SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

                        Annual Report Pursuant to Section
                                  15(d) of the
                         Securities Exchange Act of 1934

                     For the Fiscal Year Ended June 30, 2003
                         Commission File Number 0-18958

                          Groen Brothers Aviation, Inc.
             -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)


             Utah                                       87-0489865
-------------------------------           -------------------------------------
(State or other jurisdiction of           I.R.S. Employer Identification Number
Incorporation or organization)

          2640 W. California Ave. Ste A, Salt Lake City, UT 84104-4593
          ------------------------------------------------------------
                    (Address of principal executive offices)

Company's telephone number, including area code:  (801) 973-0177

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

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

                           Common Stock (No Par Value)
                           ---------------------------
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
-filing requirements for the past 90 days.

                                                     Yes XX       No

         As of June 30, 2003, the Registrant had outstanding  98,819,978  shares
of common stock, no par value per share, which is the Registrant's only class of
common stock.


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                                     PART I
                                     ------

Item 1.     Business
--------------------

THE COMPANY

         Groen  Brothers   Aviation,   Inc.   ("the   Company")  was  originally
incorporated  in the State of Utah on July 28,  1980 as a private  company  then
named New Wave  Energy.  Separately,  on March 21,  1986,  Sego Tool,  Inc.  was
incorporated by Jay and David Groen in order to enter the gyroplane business. On
September 18, 1990,  the Groen  brothers  exchanged  100% of the common stock of
Sego Tool,  Inc. for 80% of the stock of New Wave Energy,  an action that was in
effect a reverse  acquisition of New Wave by the owners of Sego Tool. On October
23, 1990,  the name of New Wave Energy was changed to Groen  Brothers  Aviation,
Inc. and under this name the Company became a fully-reporting public corporation
(stock symbol  "GNBA") to facilitate the raising of capital and to give minority
shareholders the flexibility of owning publicly traded stock

         The initial  objective of the Groen  brothers was to develop and market
an easy-to-fly and  cost-efficient  gyroplane that could compete  effectively in
the  general  aviation  market.  Initially  personal  funds were used to build a
proof-of-concept  aircraft  incorporating  their design for the first collective
pitch controlled rotor system for a gyroplane.  This  proof-of-concept  aircraft
flew  successfully in 1987 and the Groens were able, as a result,  to obtain the
support of private  investors to begin the  development of the Hawk 1 (one seat)
prototype.

         Following the  successful  flight of the Hawk 1 prototype in 1992,  the
Company  proceeded with the design of its third  prototype,  the two-seat Hawk 2
which  first  flew in  February  1997,  incorporating  a unique  airfoil  design
enabling a smooth vertical  takeoff at a world record- breaking density altitude
for gyroplanes.  At this point the Groens  recognized that the opportunities for
gyroplanes,  and for the  Company,  extended  well beyond the  original  general
aviation market objective, and had broad potential for commercial,  governmental
and military applications.

         The  Company's  focus  was thus  reoriented  to the  design of a larger
four-seat Hawk 4 intended for FAA  certification  for a wide range of commercial
and Public Use applications.  The first pre-production  piston-engine version of
the Hawk 4 flew in September  1999,  followed by the  turbine-engine  version in
July 2000.  During hundreds of hours of flight testing and  demonstrations  over
the next year, this turbine-engine model exhibited much superior performance and
was selected to be FAA certified as the production aircraft.

         The decline of the stock market,  particularly  with the  withdrawal of
venture capital availability from technically oriented companies,  then followed
by the 9/11/01  attack with its impact upon  aerospace,  disrupted the Company's
plans  which   called  for   significant   new  funding  to  cover  the  onerous
certification  costs  for the  Hawk 4. As a  result,  the  Company  cut back its
operations  very  substantially  in October 2001 and directed its efforts toward
developing  and  promoting  the Hawk 4 Gyroplane  for  Homeland  Defense and law
enforcement  usage.  This  included  the  offering  of the Hawk 4 to the  agency
responsible  for  security  for the Winter  Olympics for whom the Hawk 4, fitted
with infrared camera and other gear, performed effectively and flawlessly during
the 2002 Games. Through this and other demonstrations,  the Company has received
very positive  response from potential law  enforcement  agency users as well as
from governmental funding sources.

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         Because  the  technology  developed  by the Company is scalable to both
larger  and  smaller  gyroplane  designs,  it has  offered  to  develop  for the
Department  of  Defense  (DOD)  both a small  portable  unmanned  gyroplane  for
battlefield  surveillance  and a very large  gyrodyne,  a gyroplane  derivative,
capable of vertical  take-off and substantial  lift and range  capability.  This
latter proposal  directed at a specific Army  requirement  necessary to meet the
need  for new  methods  to bring  forces  into  battle  stations  has  generated
particular  interest from the Defense Advanced  Research Projects Agency (DARPA)
who assess such programs for the DOD. The Company is pursuing funding from DARPA
to advance  development of its gyrodyne,  which also has potential for important
commercial applications.

         The Company has also noted that its original  general  aviation  market
still lacks the economical  easy-to-fly gyroplane that it originally intended to
produce  and that,  in the opinion of  management,  this  market  should  expand
significantly  as a result of new less  restrictive  FAA  regulations.  Although
thousands  of  kit-built  small  gyroplanes  have been  produced by a variety of
manufacturers over many years, for the most part, these gyroplanes have not been
designed and manufactured to aerospace standards,  thereby  incorporating a full
understanding of gyroplane  dynamics.  Some have suffered  accident and fatality
statistics that do not reflect the inherent safety of the gyroplane.

         Further it became evident that a professionally  designed  aircraft for
this market would also have important  applications for patrol surveillance both
in the United States and other countries.  To exploit these  opportunities using
the very considerable  knowledge of gyroplane dynamics and aerodynamics built up
over the years, the Company set up a second subsidiary,  American Autogyro, Inc.
(AAI), in December 2002, to enter these markets. AAI started with the design and
manufacture  of a  modification  kit to enhance  flight  stability  for  another
manufacturer's  home built  gyroplane  and  initiated  delivery of such a kit in
April 2003. AAI is now finalizing the design of its own two-seat  piston-powered
gyroplane,  named the SparrowHawk and expects to begin  deliveries in the fourth
quarter of calendar  2003.  As shown in the  financial  statements  for the year
ended  June 30,  2003,  AAI  generated  its  first  revenue  in  FY2003,  and it
anticipates  additional  revenues  in FY 2004  from the sale of the  SparrowHawk
Gyroplane and modification  kits.  Several orders for the SparrowHawk  Gyroplane
were generated in the first quarter of FY 2004.

         Hereafter,  The  "Company"  refers to the  Registrant,  Groen  Brothers
Aviation, Inc. (GBA), and its wholly-owned subsidiaries, Groen Brothers Aviation
USA, Inc. (GBA USA) and American Autogyro,  Inc. (AAI). Unless otherwise stated,
the financial  activities  described  herein are those of GBA USA and AAI, which
were the sole operating entities during the reporting period.

GYROPLANE TECHNOLOGY

         [ ]      The Gyroplane

         Autorotative  flight was developed in 1919 by Spanish aviator,  Juan de
la Cierva with the objective of eliminating the risk of stalling inherent in all
fixed wing aircraft when forward  speed  dropped below a critical  speed.  De la
Cierva named and trademarked his invention as the "autogiro,"  which means "self
turning" or "autorotation."  Gyroplane is an official term now designated by the
Federal Aviation Administration (FAA) to describe an aircraft that gets its lift


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<PAGE>

from rotor  blades  and its thrust  from an  engine-driven  propeller  either in
front, the tractor configuration, or at the rear, the pusher configuration.

         The rotary wing of a gyroplane, powered in flight only by the onrushing
air,  much like a windmill,  will not stall,  however,  because a  reduction  in
forward  speed  with the rotor  blades in  autorotation,  will not result in any
sudden loss of lift. As speed decreases a gyroplane will begin to descend, right
side up and controllable as its rotating wing continues to provide lift with the
upward  flow of air driving  the rotor.  This  provides  the  gyroplane  with an
inherent safety advantage over a conventional  airplane for activities requiring
low altitude, low speed operations.

         For such low, slow flying  missions,  a gyroplane has a similar  safety
advantage  over  a  helicopter.   The  helicopter  obtains  its  lift  from  its
engine-powered  rotor blades pulling the air downwards  creating an upward force
on the rotor,  enabling the helicopter to hover. This,  however,  also makes the
aircraft  unstable,  and difficult to fly, since a loss of power to a helicopter
rotor will cause an immediate loss of lift. Only with  sufficient  forward speed
or altitude will a skilled pilot be able to put a helicopter  into  autorotation
to make a controlled  landing  operating as a  gyroplane,  although  without the
benefit of rotor blades  optimized  for gyroplane  flight.  A helicopter is also
much  more  mechanically   complex  than  a  gyroplane,   requiring   additional
safety-critical  systems,  notably a transmission  between engine and main rotor
and a tail  rotor  with its  transmission,  needed to offset  the  torque in the
system  created by the  powering of the rotor in flight.  For these  reasons,  a
gyroplane is inherently safer,  simpler,  quieter,  easier to operate while much
less expensive to maintain than a helicopter.

         The one  capability of a helicopter  over a gyroplane is its ability to
hover,  which is necessary  in some  situations  such as sea rescue,  sling-load
work, or landing in uneven terrain.  The percentage of today's helicopter market
that  requires  hovering  is,  however,  quite  small,  perhaps  no more than 10
percent. For air surveillance and point-to-point  flying, the inability to hover
is not a  disadvantage.  Helicopters  at low  altitude,  out of  ground  effect,
whenever  possible will avoid hovering,  because of the danger inherent in doing
so. In a low level  surveillance  roll, such as law enforcement,  border patrol,
traffic  control,  etc.,  proper  procedure for all rotorcraft is to circle in a
slow orbit, something the Hawk 4 can do efficiently and safely.

         In summary,  gyroplanes in flight, being in constant autorotation,  are
much  safer  in low and  slow  flight  than  either  airplanes  or  helicopters.
Airplanes flying low and slow risk a stall/spin crash,  which cannot happen in a
gyroplane.  If power fails in a gyroplane,  the  autorotation  continues and the
aircraft can be guided softly to the ground from any altitude.  When power fails
in a  helicopter,  the pilot must convert from  powered  flight to  autorotative
flight  to keep  the  rotor  blades  turning.  This is an  unforgiving  process,
requiring split second reaction by the pilot,  and requiring a minimum  altitude
and/or  airspeed.  If a helicopter is operating  with  insufficient  altitude or
speed when a power  failure  occurs,  or beneath a line known as the "dead man's
curve" shown on graphs in the helicopter's  flight manual, the pilot will not be
able to avoid a crash landing.

         [ ]      Interrupted History of the Gyroplane

         In the 1920s and 1930s,  following the successful flights of Cierva, in
America,  Harold Pitcairn and his colleague  Walter Kellett,  under license from
Cierva,  designed  and  built a series  of  gyroplanes,  which  eventually  made
vertical  takeoffs and landings.  Their efforts resulted in the autogiro concept


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<PAGE>

proving commercially  successful in many applications during the 1930s and early
1940s. An outstanding  example was its use by the U.S. Postal Service for nearly
ten years to deliver mail from the roofs of post  offices.  Thousands of flights
carrying  millions  of pieces of mail were  performed  by Kellett  and  Pitcairn
gyroplanes flying in Camden,  Philadelphia,  Chicago,  New Orleans,  Washington,
D.C., and other cities.

         By the early 1940s the private  aircraft  market had collapsed with the
Great Depression and the build up toward WWII, and the main source of investment
in aviation came from the U.S. military. At the time, Igor Sikorsky,  who was an
important  designer of transport  airplanes for the  government,  recognized the
potential of a helicopter to the military. After licensing rotor technology from
Pitcairn, he convinced the U.S. military to invest in the helicopter as the next
logical step in the evolution of  rotorcraft,  promising  more  versatility  for
military purposes than the gyroplane.

         The commitment to the helicopter  effectively ended government  funding
for technical development of the gyroplane.  After World War II, however,  there
was a brief and modest resurgence as investors enabled three two-seat commercial
gyroplanes to be developed and FAA certified by private  companies:  the Umbaugh
(later the Air & Space 18A),  the Avian (a  Canadian  design of that same period
that reached FAA certification,  but was never produced), and the McCulloch J-2.
In each case,  as an  expedient  to FAA  certification,  the  designers  adapted
helicopter  rotors  and  blades,  and  thus  did not  fully  use  the  gyroplane
technology  created  by their  1930s  predecessors.  As a result,  none of these
gyroplanes  performed well and the companies failed. More significantly,  during
the 1950s,  Igor  Benson,  a  colleague  of  Sikorsky,  developed  a  home-built
open-frame  gyroplane  kit for  amateurs,  which  he  called  the  "gyrocopter."
Stemming  from this  initiative,  home-built  kits,  mostly  seating one person,
became popular with enthusiasts and more than a dozen small  manufacturers  have
produced and sold several thousand kits.

         The technical  development of the  helicopter  necessary to achieve the
potential of helicopter  flight was,  however,  much more difficult and took far
longer than the military expected. Real utility was not fully attained until the
middle of the  Vietnam  War,  and then only after  billions  of dollars had been
spent developing  turbine-powered  helicopters  with sufficient  payload to move
large  numbers of troops and  equipment  into and out of the  jungle.  While the
Vietnam War clearly  demonstrated  the versatility of vertical  flight,  it also
demonstrated  that the  helicopter was too expensive to purchase and operate for
widespread civilian use.

         Large  aviation   companies   capable  of  developing  and  bringing  a
commercial-sized  gyroplane to market have thus found that the civilian  side of
helicopter  production has not been highly profitable.  Nevertheless  companies,
such as Boeing  and Bell,  that have  committed  large  capital  outlays  toward
helicopter  and  tilt-rotor  technology  for  military  applications,  recognize
vertical takeoff and landing has substantial commercial potential. They continue
to look for civilian  use of that  technology  as evidenced by their  investment
into the  development  of aircraft  targeted  for  commercial  use,  including a
civilian tilt-rotor.

         [ ]      The Gyrodyne

         The  Gyrodyne  is a  derivative  of the  Gyroplane  that,  as the  name
implies,  has a powered  rotor that enables the Gyrodyne to hover and to takeoff
and land vertically.  Gyrodynes differ from helicopters in that their rotors are


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powered,  not by the main engine, but by tipjets normally used only for takeoff,
landing  and  hovering.  In forward  flight the  tipjets  are turned off and the
aircraft  operates  as a  gyroplane  with the  attendant  advantages  of safety,
reliability  and economy.  Since the rotor is not driven by torque from the main
engine  located in the  aircraft  fuselage,  a gyrodyne  does not require a tail
rotor with its complexity and maintenance requirements.

GBA PRODUCTS

         [ ]      GBA Hawk4 Gyroplane

         The  four-seat  Hawk 4  Gyroplane  powered by a  Rolls-Royce  Model 250
420shp  turboprop  engine is being  developed  to  become  the  Company's  major
production  aircraft.  This  aircraft  incorporates  rotor blades  optimized for
autorotative  flight  and the  Company's  patented  rotor  head with  infinitely
variable collective pitch control.  This enables the pilot to optimize the rotor
blade  pitch  to the  existing  conditions  and  attain  a  smoothly  controlled
ultra-short  ground roll for both  take-off  and  landing.  The  turbine  engine
further  contributes to the reliability,  maintainability and low operating cost
characteristics  of the  aircraft.  GBA has flown the Hawk 4 in several  hundred
incident-free   sorties,   over   hundreds  of  hours  of  flight  time  in  its
pre-certification  flight test program. During the first quarter of FY 2003, the
Company  continued its flight  testing of the Hawk 4 at its Buckeye  facility in
Arizona and will recommence that program as soon as funding permits.

