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, 2002
                         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
Incorporation or organization)                            Identification Number

          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, 2002, the Registrant had outstanding  87,254,857  shares
of common stock, no par value per share, which is the Registrant's only class of
common stock.

                    Documents Incorporated by Reference: None


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                                     PART I
                                     ------

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

THE COMPANY

         Groen Brothers  Aviation,  Inc. ("the Company") was incorporated in the
State  of  Utah  on  July  28,  1980.  The  Company,  through  its  wholly-owned
subsidiary,  Groen Brothers  Aviation,  USA, Inc., is developing for manufacture
the Hawk Gyroplane and other gyroplane models. The Company's only operations are
through its wholly-owned subsidiary.  Hereafter, "the Company" will refer to the
operations  of  Groen  Brothers  Aviation,   Inc.  (GBA)  and  its  wholly-owned
subsidiary, Groen Bothers Aviation USA, Inc.

         In an effort to pursue an easy-to-fly and cost-efficient gyroplane that
could compete  effectively in the general  aviation  market,  the Groen brothers
(Jay and David) had first to build a  proof-of-concept  aircraft.  They formed a
private  company and spent their own money to test their  design of a collective
pitch   controlled   rotor  system.   In  1987,   the  Groen   Brothers'   first
proof-of-concept  prototype  flew  successfully.  With the  support  of  private
investors  they  soon  after  began  the  development  of the Hawk 1 (one  seat)
prototype.  In 1990, Groen Brothers  Aviation,  Inc.,  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.

         When the Hawk 1 successfully  flew in December 1992, the Groen Brothers
had moved much closer toward achieving their ultimate goals and objectives.  The
development of the Hawk 2 followed,  and in February 1997, their third prototype
achieved a vertical  takeoff at a world  record  breaking  density  altitude for
gyroplanes.  Today,  after having spent more than sixteen years  bringing  their
idea to fruition, enthusiasm for the GBA Hawk within the aviation community runs
high.  The Company has  experienced  significant  interest from law  enforcement
agencies,  commercial  flying entities,  and individuals in the U.S. and abroad,
which has  helped  position  the  Company to attract  the  investment  needed to
accelerate the current transition into production.

THE PRODUCT

What is a Gyroplane?

         Gyroplane  is an  official  term  designated  by the  Federal  Aviation
Administration (FAA) describing an aircraft that gets its lift from rotor blades
and its  thrust  from an  engine-driven  propeller.  Historically,  this type of
aircraft  was known as the  autogiro  and/or  the  gyrocopter,  which  were both
trademark names. A gyroplane's rotor blades turn freely in flight and are tilted
back to catch the air. The rushing air spins the rotor as the aircraft is thrust
forward by its propeller.  Early gyroplanes were powered in a tractor  (pulling)
configuration.   The  Hawk  4  uses  a  pusher  propeller,  giving  unobstructed
visibility.

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         Since the rotor blades on gyroplanes  are powered in flight only by the
onrushing air  (autorotation),  much like a windmill,  there is no torque to the
system, and therefore no need for a tail rotor. The gyroplane is a stable flying
platform.  This is not so  withhelicopters,  which  pull  the air  down  through
engine-powered  rotor  blades  making it possible to hover,  but also making the
aircraft  unstable,  mechanically  complicated  and difficult to fly. Due to the
inherent  simplicity  of  gyroplanes,  they are easier to operate  and much less
expensive to maintain than helicopters.

         The single attraction of helicopters over gyroplanes is their ability
to hover, which is necessary in some situations such as sea rescue or sling-load
work. Even so, the percentage of today's helicopter market that requires
hovering is rather small, perhaps no more than 10 percent. In air surveillance
and point-to-point flying, the inability to hover is not a disadvantage.
Helicopters at low altitude, out of ground effect, avoid hovering whenever
possible. It is too dangerous. 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 can do efficiently
and safely.

         Gyroplanes in flight, being in constant autorotation, are much safer in
low and  slow  flight  than  helicopters  and  airplanes.  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 too
low and too slow  during a power  failure,  a  condition  shown on graphs in the
helicopter's  flight manual (known as the "dead man's curve"),  the pilot cannot
avoid a crash landing.  Airplanes  flying low and slow risk a stall/spin  crash,
which cannot happen in a gyroplane.

Interrupted History of the Gyroplane

         Autorotative  flight was developed in 1919 by Spanish aviator,  Juan de
la Cierva,  who named his invention the "autogiro,"  which means "self turning."
His intention was to eliminate the risk of stalling,  as in an airplane.  In the
1920s and  1930s an  American,  Harold  Pitcairn,  under  license  from  Cierva,
designed and built many gyroplanes which  eventually made vertical  takeoffs and
landings.  Wallace  Kellett,  a colleague  of Pitcairn,  was another  well-known
American designer who added to our knowledge of this form of flight.

