---------------------------------------------------------
                   Fiscal 2005
          ---------------------------------------------------------
          July 31, 2004                      $27.00         $35.15
          ---------------------------------------------------------
          October 31, 2004                   $30.00         $36.90
          ---------------------------------------------------------
          January 31, 2005                   $34.00         $39.75
          ---------------------------------------------------------
          April 30, 2005                     $34.00         $44.00
          ---------------------------------------------------------

                  Quarter Ended               Low            High
          ---------------------------------------------------------
                   Fiscal 2006
          ---------------------------------------------------------
          July 31, 2005                      $38.80         $45.00
          ---------------------------------------------------------
          October 31, 2005                   $43.01         $47.95
          ---------------------------------------------------------
          January 31, 2006                   $41.75         $45.52
          ---------------------------------------------------------
          April 30, 2006                     $42.00         $50.00
          ---------------------------------------------------------

          ---------------------------------------------------------
              Eight Months Ended
               December 31, 2006              Low            High
          ---------------------------------------------------------
          July 31, 2006                      $46.00         $56.99
          ---------------------------------------------------------
          October 31, 2006                   $44.57         $49.48
          ---------------------------------------------------------
          December 31, 2006                  $43.42         $62.00
          ---------------------------------------------------------

(b)  Approximate number of equity security holders, including shares held in
     street name by brokers.

                                               Number of Holders of Record
         Title of Class                          as of February 8, 2007
         -----------------------------------------------------------------
         Common Stock, $1.00 Par Value                     766

(c)  There were no cash dividends declared on the Company's Common Stock during
     the eight months ended December 31, 2006 and fiscal years ended April 30,
     2006 and April 30, 2005. On December 9, 2005, the Board of Directors of the
     Company announced a plan to convert the Company to a real estate investment
     trust or REIT. The advantage of operating as a REIT is that REITs generally
     will not be subject to New York State and U.S. federal corporate income
     taxes on income and gain from investments in real estate that it
     distributes to its shareholders, thereby reducing its corporate-level taxes
     and substantially eliminating the double taxation on income and gain that
     usually results in the case of a distribution by a C corporation. If the
     Company successfully remains as a REIT, it expects to pay dividends on most
     of its net income and gain from investments in real estate.


                                       13
<PAGE>

(d)  Equity Compensation Plan Information.

     The following table gives information about the Company's shares of Common
Stock that may be issued under its equity compensation plans.

<TABLE>
                                                    (a)                       (b)                     (c)
                                                                                              Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                                                                                              equity compensation
                                          Number of securities to      Weighted-average         plans (excluding
                                          be issued upon exercise      exercise price of    securities reflected in
                                           of outstanding options     outstanding options         column (a))
<S>                                               <C>                       <C>                         <C>
Equity compensation plans approved
    by security holders                           67,105                    $16.42                      0
Equity compensation plans not
    approved by security holders                       0                         0                      0
---------------------------------------------------------------------------------------------------------------------

    Total                                         67,105                    $16.42                      0
</TABLE>

There were no options granted in the eight months ended December 31, 2006.


                                       14
<PAGE>

Item 6 Selected Financial Data

The following selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
appearing elsewhere in this Annual Report on Form 10-K.

                                                   ----------------------------
                                                       Eight Months Ended
                                                          December 31,
                                                   ----------------------------
                                                       2006            2005
                                                   ------------    ------------
                                                                    (Unaudited)

Statement of Operations Data:
Revenues
   Rental income                                   $    893,311    $  1,205,991
   Interest Income                                      932,451         421,569
                                                   ------------    ------------
                                                      1,825,762       1,627,560
                                                   ------------    ------------

Expenses
   Rental expenses                                      469,037         389,601
   General and administrative expenses                1,671,833       1,330,388
   Depreciation                                          34,027          47,822
                                                   ------------    ------------
                                                      2,174,897       1,767,811
                                                   ------------    ------------

(Loss) from operations before gains on
sales of equipment and real estate
investments and cumulative effects of
accounting changes                                     (349,135)       (140,251)

(Loss) gain on condemnation of rental property
                                                     (1,500,000)     20,710,339
Gain on sale of real estate                                   -       1,136,705
                                                   ------------    ------------

(Loss) Income Before Income Taxes                    (1,849,135)     21,706,793
(Benefit) Provision for Income Taxes                 (1,417,000)      8,682,717
                                                   ------------    ------------
Net (Loss) Income                                  $   (432,135)   $ 13,024,076
                                                   ============    ============


Net (Loss) Income Per Common Share:
   Basic                                           $       (.35)   $      10.62
                                                   ============    ============
   Diluted                                         $       (.35)   $      10.25
                                                   ============    ============

Weighted Average Shares Outstanding:
   Basic                                              1,237,219       1,225,868
                                                   ============    ============
   Diluted                                            1,237,219       1,270,889
                                                   ============    ============

Balance Sheet Data:
Total assets                                       $ 30,947,715    $ 30,779,278
Long-term liabilities                              $  8,135,000    $  9,889,135
Cash dividends declared                            $          0    $          0
Funds from operations                              $   (326,697)            N/A


                                       15
<PAGE>

<TABLE>
                                                                      For Fiscal Years Ended April 30,
                                                ---------------------------------------------------------------------------
                                                    2006            2005            2004            2003           2002
                                                ------------    ------------    ------------    ------------   ------------
<S>                                             <C>             <C>             <C>             <C>            <C>
Statement of Operations Data:
Revenues
   Rental income                                $  1,626,651    $  2,039,170    $  2,086,687    $  2,344,396   $  2,608,005
   Interest Income                                 1,084,106         102,852         111,721          87,121         48,971
                                                ------------    ------------    ------------    ------------   ------------
                                                   2,710,757       2,142,022       2,198,408       2,431,517      2,656,976
                                                ------------    ------------    ------------    ------------   ------------

Expenses
   Rental expenses                                   655,161         948,396         710,734         814,371      1,070,789
   General and administrative expenses             2,373,223       1,764,183       1,574,353       1,426,521      1,375,774
   Depreciation                                       62,196          72,835          78,176          85,509        107,394
   Interest expense                                        -          35,217          38,850          56,611         61,520
                                                ------------    ------------    ------------    ------------   ------------
                                                   3,090,580       2,820,631       2,402,113       2,383,012      2,615,477
                                                ------------    ------------    ------------    ------------   ------------

(Loss) income from operations before
gains on sales of equipment and real estate
investments and cumulative effects of
accounting changes                                  (379,823)       (678,609)       (203,705)         48,505         41,499

  Gain on sale of equipment                                -          12,000               -               -          7,124
  Lease termination (expense), net                         -               -               -               -        (28,443)
  Gain on condemnation of rental property         20,710,339               -               -               -              -
  Gain on sale of real estate                      1,136,705         437,195               -       3,124,307              -
                                                ------------    ------------    ------------    ------------   ------------

Income (Loss) Before Income Taxes                 21,467,221        (229,414)       (203,705)      3,172,812         20,180
Provision (Benefit) for Income Taxes               8,351,904         (91,766)        (90,239)      1,403,144         (1,465)
                                                ------------    ------------    ------------    ------------   ------------
Net Income (Loss)                               $ 13,115,317    $   (137,648)   $   (113,466)   $  1,769,668   $     21,645
                                                ============    ============    ============    ============   ============


Net Income (Loss) Per Common Share:
   Basic                                        $      10.67    $      (0.12)   $      (0.10)   $       1.59   $       0.02
                                                ============    ============    ============    ============   ============
   Diluted                                      $      10.29    $      (0.12)   $      (0.10)   $       1.58   $       0.02
                                                ============    ============    ============    ============   ============

Weighted Average Shares Outstanding:
   Basic                                           1,229,582       1,180,469       1,133,896       1,114,422      1,218,076
                                                ============    ============    ============    ============   ============
   Diluted                                         1,274,034       1,180,469       1,133,896       1,121,465      1,225,452
                                                ============    ============    ============    ============   ============

Balance Sheet Data:
Total assets                                    $ 30,580,359    $  9,523,349    $ 10,271,370    $ 10,053,468   $  6,623,291
Long-term liabilities                           $  9,358,000    $  2,753,439    $  4,008,332    $  4,086,722   $  1,832,364
Cash dividends declared                         $          0    $          0    $          0    $          0   $          0
Funds from operations (1) (2)                            N/A             N/A             N/A             N/A            N/A
</TABLE>

The Company has not presented Funds from Operations for periods prior to
December 31, 2006, as the Company was not operating as a REIT in prior periods.

Certain reclassifications have been made to the consolidated financial
statements for fiscal years April 30, 2006, 2005, 2004, 2003, and 2002 to
conform to the classification used in the current fiscal year.

(1) In order to maintain its qualification as a REIT, the Company must make
annual distributions to shareholders of at least 90% of its REIT taxable income.
Under certain circumstances, the Company may be required to make distributions
in excess of cash available for distribution in order to meet the REIT
distribution requirements. Distributions are determined by the Company's Board
of Directors and are dependent on a number of factors, including the amount of
funds available for distribution, the Company's financial condition,


                                       16
<PAGE>

any decision by the Board of Directors to reinvest funds rather than to
distribute the funds, the Company's capital expenditures, the annual
distribution required to maintain REIT status under the Code and other factors
the Board of Directors may deem relevant.

(2) One of our primary objectives is to provide cash distributions to our
shareholders from cash generated by our operations. We consider Funds from
Operations, or FFO, to be an appropriate supplemental measure of a REIT's
operating performance, as it is based on a net income analysis of property
portfolio performance that excludes non-cash items such as depreciation. We
computed FFO in accordance with the White Paper on FFO approved by the Board of
Governors of the National Association of Real Estate Investment Trusts, or
NAREIT, as revised in February 2004. The White Paper defines FFO as net income
or loss computed in accordance with GAAP, excluding extraordinary items, as
defined by GAAP, and gains and losses from sales of depreciable operating
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs and depreciation of non-real estate
assets), and after adjustment for unconsolidated partnerships and joint
ventures. Other REITs may use different methodologies for calculating FFO, and
accordingly, our FFO may not be comparable to other REITs.

Because FFO excludes depreciation and amortization, gains and losses from
property dispositions, and extraordinary items, it provides a performance
measure that, when compared year over year, reflects the impact to operations
from trends in occupancy rates, rental rates, operating costs, development
activities, general and administrative expenses and interest costs, providing a
perspective not immediately apparent from net income. In 2007, effective May 1,
2006, the Company intends to elect to be taxed 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. As a result, the Company has reversed $1,417,000 of
deferred taxes for differences between financial reporting and tax bases of
assets and liabilities. These deferred taxes represent book to tax differences
for stock compensation, accrued sick and vacation pay, bad debt expense and
prepaid pension costs. See Note 7. This $1,417,000 tax benefit is an unusual
item and is non-recurring. In addition, we believe FFO provides useful
information to the investment community about our financial performance when
compared to other REITs since FFO is generally recognized as the industry
standard for reporting the operations of REITs. However, FFO should not be
viewed as an alternative measure of our operating performance since it does not
reflect either depreciation and amortization costs or the level of capital
expenditures and leasing costs necessary to maintain the operating performance
of our properties, which are significant economic costs and could materially
impact our results of operations.

The Company defines FFO, a non-GAAP measure, consistent with the NAREIT's
definition, as net income available to common shareholders, plus depreciation
and amortization of assets uniquely significant to the real estate industry,
reduced by gains and increased by losses on (i) sales of investment property and
(ii) extraordinary items.

The Company considers FFO to be an appropriate supplemental measure of a REIT's
operating performance as it is based on a net income analysis of property
portfolio performance that excludes non-cash items such as depreciation. The
historical accounting convention used for real estate assets requires
straight-line depreciation of buildings and improvements, which implies that the
value of real estate assets diminishes predictably over time. Since real estate
values historically rise and fall with market conditions, presentations of
operating results for a REIT, using historical accounting for depreciation,
could be less informative. The use of FFO is recommended by the REIT industry as
a supplemental performance measure.

Presentation of this information is intended to assist the reader in comparing
the operating performance of different REITs, although it should be noted that
not all REITs calculate FFO the same way, so comparisons with other REITs may
not be meaningful. Furthermore, FFO is not necessarily indicative of cash flow
available to fund cash needs and should not be considered as an alternative to
net income as an indication of the Company's performance.

     FFO is calculated as follows:

                      Eight Months Ended December 31, 2006

              Net (Loss)                                      $   (432,135)
              (Benefit) for income taxes                        (1,417,000)
              Depreciation                                          22,438
              Loss on condemnation of rental property            1,500,000
                                                              ------------
              Funds from operations                           $   (326,697)
                                                              ============


                                       17
<PAGE>

Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operation

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATION

The statements made in this Form 10-K that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes," "seeks," "could,"
"should," or "continue," the negative thereof, other variations or comparable
terminology. Important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward-looking statements
include, but are not limited to, the effect of economic and business conditions,
including risks inherent in the Long Island, New York and Palm Beach County,
Florida real estate markets, the ability to obtain additional capital in order
to develop the existing real estate and other risks detailed from time to time
in the Company's SEC reports. The Company assumes no obligation to update the
information in this Form 10-K.