         The Company is confident that the safety, reliability,  maneuverability
and low  operating  cost of the Hawk 4 will  permit it to perform  competitively
with helicopters  (and airplanes) for many missions  requiring low, slow flight,
but  without the  requirement  for a runway for  take-off or landing.  Potential
customers include the following:

         1.   Law enforcement (police, sheriff, border patrol, customs, and drug
              interdiction).
         2.   Public service agencies (fire patrol, medical transport,  wildlife
              and land management).
         3.   Military  (courier,  armed  surveillance,  VIP transport,  forward
              artillery control, ground attack, unmanned aerial vehicle).
         4.   Commercial  (oil, gas, and power line patrol and inspection,  land
              survey, aerial photography,  crop spraying,  herd management,  air
              taxi service, corporate transport, and flight training).
         5.   Private (commuting, sport flying, training).

         Management  believes  that it is in the  national  interest  that GBA's
unique gyroplane technology is developed. The terrorist actions of September 11,
2001,  and  later  have  triggered  important  new  opportunities  to use  GBA's
technology  in  new  counter-terrorism  markets.  The  new  circumstance  of our
country,  as well as other countries,  is requiring  sharply increased levels of
vigilance by many  branches of government to protect  critical  national  assets
against terrorist  attack.  Public Use regulations would permit the Hawk 4 to be
utilized as a highly efficient,  safe, and inexpensive means of providing needed
surveillance by government  agencies for such roles. These include border patrol
as well as protection of pipelines,  nuclear power plants and key transportation
infrastructures  for which the Hawk 4 is  particularly  well suited,  performing
such missions far more effectively,  and often at far lower cost, than other air
or ground vehicles.

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         The  Company's  revised  Business  Plan has  therefore  reoriented  its
immediate  priorities  toward  offering the Hawk 4 Gyroplane in its already well
tested form to the US government, and to governments of friendly countries. This
gives GBA the opportunity to begin receiving revenues ahead of FAA certification
and as a result to  require a need for  sharply  reduced  funding  to permit the
start of production of the Hawk 4. Consistent with this objective,  GBA has been
presenting  the case  for the  Hawk  4's  utility  in this  role to  members  of
Congress,  appropriate Federal Agencies,  and to State and local agencies across
the nation.

         The  2002  Winter  Olympics   provided  a  particular   opportunity  to
demonstrate  the Hawk 4's unique  capabilities.  The Utah Olympic  Public Safety
Command  (UOPSC) used the Hawk 4 under Public Use laws as an aerial  observation
platform in support of increased security at the Salt Lake International Airport
and surrounding environs.  For the UOPSC observation missions,  the aircraft was
equipped with FLIR Systems Inc.'s  day/night  observation  system,  a Spectrolab
Inc. SX-5 search light, an Avalex  Technologies flat panel display,  a Broadcast
Microwave  Services live realtime video downlink  system,  and a law enforcement
communications radio stack provided by Northern Airborne Technology.  During its
operational  period  for  UOPSC,  the Hawk 4  demonstrated  its  reliability  by
completing 67 missions and accumulated 75 hours of maintenance-free flight time.

         Following  this  success,  in early FY 2003 GBA was one of 50 companies
from around the nation that were selected  from among  hundreds of applicants to
display products designed to strengthen  homeland security at the Small Business
Homeland  Defense  Expo.  The Hawk 4 Homeland  Defender(TM)  was one of only two
chosen for a special  showcase  display on July 10, 2002, in Washington in front
of the  Russell  Senate  Office  Building.  The  Expo,  co-chaired  by  Senators
Christopher  S. Bond  (R-MO)  and John F.  Kerry  (D-MA),  included  Tom  Ridge,
Director of the Office of Homeland Security as a featured speaker.

         In a live CNN  broadcast at the Expo,  Senator  Kerry said his favorite
product  at the Expo was the Hawk 4  Gyroplane,  making  note of its very  short
takeoff and landing  capabilities,  high  performance,  high reliability and low
operating  cost.  The Hawk 4, dressed in Homeland  Defender Navy gray,  was well
received  by  numerous   Senators  and  their  staffs.   U.S.   Small   Business
Administrator  Hector Barreto, who was pictured with the Hawk 4 in an edition of
the  Washington   Times,   personally   congratulated  the  GBA  team  on  their
accomplishments.

         Various representatives of the military branches and executive agencies
who are  potential  users of such an aircraft  also  attended the Expo.  It thus
provided GBA with the opportunity to inform federal  procurement agents, as well
as members of the U.S. Congress, of the potential Homeland Security applications
of the Homeland Defender Gyroplane.  In the days immediately after the Expo, the
Company  followed up the  interest  generated at the Expo by  performing  flight
demonstrations  and giving  familiarization  rides at the nearby  Leesburg,  VA,
airport.

         Among  the  numerous  visitors  attending  the  flight  demonstrations,
several of whom flew in the  aircraft,  were  representatives  of the DEA,  DOD,
DARPA, the Department of Commerce,  the President's Commission on U.S. Aerospace
Industries, and the Aerospace Industries Association.  Many senior staff members
of U.S. Senators and Representatives  attended,  including Military  Legislative
Assistants.  In addition,  reporters from the  Washington  Post and the Aircraft
Owners & Pilots Association Magazine attended the demonstrations and flew in the
aircraft.


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         Law enforcement  attendees at Leesburg (including the D.C. Metro Police
Department,  Virginia  State  Police,  and the Henrico  County  Virginia  Police
Department) were of particular importance, because GBA has fostered considerable
interest among such groups in the safety,  reliability and economy of the Hawk 4
for law  enforcement  missions.  In October  2002,  GBA further  stimulated  law
enforcement interest by attending the International Association of Police Chiefs
Convention.

         Also in October 2002, GBA displayed the Hawk 4 before an estimated half
million plus attendees at one of the nation's premier military  aviation events,
the Miramar  Marine Corps Air Station Air Show in San Diego,  CA.  Following the
Hawk 4's  appearance  at  Miramar,  it flew  familiarization  flights and flight
demonstrations  for two  days  at the  nearby  Ramona  airport.  Media  coverage
included  San  Diego's  Channel 10,  KGTV,  which  featured  the Hawk 4 in their
evening  newscasts.  Among those accepting GBA's  invitation to participate were
officials  from the  U.S.  Border  Patrol,  Ventura  County  and  Orange  County
Sheriff's  departments  along with the head of the Ecuadorian Army Aviation unit
and the chief pilot for the Ecuadorian National Police.

         Following  its  demonstrations  of the utility of the Hawk 4 for Public
Use applications, GBA has received fifty-five written statements of support from
significant  law  enforcement  agencies,  representing  twenty-seven  states and
Puerto Rico. Each of these letters indicated a desire to operate the Hawk 4 as a
Public Use  (precertification)  aircraft,  if funding for acquisitions were made
available.

         The  attempted  shooting  down  of  an  Israeli   commercial   aircraft
approaching  Mombasa  airport  in  Kenya,  by  Al  Qaeda  terrorists  using  Sam
shoulder-mounted  missiles,  has made  the  issue of  protection  of  commercial
aircraft  from such  missile  attacks  an  extremely  important  issue.  Several
proposals have been made to fit military  missile  defense systems to commercial
aircraft,  but these  approaches  are hugely  expensive  and would take years to
develop and install.  Significantly,  however, the Kenya incident precisely fits
the  scenario  presented  by GBA as a  serious  risk  to the  Salt  Lake  Winter
Olympics,  which  resulted  in the Hawk 4  demonstrating  its  capacity to guard
against such an attack. The recent arrest in New York of individuals  attempting
to import Russian SAM missiles into the United States  heightens  concerns about
this threat.

         GBA asserts that the most practical and effective  deterrent to missile
attacks remains  intensive  patrolling by safe, low cost Hawk 4 gyroplanes.  GBA
has  therefore  approached   principal   government   agencies,   including  the
Transportation  Security  Administration  (TSA) of the  Department  of  Homeland
Security,  the  Office  of  Domestic  Preparedness  (ODP) of the  Department  of
Justice, as well as representatives of airport authorities,  to present the case
for the Hawk 4 in this role.

         The  Company  continues  to seek  opportunities  to present  its unique
gyroplane technology to potential purchasers and investors and to broaden public
recognition that the modern gyroplane has an important place in aviation.  Among
significant  successes  in this regard have been the  inclusion of the Hawk 4 in
the  Smithsonian  National  Air & Space  Museum's  new IMAX  film on rotor  wing
flight,  "Straight Up!  Helicopters in Action," which premiered in September and
will  subsequently be distributed to other IMAX theaters  worldwide.  Reflecting
the  current  impact  that  GBA's Hawk 4 is having on the  rotorcraft  industry,


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particularly as it relates to homeland  security,  the  Smithsonian  Institution
recognized  the merits of  featuring  GBA's 21st Century Hawk 4 Gyroplane in its
new movie. After showing bigger-than-life footage of a restored Pitcairn (PCA-2)
Autogyro,  a 1920's vintage gyroplane,  the film fast-forwards to current scenes
of the Hawk 4 flying in the skies of Utah and Arizona to demonstrate the rebirth
of the gyroplane through modern technology.

         The  Hawk 4  Homeland  Defender(TM)  gyroplane  was also  showcased  in
segments that aired on "National  Geographic Today" and on "National  Geographic
This  Week."  Brilliantly  produced,  these  pieces  made a clear  case  for the
employment of the modern  gyroplane as a homeland defense tool and the relevance
of the Hawk 4 Homeland Defender(TM) as an affordable aerial observation platform
in a post 9-11 world.

         All Hawk 4 sales,  except  military that are made directly by GBA, will
be  conducted  through  the GBA  dealer  network.  GBA has  established,  and is
continuing  to add  Authorized  Dealers in major cities across the United States
and Canada.  The Company has fifteen  Authorized  Dealers in major cities across
the United States and Canada.  There also are Authorized  Dealers in Costa Rica,
Ecuador,  and the Bahamas.  GBA Dealers will be responsible for sales,  service,
maintenance,  and flight  training.  To become a dealer,  aircraft  deposits are
given  to GBA  based on a quota  for  each  metropolitan  statistical  area.  At
present,  the  Company  has  received  more than 145 down  payment  deposits  on
aircraft  from its  dealers and  private  individuals.  The dealers in turn take
deposits from customers as orders are received.

         During the past ten years of  developing  the Hawk  Gyroplane,  GBA has
received sales  inquiries from thousands of potential  customers,  both domestic
and foreign. In support of its dealer network, the Company has established a web
page at  www.gbagyros.com.  Each GBA Authorized Dealer is linked to the main GBA
web site as well as having  their own  internet  site.  The  Company  also makes
available  to its  dealers  printed  sales  materials  and  videos  of the  Hawk
Gyroplane.

         The Company is seeking orders from foreign  governments  with intensive
border patrol needs.  Since the  maintainability of the Hawk 4 Gyroplane enables
it to excel in operating where  infrastructure  is relatively  undeveloped,  the
potential for sales in many foreign  countries is great.  In the  expectation of
such sales,  GBA has evaluated the efficiency of assembling Hawk 4 Gyroplanes in
strategic  overseas  locations and has had  discussions  with several  different
foreign entities on possible locations.

         [ ]      AAI SparrowHawk

         During  FY 2003 GBA  decided  to enter  into the  home-built  gyroplane
market  and for this  purpose  formed a new  wholly-owned  subsidiary,  American
Autogyro,  Inc.  (AAI).  These  actions  were taken in  recognition  that GBA is
presenting the Hawk 4 to its potential customers as a professionally  engineered
example of the  gyroplane  as the safest  form of powered  flight.  The  Company
therefore  has an  important  vested  interest in the  reputation  for safety of
gyroplanes  in general,  including  that of the  thousands  of  kit-built  small
gyroplanes have been produced by a variety of manufacturers over many years. For
the most part,  these  gyroplanes  have not been  designed and  manufactured  to
aerospace  standards  and  not  therefore   necessarily   incorporating  a  full
understanding  of  autorotative  dynamics.  The historic  record of accident and
fatality  statistics  for  kit-built  gyroplanes  is thus not a  measure  of the
inherent safety of the gyroplane.

                                        9

<PAGE>
         As reported in the Company's second quarter 10-QSB filing,  in November
2002,   following  a  well   publicized   fatal  accident  in  Utah  of  another
manufacturer's  small  gyroplane,  GBA's Board of Directors  concluded  that the
reputation  of  gyroplanes  for safety  was being  negatively  impacted  by such
accidents and lives were being lost.  With its unique  knowledge of autorotative
flight and professional  aerospace  engineering  capabilities,  GBA had both the
resources   to  take  action  to  address  the  problem  and   furthermore   the
responsibility  to  attempt  to use those  resources  to  alleviate  the  tragic
consequences.  Preliminary  market  analysis  indicated  that this could be done
profitably.  The  Board  therefore  requested  management  to  develop a plan to
achieve these objectives.

         The Board  reviewed the  resulting  plan and financial  projections  in
December  and  approved  the  entry of GBA into the  small (a  two-seat,  piston
engine)  gyroplane  market. It also concluded that a second subsidiary should be
set up for this purpose, as its activities would address a different market from
the larger  aircraft being  developed by GBA USA. GBA has therefore set up a new
subsidiary, American Autogyro, Inc. (AAI), with the purposes of developing:

         o    Modification  kits to  address  the  most  serious  safety  issues
              identified in current production small gyroplanes.

         o    A new small gyroplane  designed to aerospace  standards that would
              set a new standard for safety in that class of aircraft.

         Mr. Jim  Mayfield  was  appointed  President  of AAI and its sole Board
Member, officer and employee, with other GBA employees assigned to AAI. In light
of his substantial  additional  responsibilities  for the management of AAI, Mr.
Mayfield relinquished his positions as a Board member of GBA and as Executive VP
of GBA USA. He retained  responsibility  for the Marketing,  Flight  Operations,
Engineering  and  Manufacturing  departments  of GBA USA  with  the  title of VP
Operations.

         GBA's announcement to the kit-built  gyroplane  community,  through the
internet,  of its  intention to enter the  kit-built  market  received  positive
response,  supporting  management's belief that AAI can participate  effectively
and profitably in this market.  AAI's first product is a Stability  Augmentation
Kit (SA Kit) designed for retrofit by owners to a popular kit-built gyroplane.

         Since AAI's inception:
         o    AAI received its first orders for the SA Kit.
         o    Completed the SA Kit design.
         o    Built its first development SA Kit.
         o    Installed the SA Kit on a Canadian built gyroplane.
         o    Undertook extensive flight testing.
         o    AAI began  delivering SA Kits to revenue  customers in April 2003,
              and delivered 8 kits by the end of FY 2003.


                                       10

<PAGE>

         AAI has also proceeded  rapidly with the design of the complete kit for
its own two-seat "SparrowHawk"  Gyroplane.  As of September 15, 2003, 28 initial
orders have been  received  and first  deliveries  are expected to begin in fall
2003.  The AAI  SparrowHawk,  incorporating  safety  features based on aerospace
standards,  will offer  performance,  stability and comfort  standards  that AAI
believes are superior to any competitive kit-built gyroplane in its class.

         An intensive  marketing  program for AAI  products is being  developed.
Nineteen AAI dealerships have been  established,  15 in the United States,  with
other dealerships in British Columbia, the Bahamas, Ecuador, Costa Rica, and New
Zealand. Due to the difference in their market  compositions,  unlike the Hawk 4
dealer  program,  SparrowHawk  civilian  sales  are not being  made  exclusively
through AAI's dealer network and AAI will also sell directly to customers.

         AAI is placing a particular focus for such  demonstrations  at regional
and  national  air shows  attended by kit-built  aircraft  enthusiasts.  AAI and
several  of  its  dealers  gave  demonstrations  to  attendees  to  the  Popular
Rotorcraft  Association Show at Mentone,  Indiana, and the Experimental Aircraft
Association Show at Oshkosh, Wisconsin, in July 2003.

         Management  also  believes  that there will be two large markets in the
future for AAI gyroplanes as fully assembled  aircraft  produced by AAI. GBA has
identified a large and untapped market,  both overseas and in the United States,
for safe,  inexpensive,  reliable and effective  surveillance  aircraft that can
operate "off  airport" and are easy to maintain and fly.  These  qualities,  all
characteristics  of the gyroplane  being designed by AAI are expected to be very
popular with law enforcement agencies around the world.

