UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington
D.C. 20549


FORM
10-K


(Mark
One)


x           ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
fiscal year endedDecember 31,
2009


OR


o
           TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
transition period from ________________ to ___________________.





Commission
file number  0-1684





GYRODYNE COMPANY OF AMERICA,
INC.


(Exact
name of registrant as specified in its charter)


NEW YORK
              11-1688021(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)1 FLOWERFIELD, SUITE 24, ST. JAMES,
      NY
              11780(Address
      of principal executive offices)
              (Zip
      Code)


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





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





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





COMMON STOCK, $1.00 PAR
VALUE


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  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 o  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 o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes o  No o





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





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


(Check
One):


Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o
              Smaller
      reporting company x(Do
      not check if a smaller reporting company)
 
 1
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes o  No x





The
aggregate market value of voting common stock held by non-affiliates of the
registrant on June 30,
2009 was $24,722,003.
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 March
26, 2010, 1,290,039 shares of the Registrant's common stock, par value $1 per
share, were outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


None


2


TABLE OF CONTENTS TO FORM
10-K


FOR THE YEAR ENDED DECEMBER
31, 2009




ITEM #
            PAGEPART
      I1.
            Business.
            41B.
            Unresolved
      Staff Comments.
            102.
            Properties.
            103.
            Legal
      Proceedings.
            12PART
      II5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases
      of Equity Securities.
            127.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation.
            138.
            Financial
      Statements and Supplementary Data.
            209.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
            219A(T).
            Controls
      and Procedures.
            219B.
            Other
      Information.
            22PART
      III10.
            Directors,
      Executive Officers and Corporate Governance.
            2211.
            Executive
      Compensation.
            2512.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
            2813.
            Certain
      Relationships and Related Transactions, and Director
      Independence.
            3014.
            Principal
      Accountant Fees and Services.
            30PART
      IV15.
            Exhibits
      and Financial Statement Schedules.
            31Signatures
            34Exhibit
      Index
            35




3





PART
I





Introduction:





When
we use the terms “Gyrodyne”, the “Company”, “we”, “us” and “our”, we mean
Gyrodyne Company of America, Inc. and all entities owned by us including
non–consolidated entities, except where it is clear that the term means only the
parent company.  References herein to our Annual Report are to our
Annual Report on Form 10-K for the fiscal year ended December 31,
2009.





All
references to 2009 and 2008 refer to our fiscal years ended or the dates, as the
context requires, December 31, 2009 and December 31, 2008,
respectively.





Cautionary
Statements Concerning Forward –Looking Statements





The
statements made in this Form 10-Kthat 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 real estate
markets of Suffolk and Westchester Counties in New York, Palm Beach County in
Florida and Fairfax County in Virginia, the ability to obtain additional capital
in order to maintain and or develop the existing real estate, uncertainties
associated with the Company’s litigation against the State of New York for just
compensation for the Flowerfield property taken by eminent domain, and other
risks detailed from time to time in the Company’s SEC reports. These and other
matters the Company discusses in this Report, or in the documents it
incorporates by reference into this Report, may cause actual results to differ
from those the Company describes. The Company assumes no obligation to update or
revise any forward-looking information, whether as a result of new information,
future events or otherwise.





Item
1. Business





Description of the Company's
Business:





Gyrodyne
Company of America, Inc. is a self-managed and self-administered real estate
investment trust (“REIT”) formed under the laws of the State of New
York.  The Company operates primarily in one segment.  The
Company’s primary business is the investment in and the acquisition, ownership
and management of a geographically diverse portfolio of medical office and
industrial properties and development of industrial and residential
properties.  Substantially all of the Company’s properties are subject
to net leases in which the tenant must reimburse Gyrodyne for a portion of or
all of or substantially all of the costs and/ or cost increases for utilities,
insurance, repairs and maintenance, and real estate taxes.  However,
certain leases provide that the Company is responsible for certain operating
expenses.





As of
December 31, 2009, the Company had 100% ownership in three medical office parks
comprising approximately 130,000 rentable square feet and a multitenant
industrial park comprising 127,062 rentable square feet.  In addition,
the Company has approximately 62.4 acres of undeveloped property in St. James,
New York and an approximate 10% limited partnership interest in a limited
partnership which owns an undeveloped Florida property, “the
Grove”.





The
Company believes it has qualified, and expects to continue to qualify as a REIT
under Section 856(c)(1) of the Internal Revenue Code of 1986, as amended (the
“Code”).  Accordingly, the Company generally will not be subject to
federal and state income tax, provided that distributions to its shareholders
equal at least 90% of its REIT taxable income as defined under the
Code.  The Company is permitted to participate in certain activities
from which it was previously precluded in order to maintain its qualifications
as a REIT;  provided the Company conducts these
activities  through an entity  that elects to be treated as
a taxable REIT subsidiary (“TRS”) under the Code.  The Company has one
taxable REIT subsidiary which will be subject to federal and state income tax on
the income from these activities.





The
Company currently has a total of 12 employees, of which 9 are full time,
involved in support of the real estate operation and development
plans.  Competition among industrial and medical office rental
properties on Long Island, Cortlandt Manor, New York and Fairfax Virginia is
intense.  Furthermore, the Company also competes in the development of
industrial and residential property where the competition is equally 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 2, "Properties" for a discussion regarding
dependence on major tenants.





4





History/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.  The Company’s 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  in St. James, New York.  The
converted buildings in Flowerfield consist of 127,062 rentable square feet
housing 51 tenants in space suitable for office, engineering, manufacturing, and
warehouse use.  The property, which is known as Flowerfield, consists
of approximately 68 acres  Approximately 10 acres are utilized for the
rental property and the balance of 58 remains undeveloped.   The
property is the subject of development plans (see below), part of which involves
rezoning approximately 62.4 acres to “planned residential”.  The
annual rental revenue is approximately $1,647,000, based on the tenant base and
related rental rates in effect as of December 2009.





In 1965,
the Company acquired a 20% limited partnership interest in Callery-Judge Grove,
L.P., a New York limited partnership, which owns a 3,700+ acre citrus grove
located in Palm Beach County, Florida, for a purchase price of $1.1 million. As
a result of  four subsequent capital  calls in which the
Company  chose not to participate, the Company’s limited partnership
interest is now 9.99%. The investment has yielded distributions to Gyrodyne of
approximately $5.5 million in the aggregate. The property is the subject of a
plan for mixed use development and recently received approval to develop 2,996
residential units and 235,000 square feet of commercial and retail
space.





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 elected under the EDPL to accept as an advance payment for the
property (the “Advance Payment”) and subsequently filed a Notice of Claim for
additional compensation.  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. During the year ended December 31, 2006, the Company received
$589,008 of interest on the Advance Payment. The Company is currently seeking
just compensation under the EDPL in a lawsuit against the State of New York (see
below), and also plans on pursuing the loss of interest in such lawsuit. See
also Note 18 in the footnotes to the consolidated financial
statements.





In 2005,
the Company retained an investment banking firm 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
(REIT), 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 conversion to a REIT, which the Company completed 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 federal
corporate income taxes on income and gain generated after May 1, 2006, the
effective date of the Company’s REIT election, from investments in real estate,
thereby reducing 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 May 1,
2006, the Company filed a Notice of Claim with the Court of Claims of the State
of New York seeking additional damages from the State of New York resulting from
the eminent domain taking by the University.  See “Legal
Proceedings”.





The
Company initially invested the Advance Payment 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 hybrid mortgage-backed securities fully guaranteed by agencies of the U.S.
Government which are qualified REIT investments.  During 2009, the
remaining investments in hybrid mortgage backed securities were sold, with the
balance of the proceeds applied toward the acquisition of the Fairfax Medical
Center – see below.





5


In
accordance with Section 1033 of the Internal Revenue Code, 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 for federal and
state tax purposes from the disposition of 245.5 acres is deferred until the
newly acquired property is disposed of.  In June of 2007, June 2008
and March 2009 the Company acquired the Port Jefferson Professional Park, the
Cortlandt Medical Center, and the Fairfax Medical Center, respectively. These
purchases totaled approximately $28,805,000 and represent the completion of the
tax-efficient reinvestment of the condemnation
proceeds.





On June
27, 2007, the Company acquired ten buildings in the Port Jefferson Professional
Park in Port Jefferson Station, New York. The buildings were acquired for a
purchase price of $8,850,000. The buildings, located at 1-6, 8, 9 and 11 Medical
Drive and 5380 Nesconset Highway in Port Jefferson Station, are situated on 5.16
acres with 39,329 square feet of rentable space. The purchase price per square
foot was $225 and the aggregate annual rent flow, based on the tenant base and
monthly rate as of December 2009, is approximately $918,000. The Company funded
$5,551,191 of the purchase price by the assumption of the existing mortgage debt
on the property and the remainder in cash after adjustments.





On June
2, 2008, the Company acquired the Cortlandt Medical Center in Cortlandt Manor,
New York. The property consists of five office buildings which are situated on
5.01 acres with 30,263 square feet of rentable space. The purchase price was $7
million or $231 per square foot. The aggregate annual rent flow from the
property is currently $967,000, based on the tenant base and monthly rate as of
December 2009. Of the $7 million purchase price, the Company paid $1,750,000 in
cash and received financing in the amount of $5,250,000.





On March
31, 2009, the Company acquired the Fairfax, Medical Center in Fairfax,
Virginia.  The property consists of two office buildings which are
situated on 3.5 acres with 57,621 square feet of rentable space.  The
purchase price was $12,891,000 or $224 per square foot. The aggregate annual
rent flow from the property is approximately $1,213,000, based on the tenant
base and rate in effect as of December 2009. Of the $12,891,000 purchase price,
the Company paid $4,891,000 in cash and received financing in the amount of
$8,000,000.  The property qualified for the deferral treatment under
Section 1033 of the Internal Revenue Code and completed the reinvestment program
of the $26.3 million Advance Payment received in connection with the
condemnation of the 245 acres of the Flowerfield property.





The
Company has filed an application to develop a gated, age restricted community on
the remaining Flowerfield property that would include 39 single-family homes, 60
townhouses and 210 condominiums. The mix and total number of residential units
could change upon approval of local government agencies.  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.
The Company has engaged the firm of Platt Byard Dovell White Architects, a
residential and commercial property designer, for this project. Leading the
project will be Sam White, FAIA, a partner at the firm known for blending
historic context into new architecture.





The
application requires that the zoning of approximately 62.4 acres be changed from
"light industrial" (approx. 55.5 acres) and "residential" (approx. 6.9 acres) to
"planned residential".




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 and 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. In addition, the Company will
also pay Landmark an additional $1,000,000 over a thirty-six month period,
commencing on March 1, 2007, in recognition of services rendered between 2004
and 2006, and for general consulting, review of pertinent documents,
consultations regarding land planning and economic feasibility studies and
coordination with project engineers associated with the Company’s claim for
additional compensation.  As of March 2010, the liability to Landmark
has been paid in full.





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





Global Credit and Financial
Crisis




The
continued concerns about the impact of a widespread and long term global credit
and financial crisis have contributed to market volatility and diminishing
expectations for the real estate industry, including the potential depression in
our common stock price.  The continued progression of our condemnation
lawsuit has also added volatility to our common stock price.  As a
result, our business continues to be impacted including (1) difficulty obtaining
financing to renovate or expand our current real estate holdings, (2) difficulty
in consummating property acquisitions, (3) increased challenges in re-leasing
space, and (4) potential risks stemming from late rental receipts, tenant
defaults, or bankruptcies.





6





Business
Strategy




We have
focused our business strategy during the current financial crisis to strike a
balance between preserving capital and improving the market value of our
portfolio to meet our goal of executing on a liquidity event or series of
liquidity events.   Included within this strategy, are the
following objectives:





·
            actively
      managing our portfolio to improve our net operating income, and operating
      cash flow from these assets while simultaneously increasing the market
      values of the underlying operating
properties;





·
            actively
      pursuing the re-zoning effort of the Flowerfield property to maximize its
      value;





·
            employing
      cost-saving strategies to reduce our general and administrative expenses;
      and





·
            diligently
      managing the condemnation lawsuit.





We
believe these objectives will strengthen our business and enhance the value of
our underlying real estate portfolio.





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 in the hamlet of St. James. 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 127,062 square feet of rentable space
located on approximately 10 acres of developed property at Flowerfield. As of
December 31, 2009, there were 51 tenants, comprising 58 leases and five
additional long term tenants under month to month commitments.  The
annual base rent based on the rates in effect as of December 2009
is  $1,647,000 which included month to month annualized base rent of
$51,000 on approximately 3,800 square feet.  The occupancy rate is 83%
as of December 31, 2009.  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 years ended December 31, 2009 and
December 31, 2008, the Company had no material expenses related to environmental
issues.





On June
27, 2007, the Company acquired ten buildings in the Port Jefferson Professional
Park in Port Jefferson Station, New York. The buildings were acquired for an
aggregate purchase price of $8,850,000 or $225 per square foot. The buildings,
located at 1-6, 8, 9 and 11 Medical Drive and 5380 Nesconset Highway in Port
Jefferson Station, are situated on 5.16 acres with 39,329 square feet of
rentable space. As of December 31, 2009, there were 21 tenants, comprising 20
leases, and one long term tenant under a month to month agreement, together
renting space with an annual base rent of approximately $918,000, based on the
tenant base and rates in effect on December 2009. The occupancy rate was 92% as
of December 31, 2009.  The Company funded $5,551,191 of the purchase
price by the assumption of the existing mortgage debt on the property and the
remainder in cash after adjustments.





On June
2, 2008, the Company acquired the Cortlandt Medical Center in Cortlandt Manor,
New York. The property consists of five office buildings which are situated on
5.01 acres with 30,263 square feet of rentable space. The purchase price was $7
million or $231 per square foot. As of December 31, 2009, there were 13 tenants,
comprising 14 leases, renting space with an annual base rent of approximately
$967,000, based on the tenant base and rates in effect as of December 2009. The
property was 100% occupied as of December 31, 2009.  Of the $7 million
purchase price for the property, the Company paid $1,750,000 in cash and
received financing in the amount of $5,250,000.





On August
29, 2008 the Company acquired a 1,600 square foot house located on 1.43 acres at
1987 Crompond Road, Cortlandt Manor New York.  The purchase price was
$305,000.  The Company was able to take advantage of a distressed sale
by the seller as the property is located directly across the street from the
Hudson Valley Hospital and adjoins the Cortlandt Medical Center.  The
property is zoned for medical office and is potentially a future development
site for the Cortlandt Medical Center which is 100% occupied.





On March
31, 2009, the Company acquired the Fairfax Medical Center in Fairfax,
Virginia.  The property consists of two office buildings which are
situated on 3.5 acres with 57,621 square feet of rentable space.  The
purchase price was $12,891,000 or $224 per square foot. As of December 31, 2009,
there were 27 tenants, comprising 27 leases, renting space with an annual base
rent of $1,213,000, based on the rates in effect as of December 2009. The
occupancy rate, as of December 31, 2009 was 81%. which included one signed 2009
tenant who took possession on January 1, 2010.  Of the $12,891,000
million purchase price, the Company paid $4,891,000 in cash and received
financing in the amount of $8,000,000.  The property qualified for the
deferral treatment under Section 1033 of the Internal Revenue Code and completed
the tax-efficient reinvestment program of the $26.3 million Advance Payment
received in connection with the condemnation of the 245 acres of the Flowerfield
property.





7





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





The
Company’s initial participation in the Grove through its wholly owned taxable
Reit subsidiary, Flowerfield Properties, Inc., represented a 20% limited
partnership interest in the Grove. Based on four subsequent
capital  calls, most recently in 2009, in each of which the
Company  chose not to participate, the Company’s share is now
approximately 9.99%.





The Grove
has reported to its limited partners that in November 2009 it received an
independent appraisal report of the citrus grove property which reflects the
approval to develop 2,996 residential units and 235,000 square feet of
commercial and retail space. Based upon the appraised value of the citrus grove
property, at December 31, 2009 and 2008, strictly on a pro-rata basis, the
estimated fair value of the Company's interest in the Grove property would be
approximately $17,134,000 and $21,700,000 respectively, without adjustment for
minority interest, lack of marketability discount, or the property related
secured debt facility.  The Grove completed a capital call which
closed with an effective date of June 30, 2009 in which it raised $4,481,183
from certain existing partners and four new partners.  Gyrodyne chose
not to participate in the capital call which resulted in Gyrodyne’s interest
being diluted by 8.62%, or reduced to 9.99% from approximately 10.93%. The
success of the capital call might reflect a belief by inside and/or active
owners and the new outside investors that there remains upside potential in the
Grove.  The Grove reported to its partners that it believes the
investors participating in the capital call received a 70% discount to the fair
value of the property.





The
original limited partnership investment of $1.1 million, which was made in 1965,
has since yielded distributions to Gyrodyne 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 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.   The Company does record
the tax expense and deferred tax liability related to the company’s limited
partnership interest in the tax losses of the Grove.  The 2010 tax
expense and year ended 2010 deferred tax liability related to the Grove is
$10,939 and $1,206,000 respectively.





Tax
Status





The
Company has qualified, and expects to continue to qualify in the current fiscal
year, as a real estate investment trust (REIT) for federal and state income tax
purposes under section 856(c)(1) of the Internal Revenue Code (the “Code”). 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, Port
Jefferson Station, and Cortlandt Manor, New York and Fairfax,
Virginia.   The Company competes in the leasing of medical,
professional and general office space and 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, financial strength of its
competitors, 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.




8





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 properties. The Company annually reviews its policies with regards to
both risk management and the underlying premiums and 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, all of its properties are adequately
insured.





Major
Customers





The three
largest tenants as of December 31, 2009 consist of Stony Brook University and
another tenant in the industrial park and one medical tenant in our medical
parks.


For the
year ended December 31, 2009, rental income from the three largest tenants
represented 6%, 4% and 3% of total rental income.


For the
year ended December 31, 2008, rental income from the three largest tenants
represented 6%, 5% and 4% of total rental income.





Fiscal year 2009 Transaction
Summary:


The
following summarizes our significant transactions and other activity during the
year ended December 31, 2009.





Acquisitions
and related debt – On March 31, 2009, the Company acquired the Fairfax Medical
Center in Fairfax, Virginia.  The property consists of two office
buildings which are situated on 3.5 acres with 57,621 square feet of rentable
space.  The purchase price was $12,891,000 or $224 per square foot. As
of December 31, 2009, there were 27 tenants, comprising 28 leases, renting space
with an annual base rent of approximately $1,213,000, based on rates in effect
as of December 2009.  Of the $12,891,000 purchase price, the Company
paid $4,891,000 in cash and received financing in the amount of
$8,000,000.  The property qualified for the deferral treatment under
Section 1033 of the Internal Revenue Code and completed the tax-efficient
reinvestment program of the $26.3 million Advance Payment received in connection
with the condemnation of the 245 acres of the Flowerfield property.





Leasing
Activity


New
Leases and Renewals:


Medical
Parks – We entered into seven new leases and lease expansions in our medical
parks encompassing approximately 9,000 square feet and approximately $276,000 in
annual rent.  We also renewed 16 medical park leases comprising
approximately 32,000 square feet and $836,000 in annual revenues.


Industrial
Park – We entered into leases with eight new tenants in the Flowerfield
industrial park encompassing approximately 24,000 square feet and $393,000 in
annual revenue.  Additionally, we entered into twenty six renewals in
the industrial park during 2009 comprising 28,644 square feet and annual
revenues of $390,000.


Lease
Terminations/Defaults - We aggressively negotiate renewals to ensure we maximize
the revenue stream and market value of our properties.  There were
four lease terminations in our medical parks comprising 7,549 square feet and
$200,687 in annual revenues.   Additionally, our industrial park
experienced 10 lease terminations comprising 9,686 square feet and $123,704 of
annual revenue. Three of the four lease terminations in our medical parks were
the result of tenants pursuing retirement or a direct ownership in a building
where they became an owner occupied tenant.  While lease terminations
are often unavoidable in an extended economic recession, the Company believes
its asset management services have resulted in minimal terminations in our
medical and industrial parks.





The above
stated leasing activity reflects the Company’s successful net increase in both
occupancy rate and annual revenues.  The improved results are the
product of the Company’s strategy of investing in medical office properties and
repositioning the overall asset portfolio through a combination
of  high quality asset management services and further investment in
the underlying assets.





Condemnation
lawsuit – During 2009, the Company invested significant time and resources on
expert witnesses, our legal team, and other consultants for the condemnation
trial in the Court of Claims of the State of New York, resulting in
condemnation-related expenses of $1,307,184.  The trial commenced on
August 13, 2009 and concluded on August 18, 2009.  The Company
submitted its post trial memorandum of law prior to the court-imposed deadline
of November 23, 2009.