         The  autogiro  concept  was  proven  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 1940s the private  aircraft  market had collapsed with the Great
Depression,  and the main source of  investment  in aviation  came from the U.S.
military.  At the time, Igor Sikorsky was supplying the government with a number
of different  transport airplanes of his own design. He then decided to design a

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helicopter,  and he began by licensing rotor  technology from Pitcairn.  He then
convinced  the  U.S.  military  to  invest  in the  helicopter  rather  than the
gyroplane,  which  effectively  shelved  the  gyroplane.  To the  military,  the
helicopter  appeared to be the next logical step in the evolution of rotorcraft.
Apparently the economy and safety of gyroplanes did not count for much,  because
the helicopterpromised more versatility for military purposes.

         Helicopter  flight  proved  more  difficult  than  the  military  first
imagined.  The promise of the helicopter was not fully realized until the middle
of the Vietnam  War,  thirty years  later,  during the early 1970s.  It was only
after  billions of tax dollars were spent  adapting and upgrading  expensive jet
turbine  engines,  that  payload  weights  were  increased  enough to move large
numbers of soldiers and their equipment into and out of the jungle.  The Vietnam
War clearly  demonstrated the versatility of vertical flight, but the helicopter
had proved too expensive for widespread civilian use.

         During the late 1950s and early 1960s, three commercial gyroplanes were
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. Each of the above
gyroplanes  had  only  two  seats.  In  every  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 (the
Air & Space 18A and the McCulloch each delivered  about 100 units).  Also during
the 1950s,  Igor  Benson,  a  colleague  of  Sikorsky,  developed  a  home-built
gyroplane kit for  amateurs.  He called it the  "gyrocopter."  His idea for this
open-frame model came from a German observation gyroplane,  towed behind U-boats
during the war.  Home-built kits, most of which seat one person,  continue to be
popular today with more than a dozen small manufacturers now in the market.

         Large  aviation   companies   capable  of  developing  and  bringing  a
commercial-sized  gyroplane to market,  such as Boeing and Bell, have found that
the civilian side of helicopter  production has not been highly profitable.  Yet
there is no doubt  that  major  aviation  companies  understand  the  commercial
potential  of  vertical  takeoff  and  landing  (VTOL)  as  evidenced  by  their
continuing investment into the development of aircraft targeted for the civilian
market, including a civilian tilt-rotor. Over the years the helicopter companies
have committed  large capital outlays toward  improving the helicopter,  are now
developing tilt-rotor technology, and until GBA's gyroplanes are flying in large
numbers,  are not  likely to pursue a product  type  that  competes  with  their
current product lines.

GBA Hawk Series

         GBA is now in the process of developing for manufacture its basic model
of high  performance  gyroplanes,  the Hawk 4 (four seat),  and other models are
planned to follow. The Hawk series is being designed and built to conform to FAA
regulations  for  rotorcraft  (FAR Part 27).  The primary  technical  difference
between the Hawk and the gyroplanes that came before it, is that the Hawk has an

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infinitely  variable  collective pitch control  (collective pitch is the blade's
angle of attack to the relative  wind) that can be operated  between two extreme
settings.  This means that during flight,  by moving a collective  pitch control
lever, the pilot can change,  in varying degrees,  the pitch of the rotor blades
collectively  (both at the same time and in equal amounts).  The ideal amount of
pitch needed to fly at a given airspeed and given operational  weight can differ
slightly  under  changing  conditions.  The patented  Hawk rotor head allows the
pilot to optimize  the rotor blade pitch to the  existing  conditions  (minimize
drag and  maximize  lift).  The variable  pitch rotor makes  possible a smoothly
controlled  vertical  takeoff and landing.  Early  vertical  takeoff  gyroplanes
employed a  two-position  pitch control rotor head that was  pre-rotated at flat
pitch and then released  suddenly  into fixed pitch for flying.  This produced a
vertical takeoff, but it was a rather startling "jump," with no control over the
amount of pitch in the rotor nor the rate at which the pitch was increased.

         The GBA Hawk series models will all be capable of an ultra-short ground
roll takeoff and landing,  eliminating  the need for long runways.  The first of
the  series,  the Hawk 4, uses a  pre-rotator  to spin the rotor  blades at flat
pitch to  approximately  140% of in-flight  rotor RPM. The pilot then  increases
collective pitch using the excess inertia in the spinning rotor to takeoff after
a very short roll. Just before  movement,  the power to the rotor is disengaged,
therefore there is no need for antitorque  force (tail rotor) in flight.  On the
ground,  during  spin-up  the wheels  and brakes  counteract  the  torque.  This
procedure,  originally called the "jump takeoff," was first done in the 1930s in
the Pitcairn  PA-36.  A two-position  rotor was spun up at flat pitch.  When the
proper  RPM was  reached,  the  prerotator  was  disconnected  and the rotor was
suddenly locked into a fixed flight pitch, causing the gyroplane to jump off the
ground.