         A second emerging market is likely to arise within the United States as
a result of the  forthcoming  FAA definition of a new category of aircraft,  the
Light Sports Aircraft (LSA) category.  FAA Administrator Blakey announced at the
Oshkosh  Air Show in July  that the FAA had  completed  its  development  of the
definition  and that it was  receiving  final  reviews  from the  Department  of
Transportation and the Office of Management and Budget before  promulgation.  It
is anticipated that this new category,  expected to be implemented in 2004, will
initially permit manufacturers such as AAI to produce and sell kits that require
only simple assembly by purchasers - current regulations are much more stringent
requiring  the  purchaser of a  home-built  kit to  accomplish  51% of the build
process. At a later date manufacturers will be permitted to sell fully assembled
Light Sport  Aircraft under the new  regulations.  AAI believes that its product
designs will be well suited to this market and be capable of  conforming  to the
new regulations.

         [ ]      Future GBA Gyrodyne Aircraft

         GBA's  technology  is  fully  scalable  and  readily  adaptable  to the
gyroplane's  derivative form, the gyrodyne. As previously noted, the gyrodyne is
a rotary wing aircraft that uses "tipjets" for short  duration power  permitting
pure vertical  takeoff and landing and the  capability  to hover.  During the en
route portion of the flight the tipjets are turned off and the gyrodyne flies as
a  gyroplane  in  autorotation.  Such an  aircraft  is capable  of both  lifting
substantial  payload  in  gyrodyne  mode  and  covering  substantial  range as a
gyroplane.  The  technical  validity  of this  concept was  demonstrated  by the


                                       11

<PAGE>

British Fairey Rotodyne in the 1960's. With the application of modern technology
developed by GBA or in the public domain, the concept is ready to be turned into
a highly utilitarian aircraft.

         In recognition of these  capabilities,  GBA has presented a proposal to
the  Defense  Advanced  Research  Projects  Agency  (DARPA)  to  develop a large
gyrodyne to meet a critical unsatisfied need by the Defense Department.  For the
past three years, DOD has been seeking a vertical takeoff aircraft with lift and
range capabilities that no aerospace  manufacturer has been able to offer. GBA's
proposal,  incorporating a rotary wing on an existing fixed-wing  aircraft,  has
received   wide-ranging  coverage  in  the  aerospace  press  and  will  receive
government support for further development of its GyroLifter concept.

         The gyrodyne  technology  developed for the GyroLifter  also has direct
application to the design of short-range  VTOL commercial  airliners.  Growth in
the economy will produce heavy demand for aircraft  that do not require  runways
and are not limited by air traffic  control  constraints  and GBA anticipates an
opportunity  to develop such an  aircraft.  By using the airframe of an existing
type-certificated  production  airplane and adding GBA's rotor system,  gyrodyne
airliners can be delivered for  substantially  less  investment and in less time
than would normally be required to bring a new airliner to market. The Company's
longer-range  plans  have  identified   opportunities  for  large  (18-60  seat)
gyrodynes to provide  commercial  passenger  service in short- and  medium-range
markets.

PATENTS

         GBA presently owns several U.S. and international  patents which relate
to collective pitch and flight controls.  The important element of these patents
is  collective  pitch  control  on  a  semi-rigid,   teetering  rotor  head  for
gyroplanes.  This is different from similar  sounding  claims for helicopters as
this concept has never before been applied to gyroplanes.  The patent claims are
written very broadly,  which makes it difficult to design  around them,  and the
patent process is ongoing.  The Company adds claims as improvements  are made to
the rotor head, which extends the patent life. GBA's patent opportunity  existed
because of a fifty-year hiatus in development in gyroplane technology.

Item 2.     Properties
----------------------

         The Company leases its  development/manufacturing  facility  located at
2640 W. California Avenue, Suite A, Salt Lake City, UT 84104-4593. This property
of   approximately   25,000  square  feet,   houses  its  Headquarters  and  its
administrative  offices,  and within this  facility it has  assembled the Hawk 4
prototypes  and some parts  production  for the  SparrowHawk.  In addition,  the
Company leases a flight facility in Buckeye Airport,  Arizona,  of approximately
12,000  square feet,  which it manages on behalf of the Airport  Authority.  All
flight testing of the Company's aircraft takes place at Buckeye as well as parts
manufacture and assembly of the AAI SparrowHawk products. AAI's headquarters are
located at this facility.

                                       12

<PAGE>

         In August 2001, the Company  announced that it would move its corporate
headquarters  from Salt Lake City,  Utah,  to a new  manufacturing  facility  in
Glendale,  Arizona. However, since the events of 9-11, and the effect that these
have had on the  Company,  any decision to build and move into a new factory has
been postponed.  It is now the Company's  intent to begin  manufacturing  of the
Hawk 4 in its current facility in Salt Lake City, Utah.

Item 3.     Legal Proceedings
-----------------------------

         The Company is plaintiff in connection  with four million shares issued
for the purposes of obtaining a foreign loan in Luxembourg in 1993. In that suit
the Company  obtained  injunctions  in Germany and Luxembourg  preventing  those
shares  from being sold or  liquidated.  The  Company  prevailed  in the case at
appellate  levels.  The Company  continues  in the process of  obtaining a court
order from Luxembourg to have the certificates returned to the Company.

         The  Company is a  defendant  in a suit in the State of New York in the
matter of a public  relations  company  that  alleges  non-payment  for services
allegedly provided to the Company pursuant to a certain letter agreement between
the  plaintiff  and the  Company.  The Company  has filed an answer  denying the
material allegations in the suit, alleging that the plaintiff failed and refused
to perform  services  provided for in the letter  agreement.  As of September 5,
2003,  the  Company's  attorney has advised that it is  impossible  to render an
opinion  as to the  likely  outcome.  Therefore,  the  Company  has made no loss
contingency accrual at June 30, 2003.

Item 4.     Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------

         There have been no matters  submitted  to security  holders  during the
current fiscal year.


                                     PART II
                                     -------

Item 5.     Market for the Registrant's Common Stock and
--------------------------------------------------------
            Related Security Holder Matters
            -------------------------------

         The Company's common stock, no par value,  traded Over The Counter,  is
listed on the OTC Bulletin  Board as GNBA. No cash  dividends have been paid for
the past four quarters.

                                       13

<PAGE>
             Quarterly Common Stock Bid Price Ranges (Calendar Year)

           Year             Quarter           High              Low
           ----             -------           ----              ---
           1997             1st               1.88              1.25
                            2nd               1.69               .94
                            3rd               1.38              1.00
                            4th               1.31               .50
           1998             1st                .75               .41
                            2nd               1.09               .35
                            3rd                .72               .53
                            4th                .81               .47
           1999             1st                .78               .47
                            2nd               1.68               .59
                            3rd               2.63              1.06
                            4th               1.31               .81
           2000             1st               1.56               .75
                            2nd               1.56              1.03
                            3rd               1.34               .84
                            4th               1.06                72
           2001             1st                .95               .69
                            2nd               1.08               .59
                            3rd                .91               .44
                            4th                .47               .19
           2002             1st                .39               .26
                            2nd                .29               .21
                            3rd                .30               .22
                            4th                .26               .17
           2003             1st                .20               .16
                            2nd                .25               .15

         The number of shareholders of record for the Company's  common stock as
of June 30, 2003,  were 1,389,  and the number of shares issued and  outstanding
were 98,819,978.

Recent Sales of Unregistered/Restricted Securities

         During the past year, the Company sold, pursuant to private placements,
shares of its common stock to sophisticated or accredited  investors.  The sales
were exempt from  registration  pursuant to Rule 506 under the Securities Act of
1933.  The price per share varied with the market price of the Company's  common
stock.  The sales of these common  shares  provided the Company with  investment
capital and the relief of debt and accounts payable.  Some shares were issued to
service providers. A listing of these transactions are found in the Consolidated
Statement of Stockholders  Deficit  contained in the Company's audited financial
statements, attached hereto.


Item 6.     Management's Discussion and Analysis of Financial
-------------------------------------------------------------
            Condition and Results of Operations
            -----------------------------------

Results of Operations

         Revenues

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002, total revenues increased to $117,000 from $0. Revenues were
comprised  of $47,000  from sales of  modification  kits,  $18,000,  from flight
training,  and $52,000 from subcontracting jobs. These revenues have allowed the
Company to emerge  from the  development  stage.  Based on  $218,000  of advance
deposits from AAI customers and AAI Dealers at June 30, 2003,  for  modification
kits and  SparrowHawk  Gyroplane  kits,  the Company  believes that revenue from
these  products add  significantly  to overall  cash flow.  While less in dollar

                                       14

<PAGE>

amount,  flight  training  revenue  will be an ongoing  addition to Company cash
flow. Finally, although the Company took on subcontracting jobs in order to make
better use of Company assets,  it is expected that this revenue will diminish in
importance  during FY 2004 as the Company focuses on satisfying a growing demand
for the modification kits and SparrowHawk Gyroplane kits and other gyroplane and
gyrodyne development.

         Expenses

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002,  cost of sales  increased to $100,000 from $0. This was due
to the costs  associated with the sales of  modification  kits and revenues from
subcontracting  jobs.  The Company  experienced  a negative  gross profit on the
modification  kits because of the  nonrecurring  and "learning curve" costs that
are normally experienced in the introductory production of a new product. During
FY 2004,  the Company  expects to reap the  benefits of lower  production  costs
because of  increased  production  efficiencies  that come with  experience  and
economies of scale, yielding a positive gross profit on this product.

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002,  research and development  expenses decreased to $2,021,000
from  $3,342,000.  This  decrease was due  primarily to a $840,000  reduction in
research and  development  payroll  related  expenses in the twelve months ended
June 30, 2003, compared to the twelve months ended June 30, 2002, reflecting the
reduction in  workforce  that began in October  2001.  There was also a $320,000
reduction in the purchase of research and development materials and parts in the
twelve months ended June 30, 2003,  compared to the twelve months ended June 30,
2002, as the work emphasis shifted almost entirely from  constructing the Hawk 4
and RevCon 6 to work on AAI modification kits and the AAI SparrowHawk Gyroplane.

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002, general and administrative expenses decreased to $1,566,000
from  $3,259,000.  This  decrease was due  partially to a $280,000  reduction in
general and  administrative  payroll related expenses in the twelve months ended
June 30, 2003, compared to the twelve months ended June 30, 2002, reflecting the
reduction  in  workforce  that  began  in  October  2001.   Additional   factors
contributing  to this decrease  were: a $109,000  reduction in public  relations
expenses,  a $100,000 reduction in promotional  expenses, a $64,000 reduction in
depreciation  expense  as the  Company's  assets  aged  and as  double-declining
balance  depreciation  expense  decreased,  a $319,000  decrease in professional
fees,  and a general  decrease in general and  administrative  purchasing as the
Company continued its company wide reduction of expenses.  Management began this
company wide  reduction of expenses in the second fiscal  quarter of fiscal year
2002, when the capital  markets became  constricted in the wake of the terrorist
attacks in September 2001.

         During the twelve  months ended June 30, 2003,  the Company  determined
that  there  had been a  $148,000  impairment  in the fair  market  value of its
investment  artwork.  During the twelve months ended June 30, 2002,  the Company
determined that there had been an impairment of assets  amounting to $1,115,000,
comprised of a $867,000  impairment in deferred stock offering costs, a $159,000
impairment  in the  fair  market  value of  investment  artwork,  and a  $89,000
impairment in the fair market value of property and equipment.

                                       15

<PAGE>

         Other Income and Expenses

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002, related party interest decreased to $11,000 from $13,000.

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30,  2002,  interest  and other  income  decreased  to  $90,000  from
$415,000.  This  decrease  primarily was due to a decrease in sales of materials
and parts that  formerly  had been  expensed to research and  development,  such
sales  amounting  to $48,000  in the twelve  months  ended  June 30,  2003,  and
$410,000 in the twelve months ended June 30, 2002.

         Comparing  the twelve  months ended June 30,  2003,  to the same period
ended June 30, 2002,  interest expense  increased to $1,103,000 from $1,074,000.
This was due to an increase in accrued  interest  on notes  payable,  on accrued
payroll, and on vendor payables.

         Net Earnings

         During the twelve months ended June 30, 2003, the Company  continued to
record  losses  as  it  continued  the  transition  toward  full  marketing  and
manufacturing  of the  Hawk  Gyroplane  series,  and  as it  began  work  on AAI
modification  kits and the  SparrowHawk  Gyroplane.  For the twelve months ended
June 30, 2003, the net loss from  operations was  $3,718,0000,  the net loss was
$4,720,000,  and the net loss applicable to common stockholders was $15,586,000.
Comparatively,  for the twelve  months  ended June 30,  2002,  the net loss from
operations  was  $7,716,000,  the net  loss  was  $8,362,000,  and the net  loss
applicable to common  stockholders  was  $12,460,000.  In both fiscal years, the
additional net loss applicable to common stockholders is due to accretion in the
value of the Series B 15% Cumulative  Redeemable  Non-Voting Preferred Stock and
dividends on that stock.

         Liquidity and Capital Resources

         GBA's 2001 business plan anticipated that the FAA certification process
for commercial use of the Hawk 4 would be completed in 2002 and that  deliveries
would begin at that time.  The Company was  relying  upon  substantial  external
funding in the interim to sustain the ongoing costs of certification,  the start
of production  and overhead.  The Company had been  successful in obtaining such
funding until the impact of the fall in the stock market for technology products
starting in 2001, greatly exacerbated by the subsequent terrorist actions,  made
it extremely difficult to rely on outside investment at the levels required.

         In those circumstances,  GBA's Board decided that it would be imprudent
to  continue  to use its  resources  at  their  previous  level.  As  previously
reported,  the Company  announced in October  2001 that it therefore  was making
major modifications to its business plan to adjust to the significant changes in
the availability of funding.  Those modifications included cost cutting measures
by the layoff of those personnel primarily associated with the Hawk 4 commercial
aviation  program  and major  reductions  in other  discretionary  expenditures.


                                       16

<PAGE>
         The  revised   business   plan  also  has  delayed  GBA's  program  for
certification of the Hawk 4. A new completion date is not yet available  because
it is heavily  dependent upon adequate funding.  Management  believes that these
changes were essential to insuring that the valuable technology that the Company
has developed is not lost to the detriment of those  investors  that enabled GBA
to develop its revolutionary aircraft.

         As noted  previously,  the Company has set up a subsidiary,  AAI, which
has entered the market for  modification  kits to improve the stability of small
gyroplanes  produced  by  other  manufacturers.   This  market  typically  makes
substantial advance down payments on orders, which will accelerate AAI's ability
to become cash flow  positive.  Furthermore,  AAI is  continuing  the process of
setting up an extensive dealer network for the sale and product support of these
modification kits and of its own SparrowHawk Gyroplane kit. Fees from dealership
sales and advance customer  deposits for future  deliveries of modification kits
and SparrowHawk  Gyroplane kits are adding  significantly  to AAI's initial cash
flow.  At June 30,  2003,  advance  deposits  from  customers of AAI amounted to
$218,000, and by September 15, 2003, had increased to $497,000.

         In FY 2002 and FY 2003, the Company successfully approached many of its
principal  vendors  requesting  that they  accept a  stretching  out of payments
beyond their normal  terms.  As a result,  the Company is servicing  much of its
pre-November  2001,  obligations to vendors utilizing a combination of repayment
plans  which  include  monthly  payments  for  smaller  vendor  liabilities  and
promissory notes for larger vendor liabilities.  Certain of the promissory notes
have expired and are thus  technically in default.  The Company is, however,  in
negotiation  with those  vendors  and is seeking  to reach  agreement  with each
vendor either to extend the existing note or to a payment plan  satisfactory  to
the parties.

         During FY 2003,  $991,000  was raised  through the sale of equity.  The
Company also has raised $963,000 (net of reduction) in Notes Payable.  Increases
in accrued expenses also reduced cash requirements by $2.2 million,  and of this
amount $615,000 was the deferral of officer salaries. This funding was, however,
insufficient to offset a further  deterioration in the Company's working capital
deficit (net of amounts owed to current and former  officers)  from $8.2 million
at June 30, 2002, to $10.9 million at June 30, 2003.