Critical Accounting Policies
----------------------------

The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States ("GAAP") requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the
Company's consolidated financial statements and related notes. In preparing
these financial statements, management has utilized information available
including its past history, industry standards and the current economic
environment, among other factors, in forming its estimates and judgments of
certain amounts included in the consolidated financial statements, giving due
consideration to materiality. It is possible that the ultimate outcome as
anticipated by management in formulating its estimates inherent in these
financial statements might not materialize. However, application of the critical
accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of companies in similar businesses.

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.

Real Estate
-----------

Rental real estate assets, including land, buildings and improvements,
furniture, fixtures and equipment, are recorded 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.

Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to thirty years for buildings and improvements and three to
twenty years for machinery and equipment.

The Company is required to make subjective assessments as to the useful lives of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.

Real estate held for development is stated at the lower of cost or net
realizable value.

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.


                                       18
<PAGE>

Long Lived Assets
-----------------

On a periodic 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. In
determining impairment, if any, the Company applies Financial Accounting
Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets."

Stock-Based Compensation
------------------------

Effective May 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 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 May 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 December 2002, FAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment
of SFAS No. 123, was issued, which, in addition to providing alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation, required more prominent pro-forma disclosures
in both the annual and interim financial statements. The Company complied with
these disclosure requirements for all applicable periods prior to May 1, 2006.

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 a result of the adoption of FAS 123 (R), the Company's results for the eight
month period ended December 31, 2006 includes share-based compensation expense
totaling $0. Stock compensation expense recorded under APB No. 25 in the
consolidated statements of operations for the eight months ended December 31,
2005 totaled $0.

Qualification as a REIT
-----------------------

The Company has been organized and operated, and intends to continue to operate,
so as to qualify for taxation as a REIT under the Code. The Company's
qualification and taxation as a REIT depends on its ability to meet, through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership, numerous requirements established under highly
technical and complex Code provisions subject to interpretation.

If the Company failed to qualify as a REIT in any taxable year, it would be
subject to federal and state income tax, including any applicable alternative
minimum tax, on its taxable income at regular corporate rates. Moreover, unless
entitled to relief under specific statutory provisions, the Company also would
be disqualified as a REIT for four taxable years following the year during which
qualification was lost.


                                       19
<PAGE>

       RESULTS OF OPERATIONS FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2006
             AS COMPARED TO THE EIGHT MONTHS ENDED DECEMBER 31, 2005

The Company is reporting a loss of $432,135 for the eight month period ended
December 31, 2006 compared to net income totaling $13,024,076 for the eight
months ended December 31, 2005. The diluted per share loss for the current
period amounted to $0.35 compared to earnings of $10.25 per share for the same
period during the prior year.

The major contributing factor to this significant variance was the November 2005
condemnation by the State University of New York at Stony Brook of 245.5 acres
of the Flowerfield property located in Stony Brook/Saint James, New York for
which the Company received $26,315,000 in the form of an Advance Payment in
March 2006; this action resulted in a gain of $20,710,339. In addition, the
prior year period also included the receipt of the final payment on a $1.8
million mortgage resulting from the sale of real estate which matured in August
2005; the gain on that transaction amounted to $1,136,705. Subsequent to
December 31, 2006, in February 2007, the Company entered into an agreement with
Landmark National to terminate two contracts associated with an earlier
development plan to design and construct a residential golf course community on
the Flowerfield property that was ultimately condemned. The Company agreed to
pay Landmark National $2,000,000, $500,000 of which had previously been accrued,
in recognition of services rendered and to terminate the two contracts. The
termination agreement also releases the Company from a claim Landmark had
asserted that it was entitled to 10% of all condemnation proceeds and any future
sale or development of the remaining Flowerfield acreage. As a result,
$1,500,000 was expensed in the current reporting period and will be added to the
Company's claim for additional compensation for the condemned property in its
pending litigation against the State of New York.

Total revenues increased by $198,202 for the eight month period ended December
31, 2006, totaling $1,825,762 compared to $1,627,560 for the same period last
year. Rental income declined by $312,680 for the reporting period, totaling
$893,311 compared to $1,205,991 for the same period last year. Of that total
decrease, $280,954, or 90% of the variance, was directly attributable to the
condemnation and the rental income associated with the property included in the
eminent domain taking. The $31,726 balance of the decline in revenue is the net
result of terminated leases and new tenancies. Of the terminated leases, the
largest single impact amounted to $33,439 for the current reporting period.

Interest income increased by $510,882, totaling $932,451 and $421,569 for the
current reporting period and for the eight months ended December 31, 2005,
respectively. This increase is attributable to the investment of the $26.3
million Advance Payment received in connection with the condemned property in
March 2006. In that regard, interest income includes $658,281 relating to the
Company's investment in mortgage backed securities issued by U.S. Government
Agencies which are qualified real estate investment trust ( REIT ) investments.
For a company to qualify as a REIT, 75% of its total revenue must be in REIT
qualified income. In keeping with Gyrodyne's announced plan to convert to a
REIT, qualified REIT income accounted for 85% of total revenues for the eight
months ended December 31, 2006.

Rental expenses increased by $79,436, amounting to $469,037 and $389,601 for the
eight months ended December 31, 2006 and 2005, respectively. Contributing
factors included increased costs associated with general maintenance issues
totaling $38,459, increased insurance premiums of $30,660, and real estate taxes
of $24,551. In the case of the real estate taxes, a portion of the increase was
due to annual incremental adjustments while the balance was due to the fact
that, in prior periods, taxes associated with undeveloped property included in
the development plan, were capitalized. Partially offsetting these increased
expenses, the Company experienced lower fuel costs totaling $6,962, and a
reduction in outside services amounting to $10,424.

General and administrative expenses consist primarily of third party
professional and consulting fees, corporate governance expenses, and salaries
and benefits for the executive and administrative staff. General and
administrative expenses increased by $341,445 for the eight months ended
December 31, 2006 and totaled $1,671,833 compared to $1,330,388 for the same
period during the prior year. There were several factors and events that
contributed to this increase. Costs associated with the Company's annual meeting
exceeded the prior year by $170,780 and were directly attributable to an
announced attempt by a dissident shareholder group to wage a proxy contest in an
effort to gain three seats on the Company's Board of Directors. Legal and
consulting fees associated with the Landmark agreement amounted to $73,040 and
costs related to the Company's conversion to a REIT accounted for $30,115.
Expenses incurred during the current reporting period associated with the
pursuit of additional compensation for the condemned Flowerfield property
totaled $117,415 and represented an increase of $75,499. Other increases include
$38,148 in accounting fees, $65,569 for the conversion of the Company's internal
accounting system, $21,210 in salaries and benefits, and $12,706 in Directors
fees. Partially offsetting the foregoing increases, the Company experienced a
reduction of $24,329 in pension plan expenses, and a savings of $36,870
associated with canceling a rental agreement for office space utilized during
the prior year. Additionally, prior year results included $82,007 in expenses
relating to the development of the Company's strategic plan for conversion to a
REIT.

Depreciation expenses amounted to $34,027 and $47,822 for the eight months ended
December 31, 2006 and 2005, respectively. The decrease of $13,795 is
attributable to the fact that the condemnation included improved properties.


                                       20
<PAGE>

As a result, the Company is reporting a loss from operations totaling $349,135
compared to a loss of $140,251 for the eight months ended December 31, 2006 and
2005, respectively.

As previously mentioned, during the prior year, the Company received an Advance
Payment in connection with the condemnation of 245.5 acres of its Flowerfield
property in Stony Brook/Saint James, N.Y. As a result, a gain of $20,710,339 was
recognized along with an additional gain on the sale of real estate amounting to
$1,136,705 relating to a $1.8 million mortgage due and payable in August, 2005.
These non-recurring events account for the dramatic variance to the current
period which includes the $1,500,000 charge for terminating the two Landmark
National contracts also mentioned earlier in this report.

As a result, the Company is reporting a loss before income taxes totaling
$1,849,135 for the eight months ended December 31, 2006 compared to income
before income taxes of $21,706,793 for the eight months ended December 31, 2005.

In 2007, effective May 1, 2006, the Company intends to elect to be taxed 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. As a result, the
Company has reversed $1,417,000 of deferred taxes for differences between
financial reporting and tax bases of assets and liabilities. At December 31,
2006, there remains $8,135,000 of deferred income taxes for unrealized gain on
investment in Callery-Judge Grove, an asset of a taxable REIT subsidiary, and
the deferred gain, for income tax purposes, on condemnation of 245.5 acres of
the Company's Flowerfield property.

             RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006
                  AS COMPARED TO THE YEAR ENDED APRIL 30, 2005

The Company reported net income of $13,115,317 for the year ended April 30, 2006
compared to a net loss of $137,648 for the prior year. Diluted per share
earnings amounted to $10.29 for fiscal 2006 and a per share loss of $0.12 for
fiscal 2005.

The results for 2006 include two nonrecurring events which served to bolster the
Company's earnings. The recognition of the deferred gain resulting from receipt
of a final payment on a $1.8 million mortgage which was due and payable in
August 2005 and held in connection with the 2002 sale of certain land and
buildings on the Flowerfield property. The second event impacting fiscal 2006
results was the condemnation of 245.5 acres at Flowerfield by the State
University of New York at Stony Brook. This taking of our property, which was
executed under the authority of New York's Eminent Domain Procedural Law
("EDPL"), occurred in November 2005 and resulted in a payment of $26,315,000
received by the Company in March 2006, which the Company had elected to treat as
an Advance Payment for the property under the EDPL. A gain of $20,710,339 was
recognized as a result of the receipt of the Advance Payment. More detailed
disclosure is included further on in this report.

Rental income declined significantly, amounting to $1,626,651 for 2006. This
represents a decrease of $412,519 or 20% from the prior year when revenues
amounted to $2,039,170. The major contributing factor to this loss of revenue
was the aforementioned condemnation which included one of the larger buildings
at Flowerfield, occupied by two major tenants. The total impact of the eminent
domain taking resulted in a decrease of $291,088 in rental income and accounts
for 71% of the decline. The balance of the decline in rental revenues, $121,431,
is the net result of a number of terminated leases and new tenancies at
Flowerfield. The largest termination accounted for $93,347 of the variance.

Interest income totaled $1,084,106 for the current period representing a
$981,254 increase over the prior year when interest income totaled $102,852. The
major factor to this increase was the accrual of $921,385 in interest due on the
condemnation Advance Payment from the State of New York. Of that total, $589,008
was received and the accrued receivable was reduced to $332,377. In addition to
the aforementioned, the Company generated $111,877 from the investment of the
Advance Payment proceeds and $50,844 from interest bearing deposits; the latter
compares to $102,852 during the prior year.

As a result, revenues amounted to $2,710,757 and $2,142,022 for the years ended
April 30, 2006 and 2005, respectively.

Rental expenses, including related depreciation and interest expense, reflect a
32% decrease of $339,091 for the year, amounting to $717,357 compared to
$1,056,448 for the prior year. While this reduction in expenses helped in
offsetting a major portion of the lost revenue stream, several of the
contributing factors are non-recurring in nature. Salaries and benefits
decreased by $105,965 as a result of our continuing efforts to shrink staffing
levels. However, $26,830 of the decrease is attributable to a severance payment
during the prior year and will not be replicated going forward. Fees for outside
services relating to storm drain improvements amounted to $57,719 during the
prior year and property and casualty insurance premiums were reduced by $38,381.
Property and casualty insurance reimbursements of $61,338, which pertained to a
prior period, were received from tenants pursuant to lease terms during this
fiscal year. In addition to these non-recurring items, maintenance and repair
expenses declined by $28,409, plant security services decreased by $33,820, and
reflecting a milder winter climate, fuel oil expenses decreased by $21,517.
Interest expense was also reduced by $35,217 as a direct result of the total pay
down of borrowings on the Company's revolving credit line. The only significant


                                       21
<PAGE>

increase in expenses also resulted from the condemnation. As a result of our
having filed development plans for Flowerfield in 2002, real estate taxes on the
undeveloped acreage were capitalized. That accounting treatment is no longer
applicable and the taxes on the balance of Gyrodyne's undeveloped property, from
the date of the condemnation forward, increased over the prior year by $52,908.
Rental expenses as a percentage of revenues amounted to 44% and 52% for 2006 and
2005, respectively, and we anticipate this ratio will approximate 51% for 2007.

General and administrative expenses increased during the current reporting
period, amounting to $2,373,223. This represents an increase of $609,040 or 35%
over the 2005 total of $1,764,183. Specifically, expenses associated with the
condemnation accounted for $235,108, legal and consulting fees increased by
$228,351, and costs attributable to developing the Company's strategic plan
totaled $150,242. Contributing factors to the increase in legal and consulting
fees included $82,864 in costs associated with the Company's decision to pursue
conversion to a Real Estate Investment Trust (REIT), $34,305 in fees to our
investment bankers, $64,987 in legal research on behalf of Board committees,
$35,268 in costs associated with the remaining Flowerfield acreage, and $14,198
in connection with the Company's limited partnership investment in the
Callery-Judge Grove. In addition, salaries and benefits increased by $48,169 and
Directors fees, which reflect both an expanded number of Board members and an
increase in the frequency of meetings, increased by $32,412. The Company also
experienced an increase in insurance premiums of $34,840. Bad debt and pension
expense decreased by $33,000 and $110,080, respectively.