9





Investments
– The Company sold investments in mortgage-backed securities resulting in
proceeds of $8,163,813, reflecting a gain of $159,805.





Subsequent
Events:


Leasing
Activity


During
the first two months of 2010, the Company signed three new leases at its medical
parks comprising 4,334 square feet and approximately $101,000 in annual
revenues.  Additionally, the Company signed one new lease at its
industrial park comprising 1,024 square feet and $13,800 in annual
revenues.





During
the first two months of 2010, the Company had one lease termination at its
medical parks comprising 815 square feet and approximate annual revenues of
$21,000.  The Company’s only lease termination at its industrial park
was due to the Company’s  exercise of its eviction rights and has
simultaneously signed a new lease to allow a neighboring tenant to immediately
expand into the eviction related space, thereby avoiding any vacancy
period.





Additionally,
the Company signed its first lease with a cellular communication company
comprising 49 square feet of rooftop space and approximately $18,600 in annual
revenue.  The lease is for space previously excluded from our rentable
square footage and has no material impact on the maintenance or aesthetics of
the building.





2010
Acquisitions:





In
January, 2010, the Company entered into a non-binding agreement to acquire a 1.6
acre 2 1⁄2 story house for $720,000.  The property borders its current
property holding in Cortlandt Manor residing between the Cortlandt Medical
Center and the Hudson Valley Hospital Center.  The converted house has
approximately 2,500 rentable square feet, is fully tenanted and is zoned for
medical office.  The agreement is subject to an inspection period
during which the Company may, at its own expense, arrange for legal,
environmental and/or engineering analysis.  The Company may terminate
its agreement in the event that the seller fails to cure any title or survey
objections pursuant to the terms of the agreement.   The
acquisition is expected to close in the second quarter of 2010.  This
acquisition will result in the Company owning the only remaining viable land for
additional medical space development directly across the street from the Hudson
Valley Hospital Center.





Item
1B. Unresolved Staff Comments.





None





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 in St. James on the north shore of
Suffolk County, Long Island, New York. The property currently has 127,062 square
feet of rental space and has 51 tenants. The Company also owns a professional
office park which consists of ten buildings located in Port Jefferson Station on
the north shore of Suffolk County, Long Island, New York. The property currently
has 39,329 square feet of rental space and 21 tenants. In addition, the Company
owns a medical office park which consists of five buildings located in Cortlandt
Manor, New York. The property currently has 30,263 square feet of rental space
and 13 tenants.  On March 31, 2009, the Company expanded outside New
York State with the acquisition of the Fairfax Medical Center, an attached two
building medical park  in Fairfax Virginia.  The property
consists of 57,621 square feet and has 27 tenants.





The land
at all locations is carried on the Company's balance sheet at cost in the amount
of $5,637,483 while the buildings and improvements are carried at a depreciated
cost of $27,062,824. 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, 2009
and 2008. Collateral for the credit line consists of Building #7 and the
surrounding 6 1⁄2 acres located at Flowerfield in St. James which represents 52%
of the revenues from the Flowerfield property as of December 31,
2009.





10





The
average age of the Flowerfield buildings is approximately 50 years while the
Port Jefferson Station buildings have an average age of 36 years, the Cortlandt
Manor buildings have an average age of 20 years and the average age of the
Fairfax Virginia buildings is approximately 37 years.  All 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 in the Flowerfield Industrial Park with rental unit sizes
ranging from 66 to 12,980 square feet. Given the location and size of rental
units, the Flowerfield Industrial Park attracts  tenants ranging in
size from Stony Brook University and Stony Brook University Hospital to many
smaller companies that are not dependent on extensive material or product
handling.  In the ten buildings located in Port Jefferson Station, the
rental unit sizes range from 384 to 4,000 square feet. The size, location and
configuration of the units are conducive to professional offices consisting
primarily of medical and dental professionals. In the five buildings located in
the Cortlandt Medical Center in Cortlandt Manor, the rental size units range
from 1,123 to 4,358 square feet and are conducive to medical offices consisting
primarily of medical professionals.  In the two buildings located in
Fairfax Medial Center in Fairfax County, Virginia, the rental size units range
from 489 to 5,934 square feet and are conducive to medical offices consisting
primarily of medical professionals.





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, 2009 for
      each of the Company’s properties:Annual
            
            
            
            Number
      OfBase
            
            
            
            Tenants
      WhoRentable
            
            
            
            Annual
            
            Rent
            
            Number
            
            Occupy
      10%Square
            
            Percent
            
            Base
            
            Per
      Leased
            
            Of
            
            Or
      More OfProperty
            
            Feet
            
            Leased
            
            Rent
            
            SQ. FT.
            
            Tenants
            
            Rentable Sq. Ft.Flowerfield
      Industrial Park
            
            127,062
            
            83%
            
            $
            1,647,000
            
            $
            15.52
            
            51
            
            1Port
      Jefferson Professional Park
            
            39,329
            
            92%
            
            $
            918,000
            
            
            25.39
            
            21
            
            3Cortlandt
      Medical Center
            
            30,263
            
            100%
            
            $
            967,000
            
            
            31.94
            
            13
            
            4Fairfax
      Medical Center
            
            57,621
            
            81%
            
            $
            1,213,000
            
            
            26.11
            
            27
            
            1All
      Locations
            
            254,275
            
            86%
            
            $
            4,745,000
            
            
            21.67
            
            112
            
            0





The
following table sets forth the Company’s scheduled lease expirations as of
December 31, 2009:





%
      of Gross AnnualNumber
      of
            
            Square
            
            Total
            
            Rental
      RevenuesLeases
            
            Feet
            
            Annual
            
            RepresentedFiscal Year End
            
            Expiring
            
            Expiring
            
            Rent
            
            By Such Leases2010
            
            52
            
            81,275
            
            $
            1,554,872
            
            33.28%2011
            
            31
            
            49,005
            
            
            1,179,546
            
            25.24%2012
            
            13
            
            19,635
            
            
            408,906
            
            8.75%2013
            
            4
            
            10,503
            
            
            283,522
            
            6.07%2014
            
            13
            
            27,449
            
            
            660,239
            
            14.13%Thereafter
            
            7
            
            26,480
            
            
            585,411
            
            12.53%





11





The
Company’s properties are located in the hamlet of St. James, Port Jefferson
Station and Cortlandt Manor, New York and Fairfax, Virginia. The Company has
filed an application for the zoning of approximately 62.4 acres in St. James to
be changed from light industrial (approximately 55.5 acres) and residential
(approximately 6.9 acres) to planned residential.





Item
3. Legal Proceedings





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





On May 1,
2006 the Company commenced litigation in the Court of Claims of the State of New
York seeking just compensation for the 245.5 acres in St. James and Stony Brook,
New York (the “Property”) that were appropriated by the State on November 2,
2005 under the power of eminent domain.  On November 10, 2008,
Gyrodyne and the State of New York filed with the Court of Claims their
respective appraisals regarding the value of the Property.  Gyrodyne’s
appraiser valued the Property at $125,000,000 as of the November 2005
appropriation date based in part upon a separate zoning analysis report that
Gyrodyne filed with the Court which concluded that there was a high probability
the Property would have been rezoned from light industrial use to a Planned
Development District.  The State’s appraiser valued the Property using
the current light industrial zoning at a fair market value of
$22,450,000.





As the
State's appraisal is $3,865,000 less than the $26,315,000 Advance Payment
already made to Gyrodyne, if the Court of Claims were to adopt the State’s
appraisal, the State could recoup the $3,865,000 difference between the Advance
Payment and the State’s appraisal, plus interest already paid on that portion of
the Advance Payment.





The
Company believes the State’s appraisal is fundamentally flawed in that it
misapplied the eminent domain law’s requirement that just compensation be
determined based upon the highest and best use and the probability that such use
could have been achieved.





The trial
in the Court of Claims commenced on August 13, 2009 and concluded on August 18,
2009.  The Company submitted the post – trial memorandum of law prior
to the November 23, 2009 Court imposed deadline.





Faith Enterprises v.
Gyrodyne, Supreme Court, Suffolk County, Index # 3511/2007.





This
case, reported on in prior periodic reports, was settled with no consideration
being paid by the Company to the plaintiffs. The settlement
stipulation that discontinued the matter was signed by all parties and was
filed with the Suffolk Supreme Court on July 16, 2009.





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 believes the aggregate loss, if any, will
not be material.








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 sales prices for the Company’s stock for each full
quarter within the two most recent fiscal years:





Quarter
      Ended
              Fiscal
      2008
            
            Low
            
            
            HighMarch
      31, 2008
            
            $
            38.00
            
            
            $
            49.99June
      30, 2008
            
            $
            33.50
            
            
            $
            42.00September
      30, 2008
            
            $
            28.59
            
            
            $
            40.00December
      31, 2008
            
            $
            22.76
            
            
            $
            39.00





12




Quarter
      Ended
              Fiscal
      2009
            
            Low
            
            
            HighMarch
      31, 2009
            
            $
            21.00
            
            
            $
            26.25June
      30, 2009
            
            $
            23.14
            
            
            $
            42.01September
      30, 2009
            
            $
            34.30
            
            
            $
            44.98December
      31, 2009
            
            $
            36.87
            
            
            $
            44.34


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


Number
      of Holders of RecordTitle of Class
              
              as of February 22, 2010Common
      Stock, $1.00 Par Value
              
              602





(c)
            There
      were no cash dividends declared on the Company’s Common Stock during the
      year ended December 31, 2009 and
2008.





(d)
            Equity
      Compensation Plan Information.





As of
December 31, 2009, there were no equity compensation plans under which
securities of the Company were authorized for issuance.




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





Overview





As used
herein, the terms “we,” “us,” “our” or the “Company” refer to Gyrodyne Company
of America, Inc., a New York corporation. We operate as a fully integrated,
self-administered and self-managed real estate investment trust (“REIT”) focused
on acquiring, developing, owning, leasing and managing medical, commercial and
industrial real estate. Our tenants include unrelated diversified entities with
a recent emphasis on medical office parks and properties. Our properties are
generally located in markets with well established reputations, including
Suffolk and Westchester counties in New York and Fairfax, Virginia.





As of
December 31, 2009, our portfolio consisted of four developed properties,
consisting of  21 buildings with an aggregate of 254,275 rentable
square feet. We also own undeveloped land parcels adjacent to existing
properties for which plans are currently being formulated.


Factors Which May Influence Future
Operations





Our
operating focus is on acquiring, developing, owning, leasing and managing
medical, commercial and industrial space. As of December 31, 2009, our
operating portfolio was 86% leased to 112 tenants with one  occupancy
scheduled for January 2010 upon completion of certain tenant improvements. As of
December 31, 2008, our operating portfolio was 90% leased to 86 tenants.
The year over year decrease in the gross portfolio occupancy percentage is a
reflection of an increase in the rentable square footage in our portfolio, which
increased by approximately 57,000 rentable square feet in the year ended
December 31, 2009 mainly as a result of the acquisition of the Fairfax
Medical Center in Fairfax, Virginia.  Total leased square footage
during 2008 increased by 39,817 square feet.  The Company’s
strategy of repositioning its assets involves purchasing medical space where the
Company believes it could increase the occupancy rate of the targeted
acquisition. As a result, a material acquisition where the acquiring asset’s
occupancy rate is below the Company average will result in temporarily
decreasing the overall occupancy rate.  The Virginia acquisition has a
lower occupancy rate than the occupancy rate of  the Company’s other
medical parks.  Current traffic at the Virginia facility combined with
three new leases signed in the first two months of 2010, indicates an upward
trend in the occupancy rate will materially increase
in  2010.  Furthermore, the rental rates in Virginia are
greater than the historical Company average rate,, therefore the increase in
occupancy will have a proportionately greater- impact in rental income on the
overall portfolio.





Our
leasing strategy for 2010 includes negotiating longer term leases, and focuses
on leasing vacant space, negotiating renewals for leases scheduled to expire
during the year, and identifying new tenants or existing tenants seeking
additional space.


13
 
 Lease
Expirations





The
following is a summary of lease expirations and related revenues of leases in
place at December 31, 2009. This table assumes that none of the tenants
exercise renewal options or early termination rights, if any, at or prior to the
scheduled expirations:





%
      of Gross AnnualNumber
      of
            
            Square
            
            Total
            
            Rental
      RevenuesLeases
            
            Feet
            
            Annual
            
            RepresentedFiscal Year End
            
            Expiring
            
            Expiring
            
            Rent
            
            By Such Leases2010
            
            52
            
            81,275
            
            $
            1,554,872
            
            33.28
            %2011
            
            31
            
            49,005
            
            
            1,179,546
            
            25.24
            %2012
            
            13
            
            19,635
            
            
            408,906
            
            8.75
            %2013
            
            4
            
            10,503
            
            
            283,522
            
            6.07
            %2014
            
            13
            
            27,449
            
            
            660,239
            
            14.13
            %Thereafter
            
            7
            
            26,480
            
            
            585,411
            
            12.53
            %


The
success of our leasing and acquisition strategy will be dependent upon the
general economic conditions and more specifically real estate market conditions
and trends in the United States and in our target markets of New York, northern
Virginia and the eastern portion of the United States. We cannot give any
assurance that leases will be renewed or that available space will be re-leased
at rental rates equal to or above the current contractual rental rates or at
all.





Critical Accounting
Policies





The
preparation of financial statements in conformity with GAAP requires management
to use judgment in the application of accounting policies, including making
estimates and assumptions. We base our estimates on historical experience and on
various other assumptions believed to be reasonable under the circumstances.
These judgments affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. If our judgment or interpretation of the facts and circumstances
relating to various transactions had been different, it is possible that
different accounting policies would have been applied resulting in a different
presentation of our financial statements. On an ongoing basis, we evaluate our
estimates and assumptions. In the event estimates or assumptions prove to be
different from actual results, adjustments are made in subsequent periods to
reflect more current information. Below is a discussion of accounting policies
that we consider critical in that they address the most material parts of our
financial statements, require complex judgment in their application or require
estimates about matters that are inherently uncertain.


Investments in
Real Estate


Investments
in real estate are carried at depreciated cost. Depreciation and amortization
are recorded on a straight-line basis over the estimated useful lives of the
assets as follows:




Buildings
      and improvements
            5-39 yearsMachinery
      & equipment
            3
      to 20 years





Our
estimates of useful lives have a direct impact on our net income. If expected
useful lives of our investments in real estate were shortened, we would likewise
depreciate the assets over a shorter time period, resulting in an increase to
depreciation expense and a corresponding decrease to net income on an annual
basis.





Management
must make significant assumptions in determining the value of assets and
liabilities acquired. The use of different assumptions in the allocation of the
purchase cost of the acquired properties would affect the timing of recognition
of the related revenue and expenses.





Repair
and maintenance costs are charged to expense as incurred and significant
replacements and betterments are capitalized. Repairs and maintenance costs
include all costs that do not extend the useful life of an asset or increase its
operating efficiency.  Significant replacements and betterments
represent costs that extend an asset’s useful life or increase its operating
efficiency.





14


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.  Tenant reimbursements to the Company
for expenses where the Company negotiates, manages, contracts and pays the
expense on behalf of the tenant are recognized as revenue when they become
estimable and collectible. 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.




Assets and
Liabilities Measured at Fair-Value– On
January 1, 2008, we adopted ASC Topic 820, Fair Value Measurements (“ASC
Topic 820”), which defines fair-value, establishes a framework for measuring
fair-value, and expands disclosures about fair-value measurements. ASC Topic 820
applies to reported balances that are required or permitted to be measured at
fair-value under existing accounting pronouncements; accordingly, the standard
does not require any new fair-value measurements of reported
balances.




On
January 1, 2008, we adopted ASC Topic 825, The Fair Value Option for Financial
Assets and Financial Liabilities, which permits companies to choose to
measure certain financial instruments and other items at fair-value in order to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently. However, we have not elected to measure any additional
financial instruments and other items at fair-value (other than those previously
required under other GAAP rules or standards) under the provisions of this
standard.





ASC Topic
820 emphasizes that fair-value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair-value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair-value measurements, ASC Topic 820 establishes a fair-value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the
hierarchy) and the reporting entity’s own assumptions about market participant
assumptions (unobservable inputs classified within Level 3 of the
hierarchy).





Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 2 inputs may
include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are
unobservable inputs for the asset or liability, which is typically based on an
entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair-value measurement is based on
inputs from different levels of the fair-value hierarchy, the level in the
fair-value hierarchy within which the entire fair-value measurement falls is
based on the lowest level input that is significant to the fair-value
measurement in its entirety. Our assessment of the significance of a particular
input to the fair-value measurement in its entirety requires judgment, and
considers factors specific to the asset or liability.





During
2008 and 2009, we had investments in hybrid mortgage-backed securities,
with a AAA rating fully guaranteed by U.S. government agencies (the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation). The fair values of mortgage-backed securities originated
by U.S. government agencies are based on a pricing model that incorporates
prepayment speeds and spreads to determine appropriate average life of
mortgage-backed securities. The spreads are sourced from broker/dealer's trade
prices and the new issue market. As the significant inputs used to price the
mortgage-backed securities are observable market inputs, the fair values of
these securities are included in the Level 2 fair value
hierarchy.





Newly Issued Accounting
Pronouncements





See Notes
to Consolidated Financial Statements included elsewhere herein for disclosure
and discussion of new accounting standards.


15





RESULTS OF
OPERATIONS





The
following is a comparison, for the years ended December 31, 2009 and 2008,
of the operating results of Gyrodyne Company of America, Inc.





Comparison
of the Year Ended December 31, 2009 to the Year Ended December 31,
2008





The
Company is reporting net income of $1,522,890 for the fiscal year ended December
31, 2009 compared to a net income of $1,542,249 for the twelve months ended
December 31, 2008. Basic and Diluted per share income amounted to $1.18 for 2009
compared to per share income of $1.20 for the prior year. Both periods included
the recognition of tax benefits totaling $4,130,000 and $2,496,000 for 2009 and
2008, respectively, and are more fully described in a latter section of this
report.  The Company does not have any REIT taxable income for 2009
and 2008.  As a result, there is no available distributable income;
accordingly the Company has not declared a dividend.





Rental Revenues. -
Rental revenues are comprised solely of rental income and amounted to
$4,287,227, representing a $1,320,008 or a 44% improvement over the 2008 total
of $2,967,219. These improved earnings reflect a full year of operating the
Cortlandt Medical Center which was acquired in June of 2008, nine months of
operating the Fairfax Medical Center which was acquired in March 2009, and
improved results at the Flowerfield facility. The increases (decreases) over
2008 results per property amounted to $(34,695), $418,355, $858,667 and $77,681
for Port Jefferson, Cortlandt, Fairfax and Flowerfield,
respectively.





On a pro
forma basis, the comparison of rental revenues for the years ended December 31,
2009 and 2008 as if all the properties operated for twelve months are estimated
as follows:





Facility Rental Revenue
            
            December 31, 2009
            
            
            December 31, 2008Port
      Jefferson Professional Park
            
            $
            886,356
            
            
            $
            921,051Cortlandt
      Medical Center
            
            
            948,226
            
            
            
            901,890Fairfax
      Medical Center
            
            
            1,152,709
            
            
            
            1,237,156Flowerfield
      Industrial Park
            
            
            1,593,978
            
            
            
            1,516,298Total
            
            $
            4,581,269
            
            
            $
            4,576,395





Tenant Reimbursements.-Tenant reimbursements represent expenses negotiated, managed, and
incurred directly by the Company on behalf of or for the benefit of the
tenants.   Tenant reimbursements were $547,189 and $418,300 for
2009 and 2008, respectively, an increase of $128,889 or 31%.  The
increase of $29,144 in tenant reimbursement was attributable to the acquisition
of the Fairfax Medical Center in March 2009 and  $51,377 of the
increase was attributable to  owning the Cortlandt Medical Center for
the full year.  The remaining difference was due to higher billable
expenses in 2009 and a more aggressive approach to  managing tenant
reimbursements.





Facility Tenant
    Reimbursements
            
            December 31, 2009
            
            
            December 31, 2008Port
      Jefferson Professional Park
            
            $
            151,709
            
            
            $
            150,869Cortlandt
      Medical Center
            
            
            133,574
            
            
            
            122,471Fairfax
      Medical Center
            
            
            37,241
            
            
            
            34,056Flowerfield
      Industrial Park
            
            
            232,762
            
            
            
            195,503Total
            
            $
            555,286
            
            
            $
            502,899





Total Expenses.-Expenses
amounted to $6,765,669 for 2009 and reflect an increase  of
$2,336,304  or a 53% increase over the 2008 amount of $4,429,365. Most
of the increase in total expenses was the result of the 2009 acquisition of the
Fairfax Medical Center, the first full year of ownership of the Cortlandt
Medical Center, and a significant increase in the Company’s condemnation
litigation expenses.