         As a result the Company has continued to fall behind in payments to its
creditors,  including  tax  obligations  to the Federal  and State  governments.
Discussions  with  potential  investors,   each  of  which  would  enable  these
obligations  to be met,  are ongoing and the Company is working  toward an early
resolution.

         The Company is seeking to raise $7 million  during  fiscal year 2004 to
enact  its new  business  plan  that  relies  heavily  on sales of the  American
Autogyro  SparrowHawk and sales of the Hawk 4 Gyroplane to Public Use government
entities.  There can be no  guarantee  or  assurance  that the  Company  will be
successful  in its ability to generate  revenue or to raise capital at favorable
rates or at all.

         Management  does not  anticipate  that  revenues  or  expenses  will be
materially affected by inflation during fiscal year 2004.


                                       17

<PAGE>

         Critical Accounting Policies

         Deferred offering costs represent  origination costs incurred to obtain
equity financing.  Such origination costs are recognized as an asset between the
time the  costs are  incurred  and the  receipt  of the cash  proceeds  from the
offering. Deferred offering costs are reduced "dollar-for-dollar" against common
stock as the equity  financing  is  realized  or charged to expense  should they
exceed the actual equity received.

         The Company evaluates  deferred  offering costs,  recognized as assets,
for impairment whenever events or changes in circumstances indicate the deferred
offering costs exceed expected equity financing to be received.  During the year
ended June 30, 2002, the Company's management determined that the full amount of
the  deferred  offering  costs  incurred in  connection  with its equity line of
credit  arrangement  was  impaired,  due to the fact  that the  Company  had not
registered  unrestricted  shares of common stock for the purpose of drawing-down
on its line of equity. The Company's management has assessed that as of June 30,
2003 and 2002,  that it is not in the Company's  financial  interest to complete
the registration process.

         The Company  carries its investment art at the lower of cost or market.
The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable through  undiscounted future cash flows. If it is determined that
an  impairment  loss has  occurred  based on expected  cash flows,  such loss is
recognized in the statement of operations.

         During  the year  ended June 30,  2002,  a piece of  artwork  valued at
$40,000 was sold for $17,000,  42% of the cost value. At June 30, 2002, based on
this evidence of decline in market value,  and because other pieces  potentially
might be sold for similar  losses,  the Company  decided to incur an  impairment
expense  of 58% by  writing  down the  remaining  artwork  to 42% of  cost.  The
impairment  affects  the  June 30,  2002,  balance  sheet,  lowering  assets  by
$159,000,  and by increasing the accumulated  deficit by the same amount. In the
statement of operations the impairment is part of the  "impairment of assets" as
it is presented there.

         The  market  value of artwork is  subjective  until a sale  transaction
occurs.  Had the piece of  artwork  mentioned  above  been sold for a  different
amount, the impairment might have been more or less. The Company thought that it
was most  conservative  to record,  for the  remaining  artwork,  an  impairment
corresponding  to the objective  evidence of impairment  provided by the sale of
the piece of artwork mentioned above.

         During the year ended June 30, 2003,  due to the inability to determine
objectively the fair market value of the remaining artwork,  the Company decided
to incur an impairment  expense of $148,000,  representing  the remaining  value
recorded  for the artwork.  The  impairment  affects the June 30, 2003,  balance
sheet, lowering assets by $148,000,  and by increasing the Company's accumulated
deficit by the same amount.  In the  statement of operations  the  impairment is
part of the "impairment of assets" as it is presented there.


                                       18

<PAGE>

         In May 2003,  the Financial  Accounting  Standards  Board (FASB) issued
Statement of  Financial  Accounting  Standards  (SFAS) No. 150,  Accounting  for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity,  effective  for the  Company on July 1, 2003.  The  Company  expects the
adoption  of  this  standard  will  require  reclassification  of its  Series  B
preferred  stock.  The  reclassification  will increase  total  liabilities  and
decrease total equity by the Series B preferred stock balance outstanding.

         The  Company's   management  has  already  discussed  the  development,
selection and  disclosure of the above  accounting  estimates with the Company's
Board of Directors.

Item 7.     Financial Statements
--------------------------------
                                                                            Page
                                                                            ----

Independent auditors' report                                                F-1


Consolidated balance sheet                                                  F-2


Consolidated statement of operations                                        F-3


Consolidated statement of stockholders' deficit                             F-4


Consolidated statement of cash flows                                        F-6


Notes to consolidated financial statements                                  F-8


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

                                       19
<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
of Groen Brothers Aviation, Inc.

We have audited the  accompanying  consolidated  balance sheet of Groen Brothers
Aviation, Inc., (the Company), as of June 30, 2003, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the two years
ended June 30, 2003 and 2002. 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Groen  Brothers
Aviation,  Inc., as of June 30, 2003,  and the results of their  operations  and
their cash flows for the two years ended June 30, 2003 and 2002,  in  conformity
with accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements,  the Company has suffered recurring losses,
has a  stockholders'  deficit and has a net working  capital  deficiency.  These
conditions  raise  substantial  doubt  about its  ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 2. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.




                                       /s/TANNER + CO.


Salt Lake City, Utah
September 9, 2003

                                                                             F-1

<PAGE>
<TABLE>
<CAPTION>

                                                                              GROEN BROTHERS AVIATION, INC.
                                                                                 Consolidated Balance Sheet

                                                                                              June 30, 2003
-----------------------------------------------------------------------------------------------------------



       Assets
       ------
<S>                                                                                     <C>
Current assets:
   Cash                                                                                 $            4,000
   Accounts receivable                                                                              10,000
   Related party notes receivable                                                                  134,000
   Inventories                                                                                      92,000
                                                                                        ------------------

         Current assets                                                                            240,000

Property and equipment, net                                                                        413,000
                                                                                        ------------------

         Total assets                                                                   $          653,000
                                                                                        ------------------

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

       Liabilities and Stockholders' Deficit
       -------------------------------------

Current liabilities:
   Accounts payable                                                                     $        1,074,000
   Accrued expenses                                                                              5,806,000
   Deferred revenue                                                                                234,000
   Short-term notes payable                                                                        808,000
   Related party notes payable                                                                   5,455,000
                                                                                        ------------------

         Total current liabilities                                                              13,377,000

Long-term deferred revenue                                                                          25,000
Long-term debt                                                                                     200,000
Deposits                                                                                         2,699,000
                                                                                        ------------------

         Total liabilities                                                                      16,301,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' deficit:
   Series B 15% cumulative redeemable non-voting preferred stock, no par value,
     50,000,000 shares authorized; 18,443 shares issued and outstanding
     (aggregate liquidation preference of $18,443,000)                                          19,964,000
   Common stock, no par value, 200,000,000 shares authorized;
     98,819,978 shares issued and outstanding                                                   14,938,000
   Series A convertible preferred stock, no par value, 50,000,000 shares authorized;
     10,000,000 shares issued and outstanding (aggregate liquidation preference of
     $0)                                                                                         2,717,000
   Series A convertible preferred stock subscription receivable                                 (2,717,000)
   Accumulated deficit                                                                         (50,550,000)
                                                                                        ------------------

         Total stockholders' deficit                                                           (15,648,000)
                                                                                        ------------------

         Total liabilities and stockholders' deficit                                    $          653,000
                                                                                        ------------------


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

<PAGE>
<TABLE>
<CAPTION>
                                                                             GROEN BROTHERS AVIATION, INC.
                                                                      Consolidated Statement of Operations

                                                                                      Years Ended June 30,
-----------------------------------------------------------------------------------------------------------



                                                                             2003              2002
                                                                       -----------------------------------
<S>                                                                    <C>                 <C>
Revenues                                                               $         117,000   $            -
                                                                       -----------------------------------

Costs and expenses:
     Cost of sales                                                               100,000                 -
     Research and development                                                  2,021,000         3,342,000
     General and administrative expenses                                       1,566,000         3,259,000
     Impairment of assets                                                        148,000         1,115,000
                                                                       -----------------------------------

                  Total costs and expenses                                     3,835,000         7,716,000
                                                                       -----------------------------------

         Loss from operations                                                 (3,718,000)       (7,716,000)
                                                                       -----------------------------------

Other income and (expense):
     Related party interest                                                       11,000            13,000
     Interest and other                                                           90,000           415,000
     Interest expense                                                         (1,103,000)       (1,074,000)
                                                                       -----------------------------------

                  Net other expense                                           (1,002,000)         (646,000)
                                                                       -----------------------------------

         Net loss before income taxes                                         (4,720,000)       (8,362,000)

Benefit for income taxes                                                               -                 -
                                                                       -----------------------------------

                  Net loss                                             $      (4,720,000)  $    (8,362,000)
                                                                       -----------------------------------

Series B 15% cumulative redeemable
  non-voting preferred stock:
     Accretion                                                                (8,341,000)       (3,180,000)
     Dividends                                                                (2,525,000)         (918,000)
                                                                       -----------------------------------

                  Net loss applicable to
                  common stockholders                                  $     (15,586,000)  $   (12,460,000)
                                                                       -----------------------------------

Net loss per share - basic and diluted                                 $            (.16)  $          (.14)
                                                                       -----------------------------------

Weighted average common and common
  equivalent shares - basic and diluted                                       94,943,000        91,065,000
                                                                       -----------------------------------



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

<PAGE>
<TABLE>
<CAPTION>

                                                                                                       GROEN BROTHERS AVIATION, INC.
                                                                                     Consolidated Statement of Stockholders' Deficit

                                                                                                  Years Ended June 30, 2003 and 2002
------------------------------------------------------------------------------------------------------------------------------------

                           Series B 15%
                            Cumulative                                                         Series A
                            Redeemable                                                       Convertible
                            Non-Voting                                Series A Convertible    Preferred
                          Preferred Stock          Common Stock          Preferred Stock       Stock
                         ------------------------------------------------------------------  Subscription  Accumulated
                          Shares     Amount      Shares      Amount      Shares      Amount   Receivable     Deficit        Total
                         -----------------------------------------------------------------------------------------------------------

<S>                       <C>    <C>        <C>         <C>          <C>        <C>         <C>           <C>           <C>
Balance, July 1, 2001          -          -  91,662,467  31,486,000  10,000,000  10,000,000  (10,323,000)  (37,468,000)  (6,305,000)

Issuance of Series B
  preferred stock for:
    Common stock          14,250  4,750,000 (12,500,000) (4,750,000)          -           -            -             -            -
    Put options              750    250,000           -    (250,000)          -           -            -             -            -

Series B preferred stock:
    Accretion                  -  3,180,000           -  (3,180,000)          -           -            -             -            -
    Dividends                918    918,000           -    (918,000)          -           -            -             -            -

Issuance of common stock
  for:
    Cash                       -          -   6,568,700   1,679,000           -           -            -             -    1,679,000
    Commissions                -          -     225,428           -           -           -            -             -            -
    Vehicles                   -          -     155,301      31,000           -           -            -             -       31,000
    Accounts payable           -          -      18,804       5,000           -           -            -             -        5,000
    Accrued expenses           -          -      68,770      32,000           -           -            -             -       32,000
    Related party notes
      payable                  -          -     987,681      24,000           -           -            -             -      240,000
    General and
     administrative
     expenses                  -          -      67,706      13,000           -           -            -             -       13,000

Accrued interest on
  subscription receivable      -          -           -           -           -     468,000     (468,000)            -            -

Renegotiation of
 subscription receivable       -          -           -           -           -  (7,871,000)   8,194,000             -      323,000

Issuance of common stock
  options for:
    Accrued liabilities        -          -           -      12,000           -           -            -             -       12,000
    Services                   -          -           -     240,000           -           -            -             -      240,000

Commissions                    -          -           -     (62,000)          -           -            -             -      (62,000)

Net loss                       -          -           -           -           -           -            -    (8,362,000)  (8,362,000)
                          ----------------------------------------------------------------------------------------------------------

Balance, June 30, 2002    15,918 $9,098,000  87,254,857 $24,578,000  10,000,000 $ 2,597,000 $ (2,597,000) $(45,830,000)$(12,154,000)


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                                                 F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                                                       GROEN BROTHERS AVIATION, INC.
                                                                                     Consolidated Statement of Stockholders' Deficit
                                                                                                                           Continued
------------------------------------------------------------------------------------------------------------------------------------

                           Series B 15%
                            Cumulative                                                         Series A
                            Redeemable                                                       Convertible
                            Non-Voting                                Series A Convertible    Preferred
                          Preferred Stock          Common Stock          Preferred Stock       Stock
                         ------------------------------------------------------------------  Subscription  Accumulated
                          Shares     Amount      Shares      Amount      Shares      Amount   Receivable     Deficit        Total
                         -----------------------------------------------------------------------------------------------------------

<S>                      <C>    <C>          <C>        <C>          <C>        <C>         <C>          <C>           <C>
Balance Forward, June 30
 2002                    15,918 $ 9,098,000  87,254,857 $24,578,000  10,000,000  2,597,000  $(2,597,000) $(45,830,000) $(12,154,000)

Series B preferred stock:
    Accretion                 -   8,341,000           -  (8,341,000)          -          -            -             -             -
    Dividends             2,525   2,525,000           -  (2,525,000)          -          -            -             -             -

Issuance of common stock
 for:
    Cash                      -           -   4,936,500     991,000           -          -            -             -       991,000
    Commissions               -           -      10,500           -           -          -            -             -             -
    Accounts payable          -           -     111,901      23,000           -          -            -             -        23,000
    Accrued expenses          -           -     578,925     116,000           -          -            -             -       116,000
    Notes payable             -           -     746,075     149,000           -          -            -             -       149,000
    Collateral for notes
     payable                  -           -   4,850,000           -           -          -            -             -             -

    Interest expense          -           -      24,650       5,000           -          -            -             -         5,000
    Employer contribution
      to 401(k)               -           -     306,570      52,000           -          -            -             -        52,000

Accrued interest on
  subscription
  receivable                  -           -           -           -           -    120,000     (120,000)            -             -

Commissions                   -           -           -     (98,000)          -          -            -             -       (98,000)

Cancellation of stock
 options in exchange for
 accrued expenses             -           -           -     (12,000)          -          -            -             -       (12,000)

Net loss                      -           -           -           -           -          -            -    (4,720,000)   (4,720,000)
                         -----------------------------------------------------------------------------------------------------------

Balance, June 30, 2003   18,443 $ 19,964,000 98,819,978 $14,938,000  10,000,000 $ 2,717,000 $(2,717,000) $(50,550,000) $(15,648,000)
                         -----------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                                                 F-5

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                              GROEN BROTHERS AVIATION, INC.
                                                                       Consolidated Statement of Cash Flows

                                                                                       Years Ended June 30,
-----------------------------------------------------------------------------------------------------------




                                                                             2003                 2002
                                                                       ------------------------------------
<S>                                                                    <C>                 <C>
Cash flows from operating activities:
   Net loss                                                            $      (4,720,000)  $    (8,362,000)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and amortization expense                                       257,000           319,000
     Common stock issued for services and expenses                                     -            13,000
     Common stock issued for interest                                              5,000                 -
     Common stock issued for employer
       contribution to 401(k)                                                     52,000                 -
     Stock warrants and options issued for services                                    -           240,000
     Notes payable issued for expenses                                            14,000                 -
     Interest accrued against subscription receivable                                  -           323,000
     Interest accrued against related party note receivable                      (10,000)          (13,000)
     Impairment of assets                                                        148,000         1,115,000
     Loss (gain) on disposal of assets                                           (47,000)         (365,000)
     (Increase) decrease in:
       Accounts receivable                                                        (5,000)                -
       Inventories                                                               (92,000)                -
       Prepaid expenses                                                           25,000            90,000
     Increase (decrease) in:
       Accounts payable                                                          (11,000)        1,041,000
       Accrued expenses                                                        2,224,000         1,618,000
       Deferred revenue                                                          259,000                 -
       Deposits                                                                        -           (59,000)
                                                                       ------------------------------------

         Net cash used in
         operating activities                                                 (1,901,000)       (4,040,000)
                                                                       ------------------------------------

Cash flows from investing activities:
   Purchase of property and equipment                                            (16,000)          (19,000)
   Sale of property, equipment and art                                            48,000           531,000
   Issuance of related party notes receivable                                    (30,000)                -
   Collections on related party receivables and advances                          31,000            79,000
                                                                       ------------------------------------

         Net cash provided by
         investing activities                                                     33,000           591,000
                                                                       ------------------------------------


-----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                        F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                              GROEN BROTHERS AVIATION, INC.
                                                                       Consolidated Statement of Cash Flows
                                                                                                  Continued

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


                                                                              2003              2002
                                                                       ------------------------------------
<S>                                                                    <C>                 <C>
Cash flows from financing activities:
   Proceeds from short-term notes payable                                         40,000           100,000
   Reduction of short-term notes payable                                         (56,000)           (1,000)
   Proceeds from long-term debt                                                  100,000                 -
   Reduction of long-term debt                                                         -           (82,000)
   Proceeds from related party notes payable                                   1,049,000         1,819,000
   Reduction of related party notes payable                                     (170,000)         (104,000)
   Proceeds from issuance of common stock                                        991,000         1,679,000
   Payment of commissions related to issuance of
     common stock                                                                (98,000)          (62,000)
                                                                       ------------------------------------

         Net cash provided by
         financing activities                                                  1,856,000         3,349,000
                                                                       ------------------------------------

         Net change in cash                                                      (12,000)         (100,000)

Cash, beginning of year                                                           16,000           116,000
                                                                       ------------------------------------

Cash, end of year                                                      $           4,000   $        16,000
                                                                       ------------------------------------

-----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                       F-7
</TABLE>
<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements

                                                                   June 30, 2003

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


1.   Organization       Organization and Principles of Consolidation
     and                The  consolidated   financial   statements  include  the
     Summary of         accounts  of  Groen  Brothers  Aviation,  Inc.  and  its
     Significant        wholly-owned subsidiaries,  Groen Brothers Aviation USA,
     Accounting         Inc.  and American  Autogyro,  Inc.  (collectively,  the
     Policies           Company).  All  significant  intercompany  balances  and
                        transactions have been eliminated.  The primary business
                        purpose of the Company is to manufacture  and market the
                        "gyroplane."