Depreciation expense amounted to $62,196 for the fiscal year ended April 30,
2006 compared to $72,835 during 2005.

As a result, the Company reported losses from operations totaling $379,823 and
$678,609 for the twelve months ended April 30, 2006 and 2005, respectively.

As previously mentioned, the Company received the proceeds of the Advance
Payment which accounted for a gain of $20,710,339 as well as the balance on a
$1.8 million mortgage, representing a gain of $1,136,705. The gain attributable
to that mortgage amounted to $437,195 during the prior year.

As a result, the Company reported income before income taxes of $21,467,221 for
the twelve months ended April 30, 2006 compared to a loss before income taxes of
$229,414 for the prior fiscal year.

             RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2005
                  AS COMPARED TO THE YEAR ENDED APRIL 30, 2004

The Company reported a net loss of $137,648 for the year ended April 30, 2005
compared to a net loss of $113,466 for the prior year. Diluted per share losses
amounted to ($0.12) and ($ 0.10) for fiscal 2005 and 2004, respectively. Rental
income amounted to $2,039,170, a 2% decline of $47,517 to the $2,086,687 posted
during the prior year. Both periods were impacted by renegotiated terms with two
major tenants. Those adjustments, which reduced the 2005 results by $125,684,
were partially mitigated by new tenant leases and annual incremental adjustments
totaling $78,167. Interest income totaled $102,852 for the twelve months ended
April 30, 2005 compared to $111,721 during the prior fiscal year.

As a result, revenues amounted to $2,142,022 and $2,198,408 for the years ended
April 30, 2005 and 2004, respectively.

Rental expenses, including related depreciation and interest expense, increased
by $228,688 or 28%, amounting to $1,056,448 in fiscal 2005. The prior year
expenses amounted to $827,760. Of that total increase, $225,799 is attributable
to operating and maintenance costs. Salaries and benefits, including
nonrecurring expenses of $26,830 associated with an early retirement package,
increased by $52,037. Real estate taxes and the cost of fuel oil increased by
$11,863 and $22,910, respectively. In addition, the Company experienced a
$93,030 increase in property and casualty insurance premiums and a $59,585
expense associated with remedial treatment of our septic and storm drainage
systems. A number of other operating expenses, including utilities, building,
grounds, and equipment maintenance, reflected decreases totaling $11,567; the
largest contributing factor was a decrease in utility expense of $7,628 for the
year.

General and administrative expenses reflect an increase of 12% for the current
reporting period, amounting to $1,764,183 compared to $1,574,353 for the prior
year; an increase of $189,830. Corporate governance expenses, which totaled
$330,374 for the year, increased by $208,833 for the reporting period. A major
portion of this increase is attributable to the establishment of a Shareholders
Rights Plan which accounted for $130,345. Other issues relating to shareholder
filings and SEC requirements for publicly traded companies accounted for $34,666
and $43,822 of the increase, respectively. Other increases included Directors
fees and bad debt expense which increased by $9,794 and $9,000, respectively.
Finally, as activities surrounding the Company's investment in the Florida grove
property increased, so too did our need to incur additional travel expense and
make regular visits to the area. In an effort to keep abreast of developments in
the industry, management also attended several corporate governance and real
estate related seminars. The


                                       22
<PAGE>

cost of all of these activities accounted for $21,927 of the increased expenses.
Offsetting a portion of the increase in general and administrative expenses was
an overall decrease in salaries and benefits and costs associated with the
Company's pension plan. Salaries and benefits decreased by $46,620, reflecting
the fact that there was no stock option expense in the current period; in fiscal
2004, that expense amounted to $76,606. The Company's pension expense, which
amounted to $226,109 in fiscal 2005, decreased by $10,761 when compared to the
prior year. We anticipate that the cost associated with the plan will be reduced
by an additional $100,000 for the fiscal 2006 period.

Depreciation expense amounted to $72,835 for the fiscal year ended April 30,
2005 compared to $78,176 during 2004.

As a result, the Company reported losses from operations totaling $678,609 and
$203,705 for the twelve months ended April 30, 2005 and 2004, respectively.

During fiscal year 2005, the Company received prepayments on a $1.8 million
mortgage held in connection with a prior year sale of certain properties at
Flowerfield. Those payments resulted in a gain of $437,195 being recognized.
Additionally, the Company recorded a gain on the sale of equipment totaling
$12,000. There were no such transactions in the prior year.

As a result, the Company reported losses before income taxes of $229,414 and
$203,705 for the twelve months ended April 30, 2005 and 2004, respectively.

                         LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $275,080 for the eight months
ended December 31, 2006. This activity for the eight month period was primarily
a result of proceeds from condemnation interest paid by the State of New York of
$589,008 in May, 2006. This was partially offset by capitalized land development
costs of $312,807. The net cash provided by operating activities for fiscal year
end April 30, 2006 was $24,032,174. This activity during the fiscal year was
primarily related to the receipt of condemnation proceeds of $25,718,925, net of
proceeds from the condemnation of the rental property of $596,075. Net cash used
in operating activities was $1,130,127 and $1,067,419 in fiscal 2005 and 2004,
respectively. The principal use of cash in both periods was funds used in
connection with planning and pre-construction costs associated with land
development plans for the residential golf course community. The Company also
incurred costs included in the capitalized land development costs pertaining to
legal, and communication costs to shareholders and the community regarding the
potential condemnation of the Company's property by the University.

Net cash (used in) investing activities for the eight months ended December 31,
2006 were $(24,336,481) of which $(24,784,142) was for the purchase of
marketable securities. Net cash provided by (used in) investing activities was
$1,817,091, $449,042 and ($29,754) in fiscal 2006, 2005 and 2004, respectively.
The cash provided by investing activities in fiscal 2006 consisted of the
receipt of $1,300,000 on the Company's mortgage receivable as well as proceeds
from the condemnation of rental property of $596,075. Fiscal 2005 was primarily
related to the receipt of the aforementioned mortgage receivable in the amount
of $500,000 as well as proceeds from the sale of heavy equipment for $12,000.
The use of cash in all three periods was for capital expenditures.

There was no cash provided by or (used in) financing activities for the eight
months ended December 31,2006. Net cash provided by (used in) financing
activities was $319,018, ($37,153) and $428,499 in fiscal 2006, 2005 and 2004,
respectively. The net cash provided during the three year period was primarily
the result of proceeds from the exercise of stock options. The fiscal 2004
period results also reflect the refinancing of mortgage debt on the Flowerfield
property. The net cash (used in) all three periods were a result of the
Company's repayment of loans payable. The Company has a $1,750,000 revolving
credit line with a bank, bearing interest at a rate of prime plus one percent
which was 9.25% at December 31, 2006. The unused portion of the credit line,
which is the total line of $1,750,000, enhances the Company's financial position
and liquidity and is available, if needed, to fund any unforeseen expenses.

As of December 31, 2006, the Company had cash and cash equivalents of $2,951,287
as well as investments in marketable securities of $23,797,515 and anticipates
having the capacity to fund normal operating and administrative expenses and its
regular debt service requirements. Working capital, which is the total of
current assets less current liabilities as shown in the accompanying chart,
amounted to $25,120,659 at December 31, 2006. Net prepaid expenses and other
assets shown in the accompanying chart does not include $23,197 and $31,035 of
furniture and fixtures for the eight months ended and twelve months ended
December 31, 2006 and April 30, 2006, respectively.


                                       23
<PAGE>

The following table presents the Company's working capital for December 31, 2006
and April 30, 2006:

                                               December 31,     April 30,
                                                   2006           2006
                                               ------------   ------------

Current assets:
   Cash and cash equivalents                   $  2,951,287   $ 27,012,688
   Investment in marketable securities           23,797,515              -
   Deposit on property                              504,000              -
   Rent receivable, net                             106,959         93,173
   Interest receivable                              468,679        921,385
   Net prepaid expenses and other assets            313,848        277,326
                                               ------------   ------------
Total current assets                             28,142,288     28,304,572
                                               ------------   ------------

Current liabilities:
   Accounts payable                                 687,384        247,088
   Accrued liabilities                            2,174,460        674,206
   Tenant security deposits payable                 159,785        163,886
                                               ------------   ------------
Total current liabilities                         3,021,629      1,085,180
                                               ------------   ------------

Working capital                                $ 25,120,659   $ 27,219,392
                                               ============   ============

The Company operates 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
Code, to its shareholders, among other requirements. The Company expects to
continue to use its cash flow from operating activities to pay distributions to
shareholders and to support the operating activities of the Company.

Distributions are determined by the Company's Board of Directors and are
dependent on a number of factors, including the amount of funds available for
distribution, the Company's financial condition, any decision by the Board of
Directors to reinvest funds rather than to distribute the funds, the Company's
capital expenditures, the annual distribution required to maintain REIT status
under the Internal Revenue Code of 1986, as amended, and other factors the Board
of Directors may deem relevant.

During fiscal 2004, the Company restructured an outstanding mortgage loan on the
Flowerfield property. That loan was satisfied and incorporated into a newly
established revolving credit line in the amount of $1,750,000 at prime plus one
percent. At December 31, 2006 and April 30, 2006, the Company had no outstanding
indebtedness against this credit facility. Additionally, the Company held a $1.8
million purchase money mortgage loan in connection with the sale of certain
buildings and 12 acres during fiscal 2003. The mortgage loan accrued interest at
a rate of 5% and was fully paid with interest in August, 2005.

The following table presents the Company's expected cash requirements for
contractual obligations outstanding as of December 31, 2006:

<TABLE>
                                                     Payments Due By Period
                                                                                         More
Contractual Obligation                        Less than 1       1-3          3-5        than 5
                                    Total         Year         Years        Years        Years
                                  ----------   ----------   ----------   ----------   ----------
<S>                               <C>          <C>          <C>          <C>          <C>
Landmark National                 $3,000,000   $2,277,778   $  666,666   $   55,556   $        -
Accrued Expense                       39,390        8,918       17,837       12,635            -
                                  ----------   ----------   ----------   ----------   ----------
Total Contractual Obligations     $3,039,390   $2,286,696   $  684,503   $   68,191   $        -
                                  ==========   ==========   ==========   ==========   ==========
</TABLE>

INCOME TAXES

In 2007, effective May 1, 2006, the Company intends to elect 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 will convert 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


                                       24
<PAGE>

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. The
Company believes that it has met all of the REIT distribution and technical
requirements for the eight months ended December 31, 2006 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.

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

LIMITED PARTNERSHIP INVESTMENT

The Company has a limited partnership investment in the Callery-Judge Grove
located in Palm Beach County, Florida. The investment represents a 10.93%
limited partnership interest in a limited partnership that owns a 3,500+ acre
citrus grove. The property is the subject of a plan for a mixed use of
residential, commercial, and industrial development which is under review by the
local municipal and state authorities. The Company is accounting for the
investment under the equity method. As of December 31, 2006, the carrying value
of the Company's investment was $0. Based upon the most recent independent third
party appraisal, which was conducted by Pinel Appraisal Services, Inc. in June
2006, the Company's investment, strictly on a pro-rata basis, has a current
estimated fair value of approximately $22.5 million without adjustment for
minority interest and lack of marketability discount. In the latter part of
2003, the Scripps Research Institute headquartered in La Jolla, California,
announced that it would be developing a major east coast center on property
located in the general vicinity of the Callery-Judge Grove. Although the Company
believes, based on press reports, that this announcement has been the catalyst
behind the sale of thousands of acres of land to national developers in the
general vicinity of the Grove, it has no current forecast of the likelihood of,
or the timing required to achieve approvals for, the development of the Grove.

DEVELOPMENT OF FLOWERFIELD PROPERTY

The Company was a party to two contractual agreements dated April 9, 2002 with
Landmark National ("Landmark") pursuant to which Landmark was to design and
develop an 18 hole championship golf course community with 336 home sites on the
Company's Flowerfield property located in Stony Brook / Saint James, New York, a
substantial portion of which has since been condemned by the State University of
New York (the "University"). Those contractual agreements were exhibited in the
Company's April 30, 2002 10-KSB filing. The golf course agreement called for
monthly payments of $5,000 with a maximum total of $150,000. As of April 30,
2005, the Company had paid this obligation in full. Additionally, there was a
one-time fee of $100,000 for a grading report on the course layout, which was
completed and paid during fiscal 2003. The residential land planning and design
contract included monthly payments of $10,000 with a maximum payment totaling
$300,000. As of April 30, 2005, the Company had also paid this obligation in
full. Landmark was also entitled to a construction management fee of 4.5% of
construction costs. The balance of Landmark's compensation was an incentive fee
of 10% of pre-tax net income from the residential golf course development.
Additionally, in a separate agreement for the future, Landmark was under
contract to manage the completed golf and clubhouse facilities under a long-term
management agreement. The annual fee for such service was $100,000 commencing
upon completion of the golf and clubhouse facilities. The residential land
planning and design contract also provided for a termination fee amounting to
$500,000, which is more clearly defined in Notes 13 and 20 to the consolidated
financial statements. The Company had accrued a $500,000 termination fee through
April 30, 2006 pursuant to the contract. Following the University's condemnation
of the Flowerfield property, the Company was advised by Landmark that it
believed it was entitled to 10% of all condemnation proceeds pursuant to the 10%
incentive fee provision referred to above.