Rental Operations Expense. -Rental expenses for the years ended December 31, 2009 and 2008 were
$1,943,246 and $1,519,027, representing a year-over-year increase of $424,219 or
28%.  The increases (decreases) over the 2008 expenses per property
amounted to $(18,963), $182,891 $340,822, and $(80,531) for Port Jefferson,
Cortlandt Manor, Fairfax and Flowerfield, respectively.  The increase
in rental expenses is mainly attributable to owning the Cortlandt Medical Center
for a full year compared to seven months in 2008 and the acquisition of the
Fairfax Medical Center in March 2009. The decrease in rental expenses in
Flowerfield was mainly due to a reduction in energy costs in 2009 compared to
2008 due to lower 2009 oil and gas prices, a colder winter in 2008 and the
benefit from some energy efficient capital improvements made during
2008.  Similarly, reflecting the addition of the newly acquired
facilities, depreciation expense increased by 92% or $331,051, amounting to
$690,676 in 2009 compared to $359,625 during the prior year.





16





On a pro
forma basis, the comparison of rental expenses for the years ended December 31,
2009 and 2008 as if all the properties operated for twelve months are as
follows:





Facility Rental Expense
            
            December 31, 2009
            
            
            December 31, 2008Port
      Jefferson Professional Park
            
            $
            357,136
            
            
            $
            376,098Cortlandt
      Medical Center
            
            
            391,041
            
            
            
            376,791Fairfax
      Medical Center
            
            
            451,236
            
            
            
            476,847Flowerfield
      Industrial Park
            
            
            854,247
            
            
            
            934,778Total
            
            $
            2,053,660
            
            
            $
            2,069,854





General and Administrative Expense.
-General and Administrative expenses  for the years
ended December 31, 2009 and 2008 were $2,824,563 and $2,030,244, representing a
year-over-year increase of $794,319 or 39%.  Significant contributing
factors between the two reporting periods included 2009 compensation expense of
$746,941, an increase of $168,541 over 2008; pension expense of $286,185 an
increase of $274,068 over 2008.  The pension expense increase was
mainly attributable to an increase in the actuarial computation for the annual
cost to support “vested” benefit increases for employees who are vested as of
January 1, 2009.  Other non-compensation factors contributing to the
increase were legal and consulting fees of $343,839 an increase of $190,556 over
2008; and an increase in corporate development expenses of $98,170 to $109,189,
which included approximately $58,000 of asset acquisition expenses related to
the Fairfax Medical Center acquisition, and an increase in the allowance for Bad
Debt of $60,000 to $84,000.   During the first quarter of 2010,
we negotiated a new agreement for legal support services that is expected to
return the Company legal fees to 2008 levels.  The increase in the
allowance for bad debt was mainly attributable to three tenants which represent
approximately 7% of the rentable square feet at the Flowerfield industrial
park.  The Company evicted one of the three tenants, representing less
than 1% of rentable square feet,and has successfully
retenanted the space without a vacancy period.  The remaining tenants
are actively being managed by the Company.  The Company re-engineered
the billing, credit and receivable management process to address the higher risk
of defaults associated with a prolonged economic recession.  The
re-engineering process included the implementation of advanced billing changes,
new collection management procedures including correspondence logs, scheduled
tenant workout meetings and other pro-active credit management
programs.  Furthermore, the Company has enhanced its review on the
credit of prospective tenants to ensure that rent and related tenant
improvements are not subject to excessive tenant default
risk.   The remaining changes in general and administrative
expense were a net reduction of $2,984.  The Company anticipates that
the increase in legal and consulting fees and corporate development expenses
were related to events that are unlikely to repeat themselves in
2010.





Condemnation expense. –
Condemnation expenses for the years ended December 31, 2009 and 2008 were
$1,307,184 and $520,469, an increase of $786,715 or 151%.  The
expenses were incurred to support the trial heard in the Court of Claims in
August 2009 and we do not forecast material condemnation expenses in
2010.





Interest
Income.-Interest income is mainly attributable to the
Company’s investment in mortgage backed securities issued by U.S. Government
Agencies. Interest income for 2009 and 2008 was $107,324 and $538,934
respectively, a decrease of $431,610.  The decrease is directly
attributable to the sale of securities and the redirection of those funds into
real estate investments and the normal reductions associated with the payment
stream of funds in a mortgage portfolio.  As a result of redirecting
funds into real estate investments, the Company no longer has investments in
mortgage backed securities.





Interest
Expense.-  Interest expense in 2009 and 2008 was $942,986 and
$465,963, an increase of $477,023 or 102.4%.  The increase is
attributable to the mortgage for a full year on the Cortlandt Medical Center and
a new mortgage associated with the March  2009 acquisition of the
Fairfax Medical Center.





On a pro
forma basis, the comparison of interest expense for the years ended December 31,
2009 and 2008 as if all the properties operated for twelve months are as
follows:





Facility Interest Expense
            
            December 31, 2009
            
            
            December 31, 2008Fairfax
      Medical Center
            
            $
            465,963
            
            
            $
            472,695Cortlandt
      Medical Center
            
            
            280,266
            
            
            
            253,593Port
      Jefferson Medical Center
            
            
            308,984
            
            
            
            314,128Total
            
            $
            1,055,213
            
            
            $
            1,040,416





As a
result of the changes in rental revenue, total expenses and other income
(expense), the Company is reporting a loss before benefit for income taxes of
$2,607,110 for 2009 as compared to a loss of $953,751 for 2008.





Income Taxes. During 2009,
the Company has recorded a benefit for income taxes totaling $4,130,000. Of that
total, a benefit of $4,141,000 is directly attributable to the acquisition of
the Fairfax Medical Center under Section 1033 of the Internal Revenue Code.
Additionally, the Company has booked a deferred tax expense of $11,000
attributable to its limited partnership investment in the Callery-Judge Grove.
In 2008, the Company recorded a benefit for taxes totaling $2,496,000 which was
comprised of a $2,800,000 benefit associated with the acquisition of the
Cortlandt Medical Center under Section 1033 of the Internal Revenue Code, and a
deferred tax expense of $304,000 attributable to its limited partnership
investment in the Callery-Judge Grove.  The Company no longer has any
deferred tax liabilities related to the condemnation payment received and
therefore does not expect a  deferred tax benefit for
2010.





17





LIQUIDITY AND CAPITAL
RESOURCES





The
following summary discussion of our cash flows is based on the consolidated
statements of cash flows in “Item 8. Financial Statements and Supplementary
Data” and is not meant to be an all inclusive discussion of the changes in our
cash flows for the periods presented below:





2009
            
            
            2008Net
      cash used in operating activities
            
            $
            (1,705,447
            )
            
            $
            (843,073
            )Net
      cash used in investing activities
            
            $
            (6,269,146
            )
            
            $
            (6,310,030
            )Net
      cash provided by financing activities
            
            $
            7,637,486
            
            
            $
            4,903,855Ending
      cash and cash equivalents balance
            
            $
            868,786
            
            
            $
            1,205,893





Comparison of the
Year Ended December 31, 2009 to the Year Ended December 31,
2008





Net cash
used in operating activities was $1,705,447 and $843,073 during the years ended
December 31, 2009 and 2008, respectively. The cash used in operating activities
in  2009 was primarily related to an increase in prepaid expenses and
other assets of $164,291 and realized gains on marketable securities of $159,805
resulting from the liquidation of our investments in hybrid mortgage-backed
securities, offset by decreased payments to vendors of $615,717.  The
cash used in operating activities in the prior year was primarily related to
land development costs of $431,666 and increased payments to vendors of
$237,610.





Net cash
used in investing activities amounted to $6,269,146 and $6,310,030 for the years
ended December 31, 2009 and 2008, respectively.  The cash used in
2009 was primarily due  to the acquisition of the Fairfax Medical
Center offset by the liquidation of marketable securities in preparation for
such acquisition.  In 2008, the net cash used was primarily
attributable to the acquisition of the Cortlandt Medical
Center.  Furthermore, additional costs for tenant improvements and
rental property common area improvements in 2009 and 2008 of $1,886,943 and
$1,208,545, respectively, were incurred to maintain  and/or improve
occupancy rates and related property values in a distressed local and national
market.  Additionally, we incurred land development costs of $153,871
and $431,666 in 2009 and 2008, respectively, most of which was in pursuit of our
plan for a gated, age-restricted community on the remaining Flowerfield
property.





Net cash
provided by financing activities amounted to $7,637,486 and $4,903,855 for the
years ended December 31, 2009 and 2008, respectively.  The primary
source for the cash provided by financing activities in 2009 and 2008 was the
2009 financing  of the Fairfax Medical Center acquisition, and the
2008 financing of the Cortlandt Medical Center acquisition.  The
Company does not have any interest only mortgages and as a result, during 2009
and 2008, the Company repaid $396,220 and $192,137, respectively, of principal
on its total mortgage obligations.


At
December 31, 2009, the Company had cash and cash equivalents of $868,786 and an
additional $203,000 in an interest bearing time deposit maturing in early 2010
to meet its current obligations and has sufficient resources to continue to
investigate possible acquisitions.  In the second  quarter
of 2010 we expect to close on a property which borders our existing medical
facility in Cortlandt Manor, New York.  It is anticipated that the
purchase price of this property will be approximately $720,000.  The
Company anticipates approximately 50% of the purchase price will be paid for in
the form of mortgage financing,  The credit markets and both the
commercial and residential real estate markets remain under significant stress,
and as a result there can be no guarantees on the  Company’s access to
credit.





For the
year ending December 31, 2010, the Company has anticipated capital expenditures
of approximately $650,000 excluding the  acquisition of properties.
These capital expenditures are for tenant improvements related to long term
lease renewals, general upgrades, necessary repairs that qualify as capital
expenditures and costs related to the land held for
development





The
Company anticipates being able to fund its operations for the year ending
December 31, 2010 from the generation of cash from operations and if necessary
the borrowing under its line of credit.  The Company's line of credit
has a borrowing limit of $1,750,000, bears interest at the lending institution's
prime-lending rate (3.25% at December 31, 2009) plus 1%, and is subject to
certain financial covenants. The line is secured by certain real estate and
expires on June 1, 2011. As of December 31, 2009, and 2008, $1,750,000 was
available under this agreement and the Company was in compliance with the
financial covenants.


18


Beginning
in the second half of 2007, the residential mortgage and capital markets began
showing signs of stress, primarily in the form of escalating default rates on
sub-prime mortgages, declining residential home values and increasing inventory
nationwide. This “credit crisis” spread to the broader
commercial credit markets and has reduced the availability of financing and
widened spreads. These factors, coupled with a slowing economy, have reduced the
volume of real estate transactions and increased capitalization rates. Despite
the fact that the Company has invested in medical office buildings, an asset
class that has been less vulnerable, if these conditions continue, our portfolio
may experience lower occupancy and effective rents, which would result in a
corresponding decrease in net income, funds from operations, and cash
flows.  During 2009 and early 2010, the commercial real estate market
continued to show significant signs of stress which is directly affecting the
credit markets.  Many economists are forecasting a 10 to 15% further
decline in commercial real estate values.  Such forecasts are
adversely affecting the credit markets for commercial real estate causing some
lenders to reduce or stop issuing credit or to move toward either equity
financing or a combination debt and equity.





Effective
with an election dated May 1, 2006, the Company operates as a real estate
investment trust (a “REIT”) for federal and state income tax purposes. As a
REIT, the Company is generally not subject to income taxes. The Company is
subject to the “built-in gain” rules. Under these rules, taxes may be
payable at the time and to the extent that the net unrealized gains on the
Company’s assets at the date of conversion to REIT status are recognized in
taxable dispositions of such assets in the ten-year period ending April 30,
2016.  To maintain its REIT status, the Company is required to
distribute at least 90% of its annual REIT taxable income, as defined by the
Internal Revenue Code (the “Code”), to its shareholders, among other
requirements. As of December 31, 2009, the Company had cash and cash equivalents
of $868,786 and a CD for approximately $203,000 maturing in March 2010, thereby
having total funds available in 2010 of $1,071,786.  The
Company  anticipates having the capacity to fund normal operating,
general and administrative expenses, and its regular debt service
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, opportunities 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,
and other factors the Board of Directors may deem relevant.  The
Company does not have any REIT taxable income for the year ended December 31,
2009 and 2008.  Based on not having any REIT taxable income for 2009
and 2008, the Board of Directors does not anticipate declaring a dividend during
2010.





INCOME
TAXES





The
Company has qualified, and expects to continue to qualify in the current fiscal
year, as a real estate investment trust (a “REIT”) for federal and state income
tax purposes under section 856(c)(1) of the Internal Revenue Code (the “Code”).
As a result of the election, the Company converted to a December 31 fiscal year
end. As long as the Company qualifies for taxation as a REIT, it generally will
not be subject to federal and state income tax. If the Company fails to qualify
as a REIT in any taxable year, it will be subject to federal and state income
tax on its taxable income at regular corporate rates. Unless entitled to relief
under specific statutory provisions, the Company will also be disqualified for
taxation as a REIT for the four taxable years following the year in which it
loses its qualification. Even if the Company qualifies as a REIT, it may be
subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income. The Company
believes that it has met all of the REIT requirements for the year ended
December 31, 2009 and was not subject to any federal and state income
taxes. The Company intends to continue to adhere to these requirements and
maintain the Company’s REIT status.





The
Company’s investment in the Callery-Judge Grove, L.P., a limited partnership
(the “Grove”) is held in a taxable REIT subsidiary of the Company and is subject
to federal and state income taxes. Taxable REIT subsidiaries perform
non-customary services for tenants, hold assets that the Company cannot hold
directly and generally may engage in any real estate or non-real estate related
business. Accordingly, through the investment in the Grove, the Company is
subject to corporate federal and state income taxes on the Company’s share of
the Grove’s taxable income for the years ended December 31, 2009 and
December 31, 2008.





LIMITED
PARTNERSHIP INVESTMENT





The
Company has a limited partnership investment in the “Grove” which owns a 3,700+
acre citrus grove located in Palm Beach County, Florida, which is the subject of
a plan for mixed-use development. The investment currently represents a 9.99%
interest in the Grove.  The Company is accounting for the investment
under the equity method. As of December 31, 2009, the carrying value of the
Company’s investment was $0. The Grove has reported to its limited partners that
in October 2009 it received an independent appraisal report of the citrus grove
property which reflects the approval to develop 2,996 residential units and
235,000 square feet of commercial and retail space. Based upon the appraised
value of the citrus grove property, at December 31, 2009 and 2008, strictly on a
pro-rata basis, the estimated fair value of the Company's interest in the Grove
property would be approximately $17,134,000 and $21,700,000 respectively,
without adjustment for minority interest and lack of marketability discount, or
the Grove’s property-related secured debt facility. The Company cannot predict
what, if any, value it will ultimately realize from this
investment.





19





In
February 2009, the Grove made an offering to its partners to invest additional
funds in the partnership. The offering, or capital call, had a minimum and
maximum aggregate offering amount of $4 million and $6 million, respectively,
and was due to expire on March, 16, 2009. In March 2009, after careful
deliberation, the Company informed the Grove that it would not participate in
the offering. Subsequently, the Company was informed that the offering closed
with an effective date of June 30, 2009.  The Company’s
non-participation in the offering diluted its ownership interest to 9.99% from
10.93%.





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, develop
and manage 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 agreements were attached as
exhibits to the Company’s April 30, 2002 10-KSB filing.  The Company
had paid Landmark a total of $550,000 prior to the termination of the contracts
which also entitled Landmark to an incentive fee of 10% of pre-tax net income
from the development project. 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 to
terminate the two agreements. 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 and 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 was also entitled to receive an additional $1,000,000
over a thirty-six month period, commencing on March 1, 2007, in recognition of
services rendered between 2004 and 2006, and for general consulting, review of
pertinent documents, consultations regarding land planning and economic
feasibility studies and coordination with project engineers associated with the
Company’s claim for additional compensation.





In June
2007, the Company 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.  The residential mix and
total number of residential units could change upon approval by local government
agencies.  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.  The application requires a
change of zone of approximately 62.4 acres be changed from "light industrial"
(approx. 55.5 acres) and "residential" (approx. 6.9 acres) to "planned
residential".  The costs associated with the ownership and development
of the property as of December 31, 2009 consisted of architectural and
engineering costs, legal expenses, economic analysis, soil management and real
estate taxes and were approximately $1,370,000. The Company cannot predict the
outcome of the application.





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
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, 2009 and
2008


(3)  Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008


(4)  Consolidated
      Statement of Stockholders’ Equity for the years ended December 31, 2009
      and 2008


(5)  Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008


(6)  Notes
      to Consolidated Financial
Statements


(7)  Schedules


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.




20





Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.





None





Item
9A(T). 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 Annual
Report. Based upon that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that the disclosure controls and
procedures as of December 31, 2009 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.





Management’s
Annual Report on Internal Control over Financial Reporting





The
Company’s management is responsible for establishing and maintaining an adequate
system of internal control over financial reporting. The Company’s internal
control over financial reporting includes those policies and procedures
that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the Company’s
      assets;·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of the Company’s financial statements in accordance with
      generally accepted accounting principles in the United States, and that
      the Company’s receipts and expenditures are being made only in accordance
      with authorizations of its management and directors;
and·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





The
Company’s management assessed the effectiveness of its system of internal
control over financial reporting as of December 31, 2009. In making this
assessment, management used the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on the Company’s assessment and the criteria
set forth by COSO, management believes that the Company did maintain effective
internal control over financial reporting as of December 31,
2009.





This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.   Management’s report was not subject to attestation
by the Company’s registered public accounting firm pursuant to temporary rules
of the Securities and Exchange Commission that permit the Company to provide
only management’s report in this Annual Report.





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 control over
financial reporting.





21





Item
9B. Other Information.





The Company’s 2009 annual shareholders
meeting for the Year Ended December 31, 2008 was held on December 11, 2009 (the
“2009 Annual Meeting”). The votes on each matter submitted to shareholders 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
            
            
            WithheldPaul
      L. Lamb
            
            1,076,247
            
            
            26,892Richard
      B. Smith
            
            1,076,247
            
            
            26,892Nader
      G.M. Salour
            
            1,076,247
            
            
            26,892





The
directors whose terms of office as a director continued after the 2009 Annual
Meeting are as follows:  Stephen V. Maroney, Philip F. Palmedo, Ronald
J. Macklin, Elliot H. Levine and Naveen Bhatia.





On the
proposal to ratify the engagement of HoltzRubensteinReminick, LLP as independent
certifiedpublic accountants and auditors for the 2009 fiscal year: votes
for 1,072,877; against 9,780; abstain 20,482.








PART
III





Item
10. Directors, Executive Officers and Corporate Governance.





(a)
            The
      following table lists the names, ages and positions of all executive
      officers and directors and all persons nominated or chosen to become such.
      Each director has been elected to the term indicated. Directors whose term
      of office ends in 2010 shall serve until the next Annual Meeting of
      Stockholders or until their successors are elected and qualified. All
      officers of the Corporation are elected by the Board of Directors to
      one-year terms.




Name
      & Principal Occupation or Employment
            
            Age
            
            First
      Became a
            
            Current
      BoardDirector
            
            Term
      ExpiresStephen
      V. Maroney
            
            67
            
            1996
            
            2010President,
      CEO, and Director of the CompanyPeter
      Pitsiokos
            
            50
            
            ---
            
            ---COO,
      Secretary and Chief Compliance Officer of the CompanyGary
      J. Fitlin
            
            44
            
            ---
            
            ---CFO
      and Treasurer of the CompanyPaul
      L. Lamb
            
            64
            
            1997
            
            2012Partner
      of Lamb & Barnosky, LLPChairman
      of the Board of Directors of the CompanyPhilip
      F. Palmedo
            
            75
            
            1996
            
            2010Managing
      Director and Chairman of Kepler Asset Management andManager
      of IRG Carbon LLCDirector
      of the CompanyElliot
      H. Levine
            
            56
            
            2004
            
            2011CPA
      and Senior Member of Levine & Seltzer, LLPDirector
      of the Company




22


Richard
      B. Smith
            
            55
            
            2002
            
            2012Vice
      President, Commercial Banking Division, First National Bank of L.
      I.Director
      of the CompanyRonald
      J. Macklin
            
            47
            
            2003
            
            2010Deputy
      General Counsel, National GridDirector
      of the CompanyNader
      G.M. Salour
            
            51
            
            2006
            
            2012Principal,
      Cypress Realty of Florida, LLCDirector
      of the CompanyNaveen
      Bhatia
            
            30
            
            2008
            
            2011Principal,
      Keffi Group, Ltd.Director
      of the Company





(b)           Business
Experience





Stephen
V. Maroney, age 67, was initially engaged by the Company as an outside
consultant in June 1996 and elected to the Board of Directors in July of that
same year. Mr. Maroney is the former President of Extebank, a Long Island based
commercial bank with a presence in Nassau and Suffolk Counties and New York
City. Prior to that appointment, he served as Extebank’s Chief Financial
Officer. Mr. Maroney was appointed to the position of President
and  CEO by the Gyrodyne Board of Directors on March 14, 1999. He also
was the Company’s Chief Financial Officer and Treasurer from March 1999 through
October 2009.  His career on Long Island spans a period of over 40
years and includes involvement in numerous civic, charitable and professional
organizations.  The Board concluded that Mr. Maroney should serve as a
director because of his years of experience in senior management positions and
leadership roles in the Long Island and metropolitan New York business
community.