         The Hawk 4, with its  variable  pitch  rotor,  is capable of a smoothly
controlled short ground roll takeoff using a prerotation technique. The Hawk 4's
Rolls-Royce  Model 250 B17C,  420 shp gas turbine  engine  provides  prerotation
power and thrust  following  liftoff.  The main powerplants for this (and future
Hawk  variants)  is a jet  turboprop.  Advantages  of the turbine  engine over a
piston engine include:  higher useful load,  because the turbine engine has more
horsepower  and is much  lighter  in  weight;  reliability;  and  the  worldwide
availability  of  kerosene-based  fuels,  such as Jet A, etc.  Although  turbine
engines,   compared  to  piston  engines,  are  more  expensive,  the  cost  per
passenger-mile  of the Hawk  series  should  remain a fraction  of a  comparable
helicopter.

         Vertical landing is normally a power-off, steep approach to the landing
site, followed by a slight pull back on the cyclic control stick and an increase
in collective pitch. With high inertia rotor blades,  there is a built-in safety
margin  during  landing.  A flare on final  approach,  started too high,  can be
corrected by adding more pitch than normal, which lets the Hawk settle softly to
the landing pad. Short rolling  takeoffs and landings are also possible with the
GBA gyroplanes, which all have wheeled landing gear instead of skids.

         The Company  introduced the Hawk 4 Gyroplane at the world's largest air
show,  the  Experimental  Aircraft  Association's  AirVenture  '99  in  Oshkosh,
Wisconsin,  in July 1999. The Company's booth and outside display were busy with

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visitors from across the U.S. and around the world. GBA Authorized  Dealers were
also at the show. At the AirVenture 2000 show in July 2000, the Company flew its
Rolls-Royce turbine-powered Hawk 4 Gyroplane. Since AirVenture 2000, the Company
has flown the Hawk 4 at other  air  shows  including  the Sun n' Fun air show in
Florida.  During fiscal year 2002, the Company has  participated in the Airborne
Law Enforcement Association air show and the Experimental Aircraft Association's
AirVenture  2001. GBA  Authorized  Dealers and sales  representatives  regularly
participate at the International  Association of Chief of Police Convention.  In
addition,  as discussed below in "The Market" section,  the Hawk 4 Gyroplane was
used by the Utah Olympic  Public Safety  Command  (UOPSC) during the 2002 Winter
Games in Salt Lake City.  The Company  was also  selected  to  participate  in a
homeland security expositionin Washington, D.C., in July 2002. The Company plans
to exhibit the Hawk 4 at the Marine Corps Air Station (MCAS) Miramar Air Show in
October 2002.

         In fiscal year 2002,  the Hawk 4  Gyroplane  has  received  significant
international acclaim and publicity.  Time Magazine, in their November 19, 2001,
issue,  recognized  the Hawk 4 Gyroplane as one or the best  "Inventions  of the
Year." The  inventions  selected by Time for  inclusion in this issue were those
that were not only  innovative,  but also had the potential to affect our lives.
The story provided a brief  description of how the aircraft  operates,  and also
presents  the  safety  and low  operating  costs  of the  Hawk 4 along  with the
aircraft's promising role in homeland defense.

         The  Smithsonian  National  Air & Space  Museum has included the Hawk 4
Gyroplane in its new IMAX film,  "Straight Up!  Helicopters in Action." With the
current impact GBA's Hawk 4 is having on the rotorcraft  industry,  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 on
rotor wing flight. 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 film  premiered  in
September 2002, and will be distributed to other IMAX theaters  worldwide.  This
is the first film in IMAX 70mm format to feature rotary-wing aircraft.

GBA RevCon 6G

         In addition to its Hawk series  models,  the Company has  completed the
assembly of, and is flight  testing its RevCon 6G  Gyroplane.  The GBA RevCon 6G
(Revolutionary  Concept) aircraft is a six seat, turbine engine powered advanced
technology rotor wing aircraft,  utilizing a modified Cessna Skymaster fuselage.
The  RevCon  6G  was  conceived  as  a  4,500  pound,  turbine  powered,  U-STOL
(ultra-short  takeoff  and  landing),   technology   development  aircraft.  The
anticipated useful load is approximately one ton, with a large cargo compartment
accessible through a rear loading door. The aircraft has been designed and built
to be easy to fly, capable of operating from extremely short,  rough strips, and
to be able to cruise at 120 miles per hour or  faster.  This  aircraft  was also
designed as a modular vehicle which could be used to test the hardware  required
for large GBA  Gyrodyne  aircraft.  Although  the  Company  will not  pursue FAA
Certification  of the RevCon 6G in the near future,  this  gyroplane may receive
GBA Certification if suitable public use sales  opportunities  emerge. It should
be noted that FAA  Certification  is not  required for sales of aircraft for law
enforcement and military uses.