On February 12, 2007, 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 Landmark agreeing
not to pursue any claim under those agreements for 10% of all proceeds related
to the condemnation and any future sale and/or development of the remaining
Flowerfield acreage, Landmark agreed to provide consulting services in
connection with the eminent domain litigation. In consideration for Landmark's
agreement not to pursue the foregoing claims, for services previously provided,
the Company paid Landmark $2,000,000, $500,000 of which was accrued by the
Company during its year ended April 30, 2006. Landmark will receive an
additional $1,000,000 over the next thirty-six months, commencing on March 1,
2007, 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. The Company has accrued $1,500,000 as additional condemnation
expense as of December 31, 2006. The Company intends to add the $2,000,000 to
the existing claim for additional compensation with regard to the condemnation.


                                       25
<PAGE>

The Company has filed an application to develop a gated, age restricted
community on the remaining Flowerfield property that includes 39 single-family
homes, 60 townhouses and 210 condominiums. Living space would range from 1,600
square feet for the smallest condominiums to 2,800 square feet for detached
single-family homes. Amenities would include a clubhouse with recreation
facilities, pedestrian and bicycle paths, and extensive landscaping. Prices are
currently expected to range from $850,000 to $1.45 million per home.

The Company has engaged the firm of Platt Byard Dovell White Architects for
design work. The firm enjoys an outstanding reputation for designing attractive
residential and commercial properties. Leading the project will be Sam White,
FAIA, a partner at the firm who is known specifically for his proven ability to
blend historic context into new architecture.

The application asks for the zoning of approximately 62.4 acres to be changed
from "light industrial" (approx. 55.5 acres) and "residential" (approx. 6.9
acres) to "planned residential." Another 4.3 acres of the property owned by the
Company, while already zoned as "residential," would remain undeveloped. Total
amount of open space remaining after development is expected to exceed 40 acres.
As indicated in the application, the Company plans in the future to remove the
industrial buildings currently in use at the appropriate time.

According to an analysis obtained by the Company, the local road traffic caused
by the residential development would be lower than the levels attributed to the
current industrial operations. The development also would have a positive impact
on the municipal tax base since the age-restricted nature of the community would
not affect the local school population. The company estimates that 100
construction jobs and 15 permanent jobs would be created by the project.

                         OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.

Item 7A Quantitative and Qualitative Disclosures About Market Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and longer-term
investments. The Company places its temporary cash investments with high credit
quality financial institutions and, by policy, 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, 2006, April 30, 2006, 2005 and 2004. As of April 30, 2006, the
Company's investments in U.S. Government securities were considered cash
equivalents because of the short term nature of the maturities. Subsequent to
the close of the fiscal year ended April 30, 2006, the Company invested
approximately $24,000,000 in securitized U.S. Government Agencies with an
effective duration of between two and three years. The potential risks
associated with this type of investment are more fully discussed in Item 1A.

Item 8 Financial Statements and Supplementary Data

See Consolidated Financial Statements and accompanying Notes to Consolidated
Financial Statements commencing on the Contents page followed by Page F-1.

Consolidated Financial Statements include:
          (1)  Report of Independent Registered Public Accounting Firm
          (2)  Consolidated Balance Sheets as of December 31, 2006, April 30,
               2006 and April 30, 2005
          (3)  Consolidated Statements of Operations for the eight months ended
               December 31, 2006 and 2005, and the years ended April 30, 2006,
               April 30, 2005 and April 30, 2004
          (4)  Consolidated Statement of Stockholders' Equity for the eight
               months ended December 31, 2006 and the years ended April 30,
               2006, April 30, 2005 and April 30, 2004
          (5)  Consolidated Statements of Cash Flows for the eight months ended
               December 31, 2006 and 2005 and the years ended April 30, 2006,
               April 30, 2005 and April 30, 2004
          (6)  Notes to Consolidated Financial Statements
          (7)  Schedules
                  Schedule II - Valuation and Qualifying Accounts
                  All other information required by the following schedules
                  has been included in the consolidated financial statements,
                  is not applicable, or not required:
                  Schedule I, III, IV, V, VI, VII, VIII, IX, X, XI, XII and
                  XIII.


                                       26
<PAGE>

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

None

Item 9A Controls and Procedures

The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of the Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer has concluded that the disclosure controls and
procedures as of December 31, 2006 are effective to ensure that information
required to be disclosed in the reports the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to the Company's management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding disclosure.

There have been no significant changes in the Company's internal control over
financial reporting identified in connection with the evaluation that occurred
during the Company's last fiscal quarter that have materially affected, or that
are reasonably likely to materially affect, the Company's internal controls over
financial reporting.

Item 9B Other Information

     None.

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                                    PART III

Item 10. Directors, Executive Officers and Corporate Governance of the
Registrant

Information regarding directors, executive officers and corporate governance in
the Proxy Statement for the 2007 Annual Meeting of Shareholders is incorporated
herein by reference.

Item 11. Executive Compensation

Information regarding executive compensation in the Proxy Statement for the 2007
Annual Meeting of Shareholders is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Information regarding security ownership of certain beneficial owners in the
Proxy Statement for the 2007 Annual Meeting of Shareholders is incorporated
herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director
Independence

Information regarding certain relationships and related transactions, and
director independence in the Proxy Statement for the 2007 Annual Meeting of
Shareholders is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding the fees paid to and services provided by Holtz,
Rubenstein Reminick LLP, the Company's independent registered public accounting
firm, in the Proxy Statement for the 2007 Annual Meeting of Shareholders is
incorporated herein by reference.


                                       27
<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                                     PART IV

Item 15 Exhibits and Financial Statement Schedules

(a)  Financial Statements:

         Report of Independent Registered Public Accounting Firm

         Consolidated Balance Sheets

         Consolidated Statements of Operations

         Consolidated Statement of Stockholders' Equity

         Consolidated Statements of Cash Flows

         Notes to Consolidated Financial Statements

         Schedules
             Schedule II - Valuation and Qualifying Accounts
             All other information required by the following schedules has
             been included in the consolidated financial statements, is not
             applicable, or not required:
             Schedule I, III, IV, V, VI, VII, VIII, IX, X, XI, XII and XIII.

(b)  Exhibits: The following Exhibits are either filed as part of this report or
     are incorporated herein by reference:

        3.1     Restated Certificate of Incorporation of Gyrodyne Company of
                America, Inc. (1)

        3.2     Restated Bylaws of Gyrodyne Company of America, Inc. (7)

        4.1     Form of Stock Certificate of Gyrodyne Company of America,
                Inc.(1)

        4.2     Rights Agreement, dated as of August 10, 2004, by and between
                Gyrodyne Company of America, Inc. and Registrar and Transfer
                Company, as Rights Agent, including as Exhibit B the forms of
                Right Certificate and of Election to Exercise. (3)

        10.1    1993 Stock Incentive Plan. (1)

        10.2    1996 Non-Employee Directors' Stock Option Plan. (1)

        10.3    Carco Group, Inc. Lease Amendment, dated May 3, 1999. (1)

        10.4    Amendment No. 1 to Lease Agreement with Carin Perez and Luis
                Perez, dated October 7, 1997. (1)

        10.5    Incentive Compensation Plan. (1)

        10.6    Amended and Restated Agreement of Limited Partnership of
                Callery-Judge Grove, dated as of May 8, 1995, by and among CJG
                Management, Ltd., as the general partner and those persons and
                entities whose names and addresses appear on the books and
                records of the Partnership as partners. (1)

        10.7    Amended and Restated Employment Agreement, with Stephen V.
                Maroney, dated January 23, 2003. (4)

        10.8    Amended and Restated Employment Agreement, with Peter Pitsiokos,
                dated January 23, 2003. (4)

        10.9    Asset Management Agreement with DPMG, Inc. dba Landmark
                National, dated April 9, 2002. (5)


                                       28
<PAGE>

        10.10   Golf Operating Agreement with DPMG, INC., dated April 9, 2002.
                (5)

        10.11   Second Amended and Restated Agreement of Limited Partnership of
                Callery-Judge Grove, dated as of February 9, 2005, by and among
                CJG Management, Ltd., as the general partner and those persons
                and entities whose names and addresses appear on the books and
                records of the Partnership as partners. (6)

        10.12   Contract of Sale dated October 12, 2006 with Frank M. Pellicane
                Realty, LLC and Pelican Realty, LLC (7)

        10.13   Agreement dated February 12, 2007 with DPMG, Inc. d/b/a Landmark
                National. (7)

        10.14   Amended Contract of Sale dated October 12, 2006 with Frank M.
                Pellicane Realty, LLC and Pelican Realty, LLC (7)

        21.1    List of all subsidiaries. (1)

        31.1    Rule 13a-15(e)/15d-15(e) Certifications. (7)

        32.1    CEO/CFO Certifications Pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002. (7)

        (1) Incorporated herein by reference to the Annual Report on Form
            10-KSB/A, filed with the Securities and Exchange Commission on
            September 5, 2001.

        (2) Incorporated herein by reference to Form 8-K, filed with the
            Securities and Exchange Commission on May 2, 2006.

        (3) Incorporated herein by reference to Form 8-K, filed with the
            Securities and Exchange Commission on August 13, 2004.

        (4) Incorporated herein by reference to the Quarterly Report on Form
            10-QSB, filed with the Securities and Exchange Commission on March
            12, 2003.

        (5) Incorporated herein by reference to the Annual Report on Form
            10-KSB, filed with the Securities and Exchange Commission on July
            26, 2002.

        (6) Incorporated herein by reference to the Annual Report on Form
            10-KSB, filed with the Securities and Exchange Commission on July 5,
            2005.

        (7) Filed as part of this Report.


                                       29
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                        GYRODYNE COMPANY OF AMERICA, INC.

/S/ Stephen V. Maroney
--------------------------------------------------------------------------------
Stephen V. Maroney, President, Treasurer and Principal Executive Officer
Date: March 12, 2007

/S/ Frank D'Alessandro
--------------------------------------------------------------------------------
Frank D'Alessandro, Controller
Date: March 12, 2007

                              ********************

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


/S/ Richard B. Smith
--------------------------------------------------------------------------------
Richard B. Smith, Director
Date: March 12, 2007

/S/ Elliot H. Levine
--------------------------------------------------------------------------------
Elliot H. Levine, Director
Date: March 12, 2007

/S/ Ronald J. Macklin
--------------------------------------------------------------------------------
Ronald J. Macklin, Director
Date: March 12, 2007

/S/ Stephen V. Maroney
--------------------------------------------------------------------------------
Stephen V. Maroney, Director
Date: March 12, 2007

/S/ Paul L. Lamb
--------------------------------------------------------------------------------
Paul L. Lamb, Director
Date: March 12, 2007


                                       30
<PAGE>

                                                    GYRODYNE COMPANY OF AMERICA,
                                                                 AND SUBSIDIARIE

Contents
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and
Years Ended April 30, 2006, 2005 and 2004                               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-25

<PAGE>


Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
Gyrodyne Company of America, Inc.
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, 2006, April
30, 2006 and 2005 and the related consolidated statements of operations,
stockholders' equity and cash flows for the eight months ended December 31, 2006
and the years ended April 30, 2006, 2005 and 2004. We have also audited the
schedule listed in Item 8 (7) of this Form 10-K for the eight months ended
December 31, 2006 and the years ended April 30, 2006, 2005, and 2004. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gyrodyne Company of
America, Inc. and Subsidiaries as of December 31, 2006, April 30, 2006 and 2005
and the results of their operations and their cash flows for the eight months
ended December 31, 2006 and the years ended April 30, 2006, 2005 and 2004 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related consolidated financial statement
schedule for the eight months ended December 31, 2006 and the years ended April
30, 2006, 2005 and 2004 when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 123 (R), "Share-Based
Payment" effective May 1, 2006.