Peter
Pitsiokos, age 50, joined the Company in July 1992 as its Assistant Secretary
and General Counsel and has been the Company’s Chief Operating Officer and Chief
Compliance Officer since 2004. He has also been Secretary of the Company for
over five years. Mr. Pitsiokos was formerly the Executive Assistant District
Attorney in Suffolk County, New York. He also served as the Assistant Director
of Economic Development and the Director of Water Resources in the Town of
Brookhaven. Mr. Pitsiokos also maintained a private law practice in which he
represented several national and local owners, managers and developers of real
estate. He holds a Law degree from Villanova University and a BA degree from
Stony Brook University.





Gary J.
Fitlin, age 44, joined the Company in October 2009 as its Chief Financial
Officer and Treasurer.  Prior to joining the Company, he was Director
of Accounting Implementation for Lexington Realty Trust, a publicly traded real
estate investment trust on the NYSE, where he was responsible for mergers and
acquisitions.  Prior to that he served as a senior financial officer
for various publicly traded companies where he was responsible for mergers and
acquisitions, global accounting, management reporting, tax compliance and
planning, financial systems, risk management and contract
administration.  He is a Certified Public Accountant, an alumnus of
Arthur Andersen & Co.. and holds a BS degree in Accounting and Economics
from the State University of New York at Oswego.





Paul L.
Lamb, age 64, has been a Director since 1997 and became Chairman of the Board on
March 14, 1999. He is a founding partner in the law firm of Lamb & Barnosky,
LLP; a past President of the Suffolk County Bar Association; and a Dean of the
Suffolk Academy of Law. He holds a B.A. from Tulane University, a J.D. from the
University of Kentucky and an LL.M. from the University of London,
England.  The Board concluded that Mr. Lamb should serve as a director
of the Company because he is an experienced attorney in all phases of finance
and real estate development, which skill set brings extraordinary value in light
of the Company’s business and structure.





Philip F.
Palmedo, age 75, was appointed to the Board of Directors in July 1996. Mr.
Palmedo is currently Managing Director and Chairman of Kepler Asset Management
as well as Chairman of International Resources Group and former President of the
Long Island Research Institute. He was a founder of all three companies. Mr.
Palmedo has shepherded numerous fledgling businesses into the financial and
technological markets and completed several financing agreements. He has M.S.
and Ph.D. degrees from M.I.T.  The Board concluded that Mr. Palmedo
should serve as a director of the Company because of his extensive background in
successfully guiding a number of entities from initial formation to
value recognition.





23





Elliot H.
Levine, age 56, was appointed to the Board of Directors in October 2004. Mr.
Levine is a founding member of the accounting firm Levine & Seltzer, LLP
Certified Public Accountants, a graduate (1975) of Queens College, City
University of New York. He became a member of the American Institute of
Certified Public Accountants in February, 1978.  Mr. Levine’s work
experience includes five years at Arthur Young, ten and a half years as partner
and director of taxes of Leslie Sufrin & Co. P.C., a one year tenure as
senior tax manager at Margolin, Winer & Evans CPAs and over 14 years as
senior member of Levine & Seltzer.  The Board concluded that Mr.
Levine should serve as a director of the Company because of his 32 years of
experience as a certified public accountant and in the real estate industry and
field of taxation.


Richard
B. Smith, age 55, was appointed to the Board of Directors in November 2002. Mr.
Smith is currently a Vice President in the Commercial Banking Division of the
First National Bank of Long Island. He previously served as Senior Vice
President for Private Banking at Suffolk County National Bank until February,
2005. Previously, he worked for 10 years at Key Bank (Dime Savings Bank) and for
3 years at L.I. Trust/Apple Bank. He received an MBA in Finance from SUNY Albany
in 1983. Mr. Smith serves as the Mayor of the Incorporated Village of
Nissequogue and as a Trustee of the Smithtown Historical Society. He is also a
former Trustee for St. Catherine’s Medical Center in Smithtown,
NY.  The Board concluded that Mr. Smith should serve as a director of
the Company because of his background in both the Long Island financial sector
and his role in, and experience with, local government issues and zoning
matters.





Ronald J.
Macklin, age 47, was appointed to the Board of Directors in June 2003. Mr.
Macklin currently serves as Deputy General Counsel for National Grid and
formerly KeySpan Corporate Services where he has held various positions within
the Office of General Counsel from 1991 to present. Previously, he was
associated with the law firms of Roseman & Colin and Cullen & Dykman. He
received a B.A. degree from Stony Brook University and his Juris Doctorate from
Union University’s Albany Law School.  The Board concluded that Mr.
Macklin should serve as a director of the Company, because of his legal
expertise which includes his legal experience in corporate transactions, real
estate matters, litigation (including condemnation), compliance and business
ethics.





Nader
G.M. Salour, age 51, was appointed to the Board of Directors in October 2006 and
then elected by the shareholders at the Company’s annual meeting in December
2006. Mr. Salour has been a Principal of Cypress Realty of Florida since 2000.
He has served as President of Abacoa Development Company, from June 1996 to June
2006, as a Director of Abacoa Partnership for Community from December 1997 to
present, and as a Director of the Economic Council of Palm Beach County from
2004 to present.  The Board concluded that Mr. Salour should serve as
a director of the Company because of his extensive experience in the real estate
industry, including development, construction, project analysis and
financing.





Naveen
Bhatia, age 30, was elected to the Board of Directors in December 2008. Mr.
Bhatia is  Principal of Keffi Group, Ltd., a private investment
firm.  He was Co-Founder and Partner of Eagle Lake Capital, LLC, an
investment management firm from August 2003 to April 2009. He was formerly an
investment banking analyst for Rothschild Inc., an investment bank, from July
2001 to August 2003. Mr. Bhatia has served as a Director of CCLM Holdings, Inc.
since March 2009.  The Board concluded that Mr. Bhatia should serve as
a director of the Company because he brings valuable financial expertise as
co-founder of an investment firm with specific experience in analyzing and/or
investing in real estate and with companies engaged in real estate
investing.


(c)           Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires that the Company’s directors, executive
officers, and any person holding more than ten percent (“10% Holder”) of
Gyrodyne Common Stock, $1.00 par value per share, file with the SEC reports of
ownership changes, and that such individuals furnish the Company with copies of
the reports.





Based
solely on the Company’s review of copies of Forms 3 and 4 and amendments thereto
received by it during fiscal 2009 and Forms 5 and amendments thereto received by
the Company with respect to fiscal 2009 and any written representations from
certain reporting persons that no Form 5 is required, Gyrodyne believes that
none of the Company’s executive officers, directors or 10% Holders failed to
file on a timely basis reports required by section 16(a) of the Exchange Act
during fiscal 2009 or prior fiscal years.





(d)           Audit
Committee Financial Expert





The Board
of Directors has a separately-designated Audit Committee established in
accordance with section 3(a)(58)(A) of the Exchange Act, which currently
consists of Messrs. Smith, Levine, and Macklin. All members are “financially
literate” and have been determined to be “independent” within the meaning of SEC
regulations and NASDAQ rules. The Board of Directors has determined that at
least one member, Mr. Levine, a CPA, qualifies as an “audit committee financial
expert” as a result of relevant experience as a partner in the accounting firm
of Levine & Seltzer, LLP. In addition, Mr. Levine has 10.5 years of
accounting experience as a partner and director of taxes at Leslie Sufrin &
Co. P.C. as well as several other years of experience in the field of public
accounting.





24





(e)           Code
of Ethics





The
Company has adopted a written Code of Ethics that applies to all of its
directors, officers and employees, including the Company’s Chief Executive
Officer and Chief Financial Officer. It is available on the Company’s website at
www.gyrodyne.com  and
any person may obtain without charge a paper copy by writing to the Secretary at
the address set forth on page 1. We intendto satisfythedisclosure requirement
under Item 10 of Form 8-K regarding any amendment to, or waiver from, the
provision of our Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions and that relates to any element of our Code
of Ethics by posting such information on our website within four business days
ofsuch amendment
or waiver.





Item
11. Executive Compensation.





(a)           Executive
Compensation





The
following table sets forth the total compensation awarded to, earned by or paid
to each of the Company’s executive officers for services rendered during the
years ended December 31, 2009 and 2008.





2009
SUMMARY COMPENSATION TABLE


Name
      and principal position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock
      awards
              ($)
            
            Option
      awards
              ($)
            
            Non-equity
              incentive
      plan compensation
              ($)
            
            Nonqualified
      deferred compensation earnings
              ($)
            
            All
      other compensation
              ($)
            
            Total
              ($)(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)
            
            (i)
            
            (j)Stephen
      V. Maroney
            
            2009
            
            224,230
            
            40,000
      (A)
            
            0
            
            0
            
            0
            
            0
            
            8,023
      (E)
            
            272,253President
      and CEO
            
            2008
            
            220,000
            
            10,000
      (B)
            
            0
            
            0
            
            0
            
            0
            
            0
            
            230,000Peter
      Pitsiokos
            
            2009
            
            180,270
            
            45,000
      (A)
            
            0
            
            0
            
            0
            
            0
            
            4,081
      (E)
            
            229,351COO
      and Secretary
            
            2008
            
            169,548
            
            35,000
      (B)
            
            0
            
            0
            
            0
            
            0
            
            38,242
      (E)
            
            242,790Gary
      J. Fitlin
            
            2009
            
            28,562
            
            
            
            
            
            
            
            
            
            
            
            14,500
      (C)
            
            43,062CFO
      and Treasurer
            
            2008
            
            0
      (D)
            
            
            
            
            
            
            
            
            
            
            
            
            
            0





(A)
Consists of  performance bonus issued to  Mr. Maroney and
Mr. Pitsiokos for $10,000 and $15,000, respectively, in June 2009 as well as
performance bonuses to each of Mr. Maroney and Mr. Pitsiokos for $30,000 in
December 2009, $10,000 of which will be deferred and paid to each of Mr. Maroney
and Mr. Pitsiokos upon the earlier of a change in control or February
2011.





(B)
Consists of a performance bonus issued to Mr. Maroney on December 31, 2008 for
$10,000 as well as performance bonuses to Mr. Pitsiokos on June 6, 2008 and
December 31, 2008 for $20,000 and $15,000, respectively.





(C)
Consists of deferred cash compensation that vests in October 2010 and is payable
at the earlier of termination, resignation, or October 2012.





(D)
Joined the Company in October 2009.





(E)
Consists of vacation time paid in cash during the fiscal year.





The
Registrant has concluded that aggregate amounts of perquisites and other
personal benefits, securities or property to any of the current executives does
not exceed $10,000 and that the information set forth in tabular form above is
not rendered materially misleading by virtue of the omission of such personal
benefits.




25




Employment
      Agreements





The
Company is a party to separate employment agreements with each of  Mr.
Maroney (the Company’s President and CEO) and Mr. Pitsiokos (the Company’s COO
and Secretary).  Each employment agreement provides for an annual base
salary and discretionary annual incentive cash bonuses and/or stock option
awards (stock option awards are no longer available).  Each agreement
provides for a severance benefit over a prescribed term in the event an
executive’s employment is terminated without cause, if his duties are materially
changed, if he terminates the agreement for “Good Reason” (as defined below) or
if his employment is terminated in connection with a “Change-In-Control,” (as
defined below).  Each agreement also provides that no severance
benefit is due in the event of an executive’s voluntary termination or a
termination of employment for “Cause.”  Cause includes fraud,
dishonesty, embezzlement, willful failure of the executive to follow directions
of the Board, or any willful misconduct, criminal conviction, unexcused absence
or similar conduct or activities.  The agreements provide that upon
termination of employment by the Company without Cause or by the executive for
Good Reason or following a Change-In-Control, Mr. Maroney or Mr. Pitsiokos, as
the case may be, has the right to receive a cash severance payment and certain
other benefits until the thirdanniversary following
termination.    Each employment agreement may be terminated
in the event of death or disability.  On June 12, 2009, the Company
and the two officers mutually agreed to terminate the automatic extension
provisions of the agreements which had originally provided for an evergreen
three year term.  As a result, the term of the Employment Agreements
ends on June 12, 2012.





Each of
Mr. Maroney and Mr. Pitsiokos may terminate his agreement at any time upon one
years’ prior written notice, or upon thirty days prior notice if for “Good
Reason,” subject to the Company’s right to remedy the condition entitling the
executive to terminate employment for Good Reason.  Good Reason is defined
to include a material change in the executive’s duties, relocation of the
corporate headquarters outside 25 miles of its current location, or breach by
the Company of any material term of the agreement and, in each case, the
executive must separate from service within a limited period of time, not to
exceed sixty days following the occurrence of the reason for the Good Reason
termination.  The executive officer may also terminate employment upon
30 days written notice within ninety days following a
“Change-In-Control.”  Change-In-Control means the occurrence of any
one of the following events:  a change in the composition of the Board
of Directors of the Company from its composition on the date the agreement was
executed such that more than one-third of the directors have changed; the sale
or transfer of shares of the Company such that there is a change in the
beneficial ownership by more than 30% of the voting shares of the Company; the
sale of a substantial portion of the Company’s assets; the Board of Directors’
approval of a liquidation or dissolution of the Company; or a change in
ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company as defined under Section 409A
of the Internal Revenue Code.  In the event of a termination without
Cause, for Good Reason, or upon a Change-In-Control, the executive would be
entitled to severance benefits as described below under the heading, “Severance
and Change in Control Benefits.”  As of December 31, 2008, each of the
employment agreements was amended for the sole purpose of revising the terms of
each employment agreement to the extent necessary to avoid the potential adverse
tax consequences under Section 409A of the Internal Revenue Code associated with
these severance payments and/or to delay certain payments as required under such
section.





The
compensation arrangements between the Company and Gary Fitlin, our Chief
Financial Officer, are set forth in an Offer Letter and a Deferred Bonus
Agreement, each executed on October 22, 2009 (collectively, the
“Agreements”).  Pursuant to the Agreements, Mr. Fitlin earns base
salary of $158,000 per year plus deferred bonus equal to $75,000 for each full
year (or portion thereof) of service during the three-year period ending October
21, 2012.  The deferred bonus payments will vest on October 21 of each
of 2010, 2011 and 2012, respectively.  If a change-in-control of
Gyrodyne occurs prior to any vesting dates, Mr. Fitlin will receive the amount
of any vested deferred bonuses, plus a “pro rata” portion of the bonus for the
current period for each month of services rendered.  The deferred
bonus will only be paid upon the earlier of a change-in-control of Gyrodyne or
October 21, 2012, regardless of when vesting occurs.  Under the
Agreements, a change-in-control is deemed to occur upon the first to occur of
any event described as either a change in ownership or effective control of the
Company, or in the ownership of a substantial portion of the assets of the
Company, as defined under Section 409A of the Internal Revenue
Code.





(b)           Outstanding
Equity Awards at Fiscal Year End





As of the
year ended December 31, 2009, there were no unexercised options, stock that has
not vested or equity incentive plan awards held by any of the Company’s named
executive officers.





(c)           Severance
and Change-in-Control Benefits





As
indicated above under the heading “Employment Agreements,”  Mr.
Maroney and Mr. Pitsiokos are each covered by an employment agreement which
specifically provides for a severance payment in the event of a
change-in-control, termination by the Company without cause, or by the executive
for  “good reason”. On June 12, 2009, the Company and the two officers
mutually agreed to terminate the automatic extension provisions of the
Employment Agreements which had originally provided for an evergreen three year
term.  As a result, the term of the Employment Agreements ends on June
12. 2012.




26




Under the
Employment Agreement, as amended to comply with Section 409A, upon any of the
events enumerated therein, the executive is entitled to receive an amount equal
to three times the executive’s base salary to be paid in a single lump sum cash
payment to the extent such amount does not exceed the lesser of the executive’s
salary for the two year period prior to termination or two times the Internal
Revenue Code Section 401(a)(17) limitation.  To the extent the amount
payable exceeds such limitation, the excess over the limitation is to be paid on
the 15th day
of the 7th
month following the separation of service, with interest equal to prime plus
2%.   In addition to the cash severance payment, each executive
will be entitled to receive certain other benefits.





The
primary reasons for providing severance and change-in-control benefits for the
executive officers are to retain the executives and their talents and to
encourage them to remain impartial when evaluating a transaction that may be
beneficial to shareholders yet could negatively impact continued
employment.   As indicated above, as of December 31, 2008, each
of the employment agreements were amended to avoid the potential of any adverse
tax consequences under Section 409A of the Internal Revenue Code associated with
the severance payments and/or to delay certain payments as required under such
Code section.




(d)           Incentive
Compensation Plan





The
Company believes that providing severance in a change-in-control situation is
beneficial to shareholders because it encourages management and the Board to
remain impartial when evaluating a transaction that may be beneficial to
shareholders yet could negatively impact the continued employment or board
position of an executive officer or director, and to promote long term value
maximization.  Toward that end, the Company established an incentive
compensation plan in 1999, and the Board approved amendments to the plan on
February 2, 2010 which are set forth in an Amended and Restated Incentive
Compensation Plan dated as of February 2, 2010 (as amended, the “Incentive
Plan”), a copy of which was included as an exhibit to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on February
8, 2010.  The Board approved the amendments to the Incentive Plan to
better align the interests of the participants with those of the Company’s
shareholders as the Company pursues its strategic plan to position itself over a
reasonable period of time for one or more liquidity events that will maximize
shareholder value.  Full-time employees and members of the Board are
eligible to participate, and rights of all participants
vested  immediately on February 2, 2010.





The
benefits are realized upon either a change-in-control of the Company, or upon
the issuance by the Company of an “excess dividend” following certain asset
sales.  An excess dividend is defined as
a  dividend  in excess of 15% of the Company assets and the
dividend is in excess of Company
earnings.    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 Incentive
Plan provides for a cash payment equal to the difference between the Incentive
Plan’s "establishment date" price of $15.39 per share and the per share price of
the Common Stock on the closing date, equivalent to 100,000 shares of Common
Stock, such number of shares subject to adjustments to reflect changes in
capitalization.  For any individual who becomes a participant with an
effective date after December 31, 2009, the average trading price of the
Company’s stock for the 10 trading days ending on the trading day prior to the
date of participation will replace the price of $15.39 for the purpose of
calculating the benefit.  The payment amount would be distributed to
eligible participants based upon their respective weighted percentages (ranging
from 0.5% to 18.5%).  Messrs. Maroney and Pitsiokos are currently
entitled to 18.5% and 13.5%, respectively, of any distribution under the
Incentive Plan with the balance being distributable to other eligible employees
(11.5%) and members of the Board of Directors (56.5%).  There are
currently 110,000 units granted under the Incentive Plan, equal to 110,000
shares of Common Stock.





In the
event of death of a participant, the beneficiary of the participant in the
Incentive Plan is entitled to a death benefit.





Payments
under the Incentive Plan may be deemed to be a form of deferred compensation
(within the meaning of Section 409A of the Internal Revenue Code) to the extent
any employee or director participant has been granted units at a discount, after
October 4, 2004.   In this regard, however, no actual deferral of
compensation is intended to exist under this plan since immediate payment is
required only upon a change-in-control or the death of participant, regardless
of whether any other adverse employment or other events
occur.  Nevertheless, on December 27, 2008, the Incentive Plan was
amended to incorporate certain applicable provisions of  Section 409A
in order to avoid the potential of adverse tax consequences associated with the
payments due under the plan and/or to delay certain required
payments.  Specifically, the amendment provides that in the event of
the death of participant, the required payment is to be made within sixty days
after the date of death but no later than two and one-half months after the end
of the calendar year in which the death occurs.  Further,
notwithstanding any other provision, if the participant is a “Specified
Employee,” as defined under Code Section 409A (generally, a key employee of a
public company, such as the Company) on the date of separation of service or
death, then the required amount is to be paid, in a single lump sum cash payment
to the extent such amount does not exceed the lesser of the executive’s salary
for the two year period prior to separation of service or death or two times the
Internal Revenue Code Section 401(a)(17) limitation.  To the extent
the amount payable exceeds such limitation, the excess over the limitation is to
be paid on the 15th day
of the 7th
month following the separation of service or death.