                        Development Stage Company
                        Effective July 1, 1993 and continuing  through March 31,
                        2003,  the Company was  considered a  development  stage
                        Company  as  defined   in  SFAS  No.7.   The   Company's
                        development   stage   activities    consisted   of   the
                        development and FAA certification of the Hawk Gyroplane.
                        Sources  of  financing  for  these   development   stage
                        activities   have  been   primarily   debt  and   equity
                        financing.

                        Since  March  31,   2003,   through  its  wholly   owned
                        subsidiary,  American  Autogyro,  Inc.,  the Company has
                        been  selling  modification  kits  designed  to  improve
                        in-flight    stability    and   safety    for    another
                        manufacturer's  kit  gyroplane.  The  Company  has  also
                        received   significant   deposits   from   customers  on
                        modification   kits  and  has   initiated   design   and
                        manufacture of its own SparrowHawk gyroplane kits.

                        Concentration of Credit Risk
                        The Company  maintains its cash in bank deposit accounts
                        which, at times,  may exceed  federally  insured limits.
                        The  Company  has not  experienced  any  losses  in such
                        accounts.  The Company believes it is not exposed to any
                        significant credit risk on cash and cash equivalents.

                        Cash and Cash Equivalents
                        For purposes of the statement of cash flows, the Company
                        considers  all highly  liquid  debt  instruments  with a
                        maturity of three months or less to be cash equivalents.

                        Inventories
                        Inventories  are  stated at the lower of cost or market.
                        Cost is determined using the weighted-average method.


--------------------------------------------------------------------------------
                                                                             F-8

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.   Organization       Property and Equipment
     and                Property  and  equipment  are  carried  at  cost,   less
     Summary of         accumulated depreciation and amortization.  Depreciation
     Significant        and  amortization  are  computed  under  an  accelerated
     Accounting         method based on the estimated useful lives of the assets
     Policies           or  term  of the  lease.  When  assets  are  retired  or
     Continued          otherwise disposed of, the cost and related  accumulated
                        depreciation  are removed and any resulting gain or loss
                        is recognized in operations for the period.  The cost of
                        maintenance  and  repairs is charged  to  operations  as
                        incurred.   Significant  renewals  and  betterments  are
                        capitalized.

                        Deposits
                        Deposits  consist of amounts received from the Company's
                        authorized   dealers  on  aircraft  in  anticipation  of
                        full-scale production of the Company's Hawk 4 Gyroplane.
                        The deposit  guarantees a delivery  sequence  number and
                        represents a percentage of the total purchase price. The
                        Company has also issued  common stock to dealers.  These
                        costs have been charged to interest expense as incurred.

                        Impairment of Long-Lived Assets
                        The Company reviews its long-lived assets for impairment
                        whenever  events or  changes in  circumstances  indicate
                        that  the  carrying  amount  of the  assets  may  not be
                        recoverable  through  undiscounted future cash flows. If
                        it is determined  that an  impairment  loss has occurred
                        based on expected cash flows, such loss is recognized in
                        the statement of operations.

                        Accounting Estimates
                        The  preparation  of financial  statements in conformity
                        with  accounting  principles  generally  accepted in the
                        United  States of America  requires  management  to make
                        estimates  and  assumptions  that  affect  the  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.


--------------------------------------------------------------------------------
                                                                             F-9

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.   Organization       Stock Options and Stock-Based Compensation
     and                The Company accounts for stock-based  compensation under
     Summary of         the  recognition  and  measurement   principles  of  APB
     Significant        Opinion  No.  25,   Accounting   for  Stock   Issued  to
     Accounting         Employees, and related interpretations.  The Company has
     Policies           adopted  SFAS  No.  123,   Accounting  for   Stock-Based
     Continued          Compensation.  In  accordance  with  SFAS No.  123,  the
                        Company has elected to continue to apply APB Opinion No.
                        25 and related  interpretations  in  accounting  for its
                        stock-based compensation. In accordance with APB No. 25,
                        no   compensation   cost  has  been  recognized  in  the
                        financial   statements  for  stock  options  granted  to
                        employees. Had compensation cost for the Company's stock
                        option plans been determined  based on the fair value at
                        the grant date  consistent  with the  provisions of SFAS
                        No. 123, the Company's net loss and loss per share would
                        have been as indicated below:

                                                   Years Ended June 30,
                                          --------------------------------------
                                                 2003               2002
                                          --------------------------------------

     Net loss - as reported               $       (15,586,000) $    (12,460,000)
     Pro forma expense                             (2,728,000)       (2,845,000)
                                          --------------------------------------

     Net loss - pro forma                 $       (18,314,000) $    (15,305,000)
                                          --------------------------------------
     Loss per share -
       as reported                        $              (.16) $           (.14)
                                          --------------------------------------
     Loss per share -
       pro forma                          $              (.19) $           (.17)
                                          --------------------------------------

                        The fair  value of each  option and  warrant  granted is
                        estimated  on the date of grant using the  Black-Scholes
                        option pricing model with the following assumptions:

                                                         June 30,
                                            -----------------------------------
                                                   2003             2002
                                            -----------------------------------

     Expected dividend yield                $                -  $             -
     Expected stock price volatility                       69%             82 %
     Risk-free interest rate                              2.7%            4.0 %
     Expected life of options                     .5 - 7 years      4 - 5 years
                                            -----------------------------------

                        The weighted  average fair value of options and warrants
                        granted   during  2003  and  2002  was  $.09  and  $.18,
                        respectively.


--------------------------------------------------------------------------------
                                                                            F-10

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.   Organization       Revenue Recognition
     and                The Company recognizes  revenues from goods and services
     Summary of         when there is a binding agreement,  the product has been
     Significant        shipped or service  has been  delivered,  collection  is
     Accounting         reasonably  assured,  and the Company has no significant
     Policies           obligations remaining.
     Continued
                        Advertising
                        Advertising  costs are  non-direct  in  nature,  and are
                        expensed over the periods in which the advertising takes
                        place.  Advertising  expense totaled $2,000 and $190,000
                        for  the   years   ended   June  30,   2003  and   2002,
                        respectively.

                        Research and Development
                        Research and development costs are expensed as incurred.

                        Income Taxes
                        The Company  accounts for income taxes  according to the
                        asset and  liability  method.  The  asset and  liability
                        method   requires  the   recognition   of  deferred  tax
                        liabilities  and  assets  for the  expected  future  tax
                        consequences of temporary  differences between tax bases
                        and  financial  reporting  bases of existing  assets and
                        liabilities.  Deferred  tax assets and  liabilities  are
                        measured  using  enacted tax rates  expected to apply to
                        taxable  income  in the years in which  those  temporary
                        differences are expected to be recovered or settled. The
                        effect on  deferred  tax  assets  and  liabilities  of a
                        change  in tax  rates is  recognized  in  income  in the
                        period that includes the enactment date.


--------------------------------------------------------------------------------
                                                                            F-11

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.   Organization       Loss Per Common and Common Equivalent Share
     and                The  computation  of  basic  loss  per  common  share is
     Summary of         computed  using the  weighted  average  number of common
     Significant        shares outstanding during each year.
     Accounting
     Policies           The  computation  of diluted  loss per  common  share is
     Continued          based  on  the   weighted   average   number  of  shares
                        outstanding   during  the  period  plus   common   stock
                        equivalents which would arise from the exercise of stock
                        options  and  warrants  outstanding  using the  treasury
                        stock  method  and the  average  market  price per share
                        during  the  year.  Options  and  warrants  to  purchase
                        40,630,567  and  34,079,334  shares of  common  stock at
                        prices  ranging from $.09 to $3.00 were  outstanding  at
                        June 30,  2003 and  2002,  respectively.  Certain  notes
                        payable and long-term debt were convertible into a total
                        of 14,485,345  and  9,381,533  shares of common stock at
                        June 30, 2003 and 2002,  respectively,  with  conversion
                        prices   ranging   from  $.20  to  $.80.   Common  stock
                        equivalents   arising   out  of   Series  B   Cumulative
                        Redeemable  Non-Voting  Preferred  Stock  may  arise  in
                        October 2005, if the Company elects to redeem the Series
                        B 15% Cumulative  Redeemable  Non-Voting Preferred Stock
                        in common shares instead of cash.  The redemption  price
                        will be 80% of the  average  twenty  trading day closing
                        bid price  immediately  preceding  redemption on October
                        31,  2005.  If  Series  B  15%   Cumulative   Redeemable
                        Non-Voting  Preferred  Stock had been  required  to have
                        been  redeemed at June 30, 2003,  the  redemption  price
                        would have been $.23 per common share,  resulting in the
                        issuance  of  100,243,038  shares of common  stock.  The
                        number of common  shares issued on the  redemption  date
                        may be more or less than that number, depending upon the
                        redemption  price in effect  on the date of  redemption,
                        October 31,  2005.  Common  stock  equivalents  were not
                        included  in the  diluted  loss  per  share  calculation
                        because the effect would have been antidilutive.

                        Reclassification
                        Certain amounts in the consolidated financial statements
                        for 2002  have been  reclassified  to  conform  with the
                        current year presentation.


--------------------------------------------------------------------------------
                                                                            F-12

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


2.   Going              The accompanying  consolidated financial statements have
     Concern            been prepared assuming that the Company will continue as
                        a going concern.  Because of recurring operating losses,
                        the excess of current  liabilities  over current assets,
                        the stockholders'  deficit, and negative cash flows from
                        operations.   There  is  substantial   doubt  about  the
                        Company's  ability to continue as a going  concern.  The
                        Company's  continuation  as a going concern is dependent
                        on attaining future profitable operations, restructuring
                        its financing  arrangements,  and  obtaining  additional
                        outside  financing.   Management  anticipates  that  the
                        Company  will  be able to  obtain  additional  financing
                        sufficient  to fund  operations  during the next  fiscal
                        year,  however,  there can be no assurance  they will be
                        successful. The consolidated financial statements do not
                        include  any  adjustments  that  might  result  from the
                        outcome of this uncertainty.


3.   Related Party      Related party notes receivable consist of the following:
     Notes
     Receivable
                        Unsecured notes receivable
                        from officers and shareholders
                        bearing interest at 8%, due on
                        demand.                               $          76,000

                        Unsecured note receivable from
                        a shareholder bearing interest
                        at 12%, due on demand.                           58,000
                                                              -----------------

                                                              $         134,000
                                                              -----------------

4.   Detail of          Property and equipment consists of the following:
     Certain
     Balance            Equipment and tools                   $       1,399,000
     Sheet              Computer equipment                              486,000
     Accounts           Vehicles                                         88,000
                        Aircraft                                         67,000
                        Leasehold improvements                           56,000
                        Furniture                                        54,000
                                                              -----------------

                                                                      2,150,000

                        Accumulated depreciation
                          and amortization                           (1,737,000)
                                                              -----------------

                                                              $         413,000
                                                              -----------------


--------------------------------------------------------------------------------
                                                                            F-13

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


4.   Detail of          Inventories consist of the following:
     Certain
     Balance
     Sheet              Raw materials                         $          15,000
     Accounts           Work-in-progress                                 13,000
     Continued          Finished goods                                   64,000
                                                              -----------------

                                                              $          92,000
                                                              -----------------

                        Accounts payable consist of the following:


                        Trade accounts payable                $         799,000
                        Related party payables                          275,000
                                                              -----------------

                                                              $       1,074,000
                                                              -----------------

                        Accrued expenses consist of the following:


                        Compensation                          $       3,175,000
                        Related party interest                        1,896,000
                        Interest                                        371,000
                        Commissions                                     138,000
                        Consultant fees                                 105,000
                        Other                                           121,000
                                                              -----------------

                                                              $       5,806,000
                                                              -----------------

5.   Short-Term         Short-term notes payable is comprised of the following:
     Notes
     Payable            Unsecured notes payable to vendors
                        with interest at 20% for the first
                        three months and 25% thereafter,
                        in default as of June 2003            $         336,000

                        Unsecured note payable to a vendor
                        with interest at 12%, due December
                        2003                                            272,000

                        Unsecured note payable to an
                        individual with interest at 12%,
                        due September 2003                              112,000

                        Unsecured note payable to an
                        individual with interest at 12%,
                        due on demand                                    20,000


--------------------------------------------------------------------------------
                                                                            F-14

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


5.   Short-Term         Unsecured note payable to a vendor
     Notes              with interest at 18%, due January
     Payable            2004                                             13,000
     Continued
                        Unsecured note payable to an
                        individual with interest at 18%,
                        due on demand                                    10,000

                        Unsecured note payable to a
                        company with interest at 12%,
                        due on demand                                    10,000

                        Unsecured note payable to a
                        company, non-interest bearing,
                        due on demand                                    10,000

                        Capital lease obligations (see
                        Note 8)                                          25,000
                                                              -----------------

                                                              $         808,000
                                                              -----------------

                        Certain  short-term  note  holders may choose to convert
                        outstanding  principal  and interest  balances to common
                        stock at prices ranging from $.20 to $.24 per share.  At
                        June 30, 2003,  $165,000 of principal and interest could
                        have been converted into 817,800 shares of the Company's
                        common stock.