Melville, New York
March 12, 2007

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

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

Consolidated Balance Sheets                                            December 31,             April 30,
------------------------------------------------------------------------------------------------------------------
                                                                          2006            2006            2005
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>             <C>
Assets

Real Estate:
  Rental property:
    Land                                                              $      3,017    $      3,017    $      4,250
    Building and improvements                                            3,140,332       2,876,087       3,955,011
    Machinery and equipment                                                179,335         157,797         146,842
                                                                      --------------------------------------------
                                                                         3,322,684       3,036,901       4,106,103
Less Accumulated Depreciation                                            2,500,907       2,492,819       3,397,082
                                                                      --------------------------------------------
                                                                           821,777         544,082         709,021
                                                                      --------------------------------------------
  Land held for development:
    Land                                                                   558,466         558,466         792,201
    Land development costs                                                 321,514           8,707       4,432,766
                                                                      --------------------------------------------
                                                                           879,980         567,173       5,224,967
                                                                      --------------------------------------------
Total Real Estate, net                                                   1,701,757       1,111,255       5,933,988

Cash and Cash Equivalents                                                2,951,287      27,012,688         844,405
Investment in Marketable Securities                                     23,797,515               -               -
Deposit on Property                                                        504,000               -               -
Rent Receivable, net of allowance for doubtful
  accounts of $46,000, $30,000 and $37,000, respectively                   106,959          93,173          62,309
Interest Receivable                                                        468,679         921,385               -
Mortgage Receivable                                                              -               -       1,300,000
Prepaid Expenses and Other Assets                                          337,045         308,361         183,121
Prepaid Pension Costs                                                    1,080,473       1,133,497       1,199,526
                                                                      --------------------------------------------
Total Assets                                                          $ 30,947,715    $ 30,580,359    $  9,523,349
                                                                      ============================================

Liabilities and Stockholders' Equity

Liabilities:
  Accounts payable                                                    $    687,384    $    247,088    $     77,952
  Accrued liabilities                                                    2,174,460         674,206         126,830
  Deferred gain on sale of real estate                                           -               -       1,136,705
  Tenant security deposits payable                                         159,785         163,886         229,284
  Loans payable                                                                  -               -          19,145
  Deferred income taxes                                                  8,135,000       9,358,000       1,605,000
                                                                      --------------------------------------------
Total Liabilities                                                       11,156,629      10,443,180       3,194,916
                                                                      --------------------------------------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, $1 par value; authorized 4,000,000
    shares; 1,531,086 shares issued                                      1,531,086       1,531,086       1,531,086
  Additional paid-in capital                                             8,205,134       8,399,134       7,841,066
  Accumulated Other Comprehensive Income
  Unrealized Gain from Marketable Securities                               280,042               -               -
  Balance of undistributed income from other than gain or loss on
    sales of properties                                                 11,615,310      12,047,445      (1,067,872)
                                                                      --------------------------------------------
                                                                        21,631,572      21,977,665       8,304,280
Less Cost of Shares of Common Stock Held in Treasury; 293,867,
   293,867 and 317,408 shares, respectively                             (1,840,486)     (1,840,486)     (1,975,847)
                                                                      --------------------------------------------
Total Stockholders' Equity                                              19,791,086      20,137,179       6,328,433
                                                                      --------------------------------------------
Total Liabilities and Stockholders' Equity                            $ 30,947,715    $ 30,580,359    $  9,523,349
                                                                      ============================================

------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                                                F-2
</TABLE>
<PAGE>
<TABLE>
                                                                                                  GYRODYNE COMPANY OF AMERICA, INC.
                                                                                                                   AND SUBSIDIARIES

Consolidated Statements of Operations                  Eight Months Ended December 31,             Years Ended April 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                            2006            2005            2006            2005            2004
-----------------------------------------------------------------------------------------------------------------------------------
                                                                        (Unaudited)
<S>                                                    <C>             <C>             <C>             <C>             <C>
Revenues
  Rental income                                        $    893,311    $  1,205,991    $  1,626,651    $  2,039,170    $  2,086,687
  Interest income                                           932,451         421,569       1,084,106         102,852         111,721
                                                       ----------------------------------------------------------------------------

                                                          1,825,762       1,627,560       2,710,757       2,142,022       2,198,408
                                                       ----------------------------------------------------------------------------

Expenses
  Rental expenses                                           469,037         389,601         655,161         948,396         710,734
  General and administrative expenses                     1,671,833       1,330,388       2,373,223       1,764,183       1,574,353
  Depreciation                                               34,027          47,822          62,196          72,835          78,176
  Interest expense                                                -               -               -          35,217          38,850
                                                       ----------------------------------------------------------------------------
                                                          2,174,897       1,767,811       3,090,580       2,820,631       2,402,113
                                                       ----------------------------------------------------------------------------

(Loss) income from operations before gains on sales of
equipment and real estate investments and cumulative
effect unting changes                                      (349,135)       (140,251)       (379,823)       (678,609)       (203,705)

  Gain on sale of equipment                                       -               -               -          12,000               -
  (Loss) gain on condemnation of rental property         (1,500,000)     20,710,339      20,710,339               -               -
  Gain on sale of real estate                                     -       1,136,705       1,136,705         437,195               -
                                                       ----------------------------------------------------------------------------

(Loss) Income Before Income Taxes                        (1,849,135)     21,706,793      21,467,221        (229,414)       (203,705)
(Benefit) Provision for Income Taxes                     (1,417,000)      8,682,717       8,351,904         (91,766)        (90,239)
                                                       ----------------------------------------------------------------------------
Net (Loss) Income                                      $   (432,135)   $ 13,024,076    $ 13,115,317    $   (137,648)   $   (113,466)
                                                       ============================================================================

Net (Loss) Income Per Common Share:
  Basic                                                $      (0.35)   $      10.62    $      10.67    $      (0.12)   $      (0.10)
                                                       ============================================================================

  Diluted                                              $      (0.35)   $      10.25    $      10.29    $      (0.12)   $      (0.10)
                                                       ============================================================================

Weighted Average Number of Common Shares Outstanding:
  Basic                                                   1,237,219       1,225,868       1,229,582       1,180,469       1,133,896
                                                       ============================================================================

  Diluted                                                 1,237,219       1,270,889       1,274,034       1,180,469       1,133,896
                                                       ============================================================================


-----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                                                                 F-3
</TABLE>
<PAGE>
<TABLE>
                                                                                                  GYRODYNE COMPANY OF AMERICA, INC.
                                                                                                                   AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity
-----------------------------------------------------------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005 and 2004
-----------------------------------------------------------------------------------------------------------------------------------

                                  $1 Par Value
                                  Common Stock                      Accumulated                   Treasury Stock
                             ------------------------   Additional     Other                  ------------------------
                                              Par        Paid in   Comprehensive   Income                                 Total
                                Shares       Value       Capital      Income      (Deficit)      Shares        Cost       Equity
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
<S>                            <C>        <C>          <C>          <C>          <C>              <C>      <C>          <C>
Balance, May 1, 2003           1,531,086  $ 1,531,086  $ 7,278,191            -  $  (816,758)     414,024  $(2,531,389) $ 5,461,130
Exercise of Stock Options              -            -      227,122            -            -      (38,670)     222,353      449,475
Net Loss                               -            -            -            -     (113,466)           -            -     (113,466)
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance, April 30, 2004        1,531,086    1,531,086    7,505,313            -     (930,224)     375,354   (2,309,036)   5,797,139
Exercise of Stock Options              -            -      335,753            -            -      (57,946)     333,189      668,942
Net Loss                               -            -            -            -     (137,648)           -            -     (137,648)
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance, April 30, 2005        1,531,086    1,531,086    7,841,066            -   (1,067,872)     317,408   (1,975,847)   6,328,433
Exercise of Stock Options              -            -      191,068            -            -      (23,541)     135,361      326,429
Tax Benefit from Exercise
 of Stock Options                      -            -      367,000            -            -            -            -      367,000
Net Income                             -            -            -            -   13,115,317            -            -   13,115,317
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance, April 30, 2006        1,531,086    1,531,086    8,399,134            -   12,047,445      293,867   (1,840,486)  20,137,179
Tax Reduction - Stock
 Options                               -            -     (194,000)           -            -            -            -     (194,000)
Unrealized Gain from
 Marketable Securities                 -            -            -  $   280,042            -            -            -      280,042
Net Loss                               -            -            -            -     (432,135)           -            -     (432,135)
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
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
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========



-----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.                                                                                 F-4
</TABLE>
<PAGE>
<TABLE>
                                                                                                  GYRODYNE COMPANY OF AMERICA, INC.
                                                                                                                   AND SUBSIDIARIES

Consolidated Statements of Cash Flows                 Eight Months Ended December 31,              Years Ended April 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                            2006            2005            2006            2005            2004
-----------------------------------------------------------------------------------------------------------------------------------
                                                                        (Unaudited)
<S>                                                    <C>             <C>             <C>             <C>             <C>
Cash Flows from Operating Activities:
  Net (loss) income                                    $   (432,135)   $ 13,024,076    $ 13,115,317    $   (137,648)   $   (113,466)
                                                       ----------------------------------------------------------------------------
  Adjustments to reconcile net (loss) income to
   net cash provided by (used in) operating
   activities:
    Depreciation and amortization                            47,109          76,931         105,861         115,607         119,945
    Bad debt expense                                         16,000          16,000          24,000          57,000          48,000
    Deferred income tax (benefit) provision              (1,417,000)      8,284,135       7,947,000        (114,000)       (142,000)
    Stock based compensation                                      -               -               -               -          76,606
    Net periodic pension benefit cost                        53,024          77,353         116,029         226,109         236,870
    Gain on condemnation of rental property                       -        (414,349)       (414,349)              -               -
    Gain on sale of equipment                                     -               -               -         (12,000)              -
    Gain on sale of rental real estate                            -      (1,136,705)     (1,136,705)       (437,195)              -
    Changes in operating assets and liabilities:
      (Increase) decrease in assets:
        Land development costs                             (312,807)      4,666,501       4,657,794        (798,453)     (1,189,659)
        Accounts receivable                                 (29,786)        (87,195)        (54,864)        (26,227)        (69,645)
        Interest receivable                                 452,706        (382,829)       (921,385)              -               -
        Condemnation advance payment receivable                   -     (26,315,000)              -               -               -
        Prepaid expenses and other assets                   (38,480)         28,027           4,096          18,705          (2,333)
        Prepaid pension costs                                     -         (50,000)        (50,000)              -               -
      Increase (decrease) in liabilities:
        Accounts payable                                    440,296         138,067         169,136         (36,211)         (3,956)
        Accrued liabilities                               1,500,254         491,720         535,642           8,184         (12,859)
        Income taxes payable                                      -         238,548               -         (28,306)         28,306
        Tenant security deposits                             (4,101)        (17,145)        (65,398)         34,308         (43,228)
                                                       ----------------------------------------------------------------------------
  Total adjustments                                         707,215     (14,385,941)     10,916,857        (992,479)       (953,953)
                                                       ----------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities         275,080      (1,361,865)     24,032,174      (1,130,127)     (1,067,419)
                                                       ----------------------------------------------------------------------------

Cash Flows from Investing Activities:
  Costs associated with property, plant and equipment      (315,008)              -         (78,984)        (62,958)        (29,754)
  Deposit on property                                      (504,000)              -               -               -               -
  Proceeds on condemnation of rental property                     -         596,075         596,075               -               -
  Proceeds from sale of equipment                                 -               -               -          12,000               -
  Proceeds from mortgage receivable                               -       1,300,000       1,300,000         500,000               -
  Purchases of marketable securities                    (24,784,142)              -               -               -               -
  Principal repayments on investment in marketable
    securities                                            1,266,669               -               -               -               -
                                                       ----------------------------------------------------------------------------
Net Cash (Used in) Provided by Investing Activities     (24,336,481)      1,896,075       1,817,091         449,042         (29,754)
                                                       ----------------------------------------------------------------------------

Cash Flows from Financing Activities:
  Repayment of loans payable                                      -          (4,941)         (7,411)       (706,095)        (17,889)
  Loan origination fees                                           -               -               -               -          73,519
  Proceeds from exercise of stock options                         -         252,378         326,429         668,942         372,869
                                                       ----------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities               -         247,437         319,018         (37,153)        428,499
                                                       ----------------------------------------------------------------------------

Net (Decrease) Increase in Cash and Cash Equivalents    (24,061,401)        781,647      26,168,283        (718,238)       (668,674)
Cash and Cash Equivalents, beginning of period           27,012,688         844,405         844,405       1,562,643       2,231,317
                                                       ----------------------------------------------------------------------------
Cash and Cash Equivalents, end of period               $  2,951,287    $  1,626,052    $ 27,012,688    $    844,405    $  1,562,643
                                                       ============================================================================


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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

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. In 2007, effective May 1, 2006, the Company intends
     to elect 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 and therefore is reporting the eight months
     ended December 31, 2006.

     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 20.

     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 a periodic 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
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     Buildings and Improvements                               10 to 30 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. We classify our 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 we believe
     that a decline in the value of an equity security is temporary in nature,
     we record 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 our statement of operations. There was no realized loss recorded by us
     due to the write down in value for the eight months ended December 31, 2006
     and years ended April 30, 2006 and 2005. Our assessment of a decline in
     value includes, among other things, our current judgment as to the
     financial position and future prospects of the entity that issued the
     security. If that judgment changes in the future, we may ultimately record
     a realized loss after having initially concluded that the decline in value
     was temporary.

     Deposit 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 purchase price is reduced by the amounts of deposits paid by
     the Company. At December 31, 2006, management believes all real estate
     deposits are refundable.