27





(e)           Pension
Plan





The
Company maintains the Gyrodyne Company of America, Inc. Pension Plan, which is a
traditional defined benefit pension plan.  The Pension Plan is
believed to provide a reasonable benefit for the executives and all other
employees.  The underfunded status of the Company’s pension plan is
included in pension liability and prepaid pension costs in the accompanying
consolidated balance sheets and is $279,655 and $715,365 at December 31,
2009 and 2008, respectively. The Company contributed $200,000 during
2009,  with $100,000 applied to the minimum funding requirement for
the year ending December 31, 2008. The Company does not maintain any
nonqualified deferred compensation programs (other than the Incentive Plan) or
any qualified Profit Sharing or Section 401(k) Plans intended to qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code.





(f)           Compensation
of Directors





During
2009 and 2008, each Director was entitled to receive a fee of $12,000 a year,
$1,000 per Board meeting attended and $500 for each Committee meeting attended
and was reimbursed for travel and Company business related expenses. In
addition, the Chairman of the Board is entitled to receive a Chairman’s fee of
$24,000 a year which commenced in September 2004. The Company continued its
policy which states that Directors who are also employees of the Company do not
receive any additional compensation for their services as
Directors.





Effective
January 1, 2010, the Board approved a change in the structure of director’s
compensation to a flat annual fee payable monthly.  Beginning January
1, 2010, each director is entitled to an annual director fee
of  $30,000 per year which includes attendance at board meetings and
committee meetings.  As before, the Chairman of the Board is also
entitled to receive a Chairman’s fee of $24,000 per year.  Directors
will continue to be reimbursed for travel and other expenses related to Company
business.





DIRECTOR
COMPENSATION





The
following table shows the compensation earned by each of the Company’s
non-officer directors for the year ended December 31, 2009:





Name
            
            Fees
      earned or paid in cash
              ($)
            
            Stock
      awards
              ($)
            
            Option
      awards
              ($)
            
            Non-equity
      incentive plan compensation
              ($)
            
            Nonqualified
      deferred compensation earnings
              ($)
            
            All
      other compensation
              ($)
            
            Total
              ($)(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)A
            Paul
      L. Lamb
            
            47,500
            
            0
            
            0
            
            0
            
            0
            
            0
            
            47,500B
            Naveen
      Bhatia
            
            30,500
            
            0
            
            0
            
            0
            
            0
            
            0
            
            30,500C
            Philip
      F. Palmedo
            
            25,500
            
            0
            
            0
            
            0
            
            0
            
            0
            
            25,500D
            Elliot
      H. Levine
            
            29,000
            
            0
            
            0
            
            0
            
            0
            
            0
            
            29,000E
            Richard
      B. Smith
            
            25,000
            
            0
            
            0
            
            0
            
            0
            
            0
            
            25,000F
            Ronald
      J. Macklin
            
            33,000
            
            0
            
            0
            
            0
            
            0
            
            0
            
            33,000G
            Nader
      G.M. Salour
            
            26,500
            
            0
            
            0
            
            0
            
            0
            
            0
            
            26,500





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





(a)           As
of December 31, 2009, there were no equity compensation plans under which
securities of the Company were authorized for issuance.





28





(b)           The
following table sets forth certain information as of March 26, 2010 regarding
the beneficial ownership of the Company’s common shares by (i) each person who
the Company believes to be beneficial owner of more than 5% of its outstanding
common shares, (ii) each present director, (iii) each person listed in the
Summary Compensation Table under “Executive Compensation,” and (iv) all of the
Company’s present executive officers and directors as a group.





Name and address
              of beneficial owner
            
            Amount and
              nature of beneficial
              ownership (1)
            
            Percent of
              Class (9)Common
      Stock $1 Par Value
            More
      Than 5% ShareholdersBulldog
      Investors/Goldstein/Dakos
              60
      Heritage Drive
              Pleasantville,
      NY 10570
            
            225,246(2)
            
            17.46River
      Road Asset Management, LLC
              462
      South Fourth Street, Suite 1600
              Louisville,
      KY 40202
            
            100,091(3)
            
            7.76Gerard
      Scollan
              80
      Browns River Road
              Sayville,
      NY 11782
            
            99,249(4)
            
            7.69Leap
      Tide  Capital Management, Inc.
              Jan
      Loeb
              10451
      Mill Run Circle, Suite 400
              Owings
      Mills, MD 21117
            
            94,666(5)
            
            7.34Directors
      and Executive OfficersStephen
      V. Maroney
            
            81,087(6)
            
            6.29Peter
      Pitsiokos
            
            2,291(7)
            
            *Paul
      L. Lamb
            
            24,364(8)
            
            1.89Naveen
      Bhatia
            
            12,179
            
            *Philip
      F. Palmedo
            
            12,749
            
            *Richard
      B. Smith
            
            1,000
            
            *Ronald
      J. Macklin
            
            300
            
            *Elliot
      H. Levine
            
            100
            
            *Nader
      G.M. Salour
            
            943
            
            *Gary
      J. Fitlin
            
            0
            
            *All
      executive officers and
              Directors
      as a group (10 persons)
            
            135,013
            
            10.47





(1)Except as otherwise
indicated, the beneficial owner has sole voting and investment
power.





(2)  On
November 7, 2008, Bulldog Investors, Phillip Goldstein and Andrew Dakos filed a
joint Schedule 13D/A with the Securities and Exchange Commission stating that
Bulldog Investors, a group of investment funds, Phillip Goldstein and Andrew
Dakos beneficially own an aggregate of 225,246 shares of Gyrodyne stock. Power
to dispose and vote securities reside either with Mr. Goldstein, Mr. Dakos or
with clients.





(3)  On
February 16, 2010, River Road Asset Management, LLC filed a Schedule 13G/A with
the Securities and Exchange Commission stating that it is the beneficial owner,
with sole power to dispose or to direct the disposition of 100,091 shares of
Gyrodyne stock and the sole power to vote or direct the vote of 71,711
shares.





29





(4)  Includes
96,994 shares of Company stock held by Lovin Oven Catering of Suffolk, Inc., of
which Mr. Scollan is the majority shareholder. Mr. Scollan has sole voting and
dispositive power with respect to 2,255 shares, and shared voting and
dispositive power with respect to 96,994 shares.





(5)  On
February 12, 2010, Leap Tide Capital Management, Inc. and Jan Loeb filed a
Schedule 13G/A with the Securities and Exchange Commission stating that each
reporting person beneficially owns 94,666 shares of Common Stock with the sole
power to vote or direct the vote and to dispose or direct the disposition of all
shares.





(6)  On
March 29, 2007, Stephen V. Maroney filed a Schedule 13D with the Securities and
Exchange Commission stating that he and his spouse jointly and beneficially own
and have shared power to vote and to dispose of 81,087 shares of Gyrodyne stock.
Mr. Maroney has pledged 20,000 shares of Common Stock as security.


(7)   Does
not include his wife's and children's ownership of 359 shares in which he denies
any beneficial interest. Mr. Pitsiokos has pledged 2,291 shares of Common Stock
as security.





(8)  Includes
14,747 shares held by Lamb & Barnosky, LLP Profit Sharing Trust and 8,500
shares held by the Paul L. Lamb, P.C. Defined Benefit Plan. Mr. Lamb is a
trustee of the Profit Sharing Trust and the Defined Benefit
Plan.  Additionally, Mr. Lamb personally owns and has sole voting
power on 1,117 shares of Common Stock.





(9)  The
percent of class is calculated on the basis of the number of shares outstanding,
which is 1,290,039 as of March 26, 2010.





*     Less
than 1%.





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





There
were no transactions in effect since January 1, 2008 or currently proposed in
which the Company was or is to be a participant and the amount involved exceeds
$120,000, and in which any related person (as such term is defined in Item 404
(a) of Regulation S-K) had or will have a direct or indirect material
interest.





The
majority of the members of the Board of Directors are independent directors as
defined by the listing requirements of the NASDAQ Stock Market. Such independent
directors are Messrs. Bhatia, Lamb, Levine, Macklin, Palmedo, Salour and Smith.
Mr. Beyer, who served as a director during fiscal 2008, was also independent in
accordance with NASDAQ listing requirements. The Company has compensation,
nominating, investment and audit committees, the members of which are also
independent as defined by the listing requirements of the NASDAQ Stock
Market.





Item
14. Principal Accountant Fees and Services.





The
following is a summary of the fees billed to the Company by Holtz Rubenstein
Reminick LLP, its independent auditors, for professional services rendered for
the years ended December 31, 2009 and December 31, 2008:





Fee
      Category
            
            Fiscal
      December 31,
              2009
            
            
            Fiscal
      December 31,
              2008Audit
      Fees (1)
            
            $
            90,000
            
            
            $
            90,000Audit-Related
      Fees (2)
            
            
            28,989
            
            
            
            19,535Tax
      Fees (3)
            
            
            22,541
            
            
            
            24,786All
      Other Fees (4)
            
            
            -
            
            
            
            -Total
      Fees
            
            $
            141,530
            
            
            $
            134,321





(1) Audit
Fees consist of aggregate fees billed for professional services rendered for the
audit of the Company’s annual financial statements, review of the interim
financial statements included in quarterly reports, and services that are
normally provided by the independent auditors in connection with statutory and
regulatory filings or engagements for the fiscal years ended December 31, 2009
and 2008, respectively.





30





(2)
Audit-Related Fees consist of aggregate fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company’s financial statements and are not reported under "Audit Fees."
Such services include review of Form 8-K filings, proxy filings and research
into various accounting issues.





(3) Tax
Fees consist of aggregate fees billed for professional services rendered by the
Company’s principal accountant for tax compliance, tax advice and tax planning.
The amounts disclosed consist of fees paid for the preparation of federal and
state income tax returns and research into the tax implications of the Company’s
REIT election.





(4) All
Other Fees consist of aggregate fees billed for products and services provided
by Holtz Rubenstein Reminick LLP, the Company’s principal accountant, other than
those disclosed above.





The Audit
Committee is responsible for the appointment, compensation and oversight of the
work of the independent auditors and approves in advance any services to be
performed by the independent auditors, whether audit-related or not. The Audit
Committee reviews each proposed engagement to determine whether the provision of
services is compatible with maintaining the independence of the independent
auditors. The Audit Committee  has determined not to adopt any blanket
pre-approval policies or procedures. All of the fees shown above were
pre-approved by the Audit Committee.





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




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
              Amended
      and Restated Bylaws of Gyrodyne Company of America, Inc.
    (5)4.1
              Form
      of Stock Certificate of Gyrodyne Company of America, Inc.
    (6)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. (2)10.1
              Incentive
      Compensation Plan. (1)10.2
              Amended
      and Restated Employment Agreement, with Stephen V. Maroney, dated January
      23, 2003. (9)10.3
              Amended
      and Restated Employment Agreement, with Peter Pitsiokos, dated January 23,
      2003. (9)






31





10.4
            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.
      (3)10.5
            Contract
      of Sale dated October 12, 2006 by and between Frank M. Pellicane Realty,
      LLC, Pelican Realty, LLC and Gyrodyne Company of America, Inc.
      (4)10.6
            Agreement
      dated February 12, 2007 between Gyrodyne Company of America, Inc. and
      DPMG, Inc. d/b/a Landmark National. (4)10.7
            First
      Amendment to Contract of Sale dated October 12, 2006 by and between Frank
      M. Pellicane Realty, LLC, Pelican Realty, LLC, and Gyrodyne Company of
      America, Inc., dated as of February 1, 2007. (4)10.8
            Agreement
      between the Company, the Bulldog Investors and Mr. Naveen Bhatia, dated as
      of October 27, 2008. (8)10.9
            Amendment
      to the Company 1999 Incentive Compensation Plan, dated December 27, 2008.
      (7)10.10
            Amendment
      Number 1 to the Company Amended and Restated Employment Agreement for
      Stephen V. Maroney (January 23, 2003), dated December 31, 2008.
      (7)10.11
            Amendment
      Number 1 to the Company Amended and Restated Employment Agreement for
      Peter Pitsiokos (January 23, 2003), dated December 31, 2008.
      (7)10.12
            Purchase
      and Sale Agreement dated as of January 2, 2010 between Gyrodyne Company of
      America, Inc. and Fairfax Medical Center, LLC. (10)10.13
            First
      Amendment to Purchase and Sale Agreement dated February 10, 2010 between
      Gyrodyne Company of America, Inc. and Fairfax Medical Center, LLC.
      (10)10.14
            Second
      Amendment to Purchase and Sale Agreement dated March 19, 2010 between
      Gyrodyne Company of America, Inc. and Fairfax Medical Center, LLC.
      (10)10.15
            Amended
      and Restated Incentive Compensation Plan dated as of February 2, 2010.
      (11)10.16
            Compensation
      of Directors. (12)21.1
            List
      of all subsidiaries. (12)31.1
            Rule
      13a-14(a)/15d-14(a) Certifications. (12)31.2
            Rule
      13a-14(a)/15d-14(a) Certifications. (12)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. (12)32.2
            CEO/CFO
      Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.
  (12)




(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 August 13, 2004.
 
 (3)
              Incorporated
      herein by reference to the Annual Report on Form 10-KSB, filed with the
      Securities and Exchange Commission on July 5,
  2005.
 
 (4)
              Incorporated
      herein by reference to the Annual Report on Form 10-K, filed with the
      Securities and Exchange Commission
      on March 15, 2007.
  (5)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on June 18, 2008.
  32




(6)
              Incorporated
      herein by reference to the Quarterly Report on Form 10-Q, filed with the
      Securities and Exchange Commission on November 13,
  2008
  (7)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on December 31, 2008.
 
 (8)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on October
28, 2008.
 
 (9)
              Incorporated
      herein by reference to the Quarterly Report on Form 10-QSB, filed with the
      Securities and Exchange Commission on March 12,
  2003.
 
 (10)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on May 15, 2009.
 
 (11)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on February 8,
2010.
 
 (12)
              Filed
      as part of this report.
  33





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. MaroneyBy
      Stephen V. Maroney, President and Chief Executive
  OfficerDate:
      March 30, 2010/S/
      Gary J. FitlinBy
      Gary J. Fitlin, Chief Financial Officer and Treasurer
              Date:
      March 30, 2010





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





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. SmithBy
      Richard B. Smith, DirectorDate:
      March 30, 2010/S/
      Elliot H. LevineBy
      Elliot H. Levine, DirectorDate:
      March 30, 2010/S/
      Ronald J. MacklinBy
      Ronald J. Macklin, DirectorDate:
      March 30, 2010/S/
      Stephen V. MaroneyBy
      Stephen V. Maroney, DirectorDate:
      March 30, 2010





/S/
      Paul L. LambBy
      Paul L. Lamb, DirectorDate:
      March 30, 2010





34







Exhibit Index3.1
            Restated
      Certificate of Incorporation of Gyrodyne Company of America, Inc.
      (1)3.2
            Amended
      and Restated Bylaws of Gyrodyne Company of America, Inc.
    (5)4.1
            Form
      of Stock Certificate of Gyrodyne Company of America, Inc.
    (6)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. (2)10.1
            Incentive
      Compensation Plan. (1)10.2
            Amended
      and Restated Employment Agreement, with Stephen V. Maroney, dated January
      23, 2003. (9)10.3
            Amended
      and Restated Employment Agreement, with Peter Pitsiokos, dated January 23,
      2003. (9)10.4
            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.
      (3)10.5
            Contract
      of Sale dated October 12, 2006 by and between Frank M. Pellicane Realty,
      LLC, Pelican Realty, LLC and Gyrodyne Company of America, Inc.
      (4)10.6
            Agreement
      dated February 12, 2007 between Gyrodyne Company of America, Inc. and
      DPMG, Inc. d/b/a Landmark National. (4)10.7
            First
      Amendment to Contract of Sale dated October 12, 2006 by and between Frank
      M. Pellicane Realty, LLC, Pelican Realty, LLC, and Gyrodyne Company of
      America, Inc., dated as of February 1, 2007. (4)10.8
            Agreement
      between the Company, the Bulldog Investors and Mr. Naveen Bhatia, dated as
      of October 27, 2008. (8)10.9
            Amendment
      to the Company 1999 Incentive Compensation Plan, dated December 27, 2008.
      (7)10.10
            Amendment
      Number 1 to the Company Amended and Restated Employment Agreement for
      Stephen V. Maroney (January 23, 2003), dated December 31, 2008.
      (7)10.11
            Amendment
      Number 1 to the Company Amended and Restated Employment Agreement for
      Peter Pitsiokos (January 23, 2003), dated December 31, 2008.
      (7)10.12
            Purchase
      and Sale Agreement dated as of January 2, 2010 between Gyrodyne Company of
      America, Inc. and Fairfax Medical Center, LLC. (10)10.13
            First
      Amendment to Purchase and Sale Agreement dated February 10, 2010 between
      Gyrodyne Company of America, Inc. and Fairfax Medical Center, LLC.
      (10)10.14
            Second
      Amendment to Purchase and Sale Agreement dated March 19, 2010 between
      Gyrodyne Company of America, Inc. and Fairfax Medical Center, LLC.
      (10)10.15
            Amended
      and Restated Incentive Compensation Plan dated as of February 2, 2010.
      (11)10.16
            Compensation
      of Directors. (12)21.1
            List
      of all subsidiaries. (12)31.1
            Rule
      13a-14(a)/15d-14(a) Certifications.
(12)




35




31.2
            Rule
      13a-14(a)/15d-14(a) Certifications. (12)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. (12)32.2
            CEO/CFO
      Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.
  (12)




(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 August 13, 2004.(3)
              Incorporated
      herein by reference to the Annual Report on Form 10-KSB, filed with the
      Securities and Exchange Commission on July 5, 2005.(4)
              Incorporated
      herein by reference to the Annual Report on Form 10-K, filed with the
      Securities and Exchange Commission on March 15, 2007.(5)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on June 18, 2008.(6)
              Incorporated
      herein by reference to the Quarterly Report on Form 10-Q, filed with the
      Securities and Exchange Commission on November 13, 2008(7)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on December 31, 2008.(8)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on October 28,   2008.(9)
              Incorporated
      herein by reference to the Quarterly Report on Form 10-QSB, filed with the
      Securities and Exchange Commission on March 12, 2003.(10)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on May  15, 2009.(11)
              Incorporated
      herein by reference to Form 8-K, filed with the Securities and Exchange
      Commission on    February 8, 2010.(12)
              Filed
      as part of this report.