6.   Related Party      Related   party  notes   payable  is  comprised  of  the
     Notes              following:
     Payable
                        Unsecured notes payable to
                        stockholders with interest at 18%,
                        due on demand                          $      3,168,000

                        Unsecured note payable to a
                        stockholder with interest at 8%,
                        due on demand                                   402,000

                        Notes payable to stockholders with
                        interest at 12%, due on demand,
                        secured by common stock                         365,000

                        Notes payable to stockholders with
                        interest at 18%, due on demand,
                        secured by artwork                              200,000

                        Unsecured note payable to an
                        entity owned by certain members of
                        senior management with interest at
                        12%, due on demand                              180,000

                        Unsecured note payable to a
                        stockholder with interest at 12.5%,
                        due October 2003                                113,000


--------------------------------------------------------------------------------
                                                                            F-15

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


6.   Related Party      Unsecured note payable to an
     Notes              institutional investor with
     Payable            interest at 48%, convertible into
     Continued          Series B preferred stock (62
                        shares as of June 30, 2003), in
                        default as of June 2003                         100,000

                        Note payable to a stockholder with
                        interest at 18%, in default as of
                        July 2003                                       100,000

                        Unsecured notes payable to
                        stockholders with interest at 12%,
                        due on demand                                    85,000

                        Note payable to a stockholder with
                        interest at 18%, due on demand,
                        secured by research and development
                        parts                                            50,000

                        Unsecured note payable to a
                        stockholder with interest at 25%,
                        in default as of June 2003                       25,000

                        Unsecured note payable to
                        stockholders with interest at
                        12.5%, in default as of June 2003                 7,000

                        Capital lease obligations (see
                        Note 8)                                         660,000
                                                              -----------------

                                                              $       5,455,000
                                                              -----------------

                        Certain  shareholder  related  party  note  holders  may
                        choose to convert  outstanding  principal  and  interest
                        balances  to common  stock.  The prices per share  range
                        from  $0.20  per  share to $.80 per  share.  At June 30,
                        2003,  $5,596,000 of principal  and interest  could have
                        been converted into  13,667,545  shares of the Company's
                        common stock.

7.   Long-Term          Long-term debt is comprised of the following:
     Debt
                        Unsecured notes payable to a
                        governmental sponsored organization
                        due in monthly installments of 3%
                        of gross monthly revenues,
                        including interest at the prime
                        rate plus 2% (6.25% at June 30,
                        2003).                                $         100,000

                        Unsecured related party note
                        payable to a stockholder with
                        interest at 8%, due April 2006                  100,000
                                                              -----------------

                                                              $         200,000
                                                              -----------------


--------------------------------------------------------------------------------
                                                                            F-16

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


7.   Long-Term          Future maturities of long-term debt are as follows:
     Debt
     Continued           Years Ending June 30:                      Amount
                        ---------------------                 -----------------

                             2004                             $               -
                             2005                                       100,000
                             2006                                       100,000
                                                              -----------------

                                                              $         200,000
                                                              -----------------

8.   Capital            The Company has entered  into capital  lease  agreements
     Lease              with  financial  institutions  for certain  property and
     Obligations        equipment.   The  assets  under  lease  are  secured  by
                        property and  equipment  and  research  and  development
                        components. Assets held under capital lease and included
                        in property and equipment are as follows:

                        Shop equipment and tools              $         581,000
                        Accumulated amortization                       (310,000)
                                                              -----------------

                                                              $         271,000
                                                              -----------------

                        Depreciation  expense for assets under  capital lease is
                        included  with   depreciation   expense  for  all  other
                        depreciable assets.

                        Future minimum lease payments are as follows:


                        Year Ending June 30,                       Amount
                        --------------------                  ------------------

                          2004                                $         820,000

                          Less amount representing interest            (135,000)
                                                              -----------------

                          Present value of minimum lease
                            payments (see Notes 5 and 6)      $         685,000
                                                              -----------------

                        The  Company  has  entered  into an  arrangement  with a
                        stockholder in which the  stockholder  has the option to
                        make the payments on one of the capital leases on behalf
                        of the Company in a dollar-for-dollar exchange for stock
                        valued at $.40 per share.  At June 30, 2003,  the number
                        of shares  under this  option is  approximately  100,000
                        shares.


--------------------------------------------------------------------------------
                                                                            F-17

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

8.   Capital Lease      Under the terms of the capital leases,  if a lease is in
     Obligations        default the lessor has the ability to declare as due and
     Continued          payable all unpaid  rentals under the lease.  As of June
                        30, 2003, all capital leases were in default.

9.   Preferred          The  Company  has  authorized   200,000,000   shares  of
     Stock              preferred  stock  having  no par  value.  There are four
                        series  of  preferred  stock  with   50,000,000   shares
                        authorized  within each  series.  The rights,  terms and
                        preferences  of preferred  stock are set by the Board of
                        Directors.  As of June 30, 2003,  the Board of Directors
                        has only set rights,  terms and  preferences of Series B
                        and Series A Preferred Stock for issue.

                        At June 30, 2003,  there were 18,443  shares of Series B
                        15% Cumulative  Redeemable  Non-Voting  Preferred  Stock
                        outstanding.  The rights,  terms, and preferences of the
                        outstanding preferred shares are as follows:

                        o   The shares  have no voting  rights  other than those
                            voting rights provided under applicable laws.

                        o   Each  share's  original  Stated  Value,  upon  which
                            unpaid dividends may accumulate, is $1,000.

                        o   The shares have right to  dividends  at a 15% annual
                            dividend rate, payable in cash or in kind at the end
                            of  each  fiscal  quarter.  Accumulated  but  unpaid
                            dividends  shall be cumulative and shall be added to
                            the  Stated   Value  for   purposes  of   subsequent
                            quarterly dividend calculations.

                        o   The shares shall have superior  liquidation priority
                            to any other series of the Company's  capital stock,
                            equal  to the  Stated  Value  plus all  accrued  but
                            unpaid dividends thereon.

                        o   A total of 15,000 shares of Series B 15%  Cumulative
                            Redeemable  Non-Voting Preferred Stock with a Stated
                            Value  of  $15,000,000  were  originally  issued  in
                            exchange for  12,500,000  shares of common stock and
                            related put options valued at $5,000,000.  Accretion
                            of   the    difference   is   computed   under   the
                            straight-line  method  over the life of the Series B
                            15%  Cumulative   Redeemable   Non-Voting  Preferred
                            Stock.


--------------------------------------------------------------------------------
                                                                            F-18

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


9.   Preferred          o   When originally issued, the Company was obligated on
     Stock                  October   31,   2003,   to  redeem  all  issued  and
     Continued              outstanding  Series B Preferred  shares.  On October
                            14, 2003, and in exchange for $2,500,000 warrants to
                            purchase  common  shares at $.30 per  common  share,
                            exercisable within three years of the date of issue,
                            the  holders  of  these  Series B  Preferred  shares
                            agreed to extend the redemption  date to October 31,
                            2005.  On  the  redemption   date,  the  Company  is
                            obligated  to  redeem  all  issued  and  outstanding
                            Series B Preferred shares for an amount equal to the
                            Stated Value of $1,000 per Series B Preferred  share
                            plus all accrued but unpaid dividends  thereon.  The
                            redemption  price  may be  paid,  at  the  Company's
                            option, for a premium, in registered,  unrestricted,
                            freely  tradeable  shares  of  common  stock  of the
                            Company with a redemption price equal to 125% of the
                            Stated  Value of the Series B Preferred  shares plus
                            125% of all  accrued but unpaid  dividends  thereon.
                            Accretion  of the  premium  is  computed  under  the
                            straight-line  method  over the life of the  initial
                            Stated Value and over the life of accrued but unpaid
                            dividends thereon, as applicable.

                        At June 30, 2003, there were 10,000,000 shares of Series
                        A Convertible  Preferred Stock outstanding.  The rights,
                        terms,  and  preferences  of the  outstanding  preferred
                        shares are as follows:

                        o   Each  share may cast four votes in any  meetings  or
                            matters  to be voted on by the  shareholders  of the
                            Company.

                        o   The shares are non-transferrable and non-assignable,
                            shall have no  dividend  rights,  and shall have the
                            last  liquidation   rights,   meaning  that  secured
                            creditors,   unsecured  creditors,  and  the  common
                            shareholders  shall  all have  superior  liquidation
                            priority.

                        o   The shares are convertible  into common stock of the
                            Company  on  a   one-to-four   (1:4)  basis,   at  a
                            conversion price of $1 per common share.  Conversion
                            is allowed at the rate of 2,500,000 preferred shares
                            for  each $30  million  in  cumulative  sales of the
                            Company's products, up to a total of $120 million in
                            sales.



--------------------------------------------------------------------------------
                                                                            F-19

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                       Notes to Consolidated Financial Statement
                                                                       Continued

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


10.  Subscription       During the year ended June 30,  2001,  the  President of
     Receivable         the  Company  acquired  10,000,000  shares  of  Series A
                        Convertible  Preferred  Stock  in  exchange  for a  note
                        receivable  in  the  amount  of  $10,000,000.  The  note
                        matures in November  2003,  bears an interest rate of 5%
                        per annum,  and is secured by  10,000,000  shares of the
                        Company's   Series  A   Convertible   Preferred   Stock.
                        Principal and accrued  interest are due in one lump sum,
                        upon maturity.  This note and the corresponding Series A
                        Convertible  Preferred  Stock will  become null and void
                        upon the death, incapacity, or termination of employment
                        of the Company's President.  Because the note is secured
                        by the preferred  stock that it purchased,  the note and
                        related  accrued   interest   receivable   appear  as  a
                        subscription  receivable  in the  Stockholders'  Deficit
                        section of the Balance Sheet.  Although the note has not
                        been paid, the 10,000,000 shares of Series A Convertible
                        Preferred  Stock have been issued and entitle the holder
                        to 40 million shareholder votes (see Note 9).

                        On May 31, 2002, due to the  significant  decline in the
                        Company's stock price, the Company reset the acquisition
                        price of the Series A Convertible  Preferred Shares from
                        $1 per  preferred  share to $0.24 per  preferred  share.
                        Correspondingly,   the  Company  renegotiated  the  note
                        receivable  amount from  $10,000,000 to $2,400,000.  The
                        renegotiated amount is retroactive, effectively reducing
                        the  accrued   interest  balance  at  May  31,  2002  by
                        $594,000.  The accrued  interest  balance as of June 30,
                        2003, was $317,000.

11.  Equity             Equity Funding Agreement
     Financing          The  Company  is a party to a  funding  agreement  under
                        which  1,625,000  shares of common stock were  purchased
                        for an  aggregate  of  $650,000.  The  shares  cannot be
                        publicly  resold until  November 7, 2003. As part of the
                        agreement,  the Company issued a put option  exercisable
                        on November 7, 2003.  The  Company,  at its option,  may
                        honor the put (if  exercised) in stock or in cash, at an
                        exercise  price of $1.60 per share.  Pursuant to the put
                        option, if the Company redeems the shares with stock and
                        within six months of such redemption  issues shares in a
                        public  offering  for less  than  $1.60 per  share,  the
                        Company  agrees  to  issue  additional  shares  to  this
                        investor  such  that its effective exercise price is the
                        price  per  share  offered  in   the   public  offering.
                        Additionally,  the  Company  holds a call  option  which
                        allows the Company to repurchase  the shares at any time
                        from issuance to twenty-four  months following  issuance
                        at $1.20 per share, from twenty-four to thirty months at
                        $1.40 per share,  and from thirty  months to  thirty-six
                        months at $1.60 per share.

--------------------------------------------------------------------------------
                                                                            F-20

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


11.  Equity             Equity Line of Credit
     Financing          The   Company   has  a   binding   commitment   from  an
     Continued          institutional  investor  to provide up to $50 million in
                        equity financing.  Over a three year period ending April
                        30,  2004,  the Company will have the right to obtain as
                        much as $50 million through the issuance of common stock
                        to the  institutional  investor  in a series of periodic
                        draw-downs. The timing, dollar amount, and minimum price
                        per share of each draw-down,  are at the sole discretion
                        of  the   Company,   subject  to   certain   contractual
                        provisions which include volume and price limitations.

                        On the initial  closing date,  the Company issued to the
                        institutional  investor three warrants to purchase up to
                        1,700,000 warrant shares, in the aggregate. The exercise
                        price of  850,000  warrant  shares  shall be 105% of the
                        average of the  closing  bid prices  during the  fifteen
                        trading days  immediately  prior to the initial  closing
                        date  ($.80).  The  exercise  price of  425,000  warrant
                        shares shall be equal to $2.00 and the exercise price of
                        the remaining  425,000  warrant shares shall be equal to
                        $3.00.

                        The minimum investment amount for any draw-down shall be
                        $100,000  and the maximum  investment  amount as to each
                        draw-down shall be 6% of the EQY weighted  average price
                        field (as reported on Bloomberg Financial L.P. using the
                        BLPH  function)  for the  common  stock  for  the  sixty
                        calendar day period  immediately prior to the applicable
                        commencement date multiplied by the total trading volume
                        in respect of the common stock for such period.

                        The  institutional   investor's  commitment  to  provide
                        equity  financing is subject to the  effectiveness  of a
                        registration  statement to be filed with the  Securities
                        and  Exchange  Commission  covering  the  resale  of the
                        shares  covered by the equity line and  certain  related
                        warrants.  The Company  may not make a draw-down  to the
                        extent that it would cause the institutional investor to
                        have  beneficial  ownership  of greater than 9.9% of the
                        outstanding  shares of the Company's  common stock.  The
                        Company may not issue  unrestricted  stock at a discount
                        unless the issuance is a qualified public offering or is
                        consented to in writing by the  institutional  investor.
                        As of June 30,  2003,  the Company  had not  completed a
                        registration  statement and has deemed it inadvisable to
                        do so because of the lack of suitable market conditions.



--------------------------------------------------------------------------------
                                                                            F-21

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


12.  Stock Option       Under the  Company's  ISO 2000 stock option plan (Plan),
     Plan               there are 30  million  shares  that are  authorized  for
                        stock options. The Company may issue both non-qualifying
                        stock options and  qualifying  incentive  stock options.
                        All stock  options  have an  exercise  price that is not
                        less than 100  percent of the fair  market  value on the
                        date  of the  grant.  While  expiration  dates  vary  on
                        particular  grants,  no stock  options may be  exercised
                        more than ten years after the date of grant.  Qualifying
                        incentive  stock  options are granted only to employees,
                        while   non-qualifying   options   may  be   granted  to
                        employees, directors of the Company, and non-employees.

                        On  May  17,  2002,   the  Company   filed  a  Form  S-8
                        Registration  Statement  ("Registration")  for the  Plan
                        under the Securities Act of 1933.  Options granted under
                        the Plan  prior to the  filing of the  Registration  can
                        only be exercised for restricted common stock as defined
                        under the Securities and Exchange  Commission  Rule 144.
                        Options  granted  under the Plan after the  Registration
                        can be  exercised  for  unrestricted  and  free  trading
                        common stock.