     Net income (loss) per common share and per common equivalent share - The
     reconciliations for the eight months ended December 31, 2006 and the years
     ended April 30, 2006, 2005 and 2004 are as follows:

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

<TABLE>
     Eight Months Ended December 31, 2006                       Loss           Shares       Per Share
     --------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>         <C>
     Basic EPS                                              $   (432,135)      1,237,219   $       (.35)
     Effect of Dilutive Securities - common stock options              -               -              -
                                                            ------------    ------------   ------------
     Diluted EPS                                            $   (432,135)      1,237,219   $       (.35)
                                                            ============    ============   ============

     Year Ended April 30, 2006                                 Income          Shares       Per Share
     --------------------------------------------------------------------------------------------------

     Basic EPS                                              $ 13,115,317       1,229,582   $      10.67
     Effect of Dilutive Securities - common stock options              -          44,452           (.38)
                                                            ------------    ------------   ------------
     Diluted EPS                                            $ 13,115,317       1,274,034   $      10.29
                                                            ============    ============   ============

     Year Ended April 30, 2005                                  Loss           Shares       Per Share
     --------------------------------------------------------------------------------------------------

     Basic EPS                                              $   (137,648)      1,180,469   $       (.12)
     Effect of Dilutive Securities - common stock options              -               -              -
                                                            ------------    ------------   ------------
     Diluted EPS                                            $   (137,648)      1,180,469   $       (.12)
                                                            ============    ============   ============

     Year Ended April 30, 2004                                 Income          Shares       Per Share
     --------------------------------------------------------------------------------------------------

     Basic EPS                                              $   (113,466)      1,133,896   $       (.10)
     Effect of Dilutive Securities - common stock options              -               -              -
                                                            ------------    ------------   ------------
     Diluted EPS                                            $   (113,466)      1,133,896   $       (.10)
                                                            ============    ============   ============
</TABLE>

     Income taxes - In 2007, effective May 1, 2006, the Company intends to
     operate 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 intends
     to qualify 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
     substantially met all of the REIT distribution and technical requirements
     for the eight months ended December 31, 2006 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 20 with
     regard to contingencies.

     The Grove, as a taxable REIT subsidiary of the Company, is subject to
     federal and state income taxes. Taxable REIT subsidiaries perform
     non-customary services for tenants, hold assets that we cannot hold
     directly and generally may engage in any real estate or non-real estate
     related business. Accordingly, through the Grove we are subject to
     corporate federal and state income taxes on the Grove's taxable income for
     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.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     Stock-based compensation - Effective May 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
     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 May 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 December 2002, FAS No. 148, Accounting for Stock-Based
     Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was
     issued, which, in addition to providing alternative methods of transition
     for a voluntary change to the fair value method of accounting for
     stock-based employee compensation, required more prominent pro-forma
     disclosures in both the annual and interim financial statements. The
     Company complied with these disclosure requirements for all applicable
     periods prior to May 1, 2006.

     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 a result of the adoption of FAS 123 (R), the Company's results for the
     eight month period ended December 31, 2006 includes share-based
     compensation expense totaling $0.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

<TABLE>
                                      Eight Months
                                          Ended
                                       December 31,              Years Ended April 30,
     ---------------------------------------------------------------------------------------------
                                           2006            2006           2005            2004
     ---------------------------------------------------------------------------------------------
<S>                                   <C>             <C>            <C>             <C>
     Net (Loss) Income, as reported   $   (432,135)   $ 13,115,317   $   (137,648)   $   (113,466)
     Net (Loss) Income, pro forma         (432,135)     13,115,317       (138,648)       (230,466)
     Basic (Loss) Income Per Share,
     as reported                              (.35)          10.67           (.12)           (.10)
     Basic (Loss) Income Per Share,
     pro forma                                (.35)          10.67           (.12)           (.20)
     Diluted (Loss) Income Per
     Share, as reported                       (.35)          10.29           (.12)           (.10)
     Diluted (Loss) Income Per
     Share, pro forma                         (.35)          10.29           (.12)           (.20)
</TABLE>

     For the purposes of the pro forma presentation, the fair value of each
     option grant is estimated on the date of grant using the Black-Scholes
     option-pricing model. The following range of weighted-average assumptions
     were used for grants during the fiscal year ended April 30, 2004. There
     were no stock options granted during the eight months ended December 31,
     2006 and the fiscal years ended April 30, 2006 and 2005.

<TABLE>
                                    Eight Months
                                        Ended
                                     December 31,             Years Ended April 30,
     --------------------------------------------------------------------------------------
                                        2006           2006           2005           2004
     --------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>        <C>
     Dividend Yield                       -              -              -            0.0%
     Volatility                           -              -              -           32.0%

     Risk-Free Interest Rate              -              -              -            2.0%
     Expected Life                        -              -              -         5 Years
</TABLE>

     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 - We report 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. Our only comprehensive income items were net income and the
     unrealized change in fair value of marketable securities.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     New accounting pronouncements - In December 2004, the Financial Accounting
     Standards Board ("FASB") issued SFAS No. 123(R), ("SFAS 123(R)")
     "Share-Based Payment". This statement replaces SFAS No. 123, "Accounting
     for Stock-Based Compensation", and supersedes APB Opinion No. 25,
     "Accounting for Stock Issued to Employees". SFAS 123(R) establishes
     standards for the accounting for transactions in which an entity exchanges
     its equity instruments for goods or services. This statement focuses
     primarily on accounting for transactions in which an entity obtains
     employee services in share-based payment transactions. SFAS 123(R) requires
     that the fair value of such equity instruments be recognized as an expense
     in the historical financial statements as services are performed. Prior to
     SFAS 123(R), only certain pro forma disclosures of fair value were
     required. The provisions of this statement were effective for the first
     annual reporting period that began after December 31, 2005.

     In February 2006, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 155, Accounting for Certain Hybrid Financial Instruments - An
     Amendment of FASB No. 133 and 140. The purpose of SFAS Statement No. 155 is
     to simplify the accounting for certain hybrid financial instruments by
     permitting fair value re-measurement for any hybrid financial instrument
     that contains an embedded derivative that otherwise would require
     bifurcation. SFAS No. 155 also eliminates the restriction on passive
     derivative instruments that a qualifying special-purpose entity may hold.
     SFAS No. 155 is effective for all financial instruments acquired or issued
     after the beginning of any entity's first fiscal year beginning after
     September 15, 2006. The Company does not believe that the adoption of this
     standard on January 1, 2007 will have a material effect on its consolidated
     financial statements.

     In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
     Financial Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires
     separate recognition of a servicing asset and a servicing liability each
     time an entity undertakes an obligation to service a financial asset by
     entering into a servicing contract. This statement also requires that
     servicing assets and liabilities be initially recorded at fair value and
     subsequently adjusted to the fair value at the end of each reporting
     period. This statement is effective in fiscal years beginning after
     September 15, 2006. The Company does not believe that the adoption of this
     standard on January 1, 2007 will have a material effect on its consolidated
     financial statements.

     In July 2006 the FASB issued Financial Interpretation No. 48, Accounting
     for Uncertainty in Income Taxes ("FIN 48"), as an interpretation of SFAS
     No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for
     uncertainty in income taxes recognized in an enterprise's financial
     statements in accordance with SFAS No. 109 and prescribes a recognition
     threshold of more-likely-than-not to be sustained upon examination.
     Measurement of the tax uncertainty occurs if the recognition threshold has
     been met. FIN 48 also provides guidance on derecognition, classification,
     interest, penalties, accounting in interim periods, disclosure, and
     transition. FIN 48 will be effective beginning February 1, 2007.
     Differences between the amounts recognized in the statements of financial
     position prior to the adoption of FIN 48 and the amounts reported after
     adoption should be accounted for as a cumulative-effect adjustment recorded
     to the beginning balance of retained earnings. The Company is still
     evaluating the impact, if any, the adoption of this interpretation will
     have on the Company's financial position, cash flows, and results of
     operations.

     In September 2006, the Securities and Exchange Commission ("SEC") issued
     Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
     Misstatements when Quantifying Misstatements in Current Year Financial
     Statements ("SAB 108"). SAB 108 provides interpretive guidance on how the
     effects of the carryover or reversal of prior year misstatements should be
     considered in quantifying a current year misstatement. The SEC staff
     believes that registrants should quantify errors using both a balance sheet
     and an income statement approach and evaluate whether either approach
     results in quantifying a misstatement that, when all relevant quantitative
     and qualitative factors are considered, is material. SAB 108 is effective
     for the Company's fiscal year ending December 31, 2006. We do not expect
     SAB 108 to have a material impact on our consolidated financial statements.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     In September 2006, the FASB issued Statement No. 157 ("FAS 157") "Fair
     Value Measurements". This statement defines fair value, establishes a
     framework for measuring fair value in generally accepted accounting
     principles (GAAP), and expands disclosures about fair value measurements.
     This statement applies under other accounting pronouncements that require
     or permit fair value measurements, the FASB having previously concluded in
     those accounting pronouncements that fair value is the relevant measurement
     attribute. Accordingly, this statement does not require any new fair value
     measurements. However, for some entities, the application of this Statement
     will change current practice. The changes to current practice resulting
     from the application of this Statement relate to the definition of fair
     value, the methods used to measure fair value, and the expanded disclosures
     about fair value measurements. This Statement is effective for financial
     statements issued for fiscal years beginning after November 15, 2007, and
     interim periods within those fiscal years.

     In September 2006, the FASB issued Statement No. 158 ("FAS 158")
     "Employers' Accounting for Defined Benefit Pension and Other Postretirement
     Plans--an amendment of FASB Statements No. 87, 88, 106, and 132(R)". This
     statement improves financial reporting by requiring an employer to
     recognize the overfunded or underfunded status of a defined benefit
     postretirement plan (other than a multiemployer plan) as an asset or
     liability in its statement of financial position and to recognize changes
     in that funded status in the year in which the changes occur through
     comprehensive income of a business entity or changes in unrestricted net
     assets of a not-for-profit organization. This statement also improves
     financial reporting by requiring an employer to measure the funded status
     of a plan as of the date of its year-end statement of financial position,
     with limited exceptions. An employer with publicly traded equity securities
     is required to initially recognize the funded status of a defined benefit
     postretirement plan and to provide the required disclosures as of the end
     of the fiscal year ending after December 15, 2006. The Company does not
     believe that adoption of this statement will have a material effect on its
     financial statements.

     Reclassifications - Certain reclassifications have been made to the
     consolidated financial statements for the years ended April 30, 2005 and
     2004 to conform to the classification used in the current transition period
     and the fiscal year ended April 30, 2006.


2.   Investment in Marketable Securities

     The historical cost and estimated fair value of our investments in
     marketable equity securities as of December 31, 2006 are as follows:

<TABLE>
                                                       Gross         Gross
                                       Amortized     Unrealized    Unrealized      Fair
                                          Cost         Gains         Losses        Value
                                      -----------------------------------------------------
<S>                                   <C>           <C>           <C>           <C>
     Securities Available for Sale:
         Mortgage-backed Securities   $23,517,473   $   280,042   $         -   $23,797,515
                                      ===========   ===========   ===========   ===========
</TABLE>

     There were no realized gains or losses on sales of securities
     available-for-sale for the eight months ended December 31, 2006 and years
     ended April 30, 2006, 2005 and 2004. The fair value of mortgage-backed
     securities was estimated using quoted market prices. None of the securities
     with an unrealized loss at December 31, 2006 are considered to be
     other-than-temporarily impaired. At December 31, 2006, marketable
     securities have a contractual maturity of over ten years.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

3.   Interest Receivable

     In connection with the condemnation of the Flowerfield property, the
     Company has 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. See Note
     20.

4.   Mortgage Receivable

     A mortgage receivable in the original principal amount of $1,800,000 was
     due from a former tenant in connection with sale of real estate. See Note
     11. The mortgage bore interest at 5% per annum with interest only payments
     due quarterly, commencing in November 2002. The remaining principal and any
     unpaid interest were paid in August 2005.

5.   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, 2006, April 30, 2006, 2005
     and 2004, the carrying value of the Company's investment was $0.

     The Grove has reported to its limited partners that in June 2006 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, and April 30, 2006, strictly on a pro-rata basis, the estimated fair
     value of the Company's interest in the Grove would be approximately
     $22,500,000 and $18,000,000 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, 2006, 2005, 2004 and 2003 is as
     follows:

<TABLE>
     Years Ended June 30,           2006           2005           2004           2003
     -------------------------------------------------------------------------------------
                               (in thousands) (in thousands) (in thousands) (in thousands)
<S>                              <C>            <C>           <C>            <C>
     Total Current Assets        $    6,306     $    5,226    $    5,662     $    7,970
     Total Assets                    23,572         20,419        20,917         23,048
     Total Current Liabilities        1,280          1,708         3,071          2,495
     Total Liabilities               24,345         17,729        19,076         20,012
     Total Partners' Capital           (773)         2,690         1,841          3,036
     Total Revenues                   2,588          5,915         3,213          8,827
     Net Income (Loss)               (3,463)           849        (1,195)        (1,586)
</TABLE>

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

6.   Accrued Liabilities

     Accrued liabilities are as follows:
<TABLE>
                                              December 31,            April 30,
     ----------------------------------------------------------------------------------
                                                  2006           2006           2005
     ----------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
     Condemnation costs  - termination fee   $  2,000,000   $    500,000   $          -
     Payroll and related taxes                     72,339         72,868         64,445
     Professional fees                             66,603         61,903         48,302
     Directors fees                                30,500         19,000         14,000
     Other                                          5,018         20,435             83
                                             ------------   ------------   ------------

     Total                                   $  2,174,460   $    674,206   $    126,830
                                             ============   ============   ============
</TABLE>

7.   Income Taxes

     The Company files a consolidated U.S. federal and state income tax return
     that includes all 100% owned subsidiaries. State tax returns are filed on a
     consolidated or separate basis, depending on the applicable laws.