36




GYRODYNE
COMPANY OF AMERICA, INC. AND SUBSIDIARIES
 REPORT
ON AUDITS OF CONSOLIDATED
 FINANCIAL
STATEMENTS
 
 Years
Ended December 31, 2009 and 2008
  
 
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Contents
 Years Ended December 31, 2009
      and
      2008
                    PagesReport
      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
                    F-1
                      F-2
                      F-3
                      F-4
                      F-5
                      F-6
      - F-24
 
 
 
 Report
of Independent Registered Public Accounting Firm
 
 
 Board of
Directors and Stockholders
 Gyrodyne
Company of America, Inc. and Subsidiaries
 St.
James, New York
 
 We have
audited the accompanying consolidated balance sheets of Gyrodyne Company of
America, Inc. and Subsidiaries (the "Company") as of December 31, 2009 and
December 31, 2008 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2009 and
December 31, 2008. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, audits of its internal control
over financial reporting. Our audits include consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Gyrodyne Company of America,
Inc. and Subsidiaries as of December 31, 2009 and December 31, 2008 and the
results of their operations and their cash flows for the years ended December
31, 2009 and December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
 
 
 /s/ Holtz
Rubenstein Reminick LLP
 
 Melville,
New York
 March 30,
2010
 
 F-1
 GYRODYNE
      COMPANY OF AMERICA, INC. AND SUBSIDIARIESConsolidated
      Balance Sheets
                  
                  December
      31,2009
                  
                  
                  2008AssetsReal
      Estate:Rental
      property:Land
                  
                  $
                  5,079,017
                  
                  
                  $
                  2,929,017Building
      and improvements
                  
                  
                  30,612,143
                  
                  
                  
                  17,887,414Machinery
      and equipment
                  
                  
                  277,072
                  
                  
                  
                  254,35235,968,232
                  
                  
                  
                  21,070,783Less
      Accumulated Depreciation
                  
                  
                  3,701,200
                  
                  
                  
                  3,010,70932,267,032
                  
                  
                  
                  18,060,074Land
      held for development:Land
                  
                  
                  558,466
                  
                  
                  
                  558,466Land
      development costs
                  
                  
                  1,366,963
                  
                  
                  
                  1,213,0921,925,429
                  
                  
                  
                  1,771,558Total
      Real Estate, net
                  
                  
                  34,192,461
                  
                  
                  
                  19,831,632Cash
      and Cash Equivalents
                  
                  
                  868,786
                  
                  
                  
                  1,205,893Investments
                  
                  
                  203,000
                  
                  
                  
                  -Investment
      in Marketable Securities
                  
                  
                  -
                  
                  
                  
                  8,413,279Rent
      Receivable, net of allowance for doubtfulaccounts
      of $92,000 and $35,000, respectively
                  
                  
                  83,918
                  
                  
                  
                  118,076Deferred
      Rent Receivable
                  
                  
                  59,922
                  
                  
                  
                  -Interest
      Receivable
                  
                  
                  -
                  
                  
                  
                  49,678Prepaid
      Expenses and Other Assets
                  
                  
                  696,918
                  
                  
                  
                  571,129Total
      Assets
                  
                  $
                  36,105,005
                  
                  
                  $
                  30,189,687Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                  
                  $
                  995,665
                  
                  
                  $
                  379,948Accrued
      liabilities
                  
                  
                  298,120
                  
                  
                  
                  118,227Deferred
      rent liability
                  
                  
                  53,348
                  
                  
                  
                  -Tenant
      security deposits payable
                  
                  
                  474,210
                  
                  
                  
                  393,360Mortgages
      payable
                  
                  
                  18,164,266
                  
                  
                  
                  10,560,486Deferred
      income taxes
                  
                  
                  1,206,000
                  
                  
                  
                  5,336,000Pension
      liability
                  
                  
                  279,655
                  
                  
                  
                  715,365Total
      Liabilities
                  
                  
                  21,471,264
                  
                  
                  
                  17,503,386Commitments
      and ContingenciesStockholders'
      Equity:Common
      stock, $1 par value; authorized 4,000,000 shares;
1,531,247shares
      issued; 1,290,039 shares outstanding, respectively
                  
                  
                  1,531,247
                  
                  
                  
                  1,531,247Additional
      paid-in capital
                  
                  
                  7,978,234
                  
                  
                  
                  7,978,234Accumulated
      other comprehensive loss
                  
                  
                  (1,306,681
                  )
                  
                  
                  (1,731,231
                  )Balance
      of undistributed income from other than gain or loss on sales of
      properties
                  
                  
                  7,968,638
                  
                  
                  
                  6,445,74816,171,438
                  
                  
                  
                  14,223,998Less
      Cost of Shares of Common Stock Held in Treasury; 241,208
                  
                  
                  (1,537,697
                  )
                  
                  
                  (1,537,697
                  )Total
      Stockholders' Equity
                  
                  
                  14,633,741
                  
                  
                  
                  12,686,301Total
      Liabilities and Stockholders' Equity
                  
                  $
                  36,105,005
                  
                  
                  $
                  30,189,687
 See
notes to consolidated financial statements.
 F-2
  GYRODYNE
      COMPANY OF AMERICA, INC. AND SUBSIDIARIESConsolidated
      Statements of Operations
                  
                  Years
      Ended December 31,2009
                  
                  
                  2008RevenuesRental
      income
                  
                  $
                  4,287,227
                  
                  
                  $
                  2,967,219Rental
      income - tenant reimbursements
                  
                  
                  547,189
                  
                  
                  
                  418,300Total
      Rental income
                  
                  
                  4,834,416
                  
                  
                  
                  3,385,519ExpensesRental
      expenses
                  
                  
                  1,943,246
                  
                  
                  
                  1,519,027General
      and administrative expenses
                  
                  
                  2,824,563
                  
                  
                  
                  2,030,244Condemnation
      expenses
                  
                  
                  1,307,184
                  
                  
                  
                  520,469Depreciation
                  
                  
                  690,676
                  
                  
                  
                  359,625Total
                  
                  
                  6,765,669
                  
                  
                  
                  4,429,365Other
      Income (Expense):Interest
      income
                  
                  
                  107,324
                  
                  
                  
                  538,934Realized
      gain
                  
                  
                  159,805
                  
                  
                  
                  17,124Interest
      expense
                  
                  
                  (942,986
                  )
                  
                  
                  (465,963
                  )Loss
      Before Benefit for Income Taxes
                  
                  
                  (2,607,110
                  )
                  
                  
                  (953,751
                  )Benefit
      for Income Taxes
                  
                  
                  (4,130,000
                  )
                  
                  
                  (2,496,000
                  )Net
      Income
                  
                  $
                  1,522,890
                  
                  
                  $
                  1,542,249Net
      Income Per Common Share:Basic
      and Diluted
                  
                  $
                  1.18
                  
                  
                  $
                  1.20Weighted
      Average Number of Common Shares Outstanding:Basic
      and Diluted
                  
                  
                  1,290,039
                  
                  
                  
                  1,290,039
  See notes to consolidated financial
statements.
  F-3
 
  GYRODYNE
      COMPANY OF AMERICA, INC. AND SUBSIDIARIESConsolidated
      Statement of Stockholders' EquityYears
      Ended December 31, 2009 and 2008$1
      Par Value
                    
                    
                    
                    
                    
                    Accumulated
                    
                    
                    Balance
      ofCommon
      Stock
                    
                    
                    Additional
                    
                    
                    Other
                    
                    
                    Undistributable
                    
                    
                    Treasury
      Stock
                    
                    
                    TotalPar
                    
                    
                    Paid
      in
                    
                    
                    Comprehensive
                    
                    
                    Income
                    
                    
                    
                    
                    
                    
                    
                    
                    Stockholders'Shares
                    
                    
                    Value
                    
                    
                    Capital
                    
                    
                    Income
      (Loss)
                    
                    
                    (Deficit)
                    
                    
                    Shares
                    
                    
                    Cost
                    
                    
                    EquityBalance,
      January 1, 2008
                    
                    
                    1,531,247
                    
                    
                    $
                    1,531,247
                    
                    
                    $
                    7,978,234
                    
                    
                    $
                    148,415
                    
                    
                    $
                    4,903,499
                    
                    
                    
                    241,208
                    
                    
                    $
                    (1,537,697
                    )
                    
                    $
                    13,023,698Unrealized
      Loss from Marketable Securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (51,070
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (51,070
                    )Unrecognized
      Actuarial Pension Loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,828,576
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,828,576
                    )Net
      Income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    1,542,249
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,542,249Balance,
      December 31, 2008
                    
                    
                    1,531,247
                    
                    
                    
                    1,531,247
                    
                    
                    
                    7,978,234
                    
                    
                    
                    (1,731,231
                    )
                    
                    
                    6,445,748
                    
                    
                    
                    241,208
                    
                    
                    
                    (1,537,697
                    )
                    
                    
                    12,686,301Unrealized
      Loss from Marketable Securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (97,345
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (97,345
                    )Unrecognized
      Actuarial Pension Gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    521,895
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    521,895Net
      Income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,522,890
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,522,890Balance,
      December 31, 2009
                    
                    
                    1,531,247
                    
                    
                    $
                    1,531,247
                    
                    
                    $
                    7,978,234
                    
                    
                    $
                    (1,306,681
                    )
                    
                    $
                    7,968,638
                    
                    
                    
                    241,208
                    
                    
                    $
                    (1,537,697
                    )
                    
                    $
                    14,633,741
  See
notes to consolidated financial statements.
 F-4
  GYRODYNE
      COMPANY OF AMERICA, INC. AND SUBSIDIARIESConsolidated
      Statements of Cash Flows
                  
                  Years
      Ended December 31,2009
                  
                  
                  2008Cash
      Flows from Operating Activities:Net
      income
                  
                  $
                  1,522,890
                  
                  
                  $
                  1,542,249Adjustments
      to reconcile net income to net cashused in operating activities:Depreciation
      and amortization
                  
                  
                  707,747
                  
                  
                  
                  381,239Bad
      debt expense
                  
                  
                  84,000
                  
                  
                  
                  24,000Net
      periodic pension benefit (income) cost
                  
                  
                  286,185
                  
                  
                  
                  12,117Realized
      gain on marketable securities
                  
                  
                  (159,805
                  )
                  
                  
                  (17,124
                  )Changes
      in operating assets and liabilities:(Increase)
      decrease in assets:Rent
      receivable
                  
                  
                  (49,842
                  )
                  
                  
                  (47,383
                  )Deferred
      rent receivable
                  
                  
                  (59,922
                  )
                  
                  
                  -Interest
      receivable
                  
                  
                  49,678
                  
                  
                  
                  15,034Prepaid
      expenses and other assets
                  
                  
                  (164,291
                  )
                  
                  
                  (81,832
                  )(Decrease)
      increase in liabilities:Accounts
      payable
                  
                  
                  615,717
                  
                  
                  
                  (237,610
                  )Accrued
      liabilities
                  
                  
                  179,893
                  
                  
                  
                  (55,780
                  )Deferred
      rent liability
                  
                  
                  53,348
                  
                  
                  
                  -Deferred
      income taxes
                  
                  
                  (4,130,000
                  )
                  
                  
                  (2,496,000
                  )Pension
      liability
                  
                  
                  (721,895
                  )
                  
                  
                  -Tenant
      security deposits
                  
                  
                  80,850
                  
                  
                  
                  118,017Total
      adjustments
                  
                  
                  (3,228,337
                  )
                  
                  
                  (2,385,322
                  )Net
      Cash Used in Operating Activities
                  
                  
                  (1,705,447
                  )
                  
                  
                  (843,073
                  )Cash
      Flows from Investing Activities:Purchase
      of medical office buildings
                  
                  
                  (13,022,966
                  )
                  
                  
                  (7,038,863
                  )Costs
      associated with property, plant and equipment
                  
                  
                  (1,886,943
                  )
                  
                  
                  (1,208,545
                  )Proceeds
      from sale of marketable securities
                  
                  
                  8,163,813
                  
                  
                  
                  -Land
      development costs
                  
                  
                  (153,871
                  )
                  
                  
                  (431,666
                  )Investment
      in interest bearing time deposits
                  
                  
                  (203,000
                  )
                  
                  
                  -Principal
      repayments on investment in marketable securities
                  
                  
                  833,821
                  
                  
                  
                  2,369,044Net
      Cash Used in Investing Activities
                  
                  
                  (6,269,146
                  )
                  
                  
                  (6,310,030
                  )Cash
      Flows from Financing Activities:Proceeds
      from mortgage
                  
                  
                  8,000,000
                  
                  
                  
                  5,250,000Principal
      payments on mortgage
                  
                  
                  (396,220
                  )
                  
                  
                  (192,137
                  )Loan
      origination fees paid
                  
                  
                  33,706
                  
                  
                  
                  (154,008
                  )Net
      Cash Provided by Financing Activities
                  
                  
                  7,637,486
                  
                  
                  
                  4,903,855Net
      Decrease in Cash and Cash Equivalents
                  
                  
                  (337,107
                  )
                  
                  
                  (2,249,248
                  )Cash
      and Cash Equivalents, beginning of year
                  
                  
                  1,205,893
                  
                  
                  
                  3,455,141Cash
      and Cash Equivalents, end of year
                  
                  $
                  868,786
                  
                  
                  $
                  1,205,893Supplemental
      cash flow information:Interest
      paid
                  
                  $
                  916,321
                  
                  
                  $
                  465,963Income
      taxes paid
                  
                  $
                  3,466
                  
                  
                  $
                  117
  See
notes to consolidated financial statements.
 F-5
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
  1
                The
      Company
 
 Gyrodyne
Company of America, Inc.  (“Gyrodyne” or the “Company”) is a
self-managed and self-administered real estate investment trust (“REIT”) formed
under the laws of the State of New York.  The Company operates in one
segment.  The Company’s primary business is the investment in and the
acquisition, ownership and management of a geographically diverse portfolio of
medical office, industrial and development of industrial and residential
properties.  Substantially all of the Company’s properties are subject
to net leases in which the tenant reimburses Gyrodyne for a portion, all of or
substantially all of the costs and/ or cost increases for utilities, insurance,
repairs and maintenance, and real estate taxes.  However, certain
leases provide that the Company is responsible for certain operating
costs.
 
 As of
December 31, 2009, the Company had 100% ownership in three medical office parks
comprising approximately 130,000 rentable square feet and a multitenant
industrial park comprising approximately 127,000 rentable square
feet.  In addition, the Company has approximately 62.5 acres of
undeveloped property in St James, New York and a 9.99% limited partnership
interest in an undeveloped Florida property (“the Grove”).
 
 The
Company believes it has qualified, and expects to continue to qualify as a REIT
under Section 856(c) (1) of the Internal Revenue Code of 1986 as amended (the
“Code”).  Accordingly, the Company generally will not be subject to
federal and state income tax, provided that distributions to its shareholders
equal at least 90% of its REIT taxable income as defined under the
Code.  The Company is permitted to participate in certain activities
from which it was previously precluded in order to maintain its qualifications
as a REIT; however these activities must be conducted in an entity which elected
to be treated as a taxable REIT subsidiary (“TRS”) under the
Code.  The Company has one taxable REIT subsidiary which will be
subject to federal and state income tax on the income from these
activities.
 
 2.
                Summary
      of Significant Accounting Policies
 
 In
      June 2009, the Financial Accounting Statndards Board (“FASB”) issued ASC
      105-10 (formerly Statement No. 168 (“FAS168”)), “The FASB Accounting
      Standard Codification and the Hierarchy of Generally Accepted Accounting
      Principles, a replacement of FASB Statement No. 162” (“FAS162”). ASC
      105-10 replaces FAS 162 “The Hierarchy of Generally Accepted Accounting
      Principles” and establishes the “FASB Accounting Standard Codification”
      (Codification) as a source of authoritative accounting principles
      recognized by the FASB to be applied by nongovernmental entities in the
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States. The codification does not
      change current GAAP, but changes the referencing of financial standards,
      and is intended to simplify user access to authoritative GAAP by providing
      all the authoritative literature related to a particular topic in one
      place.  All guidance contained in the Codification carries an
      equal level of authority. On the effective date of ASC 105-10, the
      Codification will supersede all then-existing non-SEC accounting and
      reporting standards. All other nongrandfathered non-SEC accounting
      literature not included in the Codification will become nonauthoritative.
      ASC 105-10 is effective for financial statements issued for interim and
      annual periods ending after September 15, 2009.  The Company
      adopted this pronouncement for the quarter ended September 30,
      2009.  The adoption did not have a material effect on the
      Company’s financial position or results of
  operations.
  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.
  F-6
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
  All
consolidated subsidiaries are wholly owned. All significant inter-company
balances and 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.  Tenant improvements that are unlikely
to survive a change in tenants are amortized over the lesser of the estimated
useful life of the asset or the lease term including any bargain
renewals
  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 legal, engineering
and other related soft development costs,  interest, real estate
taxes, and related development and construction overhead costs which are
capitalized during the development and construction period.
  Net
realizable value represents estimates, based on management's present plans and
intentions, of sale price less development and disposition cost, assuming that
disposition occurs in the normal course of business.
  Long-lived assets
- On an annual basis, or earlier when events and circumstances dictate,
management assesses whether there are any indicators that the carrying value of
the real estate properties may be impaired. A property's carrying 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 include 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 is measured as the excess of the carrying amount of
the property over the estimated fair value of the property.
  The
Company is required to make subjective assessments as to whether there are
impairments in the carrying value of its real estate properties and other
investments.  Estimates’ are subjective and actual results could
differ materially from such estimates. 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:
  Buildings
and
improvements                                                                               5
to 39 years
 Machinery
and
equipment                                                                             
     3 to 20 years
  Tenant
improvements that are unlikely to have a life beyond the tenant life are
amortized over the lesser of the useful life of the asset or the tenant lease
term including bargain renewals.
  Revenue
recognition – Base rents from rental properties 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. Alternatively, rents received
in advance of rents recognized, if any, are included in deferred rent liability
on the Company’s balance sheet.  Certain leases also provide for
tenant reimbursements of common area maintenance, other operating expenses and
real estate taxes all of which are reported in tenant reimbursements on the
statement of operations.  Ancillary and other property related income
is recognized in the period earned.
  F-7
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 Allowance for
doubtful accounts – Rent receivable is carried at Net Realizable
Value.  Management makes estimates of the collectability of rents
receivable. Management specifically analyzes receivable’s 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 9.99% limited partnership interest in Callery-Judge
Grove, L.P. (the "Grove") that owns a 3700+ acre citrus grove in Palm Beach
County, Florida. The Company is accounting for this investment under the equity
method in accordance with the guidance of FASB Accounting Standards Codification
(“ASC”) Topic 970-323, Investments Debt and Equity Securities (formerly 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.").  The Company also follows Topic 970-320 which addresses
investments that do not have a readily determinable fair value.  The
only remaining liquid investment is in a Certificate of Deposit which matures on
March 24, 2010 and has a December 31, 2009 value of $203,000.
  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 mortgage backed securities guaranteed by
U.S. Government Agencies. The Company classifies its marketable securities
portfolio as available-for-sale. This portfolio is continually monitored for
differences between the cost and estimated fair value of each security. If the
Company believes that a decline in the value of a security is temporary in
nature, the Company records the change in other comprehensive income (loss), as
a separate component of stockholders’ equity. If the decline is believed to be
other than temporary, the security is written down to its estimated fair value
and a realized loss is recorded on the Company’s statement of operations. The
Company’s assessment of a decline in value includes, among other things, the
Company’s current judgment as to the financial position and future prospects of
the entity that issued the security. If that judgment changes in the future, the
Company may ultimately record a realized loss after having initially concluded
that the decline in value was temporary.  As of December 31, 2009, the
Company no longer has investments in mortgage-backed securities.
  Deposits on
Property -Deposits are paid on properties the Company is evaluating for
purchase. Real estate deposits are capitalized when paid and may become
nonrefundable under certain circumstances. When properties are acquired, the
deposits paid by the Company are applied to the total purchase
price.
   Income taxes -Effective May 1, 2006, the Company operated as a real estate investment
trust (REIT) 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 at least 90% of its annual REIT taxable income,
as defined by the Internal Revenue Code (“IRC”), to its shareholders, among
other requirements. If the Company fails to qualify as a REIT in any taxable
year, the Company will be subject to federal and state income tax on its taxable
income at regular corporate tax rates. Although the Company qualified for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and Federal income and excise taxes on its
undistributed income. The Company believes that it has met the REIT distribution
and technical requirements for the years ended December 31, 2009 and
December 31, 2008 and therefore, qualified as a REIT and was not subject to any
federal and state income taxes. Management intends to continue to adhere to
these requirements and maintain the Company’s REIT status.
  F-8
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
  The
Company’s investment in the Grove is held in a taxable REIT subsidiary of the
Company and is subject to federal and state income taxes. Taxable REIT
subsidiaries perform non-customary services for tenants, hold assets that the
Company cannot hold directly and generally may engage in any real estate or
non-real estate related business. Accordingly, through the investment in the
Grove, the Company is subject to corporate federal and state income taxes on the
Company’s share of the Grove’s taxable income for the years ended
December 31, 2009 and December 31, 2008.
  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.
  The
Company follows the guidance of FASB Accounting Standards Codification (“ASC”)
Topic 740 – Accounting for Uncertainty in Income Taxes (“Topic 820” (formerly
FASB Interpretation No 48)).  This interpretation, among other things,
creates a two-step approach for evaluating uncertain tax positions. Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely
on its technical merits, is more-likely-than-not to be sustained upon
examination. Measurement (step two) determines the amount of benefit that
more-likely-than-not will be realized upon settlement. Derecognition of a tax
position that was previously recognized would occur when a company subsequently
determines that a tax position no longer meets the more-likely-than-not
threshold of being sustained. Topic 740 specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions, and it
has expanded disclosure requirements. The adoption of Topic 740 had no impact on
the Company’s consolidated financial statements.
 
 Deferred expenses - Deferred
expenses consist primarily of debt and leasing costs.  Debt costs are
amortized using the straight line method which approximates the interest method
over the term of the related debt instruments and deferred leasing costs are
amortized over term of the related lease including bargain
renewals.
 