13.  Stock Options      A summary of the  Company's  stock  options and warrants
     and Stock-         are as follows:
     Based
     Compensation                            Number
                                         of Options and        Range of
                                            Warrants        Exercise Prices
                                    ---------------------------------------

Outstanding at June 30, 2001                 30,117,521      $   .09 - 3.00
     Granted                                 14,511,813          .25 - 1.10
     Canceled                                (4,500,000)         .25 - 1.11
     Expired                                 (6,050,000)         .50 - 1.00
                                    ---------------------------------------

Outstanding at June 30, 2002                 34,079,334      $   .09 - 3.00
     Granted                                  9,353,900          .15 - 1.00
     Canceled                                (1,455,000)         .25 - 1.00
     Expired                                 (1,347,667)         .40 - 2.00
                                    ---------------------------------------

Outstanding at June 30, 2003                 40,630,567      $   .09 - 3.00
                                    ---------------------------------------



--------------------------------------------------------------------------------
                                                                            F-22

<PAGE>

                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


13.  Stock Options      The following table summarizes  information  about stock
     and Stock-         options and warrants outstanding at June 30, 2003:
     Based
     Compensation
     Continued

                                                          Options and Warrants
          Options and Warrants Outstanding                   Exercisable
--------------------------------------------------------------------------------
                                          Weighted
                                           Average
                             Weighted     Remaining                  Weighted
   Range of                   Average    Contractual                 Average
   Exercise      Number      Exercise       Life        Number       Exercise
    Prices     Outstanding     Price       (Years)    Exercisable     Price
--------------------------------------------------------------------------------

$    .09 - .40   20,943,213  $    .17       3.07       18,118,213     $     .16
     .50 - .90    5,682,514       .65       2.22        5,015,847           .65
   1.00 - 1.41   13,154,840      1.03       3.33        8,546,507          1.03
   2.00 - 3.00      850,000      2.50       0.83          850,000          2.50
--------------------------------------------------------------------------------

$  .09 to 3.00   40,630,567  $    .56       2.99       32,530,567     $     .53
--------------------------------------------------------------------------------

14.  Income Taxes       The benefit  for income  taxes  differs  from the amount
                        computed at the federal statutory rate as follows:

                                                    Years Ended June 30,
                                                    ----------------------------
                                                        2003            2002
                                                    ----------------------------

                        Income tax benefit at
                           federal statutory rate   $  1,605,000   $  2,843,000
                        Research and
                           development credit            421,000        254,000
                        Other                            155,000        (68,000)
                        Change in valuation
                           allowance                  (2,181,000)    (3,029,000)
                                                    ----------------------------

                                                    $          -   $          -
                                                    ----------------------------


--------------------------------------------------------------------------------
                                                                            F-23

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


14.  Income Taxes       Deferred tax assets (liabilities) are as follows:
     Continued
                        Net operating loss carryforwards      $      17,015,000
                        Research and development credit
                          carryforward                                1,820,000
                        Accrued payroll                                 885,000
                        Other                                            81,000
                        Valuation allowance                         (19,801,000)
                                                              -----------------

                                                              $               -
                                                              -----------------

                        At June 30,  2003,  the Company has net  operating  loss
                        carryforwards  available to offset future taxable income
                        of approximately  $45,618,000 which will begin to expire
                        in  2006.  The  utilization  of the net  operating  loss
                        carryforwards  is dependent  upon the tax laws in effect
                        at the time the net operating loss  carryforwards can be
                        utilized.  The Tax Reform Act of 1986  limits the annual
                        amount  that  can  be  utilized  for  certain  of  these
                        carryforwards as a result of changes in ownership of the
                        Company.

                        Due to uncertainties  surrounding the realization of the
                        carryforwards,    a   valuation   allowance   has   been
                        established to offset the net deferred  income tax asset
                        resulting from such carryforwards.

15.  Asset              The  Company has  recorded  asset  impairment  losses as
     Impairment         follows:

                                                        2003          2002
                                                    ----------------------------

                        Deferred offering costs     $          -   $    867,000
                        Investment art                   148,000        159,000
                        Property and equipment                 -         89,000
                                                    ----------------------------

                                                    $    148,000   $  1,115,000
                                                    ----------------------------

16.  Supplemental       During the year ended June 30, 2003, the Company:
     Cash Flow
     Information        o   Exchanged  investment art in satisfaction of accrued
                            interest of $25,000.

                        o   Issued   122,885   shares   of   common   stock   in
                            satisfaction  of an account  payable of $23,000  and
                            accrued interest of $2,000.


--------------------------------------------------------------------------------
                                                                            F-24

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


16.  Supplemental       o   Issued a  short-term  note  payable of  $12,000  and
     Cash Flow              related   party   note   payable   of   $81,000   in
     Information            satisfaction of accrued interest of $93,000.
     Continued
                        o   Issued   1,214,016   shares  of   common   stock  in
                            satisfaction of short- term notes payable of $6,000,
                            related party notes payable of $143,000, and accrued
                            interest of $94,000.

                        o   Canceled common stock option and reinstated  accrued
                            interest of $12,000.

                        o   Issued   100,000   shares   of   common   stock   in
                            satisfaction of cash  commissions  payable on equity
                            sales of $20,000.

                        o   Recorded the  accretion  of Series B 15%  Cumulative
                            Redeemable   Non-   Voting   Preferred   Stock  (see
                            Statement of Stockholders' Deficit).

                        o   Recorded  the  Series  B 15%  Cumulative  Redeemable
                            Non-Voting  Preferred  Stock dividend (see Statement
                            of Stockholders' Deficit).

                        o   Issued 10,500 shares of common stock in satisfaction
                            of commissions on equity sales.

                        o   Accrued   interest   on   the   stock   subscription
                            receivable, which effectively increased the Series A
                            Convertible Preferred Stock amount by $120,000.

                        o   Collateralized  certain notes payable with 4,850,000
                            shares of common stock.

                        During the year ended June 30, 2002, the Company:

                        o   Reduced  a  related  party  note  receivable  and  a
                            related party note payable by $16,000.

                        o   Exchanged $230,000 of investment art in satisfaction
                            of accounts payable of $215,000 and accrued interest
                            of $15,000.

                        o   Issued  155,301  shares of common  stock in exchange
                            for a $31,000 vehicle.

                        o   Issued  $684,000  in  short-term  notes  payable  in
                            satisfaction  of accounts  payable of  $663,000  and
                            accrued interest of $21,000.


--------------------------------------------------------------------------------
                                                                            F-25

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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



16.  Supplemental       o   Issued a related party note payable in  satisfaction
     Cash Flow              of an account payable of $25,000.
     Information
     Continued          o   Issued 18,804 shares of common stock in satisfaction
                            of an account payable of $5,000.

                        o   Issued   1,056,451   shares  of   common   stock  in
                            satisfaction  of  related  party  notes  payable  of
                            $240,000 and accrued interest of $32,000.

                        o   Converted  12,500,000  shares  of  common  stock and
                            related put options in exchange for 15,000 shares of
                            Series  B  15%  Cumulative   Redeemable   Non-Voting
                            Preferred  Stock  (see  Statement  of  Stockholders'
                            Deficit).

                        o   Issued   225,428   shares   of   common   stock   in
                            satisfaction of commissions on equity sales.

                        o   Recorded the  accretion  of Series B 15%  Cumulative
                            Redeemable   Non-   Voting   Preferred   Stock  (see
                            Statement of Stockholders' Deficit).

                        o   Recorded  the  Series  B 15%  Cumulative  Redeemable
                            Non-Voting  Preferred  Stock dividend (see Statement
                            of Stockholders' Deficit).

                        o   Issued  common  stock  options  in  satisfaction  of
                            accrued interest of $12,000.

                        o   Accrued   interest   on   the   stock   subscription
                            receivable, which effectively increased the Series A
                            Convertible Preferred Stock amount by $468,000.

                        o   Renegotiated the $8,194,000  reduction of the Series
                            A preferred  stock  subscription  receivable,  which
                            effectively   reduced   the  Series  A   Convertible
                            Preferred Stock amount by $7,871,000.

                        Actual amounts of cash paid for:

                                                         Years Ended June 30,
                                                    ----------------------------
                                                         2003          2002
                                                    ----------------------------

                        Interest                    $     47,000   $     59,000
                                                    ----------------------------

                        Income taxes                $          -   $          -
                                                    ----------------------------


--------------------------------------------------------------------------------
                                                                            F-26

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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


17.  Operating          The Company leases certain property and facilities under
     Lease              noncancellable  operating leases.  Future minimum rental
     Obligations        payments required under these leases are as follows:

                         Years Ending June 30,                     Amount
                        ---------------------                 -----------------
                            2004                              $         144,000
                            2005                                        117,000
                                                              -----------------

                                                              $         261,000
                                                              -----------------

                        Rental expenses for noncancellable operating leases were
                        $217,000  and $244,000 for the years ended June 30, 2003
                        and 2002, respectively.

18.  401(k) Savings     The  Company  has a 401(k)  Plan (the  Plan) to  provide
     Plan               retirement  and  incidental  benefits for its employees.
                        Employees may  contribute  from 1% to 25% of their gross
                        pay to the Plan,  limited to a maximum  annual amount as
                        set periodically by the Internal  Revenue  Service.  The
                        Company may contribute a matching contribution at a rate
                        set by the Board of  Directors.  The Plan  operates on a
                        calendar year basis.  In fiscal year 2003,  and based on
                        contributions  by employees  during  calendar year 2002,
                        the Company made a matching  contribution to the Plan in
                        the form of 306,570 shares of its common stock valued at
                        $52,000.  In  fiscal  year  2002  the  Company  made  no
                        matching  contributions to the Plan. Shares issued under
                        the  Plan  are   "restricted"   as  defined   under  the
                        Securities and Exchange Commission Rule 144.

19.  Commitments        The Company has entered into employment  agreements with
     and                certain   officers  of  the  Company.   The   employment
     Contingencies      agreements   can  be  terminated   at  any  time.   Upon
                        termination,  the  Company  retains  all  rights  to the
                        gyroplane  and the related  technology  and the officers
                        have a  covenant  not to  compete  for a period of three
                        years.

                        Royalty  payments  of 1% of the gross sales price of the
                        gyroplane  are to be paid to the  inventors who are also
                        the  Company's  founders,  the  Chairman of the Board of
                        Directors, and the President, who is also a Director.

                        The  Company  has  various   agreements   to  compensate
                        individuals and companies with commissions up to 10% for
                        securing debt and equity financing for the Company.


--------------------------------------------------------------------------------
                                                                            F-27

<PAGE>
                                                   GROEN BROTHERS AVIATION, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

19.  Commitments        The  Company is  involved  in  various  claims and legal
     and                actions  arising  in the  ordinary  course of  business.
     Contingencies      Management  believes  that the amount,  if any, that may
     Continued          result  from  those  claims  will  not  have a  material
                        adverse effect on the consolidated financial statements.

20.  Fair Value of      The  Company's  financial  instruments  consist of cash,
     Financial          receivables,  payables,  and notes payable. The carrying
     Instruments        amount of cash,  receivables  and payables  approximates
                        fair  value  because of the  short-term  nature of these
                        items.  The  aggregate  carrying  amount  of  the  notes
                        payable   approximates  fair  value  as  the  individual
                        borrowings bear interest at market interest rates.

21.  Recent             In May 2003, the Financial  Accounting  Standards  Board
     Accounting         (FASB)   issued   Statement  of   Financial   Accounting
     Pronounce-         Standards   (SFAS)  No.  150,   Accounting  for  Certain
     ments              Financial   Instruments  with  Characteristics  of  both
                        Liabilities  and  Equity,  effective  for the Company on
                        July 1, 2003.  The Company  expects the adoption of this
                        standard will require  reclassification  of its Series B
                        preferred  stock.  The  reclassification  will  increase
                        total  liabilities  and  decrease  total  equity  by the
                        Series B Preferred Stock balance outstanding.

                        In December  2002,  the Financial  Accounting  Standards
                        Board (FASB)  issued  Statement of Financial  Accounting
                        Standards  (SFAS) No. 148,  Accounting  for  Stock-Based
                        Compensation-Transition  and  Disclosure an amendment of
                        FASB  Statement  No. 123,  effective  for the Company on
                        July 1, 2003.  This Statement  amends FASB Statement No.
                        123, Accounting for Stock-Based Compensation, to provide
                        alternative  methods of  transition  for an entity  that
                        voluntarily  changes to the fair value  based  method of
                        accounting for  stock-based  employee  compensation.  It
                        also amends the disclosure  provisions of that Statement
                        to require  prominent  disclosure  about the  effects on
                        reported  net income of an  entity's  accounting  policy
                        decisions   with   respect   to   stock-based   employee
                        compensation. Finally, this Statement amends APB Opinion
                        No.  28,  Interim   Financial   Reporting,   to  require
                        disclosure  about  those  effects in  interim  financial
                        information.  As of June 30,  2003,  the Company has not
                        selected the fair value based method of  accounting  for
                        stock-based employee  compensation.  The Company expects
                        the adoption of this  standard  will not have a material
                        impact on its consolidated financial statements.


--------------------------------------------------------------------------------
                                                                            F-28

<PAGE>

Item 8.     Changes in and Disagreements with Accountants on
------------------------------------------------------------
            Accounting and Financial Disclosure
            -----------------------------------

         There has been no change of accountants or reporting  disagreements  on
any matter of accounting principle,  practice, financial statement disclosure or
auditing scope or procedure.

Item 9.     Directors and Executive Officers of the Registrant
--------------------------------------------------------------

         The following  table contains the names and ages of all Directors;  all
positions and offices with the Registrant held by each such person.

         Name                 Age         Positions
         ----                 ---         ---------
         David L. Groen       52          Director, President, Chief
                                          Executive Officer, and Treasurer
         H. Jay Groen         59          Director, Chairman of the Board of
                                          Directors

Term of Office

         The  appointment  of Messrs.  Groen and Mr.  Mayfield as members of the
Board of 'Directors was ratified and approved by the  stockholders  at a meeting
for that  purpose on May 20,  2000.  The terms of  service  of Messrs.  Groen as
members of the Board of Directors  continue until the next annual meeting of the
stockholders.  With the exception of compliance with the duties of a director as
set forth in the Articles of  Incorporation  or By-laws of the  Registrant or in
the provisions of the Utah Business  Corporation  Act, there are no arrangements
or  understandings  pursuant to which any of the foregoing persons were selected
to serve on the Board of  Directors  of the  Registrant.  Each of the  foregoing
persons  consented  to  serve as a  director  of the  Registrant  prior to their
designation  and subsequent  election as such.  Effective  February 3, 2003, Mr.
Mayfield resigned as a member of the Board of Directors,  to accept the position
of President and Board member of the Company's subsidiary, AAI.

Family Relationships

         H. Jay Groen and David L. Groen are brothers.

Background on Directors and Officers

         David  Groen,  President,  CEO  &  Treasurer,  is  a  Director  of  the
Registrant.  Currently the President CEO & Treasurer of Groen Brothers Aviation,
David  Groen has  spent the last two  decades  leading  the  effort to bring the
gyroplane  into the modern  age.  Immediately  prior to forming  Groen  Brothers
Aviation, Mr. Groen was a founding partner and Chief Financial Officer (CFO) for
Seagull Recycling Company.

         Previously,  he has held numerous executive positions in the helicopter
industry with a variety of leadership responsibilities including the operational
duties of Sales and Marketing,  Safety Officer, Branch Manager, and Chief Pilot.
Having extensive  military and commercial  experience in helicopters,  Mr. Groen
has  logged  over 7,000  hours in  rotor-wing  and  fixed-wing  aircraft.  He is
qualified as a pilot in many American and French  helicopters,  and has attended
Aerospatiale factory schools.

                                       20

<PAGE>

         Over the years, Mr. Groen's  numerous  commercial  helicopter  missions
have  involved  such  work  as  EMS  (emergency  medical  service  hospital  air
ambulance),  power line construction and "sock line" wire pull (short of combat,
the most dangerous and technically difficult helicopter operation in existence),
power line and pipeline patrol,  topographical survey, USGS map making, wildlife
management,  predator  control,  heard  management,  back  country  tour guides,
heli-skiing,  forest fire fighting,  agricultural aerial application,  long line
seismic drill and geological  survey oil exploration,  and both on shore and off
shore wildcat oil drilling operations. These years of commercial flying gave Mr.
Groen a wealth of  management  and  leadership  experience  in a variety of very
demanding operational situations.

         Mr. Groen received his  Certificate of Graduation in 1970 from the U.S.
Army Warrant Officer Flight Training School,  was awarded Army Aviator Wings and
promoted  to the rank of  Warrant  Officer.  As a combat  helicopter  pilot  and
Aircraft  Commander  in  Vietnam,  he flew  hundreds  of combat  sorties and was
awarded the Air Medal. David Groen is co-author,  along with his brother Jay, of
a novel entitled Huey, a New York Times best seller, about a helicopter pilot in
Viet Nam.

         H. Jay Groen, Chairman, is a Director of the Registrant. Before joining
GBA, Jay Groen  co-founded  Seagull  Recycling  Company,  an  organization  that
developed an original  supply of secondary  paper fiber for sale to domestic and
Far East markets.

         Prior to this  business  venture,  he was the  President of China West,
Inc.,  a Washington  D.C.  based  organization  representing  U.S.  firms in the
Peoples  Republic of China. In this role, Mr. Groen negotiated joint venture and
trade  agreements  in such diverse  industries as machine  building,  petroleum,
coal, agriculture, light manufacturing,  handicrafts, and forest products. Early
in his  career,  Mr.  Groen  spent ten  years as an  Economist  for the  Central
Intelligence  Agency (CIA) doing  original  research on Asia,  with a particular
interest on the People's Republic of China. As part of his responsibilities with
the CIA,  Mr. Groen  prepared  written and oral briefs for the White House staff
and members of Congress, and lectured at the National War College.