     The provision (benefit) for income taxes is comprised of the following:

<TABLE>
                                 Eight Months
                                     Ended
                                 December 31,               Years Ended April 30,
     ----------------------------------------------------------------------------------------
                                     2006             2006            2005            2004
     ----------------------------------------------------------------------------------------
<S>                              <C>             <C>             <C>             <C>
     Current:
        Federal                  $          -    $    318,905    $          -    $    101,203
        State                               -          85,999          22,234         (49,442)
                                 ------------    ------------    ------------    ------------
                                            -         404,904          22,234          51,761
                                 ------------    ------------    ------------    ------------
     Deferred:
        Federal                      (837,000)      5,997,000         (96,000)       (103,000)
        State                        (603,000)      1,950,000         (18,000)        (39,000)
                                 ------------    ------------    ------------    ------------
                                   (1,417,000)      7,947,000        (114,000)       (142,000)
                                 ------------    ------------    ------------    ------------
                                 $ (1,417,000)   $  8,351,904    $    (91,766)   $    (90,239)
                                 ============    ============    ============    ============
</TABLE>

     The components of the net deferred tax liabilities are as follows:

<TABLE>
                                             December 31,              April 30,
     ------------------------------------------------------------------------------------
                                                 2006             2006            2005
     ------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>
     Deferred Tax Assets:
        Stock compensation                   $          -    $    192,000    $      3,000
        Accrued sick and vacation                       -          20,000          14,000
        Provision for bad debt                          -          10,000          15,000
        Tax loss carryforwards                          -               -          27,000
        Contribution carryforwards                      -               -           3,000
                                             ------------    ------------    ------------
     Total Deferred Tax Assets                          -         222,000          62,000
</TABLE>

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

<TABLE>
<S>                                          <C>             <C>             <C>
     Deferred Tax Liabilities:
        Prepaid pension costs                           -        (464,000)       (490,000)
        Unrealized gain on investment
          in Citrus Grove                        (502,000)       (654,000)       (569,000)
        Gain on condemnation (a)               (7,633,000)     (8,462,000)              -
        Land development costs                          -               -        (600,000)
        Accumulated depreciation                        -               -          (8,000)
                                             ------------    ------------    ------------
     Total Deferred Tax Liabilities            (8,135,000)     (9,580,000)     (1,667,000)
                                             ------------    ------------    ------------
     Net Deferred Income Taxes               $ (8,135,000)   $ (9,358,000)   $ (1,605,000)
                                             ============    ============    ============
</TABLE>

     The Company had federal net operating loss carryforwards of approximately
     $78,000, all of which was utilized in the year ended April 30, 2006 to
     offset taxable income.

     In 2007, effective May 1, 2006, the Company intends to elect 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 will convert 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.

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

<TABLE>
                                            Eight Months
                                               Ended
                                            December 31,              Years Ended April 30,
     -----------------------------------------------------------------------------------------------
                                                2006           2006           2005           2004
     -----------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>            <C>
     U.S. Federal Statutory Income Rate             -           34.0%          34.0%          34.0%
     State Income Tax, net of federal tax
       benefits                                     -            5.8%           7.5%           7.5%
     Reversal of Deferred Taxes Resulting
       from REIT Election                       (76.6)%            -              -              -
     Other Differences, net                         -           (0.9)%         (1.5)%          2.8%
                                            ----------     ----------     ----------     ----------
                                                (76.6)%         38.9%          40.0%          44.3%
                                            ==========     ==========     ==========     ==========
</TABLE>

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

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 eight months ended December 31, 2006 and
     the years ended April 30, 2006, 2005 and 2004, the Company made $0,
     $50,000, $0 and $0 contributions to the Plan, respectively. The Company
     does not anticipate a minimum required contribution for the December 31,
     2007 plan year.

     The following tables provide a reconciliation of the changes in the plan's
     benefit obligations and fair value of assets over the eight months ended
     December 31, 2006 and the two-year period ending April 30, 2006, and a
     statement of the funded status as of December 31 and April 30 for all
     periods presented:

<TABLE>
                                                       December 31,              April 30,
     ---------------------------------------------------------------------------------------------
                                                           2006            2006            2005
     ---------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
     Pension Benefits
     Reconciliation of Benefit Obligation:
        Obligation                                    $  2,058,304    $  2,362,367    $  1,996,981
        Service cost                                        86,496         138,426         129,967
        Interest cost                                       85,398         125,276         129,160
        Actuarial (gain) loss                              198,197        (235,783)        269,299
        Benefit payments                                   (87,059)       (331,982)       (163,040)
                                                      ------------    ------------    ------------
     Obligation                                       $  2,341,336    $  2,058,304    $  2,362,367
                                                      ============    ============    ============

                                                       December 31,              April 30,
     ---------------------------------------------------------------------------------------------
                                                           2006            2006            2005
     ---------------------------------------------------------------------------------------------

     Reconciliation at Fair Value of Plan Assets:
        Fair value of plan assets                     $  3,039,786    $  2,938,625    $  2,163,701
        Actual return on plan assets                       855,944         383,143         937,964
        Employer Contributions                                   -          50,000               -
        Benefit payments                                   (87,059)       (331,982)       (163,040)
                                                      ------------    ------------    ------------
     Fair Value of Plan Assets                           3,808,671       3,039,786       2,938,625
                                                      ------------    ------------    ------------

     Funded Status:
        Funded status                                    1,467,335         981,482         576,258
        Unrecognized prior-service cost                          -          40,230         112,968
        Unrecognized (gain) loss                          (386,862)        111,785         510,300
                                                      ------------    ------------    ------------
     Net Amount Recognized                            $  1,080,473    $  1,133,497    $  1,199,526
                                                      ============    ============    ============
</TABLE>

     The accumulated benefit obligation was $2,010,555, 1,779,044 and $1,993,167
     as of December 31, 2006, April 30, 2006 and 2005, respectively.

     The following table provides the components of net periodic benefit cost
     for the plans for the eight months ended December 31, 2006 and the fiscal
     years 2006, 2005 and 2004:

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

<TABLE>
                                          December 31,                 April 30,
     -----------------------------------------------------------------------------------------
                                              2006          2006          2005          2004
     -----------------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>           <C>
     Pension Benefits
     Service Cost                         $   86,496    $  138,426    $  129,967    $   86,717
     Interest Cost                            85,398       125,276       129,160       119,220
     Expected Return on Plan Assets         (159,100)     (228,225)     (165,830)     (126,166)
     Amortization of Prior-Service Cost       40,230        72,738        72,738        72,738
     Amortization of Net Loss                      -         7,814        60,074        84,361
                                          ----------    ----------    ----------    ----------
     Net Periodic Benefit Cost After
     Curtailments and Settlements         $   53,024    $  116,029    $  226,109    $  236,870
                                          ==========    ==========    ==========    ==========
</TABLE>

     The prior-service costs are amortized on a straight-line basis over the
     average remaining service period of active participants. Gains and losses
     in excess of 10% of the greater of the benefit obligation and the
     market-related value of assets are amortized over the average remaining
     service period of active participants.

     The Plan's expected return on plan assets assumption is derived from a
     detailed periodic review conducted by the Plan's actuaries and the Plan's
     asset management group. The review includes an analysis of the asset
     allocation strategy, anticipated future long-term performance of individual
     asset classes, risks and correlations for each of the asset classes that
     comprise the funds' asset mix. While the review gives appropriate
     consideration to recent fund performance and historical returns, the
     assumption is primarily a long-term, prospective rate.

     The assumptions used in the measurement of the Company's benefit obligation
     are shown in the following table:

<TABLE>
                                             December 31,           April 30,
     -------------------------------------------------------------------------------
                                                 2006          2006          2005
     -------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>
     Pension Benefits
     Weighted-Average Assumptions
        Discount rate                              5.77%         6.21%         5.75%
        Expected return on plan assets             8.00%         8.00%         8.00%
        Rate of compensation increase              5.00%         5.00%         5.00%
</TABLE>

     The Plan's investment objectives are expected to be achieved through a
     portfolio mix of Company stock and cash and cash equivalents which reflect
     the Plan's desire for investment return while controlling total portfolio
     risk to an acceptable level.

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

<TABLE>
                                             December 31,           April 30,
     -------------------------------------------------------------------------------
                                                 2006          2006          2005
     -------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>
     Common Stock - Gyrodyne Company of
       America, Inc.                               98.6%         94.5%         93.7%
     United States Government Securities              -             -           1.1%
     Corporate Equity Securities                      -             -           0.3%
     Other Funds                                    1.4%          5.5%          4.9%
                                             ----------    ----------    ----------
     Total                                        100.0%        100.0%        100.0%
                                             ==========    ==========    ==========
</TABLE>

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

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

<TABLE>
                                             December 31,           April 30,
     -------------------------------------------------------------------------------
                                                 2006          2006          2005
     -------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>
     Number of Shares                            60,580        60,580        67,580
     Market Value                            $3,755,960    $2,871,492    $2,753,885
</TABLE>

     Expected approximate future benefit payments are as follows:

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

     2007                                                            $  167,322
     2008                                                               163,459
     2009                                                               153,518
     2010                                                               143,730
     2011                                                               159,920
     2012 - 2016                                                        671,305

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 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.

     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 are 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 are exercisable in full on the first anniversary date subsequent to
     the date of grant. The options expire in January 2007.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     A summary of the Company's various fixed stock option plans as of December
     31, 2006 and April 30, 2006, 2005 and 2004, and changes during the years
     then ended is presented below:

<TABLE>
                                 Eight Months
                                    Ended
                                 December 31,                                Years Ended April 30,
     ---------------------------------------------------------------------------------------------------------------------
                                     2006                     2006                    2005                    2004
     ---------------------------------------------------------------------------------------------------------------------
                                          Weighted                Weighted                Weighted                Weighted
                                          Average                 Average                 Average                 Average
     Fixed Stock                          Exercise                Exercise                Exercise                Exercise
     Options                  Shares       Price       Shares      Price       Shares      Price       Shares      Price
     ---------------------------------------------------------------------------------------------------------------------
<S>                             <C>      <C>            <C>         <C>         <C>         <C>        <C>          <C>
     Outstanding,
     beginning of period        67,105   $  16.42       91,030   $  15.87      164,650   $  16.30      174,740   $  15.28
     Granted                         -                       -          -            -          -       38,500      16.87
     Exercised                       -                 (23,541)     14.36      (57,946)     16.92      (38,670)     12.62
     Forfeited                       -                    (384)     13.46      (15,674)     16.50            -          -
     Canceled                        -                       -          -            -          -       (9,920)     14.91
                            ----------              ----------              ----------              ----------
     Outstanding, end of
     period                     67,105   $  16.42       67,105      16.42       91,030      15.87      164,650      16.30
                            ==========              ==========              ==========              ==========
     Options Exercisable,
     year end                   67,105   $  16.42       67,105      16.42       91,030      15.87      164,650      16.30
                            ==========              ==========              ==========              ==========
     Weighted-Average
     Fair Values of
     Options Granted
     During Year                         $     -                 $      -                $      -                $   5.31
</TABLE>

     The following table summarizes information about stock options outstanding
     at December 31, 2006:

<TABLE>
                              Options Outstanding                  Options Exercisable
                   ----------------------------------------   -----------------------------
                                   Weighted
                                   Average        Weighted                        Weighted
                                   Remaining      Average                         Average
       Exercise        Number     Contractual     Exercise        Number          Exercise
        Price       Outstanding      Life          Price        Outstanding        Price
     ------------------------------------------------------   -----------------------------
<S>                    <C>             <C>         <C>             <C>            <C>
       $15.68          22,055          .83         $15.68          22,055         $15.68
       $15.94           3,300          .61         $15.94           3,300         $15.94
       $16.16          13,750          .27         $16.16          13,750         $16.16
       $16.87          22,500         1.37         $16.87          22,500         $16.87
       $18.44           5,500          .01         $18.44           5,500         $18.44
</TABLE>

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     Shares reserved for future issuance at December 31, 2006 are comprised of
     the following:

     Shares issuable upon exercise of stock options
       under the Company's Non-Employee Director
       Stock Option Plan                                            5,500

     Shares issuable upon exercise of stock options
       under the Company's stock incentive plan                    61,605
                                                              -----------
                                                                   67,105
                                                              ===========

     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 maximum borrowing limit of $1,750,000,
     bears interest at the lending institution's prime-lending rate (8.25% at
     December 31, 2006) 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, 2006, April 30, 2006 and 2005, $1,750,000 was available
     under this agreement and the Company was in compliance with the financial
     covenants.

11.  Sale of Real Estate

     On August 8, 2002, the Company sold approximately twelve acres of property
     and certain buildings with a carrying value of approximately $559,000 to an
     existing tenant. The contract of sale amounted to $5,370,000 under which
     the Company received a cash payment of approximately $3,600,000 and a
     three-year mortgage for $1,800,000 with interest at 5%. The profit on the
     sale of the land and buildings was $4,700,000 net of transaction costs of
     approximately $113,000. Pursuant to SFAS No. 66, approximately $1,570,000
     of the gain on this sale was deferred. The deferred gain was recognized
     upon collection of the entire related mortgage receivable in August 2005.