 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.
  Purchase
Accounting and Acquisition of Real Estate - The fair value of the
real estate acquired including the impact of assumed debt, is allocated to the
acquired tangible assets comprised of land, buildings and improvements and
identifiable intangible assets and liabilities comprised of above-market and
below-market leases, value of leases in place, tenant relationships, assumed
debt and other assumed liabilities (example is environmental, legal, etc.),
based on their relative fair values at the date of acquisition
of each element.  Prior to January 1, 2009, Acquisition costs were
capitalized and included in the allocation of the fair value of the real estate
and assumed debt acquired.  Effective January 1, 2009, acquisition
costs are expensed as incurred and reported in General and Administrative
expenses in the accompanying consolidated statement of operations.
  F-9
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 Fair Value
Measurements –The Company follows the guidance of FASB Accounting
Standards Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures (“Topic 820” (formerly “FAS 157”)) to determine the fair value of
financial and non financial instruments.  Topic 820 defines fair
value, establishes a hierarchy framework for measuring fair value and expands
disclosures related to the fair value.  The guidance was effective
beginning January 1, 2008 for financial assets and liabilities and beginning
January 1, 2009 for non financial assets and liabilities.  Topic 820
establishes a hierarchy breaking down observable and unobservable inputs into
three levels:  Level 1 – quotes prices in an active market on or
around the measurement date, Level 2 – observable prices that are based on
inputs not quoted on active markets but corroborated by market data and Level 3
– unobservable inputs utilized when no other data is available.
 The
Company also follows the guidance of FASB Accounting Standards Codification
(“ASC”)Topic 825, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115” (“Topic 825
(formerly FAS 159))  This Statement applies to all entities, including
not-for-profit organizations. Most of the provisions of this Statement apply
only to entities that elect the fair value option. However, the amendment to
FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, applies to all entities with available-for-sale and trading
securities. Some requirements apply differently to entities that do not report
net income. This Statement was effective for the Company on January 1, 2008 but
did not have a material effect on its financial statements.
  Comprehensive
income -The Company reports comprehensive income in accordance with
Accounting Standards Codification (“ASC”) Topic 220, SFAS No. 130,
Reporting Comprehensive Income
(“Topic 220” (formerly FAS 130)). This statement defines comprehensive
income as the changes in equity of an enterprise except those resulting from
stockholders’ transactions. Accordingly, comprehensive income includes certain
changes in equity that are excluded from net income. The Company’s comprehensive
income items include net income, the unrealized change in fair value of
marketable securities, interest rate swaps and unrecognized actuarial pension
losses.
  New
accounting pronouncements
  In April
2009, the FASB issued ASC 825-10 and ASC 270-10-05-05-1(formerly Staff Position
No. 107-1 and APB 28-1), Interim Disclosures about Fair Value of Financial
Instruments, or FSP FAS 107-1 and APB 28-1.  ASC 825-10 and ASC
270-10-05-05-1 amends FAS 107, Disclosures about Fair Value of Financial
Instruments (“FAS No. 107”), to require an entity to provide disclosures about
fair value of financial instruments in interim financial information and amends
APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in
summarized financial information at interim reporting periods. Under ASC 825-10
(formerly FAS 107-1 and APB 28-1), a publicly-traded company shall include
disclosures about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods. In addition,
entities must disclose, in the body or in the accompanying notes of its
summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods, the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as
required by ASC 825-10 and ASC 270-05-05-1 (formerly FAS No. 107, FSP FAS 107-1
and APB 28-1) are effective for interim and annual reporting periods ending
after June 15, 2009. The Company
adopted this pronouncement on July 1, 2009.  The adoption did not have
a material effect on the Company’s financial position or results of
operations.
  F-10
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 In April
2009, the FASB issued ASC 320-10-65-1 (formerly Staff Position No. 115-2 and FAS
124-2), Recognition and Presentation of Other-Than- Temporary Impairments, or
FSP FAS 115-2 and FAS 124-2.  ASC 320-10-65-1 (i) changes existing
guidance for determining whether an impairment is other than temporary to debt
securities and (ii) replaces the existing requirement that the entity’s
management assert it has both the intent and ability to hold an impaired
security until recovery with a requirement that management assert: (a) it does
not have the intent to sell the security; and (b) it is more likely than not it
will not have to sell the security before recovery of its cost basis. Under ASC
320-10-65-1, declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses to the extent the
impairment is related to credit losses. The amount of the impairment related to
other factors is recognized in other comprehensive income.  ASC
320-10-65-1 is effective for interim and annual reporting periods ending after
June 15, 2009.  The Company adopted this pronouncement on July 1,
2009.  The adoption did not have a material effect on the Company’s
financial position or results of operations.
  In April
2009, the FASB issued ASC 820-10-65-4 (formerly Staff Position No. FAS 157-4),
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly.   ASC 820-10-65-4 affirms that the objective of fair
value when the market for an asset is not active is the price that would be
received to sell the asset in an orderly transaction, and clarifies and includes
additional factors for determining whether there has been a significant decrease
in market activity for an asset when the market for that asset is not active.
ASC 820-10-65-4 requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. ASC 820-10-65-4 also
amended ASC 820-10 (formerly FAS No. 157) to expand certain disclosure
requirements.  ASC 820-10-65-4 is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively.  The Company adopted this pronouncement on July 1,
2009.  The adoption did not have a material effect on the Company’s
financial position or results of operations.
 
 Related
to Fair Value measurements, in August 2009, the FASB amended guidance on fair
value measurements which clarifies how entities should estimate the fair value
of liabilities.  The guidance provides acceptable measurement
techniques in circumstances when quoted market prices in an active market for
identical liabilities are not available.  The new guidance is
effective for the annual and interim periods beginning after August 27,
2009.  The adoption did not have a material impact on the Company’s
financial position, or results of operations.
 
 In April
2009, the FASB issued ASC 805-10, 805-20 and 805-30 (formerly FASB Staff
Position No. 141(R)-1), Accounting for Assets Acquired and Liabilities Assumed
in a Business Combination That Arise from Contingencies, to amend and clarify
ASC 805 (formerly FAS No. 141(R). FSP 141(R)-1).  ASC 805-10, 805-20
and 805-30 requires an acquirer to recognize at fair value, at the acquisition
date, an asset acquired or a liability assumed in a business combination that
arises from a contingency if the acquisition-date fair value of that asset or
liability can be determined during the measurement period. If the fair value
cannot be determined during the measurement period, an asset or a liability
shall be recognized at the acquisition date if the asset or liability can be
reasonably estimated and if information available before the end of the
measurement period indicates that it is probable that an asset existed or that a
liability had been incurred at the acquisition date. ASC 805-10, 805-20 and
805-30 amends the disclosure requirements of ASC 805 to include business
combinations that occur either during the current reporting period or after the
reporting period but before the financial statements are issued. ASC 805-10, 805-20
and 805-30 are effective for fiscal years beginning after December 15, 2008 and
interim periods within those years.  The Company adopted this pronouncement
on January 1, 2009.  The adoption did not have a material effect on
the Company’s financial position or results of operations.
  F-11
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 In June
2009, the FASB issued ASC 105-10 (formerly Statement No. 168 (“FAS168”)), “The
FASB Accounting Standard Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162” (“FAS162”). ASC
105-10 replaces FAS 162 “The Hierarchy of Generally Accepted Accounting
Principles” and establishes the “FASB Accounting Standard Codification”
(Codification) as a source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting principles
in the United States. The codification does not change current GAAP, but changes
the referencing of financial standards, and is intended to simplify user access
to authoritative GAAP by providing all the authoritative literature related to a
particular topic in one place.  All guidance contained in the
Codification carries an equal level of authority. On the effective date of ASC
105-10, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. ASC 105-10 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.  The Company adopted this pronouncement for
the quarter ended September 30, 2009.  The adoption did not have a
material effect on the Company’s financial position or results of
operations.
 
 Reclassifications:
 
 Certain
reclassifications have been made to the consolidated financial statements for
the year ended December 31, 2008 to conform to the classifications used in the
current year.
 
 3.
                Investments/Investment
      in Marketable Securities
 
 Investments:
 The fair
value of the Certificate of Deposit is equivalent to book value based on
comparative rates and terms available and the maturity date of March 2010,
therefore there is no unrealized gain or loss.
 
 Investment
in Marketable Securities:
 The
historical cost and estimated fair value of investments in marketable securities
available for sale as of December 31, 2008 are as follows:
  Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair
                    ValueMortgage-backed
      Securities - 2008
                  
                  $
                  8,315,934
                  
                  
                  $
                  97,345
                  
                  
                  $
                  -
                  
                  
                  $
                  8,413,279
 There was
a realized gain on the sale of marketable securities  of $159,805 and
$17,124 for the years ended December 31, 2009 and 2008
respectively.
 
 The fair
value of mortgage-backed securities was estimated using quoted market prices.
None of the securities with an unrealized loss at December 31, 2008 are
considered to be other-than-temporarily impaired, therefore the unrealized loss
was reported in the consolidated statement of stockholders’ equity under
accumulated other comprehensive income. The Company’s investment was in hybrid
mortgage-backed securities, with a AAA rating fully guaranteed by agencies of
the U.S. Government. At December 31, 2008, marketable securities has an average
life of approximately two and a half years.   The Company no
longer had an investment in mortgage backed securities as of December 31,
2009.
 
 4.
                Interest
      Receivable
 
 In
connection with the condemnation of the Flowerfield property (see note 20), the
Company had accrued interest commencing with the date Stony Brook University
took title to the property, in November 2005, until the time the Company
received the advance payment, in March 2006. Pursuant to the New York State
Eminent Domain Procedure Law, both the advance payment and any additional award
from the Court of Claims bear interest at the current statutory rate of 9%
simple interest from the date of the taking.
  F-12
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 As of
December 31, 2007, the Company recorded a provision for loss of interest on
condemnation proceeds amounting to $332,377 which represents a portion of the
previously recorded interest receivable of $921,385 pertaining to the Advance
Payment in connection with the 2005 condemnation of 245 acres of property and
certain buildings by the State University of New York at Stony Brook. During the
year ended December 31, 2006, the Company received $589,008 of interest on the
Advance Payment. Although the Company had been advised by counsel representing
the State that a statutory interest rate of 9% was due and payable on the
Advance Payment of $26.3 million, the State of New York has now taken the
position that a lesser interest rate was applicable. The Company is pursuing the
loss of interest on condemnation along with its claim for additional
compensation in the Court of Claims of the State of New York. See Note
20.
 
 5.
                Investment
      in Grove Partnership
 
 The
Company has a 9.99% limited partnership interest in the Callery-Judge Grove,
L.P. (the "Grove"). As of December 31, 2009 and 2008, the carrying value of the
Company's investment, under the equity method, was $0. As a result, the Company
did not record any of the losses for either fiscal year.
  The
fiscal year end of the Grove is June 30. Summarized unaudited financial
information reflecting book value  of the Grove as of June 30, 2009
and 2008 is as follows:
 Years
      Ended June 30,
                  
                  2009
                  
                  
                  2008(in
      thousands)
                  
                  
                  (in
      thousands)Total
      Current Assets
                  
                  $
                  2,237
                  
                  
                  $
                  3,351Total
      Assets
                  
                  
                  15,033
                  
                  
                  
                  16,216Total
      Current Liabilities
                  
                  
                  17,291
                  
                  
                  
                  15,090Total
      Liabilities
                  
                  
                  38,929
                  
                  
                  
                  37,044Total
      Partners’ Capital
                  
                  
                  (23,896
                  )
                  
                  
                  (20,828
                  )Total
      Revenues
                  
                  
                  1,038
                  
                  
                  
                  1,391Net
      Loss
                  
                  
                  (7,549
                  )
                  
                  
                  (7,332
                  )
 6.
                Accrued
      Liabilities
                  Accrued
      liabilities at December 31, 2009 and 2008 are as
  follows:
 
 December
      31,2009
                    
                    
                    2008Payroll
      and related taxes
                    
                    $
                    68,675
                    
                    
                    $
                    16,270Professional
      fees
                    
                    
                    177,300
                    
                    
                    
                    66,200Directors
      fees
                    
                    
                    26,500
                    
                    
                    
                    30,000Other
                    
                    
                    25,645
                    
                    
                    
                    5,757Total
                    
                    $
                    298,120
                    
                    
                    $
                    118,227
 
 F-13
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 7.
                Mortgages
      Payable
 
 In June
2007, in connection with the purchase of the Port Jefferson Professional Park,
the Company assumed a $5,551,191 mortgage payable to a bank (the “Port Jefferson
Mortgage”). The Port Jefferson Mortgage bears interest at 5.75% through February
1, 2012 and adjusts to the higher of 5.75% or 275 basis points in excess of the
Federal Home Loan Bank’s five year Fixed Rate Advance (“Fixed Rate Advance”)
thereafter. The Port Jefferson Mortgage is payable in monthly installments of
principal and interest totaling $33,439 through February 2012. From March 1,
2012 through February 1, 2022, the minimum monthly installment will be no less
than $33,439 and will vary based upon the Fixed Rate Advance. In February 2022,
a balloon payment is due of approximately $3,668,000. The Port Jefferson
Mortgage is collateralized by the Port Jefferson Professional Park in Port
Jefferson Station, New York.
 
 In June
2008, in connection with the purchase of the Cortlandt Medical Center in
Cortlandt Manor, New York, the Company borrowed $5,250,000 from a bank (the
“Cortlandt Mortgage”). The Cortlandt Mortgage originally bore interest at a per
annum rate of 225 basis points above the one month LIBOR rate (4.71% at
inception) through July 1, 2018, subject to monthly adjustment. The Cortlandt
Mortgage is payable in monthly installments with a fixed principal payment of
$17,500 plus interest, through June 1, 2018. In July 2018, a balloon payment is
due of approximately $3,168,000. The Cortlandt Mortgage is collateralized by the
Cortlandt Medical Center. As part of the terms and conditions of the Cortlandt
Mortgage, reacting to an increase in the LIBOR rate, the Company exercised an
option to enter into an interest rate swap agreement in November 2008 with the
bank holding the mortgage, thereby fixing the interest rate at 5.66% through
November 1, 2011. The liability associated with the Interest Rate Swap Agreement
was not material at December 31, 2009 and 2008.
 
 In March
2009, in connection with the purchase of the Fairfax Medical Center in Fairfax,
Virginia, by Virginia Healthcare Center, LLC (“VHC”), a wholly-owned subsidiary
of the Company, VHC borrowed $8,000,000 from a bank (the “Fairfax Mortgage”).
The Fairfax Mortgage bears interest at 5.875% through April 10, 2014 and
thereafter adjusts to the higher of 5.50% or 300 basis points over the weekly
average yield on five-year United States Treasury securities. The Fairfax
Mortgage is collateralized by a Deed of Trust and Security Agreement
establishing a first trust lien upon the land, buildings and improvements as
well as a Collateral Assignment of Leases and Rents and matures on April 10,
2019. In April 2019, a balloon payment is due of approximately
$6,120,000.  The payment of the indebtedness evidenced by the Fairfax
Mortgage and the performance by VHC of its obligations thereunder have been
guaranteed by the Company.
  The
mortgages payable mature as follows:
  Years
      Ending December31,
                  
                  Amount2010
                  
                  $
                  456,0002011
                  
                  
                  472,0002012
                  
                  
                  486,0002013
                  
                  
                  504,0002014
                  
                  
                  522,000Thereafter
                  
                  
                  15,724,000Total
                  
                  $
                  18,164,000
 Interest
expense for the years ended December 31, 2009 and 2008 approximated $943,000 and
$466,000, respectively.
  F-14
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
  8.
                Income
      Taxes
 
 The
Company files federal and state income tax returns that includes all 100% owned
non taxable REIT subsidiaries. The Company files separate state income tax
returns for its taxable REIT subsidiary.
 
 The
benefit for income taxes is comprised of the following:
 Year
      Ended December 31,2009
                  
                  
                  2008Current:Federal
                  
                  $
                  -
                  
                  
                  $
                  -State
                  
                  
                  -
                  
                  
                  
                  --
                  
                  
                  
                  -Deferred:Federal
                  
                  
                  (3,215,000
                  )
                  
                  
                  (1,880,000
                  )State
                  
                  
                  (915,000
                  )
                  
                  
                  (616,000
                  )(4,130,000
                  )
                  
                  
                  (2,496,000
                  )$
                  (4,130,000
                  )
                  
                  $
                  (2,496,000
                  )
  December
      31,2009
                  
                  
                  2008Deferred
      Tax Liabilities:Unrealized
      gain on investment in Citrus Grove
                  
                  $
                  (1,206,000
                  )
                  
                  $
                  (1,209,000
                  )Gain
      on condemnation (a)
                  
                  
                  -
                  
                  
                  
                  (4,127,000
                  )Total
      Deferred Tax Liabilities
                  
                  
                  (1,206,000
                  )
                  
                  
                  (5,336,000
                  )Net
      Deferred Income Taxes
                  
                  $
                  (1,206,000
                  )
                  
                  $
                  (5,336,000
                  )
  The
Company is taxed as a REIT for federal and state income tax purposes under
section 856(c)(1) of the Internal Revenue Code (the “Code”). 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
      deferred recognition of the gain on the condemnation of its real property
      for income tax purposes.  On June 27, 2007, June 2, 2008, and
      March 31, 2009 the Company acquired the Port Jefferson Professional Park,
      the Cortlandt Medical Center, and the Fairfax Medical Center,
      respectively. These purchases totaled approximately $28,805,000 and
      represent a reinvestment in excess of the condemnation
      proceeds.  As a result of replacing the condemned property with
      like kind property prior to the April 30, 2009 Internal Revenue Service
      imposed deadline, the recognition of the gain is deferred until the newly
      acquired properties are disposed of.  The Company had a deferred
      tax liability for the effect of the gain on condemnation for the portion
      of the proceeds not reinvested as of December 2008. As of December 31,
      2008, the remaining balance of condemnation proceeds to be reinvested was
      approximately $10,401,000, all of which was satisfied through the
      investment in the Fairfax Medical Center on March 31,
  2009.
  F-15
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 A
reconciliation of the federal statutory rate to the Company’s effective tax rate
is as follows:
  Year Ended
      December 31,2009
                  
                  
                  2008U.S.
      Federal Statutory Income Rate
                  
                  
                  -
                  
                  
                  
                  -State
      Income Tax, net of federal tax benefits
                  
                  
                  -
                  
                  
                  
                  -Reversal
      of Deferred Taxes Resulting from REIT Election and Reinvestment of
      Condemnation Proceeds
                  
                  
                  (158.8
                  )%
                  
                  
                  (293.6
                  )%Differences
      Related to Investment in Citrus Grove
                  
                  
                  0.4
                  %
                  
                  
                  31.9
                  %(158.4
                  )%
                  
                  
                  (261.7
                  )%
  9.
                Retirement
      Plans
 
 The
Company has a noncontributory defined benefit pension plan (the “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
year ended December 31, 2009 the Company was required to make a minimum funding
contribution of $200,000.  During 2008, the Company was not required
and did not make any contributions to the Plan. The “Company” through it’s
option, elected to apply $100,000 of the 2009 contribution to 2008 and for 2009
has elected to apply available credits in the pension toward its remaining
funding requirement.
 