         Mr. Groen served in the U.S. Air Force as a Chinese Linguist in Vietnam
and  Asia,  logging  more  than  100  combat  missions  in  a  special  airborne
intelligence  function. He is the co-author,  along with his brother David, of a
best  selling book  entitled  Huey, a novel about the Vietnam War. Mr. Groen has
also published  several other writings  including:  1) "The Sweet and Sour China
Market",  China  Under  Four  Modernizations;   and,  2)  "Buying  from  China",
U.S.-China Economic Relations: A Reappraisal.

         Mr. Groen has an M.A. in Economics from Virginia Polytechnic Institute,
a B.A. in Economics from the  University of Utah, and a Language  Certificate in
Mandarin  Chinese  from  Yale  University.  A  private  pilot  with a  practical
background in  aeronautical  design,  Mr. Groen has added much innovation to the
Hawk Gyroplane.

                                       21

<PAGE>

Officers of Subsidiary Corporations

         As stated earlier,  the Registrant has two  wholly-owned  subsidiaries,
Groen Brothers Aviation USA, Inc., and American Autogyro, Inc. James P. Mayfield
is an officer of American Autogyro, Inc., serving as President and Board Member.
Mr.  Mayfield  also serves as a  non-officer  Vice  President of Groen  Brothers
Aviation USA, Inc. Robert H. H. Wilson is an officer of Groen Brothers  Aviation
USA,  Inc.,  serving as Vice  President,  Head of  Business  Development,  Chief
Financial Officer, and Corporate Secretary.

Item 10.    Executive Compensation
-----------------------------------

         During FY 2003,  no director  or  executive  officer of the  Registrant
received cash  compensation in excess of $100,000 Actual cash  compensation  for
officers in FY 2003 was:  David Groen  $22,000,  Jay Groen $0, James P. Mayfield
$52,000,  and Robert H. H. Wilson $26,000.  At June 30, 2003,  unpaid back wages
due to officers as cash compensation accumulated over the past two fiscal years,
were: David Groen $128,000,  James P. Mayfield $77,000,  and Robert H. H. Wilson
$102,000.  Also, at June 30, 2003,  accrued director and consultancy fees due to
Jay Groen amounted to $172,000.

         In  addition  to  cash   compensation,   the  Company  has  a  deferred
compensation plan for officers that accrues additional salary for officers, with
interest at 8%, which is payable, in part or in whole, only by resolution of the
Board of Directors.  The Board has made no such  resolution to date and does not
intend to do so until it  determines  that such  action  would be prudent in the
light of the  Company's  financial  position at that time. In the event that the
Board  were to  authorize  such  payments  in  full,  the  accumulated  benefit,
including  interest to officers as a result of accrual over several  years would
be as follows: David Groen $1,032,000, Jay Groen $523,000(1),  James P. Mayfield
$622,000, and Robert H. H. Wilson $233,000.

Item 11.    Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------

         The  following  shows the shares of common  stock  owned as of June 30,
2003,  by all  the  Directors  and  Officers  individually  and as a  group.  No
individual investors,  other than those shown, own more than five percent of the
outstanding  common  stock.  Each  individual  has sole  voting  power  and sole
investment power with respect to the number of shares beneficially owned.

   Name and Address                                 Common Shares     Percent of
   of Beneficial Owner                                Ownership         Common
   -------------------                              -------------     ----------

   David Groen                                          8,822,884         8.93
   Shares personally owned.
   2640 W. California Ave., Ste. A
   Salt Lake City, UT 84104

   David Groen                                          1,743,000         1.76
   As custodian for family accounts/trusts
   2640 W. California Ave., Ste. A
   Salt Lake City, UT 84104

---------------
         (1) Jay Groen was an employee of the Company  till  December  31, 2000.
After that,  gross wage accruals ceased.  Interest  accrual  continues until his
accrued wages are paid.

                                       22

<PAGE>

   Jay Groen                                            4,684,344         4.74
   2640 W. California Ave., Ste. A
   Salt Lake City, UT 84104

   Jay Groen                                               14,158         0.01
   As custodian for family accounts/trusts
   2640 W. California Ave., Ste. A
   Salt Lake City, UT 84104

   James P. Mayfield                                       70,760         0.07
   2640 W. California Avenue
   Salt Lake City, UT 84104

   Robert H. H. Wilson                                    300,000         0.30
   2640 W. California Avenue
   Salt Lake City, UT 84104

   Robert H. H. Wilson                                    200,000         0.20
   As custodian for family accounts/trusts
   2640 W. California Avenue
   Salt Lake City, UT 84104

   All Officers and Directors                          15,835,146        16.02

         In addition  to the above,  David  Groen,  President,  owns  10,000,000
shares of the Company's Series A Convertible  Preferred  Stock.  This is 100% of
the  outstanding  shares  of that  series  of  stock.  The  rights,  terms,  and
preferences are as follows:

         o    Each  Share may cast four votes in any  meetings  or matters to be
              voted on by the shareholders of the Company.

         o    The Shares are  convertible  into common stock of the Company on a
              one-for-four (1:4) basis, at a conversion price of $1 per share of
              common  stock.  Conversion  is  allowed  at the rate of  2,500,000
              preferred  for  each  $30  million  in  cumulative  sales  of  the
              Company's products, for a total of $120 million in sales.

         o    The Shares are non-transferrable and non-assignable, shall have no
              dividend  rights,  and  shall  have the last  liquidation  rights,
              meaning  that  secured  creditors,  unsecured  creditors,  and the
              common shareholders shall all have superior liquidation priority.

         The above does not include  common stock  options owned by David Groen,
Jay  Groen,  James  Mayfield,  and  Robert H. H.  Wilson  that  could  have been
exercised  as of June 30,  2003.  In  summary,  they have the right to  purchase
6,500,000  shares,  7,450,000  shares,  7,525,000  shares,  and 2,000,000 shares
respectively.  If such options had been  exercised  as of June 30,  2003,  their
individual  ownerships  (together  with family and trust accounts for which they
are custodians) would equal 12.35 percent,  8.79 percent, 5.50 percent, and 1.81
percent  respectively.  These  options are  specifically  identified  as follows
(although  all $0.09  options  have expired by the time of  publication  of this
report).

                                       23

<PAGE>

         David Groen holds options to purchase  1,475,000 common shares at $0.09
per share to be purchased by 2003(2),  options to purchase 150,000 common shares
at $1.10 per share to be purchased by 2005,  options to purchase  25,000  common
shares at $0.50 per share to be purchased by 2006,  options to purchase  250,000
common  shares at $0.63 per share to be purchased  by 2006,  options to purchase
2,000,000  common shares at $1.00 per share to be purchased by 2006,  options to
purchase  100,000  common shares at $0.25 per share to be purchased by 2007, and
options to purchase 2,500,000 shares at $0.15 per share to be purchased by 2008.

         Jay Groen holds  options to purchase  2,075,000  common shares at $0.09
per share to be purchased by 2003(2),  options to purchase  25,000 common shares
at $0.50 per share to be purchased by 2006,  options to purchase  250,000 common
shares at $0.63 per share to be purchased by 2006, options to purchase 2,000,000
common  shares at $1.00 per share to be purchased  by 2006,  options to purchase
100,000 common shares at $0.25 per share to be purchased by 2007, and options to
purchase 3,000,000 common shares at $0.15 per share by 2008.

         James P. Mayfield holds options to purchase  1,000,000 common shares at
$0.09 per share to be purchased by 2003(2), options to purchase 3,150,000 common
shares at $1.10 per share to be purchased by 2005, options to purchase 1,025,000
common  shares at $0.50 per share to be purchased  by 2006,  options to purchase
250,000  common  shares at $0.63 per share to be purchased  by 2006,  options to
purchase  100,000  common shares at $0.25 per share to be purchased by 2007, and
options to purchase  2,000,000  common shares at $0.15 per share to be purchased
by 2008.

         Robert H. H. Wilson holds options to purchase  650,000 common shares at
$1.10 per share to be  purchased  by 2006,  options to purchase  250,000  common
shares at $0.63 per share to be purchased by 2006,  options to purchase  100,000
common  shares  at $0.25 per  share to be  purchased  by 2007,  and  options  to
purchase 1,000,000 common shares at $0.15 per share to be purchased by 2008.

         At June 30, 2003,  there were 18,443 shares of Series B 15%  Cumulative
Redeemable  Non-Voting Preferred Stock outstanding.  When originally issued, the
Company was obligated on October 31, 2003, to redeem all issued and  outstanding
Series B Preferred  shares.  On October 14,  2003,  in  exchange  for  2,500,000
warrants to purchase common shares at $.30 per common share,  exercisable within
three years of the date of issue, the holders of these Series B Preferred shares
agreed to extend the  redemption  date to October 31,  2005.  On the  redemption
date,  the Company is  obligated to redeem all issued and  outstanding  Series B
Preferred  shares for an amount equal to the Stated Value of $1,000 per Series B
Preferred share plus all accrued but unpaid  dividends  thereon.  The redemption
price may be paid,  at the  Company's  option,  for a  premium,  in  registered,
unrestricted,  freely  tradeable  shares of common  stock of the Company  with a
redemption  price  equal to 125% of the Stated  Value of the Series B  Preferred
shares plus 125% of all accrued but unpaid dividends thereon.  See Note 9 to the
consolidated financial statements regarding "Preferred Stock."

----------------
         (2) These options expired in July 2003.


                                       24

<PAGE>

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The Company owes $180,000, plus accrued interest, to a company owned by
Directors Jay and David Groen.

         The Company holds a note  receivable  in the amount of $2,400,000  from
David Groen, the President of the Company.  The note has a three-year  maturity,
maturing  in  November  2003,  bears an  interest  rate of 5% per annum,  and is
secured by  10,000,000  shares of the Company's  Series A Convertible  Preferred
Stock.  Principal and accrued  interest are due in one lump sum, upon  maturity.
Because the note is secured by the preferred  stock that it purchased,  the note
appears as a Subscription Receivable in the Stockholders' Deficit section of the
Balance Sheet.  On May 31, 2002, the Company  renegotiated  the note  receivable
amount from $10,000,000 to $2,400,000.  The renegotiated  amount is retroactive,
effectively reducing the accrued interest balance at May 31, 2002, from $781,000
to $187,000. The accrued interest balance as of June 30, 2003, was $317,000.

Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------

         (a) Exhibits.  The following documents are included as exhibits to this
report:

Exhibit   SEC Ref.
 No.       No.        Title of Document                             Location
-------   --------    ------------------------------------------    ------------
 3.1       3          Amendment to Second Restated Articles of
                      Incorporation of Groen Brothers Aviation,
                      Inc., dated October 6, 2003.                  This Filing

10.1      10          Amendment No. 1 to Securities Exchange
                      Agreement, dated October 6, 2003, between
                      the Company and Capital Strategies Fund, Ltd. This Filing

11.1      11          Statement Regarding Computation of Per Share
                      Earnings.                                     This Filing

17.1      17          Resignation of James P. Mayfield as a
                      Director of Groen Brothers Aviation, Inc.
                      and Groen Brothers Aviation USA, Inc.,
                      effective February 3, 2003.                   This Filing

21.1      21          Subsidiaries of the Registrant.               This Filing

23.1      23          Consent of Tanner + Co., Certified Public
                      Accountants, to incorporation by reference
                      of audit report in Form S-8.                  This Filing

31.1      31          Section 302 Certification of Chief
                      Executive Officer and Principal Financial
                      Officer.                                      This Filing

32.1      32          Section 1350 Certification of Chief
                      Executive Officer  And Principal Financial
                      Officer                                       This Filing


         (b) (1) The  following  financial  statements  are included in Part II:
Report of Independent Certified Public Accountants

                                                                            Page
                                                                            ----

Independent auditors' report                                                F-1


Consolidated balance sheet                                                  F-2


Consolidated statement of operations                                        F-3


Consolidated statement of stockholders' deficit                             F-4


Consolidated statement of cash flows                                        F-6


Notes to consolidated financial statements                                  F-8


                                       25

<PAGE>

Item 14.  Controls and Procedures
---------------------------------

         The  Registrant's  President,  CEO  and  Treasurer,  who  is  also  the
Principal  Executive  and  Financial  Officer  (the  "Certifying  Officer"),  is
responsible for establishing and maintaining  disclosure controls and procedures
for  the  Registrant.  The  Certifying  Officer  has  concluded  (based  on  his
evaluation of these controls and procedures as of June 30, 2003) that the design
and operation of the Registrant's disclosure controls and procedures (as defined
in Rule 13a- 14(c) under the Securities Exchange Act of 1934) are effective.  No
significant changes were made in the Registrant's  internal controls or in other
factors that could significantly affect those controls subsequent to the date of
the  evaluation,  including any  corrective  actions with regard to  significant
deficiencies and material weaknesses.


                                       26

<PAGE>

Forward Outlook and Risks
-------------------------

         The Company, from time to time, may publish forward-looking  statements
relating  to  such  matters  as  anticipated  financial  performance,   business
prospects,  technological  development,  new products,  research and development
activities and similar matters. The Private Securities  Litigation Reform Act of
1995 provides a safe harbor for forward-looking  statements.  In order to comply
with the terms of the safe harbor,  the Company  notes that a variety of factors
could cause the Company's  actual  results and  experience to differ  materially
from the  anticipated  results  or other  expectations  expressed  in any of the
Company's  forward-looking  statements.  The  risks and  uncertainties  that may
affect the  operations,  performance,  development  and results of the Company's
business  include,  but are not  limited to, the  following:  (a) the failure to
obtain  additional  borrowed  and/or  equity  capital  on  favorable  terms  for
acquisitions  and expansion;  (b) adverse  changes in federal and state laws, or
other matters affecting the Company's business; (c) the demand for the Company's
products and services;  and (d) other risks detailed in the Company's Securities
and Exchange Commission filings.

         This  Form  10-KSB  contains  and  incorporates  by  reference  certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange  Act with  respect to results of  operations
and  businesses  of the  Company.  All  statements,  other  than  statements  of
historical facts, included in this Form 10-KSB, including those regarding market
trends, the Company's  financial position,  business strategy,  projected costs,
and  plans  and   objectives   of   management   for  future   operations,   are
forward-looking  statements.  In general,  such statements are identified by the
use  of  forward-looking  words  or  phrases  including,  but  not  limited  to,
"intended,  will, should, may, expect, anticipate,  estimates,  projects" or the
negative thereof or variations thereon or similar terminology.

         Forward-looking   statements   are  based  on  the  Company's   current
expectations.  Although the Company believes that the expectations  reflected in
such forward-looking  statements are reasonable,  there can be no assurance that
such expectations will prove to be correct.  Because forward-looking  statements
involve  risk  and  uncertainty,  the  Company's  actual  results  could  differ
materially.  Important  factors  that  could  cause  actual  results  to  differ
materially from the Company's expectations are disclosed hereunder and elsewhere
in this Form 10-KSB.  These  forward-looking  statements represent the Company's
judgement as of the date of this Form 10-KSB.  All  subsequent  written and oral
forward-looking  statements  attributable to the Company are expressly qualified
in their entirety by the Cautionary Statements. The Company disclaims,  however,
any intent or obligation to update its forward-looking statements.

                                       27

<PAGE>

                                   Signatures
                                   ----------

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Groen Brothers Aviation,  Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized:

                                           Groen Brothers Aviation, Inc.



          /s/David L. Groen                          Date:   October 14, 2003
         --------------------------                  ------------------------
         David L. Groen, President,
           Chief Executive Officer
           & Treasurer



         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/H. Jay Groen                            Date:   October 14, 2003
         ----------------------                      ------------------------
         H. Jay Groen, Director


          /s/David L. Groen                          Date:   October 14, 2003
         ------------------------                    ------------------------
         David L. Groen, Director


                                       28