     During the fiscal year ended April 30, 2006, the Company received cash
     payments from its mortgage receivable totaling $1,300,000 and recognized a
     gain on the sale of real estate of approximately $1,137,000.

12.  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, 2006, April 30, 2006, 2005 and 2004.

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

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

13.  Supplemental Disclosures of Cash Flow Information

     Cash paid during the year for:

                             Eight Months
                                 Ended
                             December 31,        Years Ended April 30,
     --------------------------------------------------------------------------
                                 2006         2006         2005         2004
     --------------------------------------------------------------------------

     Interest                 $        -   $        -   $   35,217   $   38,850
                              ==========   ==========   ==========   ==========

     Income Taxes             $   31,193   $  400,085   $   30,000   $  204,768
                              ==========   ==========   ==========   ==========

14.  Commitments

     Lease 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
     -------------------------------------------------------------------------

     2007                                                         $    881,000
     2008                                                              468,000
     2009                                                              291,000
     2010                                                              237,000
     2011                                                              183,000
     Thereafter                                                      1,512,000
                                                                  ------------
                                                                  $  3,572,000
                                                                  ============

     The Company was leasing office space in St. James, New York on a
     month-to-month basis through April 30, 2006. Rental expense approximated
     $55,000, $54,000 and $57,000 for the years ended April 30, 2006, 2005 and
     2004, respectively. 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. As a result of the State University of New York at Stony
     Brook's ("the University's") condemnation of the Flowerfield property, the
     Company accrued a $500,000 termination fee pursuant to the contract during
     the twelve months ended April 30, 2006. The Company has reached an
     agreement on a claim arising from the cancellation of the agreement and has
     accrued an additional $1,500,000 for the eight months ended December 31,
     2006. (SEE NOTE 21 "Subsequent Events")

--------------------------------------------------------------------------------
                                                                            F-21
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

15.  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, 2006, based upon an independent third
     party appraisal report, is approximately $22,500,000 without adjustment for
     minority and lack of marketability discount, based on the Company's
     ownership percentage.

16.  Related Party Transactions

     A law firm related to a director provided legal services to the Company for
     which it was compensated approximately $3,000, $7,000, $110,000 and
     $229,000 for the eight months ended December 31, 2006 and the years ended
     April 30, 2006, 2005 and 2004, respectively. As of January 1, 2005, the
     aforementioned law firm is no longer primary outside legal counsel to the
     Company.

17.  Major Customers

     For the eight months ended December 31, 2006 rental income from the three
     largest tenants represented 14%, 11% and 11% of total rental income.

     For the year ended April 30, 2006 rental income from the three largest
     tenants represented 11%, 9% and 9% of total rental income.

     For the year ended April 30, 2005 rental income from the three largest
     tenants represented 14%, 13% and 10% of total rental income.

     For the year ended April 30, 2004 rental income from the three largest
     tenants represented 17%, 13% and 12% of total rental income.

18.  Supplementary Information - Quarterly Financial Data (Unaudited)

<TABLE>
                                                Three Months    Three Months     Two Months
                                                   Ended           Ended           Ended
                                                  July 31,       October 31,    December 31,
     Eight Months Ended December 31, 2006           2006            2006            2006
     ---------------------------------------------------------------------------------------

     ---------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>
     Rental Income                              $    332,924    $    337,499    $    222,888
     Rental Property Expense                        (169,191)       (172,618)       (127,228)
                                                ------------    ------------    ------------
     Income from Rental Property                     163,733         164,881          95,660
                                                ------------    ------------    ------------
     Net (Loss) Income                          $    (54,104)   $     12,527    $   (390,558)
                                                ============    ============    ============

     Net (Loss) Income Per Common Share
         Basic                                  $       (.04)   $       0.01    $       (.32)
                                                ============    ============    ============
         Diluted                                $       (.04)   $       0.01    $       (.32)
                                                ============    ============    ============
</TABLE>

--------------------------------------------------------------------------------
                                                                            F-22
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

<TABLE>
     Year Ended April 30, 2006                First          Second           Third          Fourth
     -------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>
     Rental Income                        $    494,534    $    486,166    $    332,477    $    313,474
     Rental Property Expense                  (129,382)       (133,028)       (213,271)       (179,480)
                                          ------------    ------------    ------------    ------------
     Income from Rental Property               365,152         353,138         119,206         133,994
                                          ------------    ------------    ------------    ------------
     Net Income                           $    111,697    $    475,461    $ 12,427,569    $    100,590
                                          ============    ============    ============    ============

     Net Income Per Common Share
         Basic                            $       0.09    $       0.39    $      10.08    $       0.11
                                          ============    ============    ============    ============
         Diluted                          $       0.09    $       0.37    $       9.75    $       0.08
                                          ============    ============    ============    ============

     Year Ended April 30, 2005                First          Second           Third          Fourth
     -------------------------------------------------------------------------------------------------

     Rental Income                        $    499,922    $    527,622    $    506,771    $    504,855
     Rental Property Expense                  (172,456)       (194,326)       (222,089)       (359,525)
                                          ------------    ------------    ------------    ------------
     Income from Rental Property               327,466         333,296         284,682         145,330
                                          ------------    ------------    ------------    ------------
     Net (Loss) Income                    $    (52,786)   $    (35,634)   $    (88,141)   $     38,913
                                          ============    ============    ============    ============

     Net (Loss) Income Per Common Share
         Basic                            $      (0.05)   $      (0.03)   $      (0.07)   $       0.03
                                          ============    ============    ============    ============
         Diluted                          $      (0.05)   $      (0.03)   $      (0.07)   $       0.03
                                          ============    ============    ============    ============
</TABLE>

     Certain reclassifications between rental property expenses and general and
     administrative expenses were made in fiscal 2005 to conform to the
     classification used in the eight months ended December 31, 2006 and the
     fiscal year ended April 30, 2006.

19.  Interest Income

     Interest income consists of the following:

<TABLE>
                                               Eight Months
                                                  Ended
                                               December 31,         Years Ended April 30,
     --------------------------------------------------------------------------------------------
                                                   2006         2006         2005         2004
     --------------------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>          <C>
     Interest on Condemnation Advance Payment   $        -   $  921,385   $        -   $        -
     Interest Income on Investments                799,447      111,877            -            -
     Interest Income - Other                       133,004       50,844      102,852      111,721
                                                ----------   ----------   ----------   ----------
                                                $  932,451   $1,084,106   $  102,852   $  111,721
                                                ==========   ==========   ==========   ==========
</TABLE>

20.  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.

--------------------------------------------------------------------------------
                                                                            F-23
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     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, an operator of a child care center as a franchisee of
     Kiddie Academy, leases a suite of offices from the Company under a 15-year
     lease which commenced in March 2005 with a five-year option. Beginning
     approximately July 2005 and continuing to the present, Faith Enterprises
     failed to pay the full monthly rent due under the lease and remain current
     with their obligations. The Company served Faith Enterprises with a series
     of default notices. The franchisor was also notified of the default but has
     not chosen to terminate the franchise agreement nor pay the rent deficiency
     on behalf of the franchisee. In February 2007, the Company served Faith
     Enterprises with a 10-day notice of default. Faith Enterprises then
     commenced this action in New York State Supreme Court for Suffolk County
     seeking damages for breach of contract, fraudulent inducement and tortuous
     interference with business, claiming that the Company's issuance of press
     releases in December 2006 and January 2007 about its submission of an
     application to the Town of Smithtown to rezone its property caused Faith
     Enterprises financial damages in lost clientele. Faith Enterprises is
     seeking $7 million in damages on each of the three claims and is requesting
     that it not pay rent during the pendency of the proceeding. Faith
     Enterprises also filed an application for a Yellowstone injunction and a
     preliminary injunction to forestall the Company from proceeding with the
     non-payment eviction proceeding. The Company opposed that application and,
     in an order dated February 21, 2007, the Court denied Faith Enterprises'
     request in its entirety. The Company also served and filed a motion to
     dismiss the entire case. That motion is currently returnable on March 28,
     2007. The Company also commenced a proceeding in district court seeking to
     evict Faith Enterprises for non-payment of rent. That proceeding was
     commenced in March 2007, upon the Supreme Court's decision denying Faith
     Enterprises' request for injunctive relief.

     Our Board of Directors has authorized us to take the steps necessary to
     elect to be taxed as a REIT. Currently, we plan on electing REIT status in
     2007, effective as of May 1, 2006. There can be no assurance that we will
     be organized in conformity with the requirements for qualification as a
     REIT under the Internal Revenue Code of 1986, as amended, or the Code, or
     that our proposed method of operation will enable us to meet the
     requirements for qualification and taxation as a REIT. Given the highly
     complex nature of the rules governing REITs, the ongoing importance of
     factual determinations, and the possibility of future changes in our
     circumstances, no assurance can be given that we will so qualify for any
     particular year. We do not intend to request a ruling from the Internal
     Revenue Service as to our qualification as a REIT.

     Furthermore, our qualification as a REIT will depend on its satisfaction of
     certain asset, income, organizational, distribution, shareholder ownership
     and other requirements on a continuing basis. Our ability to satisfy the
     asset tests will depend upon our analysis of the fair market values of our
     assets, some of which are not susceptible to a precise determination. Our
     compliance with the REIT income and quarterly asset requirements also
     depends upon our ability to manage successfully the composition of our
     income and assets on an ongoing basis.

--------------------------------------------------------------------------------
                                                                            F-24
<PAGE>

                                               GYRODYNE COMPANY OF AMERICA, INC.
                                                                AND SUBSIDIARIES

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Eight Months Ended December 31, 2006 and Years Ended April 30, 2006, 2005
and 2004
--------------------------------------------------------------------------------

     On October 12, 2006, the Company entered into a Contract of Sale (the
     "Contract"), which was amended in January, 2007, by and between the Company
     and Frank M. Pellicane Realty, LLC and Pelican Realty, LLC (collectively,
     the "Seller") to acquire land and buildings comprising, in significant
     part, a medical office complex known as Port Jefferson Professional Park in
     Port Jefferson Station, New York. The Contract relates specifically to ten
     office buildings, located at 1-6, 8, 9 and 11 Medical Drive and 5380
     Nesconset Highway, which are situated on 5.16 acres with approximately
     40,000 square feet of rentable space (the "Property") with a current
     occupancy rate of 97%. The purchase price per square foot is $221.25 and
     the aggregate monthly rent flow from the property is currently $73,941.50.
     Other than with respect to the Contract itself, there is no material
     relationship between the Company and the Seller.

     The purchase price for the Property is $8.85 million, $500,000 of which was
     paid as a refundable deposit upon the signing of the Contract, and the
     remainder, subject to any adjustments, is required to be paid at closing.
     Under the Contract, the Company has the right to elect either to pay all
     cash at closing or apply to assume the terms of an existing mortgage loan
     due February 1, 2022 at a current interest rate of 5.75%. The Company has
     applied for and has been approved to assume the mortgage if it so desires.
     The bank required an additional deposit of $4,000 relating to the
     assumption of the existing mortgage. Upon acquisition, the Company intends
     to continue to operate the office space pursuant to existing leases. It is
     anticipated that the transaction will close in April 2007. The contract was
     amended in January 2007 to provide that the seller will be responsible for
     the cost of remediating the contaminated on-site sanitary waste disposal
     systems and stormwater drywells, which was discovered by the Company during
     the due diligence examination.

     If the Company does not replace 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. The Port
     Jefferson Professional Park qualifies as replacement property under IRC
     section 1033.

21.  Subsequent Events

     On February 12, 2007, 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 April 30,
     2006. In addition the Company retained Landmark and will pay them
     $1,000,000 over the next thirty-six months, commencing on March 1, 2007,
     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
     Company has accrued $1,500,000 as additional condemnation expense for the
     eight months ended December 31, 2006. The Company intends to add the
     $2,000,000 to the existing claim for additional compensation with regard to
     the condemnation.

--------------------------------------------------------------------------------
                                                                            F-25
<PAGE>

Schedule II - Valuation and Qualifying Accounts

<TABLE>
                                                         Additions
                                                   -----------------------
                                       Balance at               Charged to                   Balance at
                                       Beginning   Charged to     Other                          End
                                       of Period    Expenses     Accounts    Deductions       of Period
-------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>             <C>
Eight Months Ended
    December 31, 2006

Allowance for Doubtful Accounts (a)   $   30,131   $   16,000   $        0   $        0      $   46,131
                                      ==========   ==========   ==========   ==========      ==========

Year End April 30, 2006

Allowance for Doubtful Accounts (a)   $   36,934   $   24,000   $        0   $   30,803 (b)  $   30,131
                                      ==========   ==========   ==========   ==========      ==========

Year End April 30, 2005

Allowance for Doubtful Accounts (a)   $   71,261   $   57,000   $        0   $   91,327 (b)  $   36,934
                                      ==========   ==========   ==========   ==========      ==========

Year End April 30, 2004

Allowance for Doubtful Accounts (a)   $   40,861   $   48,000   $        0   $   17,600 (b)  $   71,261
                                      ==========   ==========   ==========   ==========      ==========
</TABLE>

(a) - Deducted from accounts receivable.
(b) - Uncollectible accounts receivable charged against allowance.