 The
following tables provide a reconciliation of the changes in the plan's benefit
obligations and fair value of assets over years ended December 31, 2009 and 2008
and a statement of the funded status as of December 31, 2009 and
2008:
  December
      31,2009
                  
                  
                  2008Pension
      BenefitsReconciliation
      of Benefit Obligation:Obligation
                  
                  $
                  2,180,788
                  
                  
                  $
                  2,225,957Service cost
                  
                  
                  137,136
                  
                  
                  
                  93,258Interest cost
                  
                  
                  148,873
                  
                  
                  
                  133,973Actuarial (gain)
      loss
                  
                  
                  396,095
                  
                  
                  
                  (132,644
                  )Benefit payments
                  
                  
                  (133,179
                  )
                  
                  
                  (139,756
                  )Obligation
                  
                  $
                  2,729,713
                  
                  
                  $
                  2,180,788
  F-16
 
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 Reconciliation
      at Fair Value of Plan Assets:Fair value of plan assets,
      beginning of year
                  
                  $
                  1,465,423
                  
                  
                  $
                  2,854,563Actual return on plan
      assets
                  
                  
                  917,814
                  
                  
                  
                  (1,249,384
                  )Actual
      Contributions
                  
                  
                  200,000
                  
                  
                  
                  -Benefit payments
                  
                  
                  (133,179
                  )
                  
                  
                  (139,756
                  )Fair
      Value of Plan Assets, end of year
                  
                  $
                  2,450,058
                  
                  
                  $
                  1,465,423Funded
      Status:(Liability)
asset
                  
                  $
                  (279,655
                  )
                  
                  $
                  (715,365
                  )Unrecognized (gain)
      loss
                  
                  
                  1,306,681
                  
                  
                  
                  1,828,576Net
      Amount Recognized
                  
                  $
                  1,027,026
                  
                  
                  $
                  1,113,211
  For the
year ended December 31, 2009, the actuarial pension gain recognized in other
comprehensive income was $521,895.  At December 31, 2009 and 2008,
accumulated unrecognized actuarial pension losses of $1,306,681 and $1,828,576
have not yet been recognized as a component of net periodic pension benefit
cost.  The amounts in accumulated other comprehensive loss that are
expected to be recognized as components of net periodic benefit cost during 2010
total $229,833.
  The
accumulated benefit obligation was $2,360,400 and $1,946,610 as of December 31,
2009 and 2008, respectively.
  The
following table provides the components of net periodic benefit cost for the
plans for the years ended December 31, 2009 and 2008 :
  December
      31,2009
                
                
                2008Pension
      BenefitsService
      Cost
                
                $
                137,136
                
                
                $
                93,258Interest
      Cost
                
                
                148,873
                
                
                
                133,973Expected
      Return on Plan Assets
                
                
                (117,215
                )
                
                
                (222,240
                )Amortization
      of Actuarial (Gain)/Loss
                
                
                117,391
                
                
                
                7,126Net
      Periodic Benefit Cost After Curtailments and Settlements
                
                $
                286,185
                
                
                $
                12,117
  December
      31,2009
                
                
                2008Pension
      BenefitsWeighted-Average
      AssumptionsDiscount rate
                
                
                6.11
                %
                
                
                7.16
                %Expected return on plan
      assets
                
                
                8.00
                %
                
                
                8.00
                %Rate of compensation
      increase
                
                
                5.00
                %
                
                
                5.00
                %
 The
Plan’s investment objectives are expected to be achieved through a portfolio mix
of Company stock, other investments, and cash and cash equivalents which reflect
the Plan’s desire for investment return.
  F-17
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 The
defined benefit plan had the following asset allocations as of their respective
measurement dates:
 
 December
      31,2009
                  
                  
                  2008Common
      Stock – Gyrodyne Company of America, Inc.
                  
                  
                  92.9
                  %
                  
                  
                  94.4
                  %Other
      Funds
                  
                  
                  7.1
                  %
                  
                  
                  5.6
                  %Total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
 Securities
of the Company included in plan assets are as follows:
 
 2009Number
      of Shares
                  
                  
                  54,330Market
      Value
                  
                  $
                  2,275,612
  Quoted
      Prices
                    In
      An Active
                    Market(Level
      1)Common
      Stock – Gyrodyne Company of America, Inc.
                  
                  $
                  2,275,612Taxable
      Fixed Income Funds
                  
                  
                  72,662Money
      Market Funds
                  
                  
                  101,781Accrued
      Income
                  
                  
                  3Total
                  
                  $
                  2,450,058
 There
were no Level 2 or 3 inputs.
 
 Expected
      approximate future benefit payments are as follows:Years
      Ending December 31,
                  
                  Amount2010
                  
                  $
                  166,0002011
                  
                  
                  185,0002012
                  
                  
                  177,0002013
                  
                  
                  168,0002014
                  
                  
                  159,0002015
      – 2019
                  
                  
                  731,000
 10.
                Incentive
      Compensation Plan
 
 The
Company has an incentive compensation plan for all eligible full-time employees
and members of the Board in order to promote shareholder value. The Board approved amendments to the plan on February 2,
2010 which are set forth in an Amended and Restated Incentive Compensation Plan
dated as of February 2, 2010 (as amended, the “Incentive
Plan”).  Full-time employees and members of the Board are eligible to
participate, and rights of all participants vested immediately on
February 2, 2010.
  F-18
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 Benefits
are realized upon either a change in control of the Company or upon the issuance
by the Company of an ”excess dividend” following certain asset sales.
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 Incentive Plan provides for a cash payment equal to the difference
between the Incentive Plan's "establishment date" price of $15.39 per share, and
the per share price of the Common Stock on the closing date equivalent to
100,000 shares of Common Stock, such number of shares subject to adjustments to
reflect changes in capitalization. For any individual who becomes a participant
with an effective date after December 31, 2009, the trading  price of
the Company’s for the 10 trading days ending on the trading day prior to the
date of participation will replace the price of $15.39 for the purpose of
calculating benefit.   The payment amount would be distributed to
eligible participants based upon their respective weighted percentages (ranging
from .5% to 18.5%).  There are currently 110.000 units granted under
the Incentive Plan equal to 110,000 shares of Common Stock.
 
 Benefits are also realized if the Company receives
proceeds from the disposition of assets during any twelve-month period in an
aggregate dollar amount greater than or equal to 15% of the total gross fair
market value of Company assets, and within twelve months following the last
disposition the Company distributes to shareholders an amount that exceeds
income from operations (an “Excess Dividend”).  In such event, the
Company will pay participants an aggregate amount equal to the Excess Dividend
per share multiplied by the number of units in the Incentive Plan, currently
110,000 (the “Disposition Dividend”); provided that a Disposition Dividend may
not exceed the aggregate amount of payments under the Incentive Plan that would
have been paid had there been a change-in-control consummated on the date of the
payment of the Disposition Dividend.  This feature is intended to
encourage management and the Board to consider asset dispositions followed by
distributions of proceeds that are in the best interests of the Company’s
shareholders but which would otherwise result in a reduction of potential
benefits under the Incentive Plan.
  In the event of death of a participant, the beneficiary
of the participant in the Incentive Plan is entitled to a death
benefit.
  At December 31, 2009 and 2008, there were no accrued
liabilities under the Incentive Plan.
 
 11.
                Revolving
      Credit Line
 
 The
Company has a line of credit borrowing facility with a bank.  The
facility has a borrowing limit of $1,750,000, bears interest at the lending
institution's prime-lending rate (3.25% at December 31, 2009) plus 1%, and is
subject to certain financial covenants. The line is secured by certain real
estate and expires on June 1, 2011. As of December 31, 2009, and 2008,
$1,750,000 was available under this agreement and the Company was in compliance
with the financial covenants.
 
 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 securities issued
with the guarantee of U.S. Government Agencies. 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, 2009 and 2008.
  F-19
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 13.
                Commitments
 
 Lease revenue
commitments - The approximate future minimum revenues from rental
property under the terms of all noncancellable tenant leases, including bargain
renewals, assuming no new or renegotiated leases are executed for such premises,
are as follows:
 
 Years
      Ending December 31,
                  
                  Amount2010
                  
                  $
                  4,039,0002011
                  
                  
                  2,721,0002012
                  
                  
                  1,845,0002013
                  
                  
                  1,573,0002014
                  
                  
                  1,021,000Thereafter
                  
                  
                  1,938,000$
                  13,137,000
 Employment
agreements - Effective December 31, 2008, the Company amended the
existing employment contracts with two officers to comply with Section 409A of
the Internal Revenue Code. The annual salaries of both officers at December 31,
2009 aggregate to approximately $397,000.
  The compensation
arrangements between the Company and Gary Fitlin, our Chief Financial Officer,
are set forth in an Offer Letter and a Deferred Bonus Agreement, each executed
on October 22, 2009 (collectively, the “Agreements”) aggregating $233,000,
annually.
 
 14.
                Fair
      Value of Financial Instruments
  Assets and Liabilities Measured at
Fair-Value – The Company follows authoritative guidance on fair value
measurements, which defines fair-value, establishes a framework for measuring
fair-value, and expands disclosures about fair-value measurements. The guidance
applies to reported balances that are required or permitted to be measured at
fair-value under existing accounting pronouncements; accordingly, the standard
does not require any new fair-value measurements of reported balances.
  The
Company follows authoritative guidance on the fair value option for financial
assets, which permits companies to choose to measure certain financial
instruments and other items at fair-value in order to mitigate volatility in
reported earnings caused by measuring related assets and liabilities
differently. However, we have not elected to measure any additional financial
instruments and other items at fair-value (other than those previously required
under other GAAP rules or standards) under the provisions of this
standard.
  The
guidance emphasizes that fair-value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair-value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair-value measurements, ASC Topic 820 establishes a fair-value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the
hierarchy) and the reporting entity’s own assumptions about market participant
assumptions (unobservable inputs classified within Level 3 of the
hierarchy). In instances where the determination of the fair-value measurement
is based on inputs from different levels of the fair-value hierarchy, the level
in the fair-value hierarchy within which the entire fair-value measurement falls
is based on the lowest level input that is significant to the fair-value
measurement in its entirety. Our assessment of the significance of a particular
input to the fair-value measurement in its entirety requires judgment, and
considers factors specific to the asset or liability.
 F-20
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 The
following table represents the carrying value and fair value of the Company’s
financial assets and liabilities as of December 31, 2009.
  December
      31, 2009
                  December
      31, 2008Description
                  Carrying
      Value
                  Fair
      Value
                    (Level
      2)
                  Carrying
      Value
                  Fair
      Value
                    (Level
      2)AssetsInvestments
                  $203,000
                  $203,000
                  -
                  -
 
 Cash
equivalents, rents receivable, prepaid and other assets, accounts payable and
other liabilities.  The Company estimates that the fair value
approximates carrying value due to the relatively short maturity of the
instruments.
  The
Company determined the fair value of its long term debt approximates book
value.  The Company based its decision by looking at current rates
available based on the Company’s estimate for nonperformance and liquidity risk,
the Company’s loan to value ratio, the maturity of the debt and the underlying
security of the debt.
  Deferred
rent receivables represent the excess of rents recognized over amounts actually
due.  Likewise, deferred rent payable represents the excess of rents
received over amounts actually recognized in
revenue.    These assets and liabilities have a fair value
that approximates book value as a willing buyer would likely adjust the purchase
price of Gyrodyne by the balance of such assets and liabilities.
  The
estimated fair value of the Company's investment in the Callery Judge Grove
property at December 31, 2009, based upon an independent third party appraisal
report, is approximately $17,134,000 without adjustment for minority interest,
lack of marketability discount, or the property related secured debt
facility,  based strictly on a pro rata basis of the Company's
ownership percentage. The Grove is a distressed asset operating in a distressed
environment where an orderly transaction is not available.  The facts
and circumstances of the Grove make it unreasonable to present a fair value
utilizing a Level 3 methodology, the lowest methodology which allows for broad
assumptions, therefore, in accordance with the exception rules for thinly
traded/lack of marketability of  distressed assets under Topic 820,
the Company is not presenting a fair value.
  During
2008 and 2009, we had investments in hybrid mortgage-backed securities,
with a AAA rating fully guaranteed by U.S. government agencies (the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation). The fair values of mortgage-backed securities originated
by U.S. government agencies are based on a pricing model that incorporates
prepayment speeds and spreads to determine appropriate average life of
mortgage-backed securities. The spreads are sourced from broker/dealer's trade
prices and the new issue market. As the significant inputs used to price the
mortgage-backed securities are observable market inputs, the fair values of
these securities are included in the Level 2 fair value hierarchy. As of
December 31, 2009, the Company does not have a remaining investment in
hybrid-mortgage backed securities.
 
 F-21
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and 2008
 15
                Acquisition
      of Properties
 
 On March
31, 2009, the Company, through its wholly owned subsidiary Virginia Healthcare
Center, LLC, acquired the Fairfax Medical Center in Fairfax, Virginia, (the
“Property”) from Fairfax Medical Center, LLC (the “Seller”). The Property
consists of two office buildings which are situated on 3.5 acres with
approximately 58,000 square feet of rentable space and an occupancy rate of
approximately 84% when acquired. The purchase price was $12,891,000 or
approximately $222 per square foot. There is no material relationship between
the Company and the Seller. Of the $12,891,000 purchase price for the Property,
the Company paid $4,891,000 in cash and received financing in the amount of
$8,000,000 from a bank. In addition, $131,966 of pre-acquisition development
related costs associated with the acquisition were capitalized. The total
capitalized costs were allocated as follows:
  Land
                  
                  $
                  2,150,000Buildings
                  
                  $
                  10,872,966Mortgage
      payable
                  
                  $
                  (8,000,000
                  )Cash
                  
                  $
                  (5,022,966
                  )
 The
Company had non-recurring acquisition fees of $57,495 which were expensed as
incurred.
 
 The
following unaudited proforma financial information for the year ended December
31, 2009 and 2008 presents the effect as if the Fairfax Medical Center
acquisition occurred on January 1, 2008.  The proforma information is
based on historical results and is not intended to be indicative of future
results.
  Year
      Ended December 31,2009
                  
                  
                  2008Revenues
                  
                  $
                  5,136,555
                  
                  
                  $
                  4,656,731Loss
      Before Benefit for Income Taxes
                  
                  $
                  (2,596,389
                  )
                  
                  $
                  (906,870
                  )Expense(Benefit)
      for Income Taxes
                  
                  $
                  10,939
                  
                  
                  $
                  (6,636,939
                  )Net
      Income (Loss)
                  
                  $
                  (2,607,328
                  )
                  
                  $
                  5,730,069Net
      Income (Loss) Per Common Share:
                  
                  $
                  (2.02
                  )
                  
                  $
                  4.44
 16.
                Related
      Party Transactions
 
 There
were no related party transactions during the year ended December 31,
2009  A law firm related to a director provided approximately $1,000
of legal services to the Company during the year ended December 31,
2008
 
 17.
                Major
      Customers
 
 For the
year ended December 31, 2009 rental income from the three largest tenants
represented 6%, 4% and 3% of total rental income.
 
 For the
year ended December 31, 2008 rental income from the three largest tenants
represented 6%, 5% and 4% of total rental income.
  F-22
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and 2008
 18.
                Supplementary
      Information - Quarterly Financial Data
  (Unaudited)
 
 Year
      Ended December 31, 2009
                  
                  First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthRental
      Income
                  
                  $
                  820,241
                  
                  
                  $
                  1,128,693
                  
                  
                  $
                  1,150,921
                  
                  
                  $
                  1,187,372Tenant
      reimbursements
                  
                  
                  129,302
                  
                  
                  
                  121,972
                  
                  
                  
                  164,141
                  
                  
                  
                  131,774Total
      Revenue
                  
                  
                  949,543
                  
                  
                  
                  1,250,665
                  
                  
                  
                  1,315,062
                  
                  
                  
                  1,319,146Rental
      Property Expense
                  
                  
                  (426,699
                  )
                  
                  
                  (512,022
                  )
                  
                  
                  (538,870
                  )
                  
                  
                  (465,655
                  )Income
      from Rental Property
                  
                  
                  522,844
                  
                  
                  
                  738,643
                  
                  
                  
                  776,192
                  
                  
                  
                  853,491Net
      (Loss) Income
                  
                  $
                  3,741,588
                  
                  
                  $
                  (605,152
                  )
                  
                  $
                  (831,296
                  )
                  
                  $
                  (782,250
                  )Net
      (Loss) Income Per Common ShareBasic
                  
                  $
                  2.90
                  
                  
                  $
                  (.47
                  )
                  
                  $
                  (.64
                  )
                  
                  $
                  (.61
                  )Diluted
                  
                  $
                  2.90
                  
                  
                  $
                  (.47
                  )
                  
                  $
                  (.64
                  )
                  
                  $
                  (.61
                  )Year
      Ended December 31, 2008
                  
                  First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthRental
      Income
                  
                  $
                  636,609
                  
                  
                  $
                  739,625
                  
                  
                  $
                  791,284
                  
                  
                  $
                  799,701Tenant
      reimbursements
                  
                  
                  114,044
                  
                  
                  
                  87,905
                  
                  
                  
                  115,334
                  
                  
                  
                  101,017Total
      revenue
                  
                  
                  750,653
                  
                  
                  
                  827,530
                  
                  
                  
                  906,618
                  
                  
                  
                  900,718Rental
      Property Expense
                  
                  
                  (343,827
                  )
                  
                  
                  (340,734
                  )
                  
                  
                  (432,367
                  )
                  
                  
                  (402,099
                  )Income
      from Rental Property
                  
                  
                  406,826
                  
                  
                  
                  486,796
                  
                  
                  
                  474,251
                  
                  
                  
                  498,619Net
      (Loss) Income
                  
                  $
                  (127,647
                  )
                  
                  $
                  2,642,711
                  
                  
                  $
                  (310,038
                  )
                  
                  $
                  (662,777
                  )Net
      (Loss) Income Per Common ShareBasic
                  
                  $
                  (.10
                  )
                  
                  $
                  2.05
                  
                  
                  $
                  (.24
                  )
                  
                  $
                  (.51
                  )Diluted
                  
                  $
                  (.10
                  )
                  
                  $
                  2.05
                  
                  
                  $
                  (.24
                  )
                  
                  $
                  (.51
                  )
 19.
                Interest
      Income
  Interest income consists
of the following:
  Year
      Ended December 31,2009
                  
                  
                  2008Interest
      Income on Investments
                  
                  $
                  97,528
                  
                  
                  $
                  481,168Interest
      Income – Other
                  
                  
                  9,796
                  
                  
                  
                  57,766$
                  107,324
                  
                  
                  $
                  538,934
 20.
                Contingencies
 
 Gyrodyne Company of America,
Inc. v. The State University of New York at Stony Brook
 
 On May 1,
2006 the Company commenced litigation in the Court of Claims of the State of New
York seeking just compensation for the 245.5 acres in St. James and Stony Brook,
New York (the “Property”) that were appropriated by the State on November 2,
2005 under the power of eminent domain.  On November 10, 2008,
Gyrodyne and the State of New York filed with the Court of Claims their
respective appraisals regarding the value of the Property. As of the November
2005 appropriation date, Gyrodyne’s appraiser has valued the Property at
$125,000,000, based in part upon a separate zoning analysis report that Gyrodyne
also filed with the Court which concluded that there was a high probability the
Property would have been rezoned from light industrial use to a Planned
Development District.  The State’s appraiser appraised the Property
using the current light industrial zoning at a fair market value of
$22,450,000.
  F-23
 GYRODYNE
COMPANY OF AMERICA, INC.
 AND
SUBSIDIARIES
 
 
 Notes
      to Consolidated Financial StatementsYears
      Ended December 31, 2009 and
2008
 
 As the
State's appraisal is $3,865,000 less than the $26,315,000 Advance Payment
already made to Gyrodyne, if the Court of Claims were to adopt the State of New
York’s November 10, 2008 appraisal, the State could recoup the $3,865,000
difference between the Advance Payment and the State of New York’s November 10,
2008 appraisal, including interest already paid on the Advance
Payment.
 
 The
Company believes the State’s appraisal is fundamentally flawed in that it
misapplied the eminent domain law’s requirement that just compensation be
determined based upon the highest and best use and the probability that such use
could have been achieved.
 
 The trial
in the Court of Claims commenced on August 13, 2009 and concluded on August 18,
2009.  The Court set November 23, 2009 as the deadline for the parties
to submit post-trial memoranda of law, and both parties filed the documents
accordingly.  The Company has not recorded any provision or liability
related to this litigation at December 31, 2009 and 2008, with the exception of
accounts payable related to professional fees incurred.
  Faith Enterprises v.
Gyrodyne, Supreme Court, Suffolk County, Index # 3511/2007.
 
 This
case, reported on in prior reports, was settled with no consideration being paid
by the Company to the plaintiffs. The settlement stipulation that
discontinued the matter was signed by all parties and was filed with the Suffolk
Supreme Court on July 16, 2009.
 
 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 to the Company’s financial statements.
 
 21.
                Subsequent
      Events
 
 Property Purchase – During
January, 2010, the Company entered into a non-binding Purchase and Sale
Agreement (the “Agreement”) with Mark Hittman and Elizabeth
Hittman  (the “Seller”) to acquire the land and building, located at
1989 Crompond Road (the “Property”). The Property consists of approximately
2500 square feet of rentable space on 1.6 acres and has a current occupancy rate
of 100%. Other than with respect to the Agreement itself, there is no
material relationship between the Company and the Seller.
 
 The
purchase price for the Property is approximately $720,000, $72,000 of which was
paid as a refundable deposit upon the signing of the Agreement, and the
remainder is required to be paid at closing. The closing is expected to
take place on or about April 15, 2010, and is subject to customary
representations and conditions, excluding the condition that the Company obtain
financing. The Agreement is subject to a 30-day inspection period during
which the Company may, at its own expense, arrange for legal, environmental
and/or engineering analyses. The Company may terminate the Agreement prior
to the expiration of the inspection period in the event that the Seller fails to
cure any title or survey objections pursuant to the terms of the
Agreement.
  F-24