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FAA Type Certificate

         Type  certification  is the process that  conforms  the Hawk  Gyroplane
engineering  and  flight   characteristics   to  FAA   requirements.   The  type
certification  process legally enables a U.S.  manufacturer to mass-produce  its
aircraft "type," insuring that each gyroplane that flies away from a GBA factory
meets identical safety and performance  requirements.  The regulations governing
an FAA Type Certificate for the Hawk Gyroplane are contained in Federal Aviation
Rules  (FAR)  Part  27,  which  regulates   certification   of  helicopters  and
gyroplanes.   The  FARs  require  the   manufacturer  to  provide  drawings  and
engineering data for every component of the aircraft.  The engineering data must
show  precisely  what  stresses  will be  imposed  on the  component  during its
operational life. Its capabilities must exceed these stresses by a minimum of 50
percent. The Hawk is designed with even greater margins of safety when weight is
not a penalty. The quality of each component must also be shown to be repeatable
during  the  manufacturing  process,  and  when  GBA  buys a part  from  another
manufacturer,  the part  must  also be  certified  by GBA,  or under a  specific
"Technical Standard Order (TSO)" by the FAA.

         GBA's FAA  certification  plan is a detailed  description of the method
GBA is  using  to prove  compliance  with the  FARs.  The  Company  employs  FAA
Designated  Engineering  Representatives  (DERs - approve  the  engineering  and
drawings)  and FAA  Designated  Airworthiness  Representatives  (DARs  -  ensure
conformity  to  the  approved  engineering).   Our  DERs  and  DARs  are  highly
experienced in rotorcraft design and certification  and, in effect,  approve our
work as though they were the FAA.  Type  certifying  the Hawk series  gyroplanes
with the FAA is a tedious and expensive process, but once achieved,  in addition
to  guaranteeing  a high standard of quality,  becomes a significant  barrier to
competition.  A Type Certificate is the permanent  property of the manufacturer,
and is the core of an aircraft manufacturer's business assets.

         Never  has a  gyroplane,  or  helicopter,  had to meet  such  stringent
government regulations.  An example of the new regulatory climate is the seat in
the Hawk 4, which is being  supplied by Simula Inc., an  Arizona-based  company.
Simula has developed the seat  technology  for a pilot or passenger to survive a
vertical  impact of thirty gs.  Although the gyroplane is a simple and safe form
of  rotorcraft,  it is the  history  of the  helicopter  that  led to  this  FAA
requirement for all new rotorcraft.  Modern government requirements have spawned
other specialized aircraft parts  manufacturers,  including rotor blade, landing
gear,  wheel and brake,  etc. GBA is relying heavily on FAA certified  suppliers
for these parts, because it reduces the time and cost of type certification.

Public Use Emphasis

         During the second fiscal quarter, the Company announced that because of
the recent  events in our nation and how those events have  effected the capital
markets,  it is making  major  modifications  to its business  plan.  Management
believes that these  modifications  are both appropriate and necessary to adjust
to the  significant  changes in the market  place for its  products,  and in the
availability of funding. These recent national events have caused impediments to
GBA's current  program,  but also have provided new  opportunities  to use GBA's
unique technologies in other markets.

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         The Company's  business plan has been centered upon the development and
FAA  certification  of its Hawk 4 Gyroplane  for  private  commercial  use.  The
private commercial aircraft market, with its requirement for certification,  has
necessitated  that GBA rely  upon  substantial  external  funding.  Meeting  the
rigorous  requirements  established  by the FAA for  civilian  use  aircraft was
necessary  before  the  Company  could  begin to  obtain  a  revenue  flow  from
commercial  sales.  The Company had been  successful  in obtaining  such funding
until  impacted by the fall in the stock  market for  technology  products  last
year.  This was greatly  exacerbated by the recent  terrorist  action,  creating
conditions that make it extremely difficult to rely on outside investment at the
levels required.  In these circumstances,  GBA's Board has decided that it would
be imprudent to continue to use its  resources at their  present level until the
current uncertainties have abated.

         GBA has, however, recognized that the new circumstances of our country,
as well as other  countries,  will  require  increased  levels of  vigilance  by
several branches of government to protect critical  national assets.  These will
include  border patrol as well as protection of pipelines,  nuclear power plants
and key transportation  infrastructure.  For such Public Use missions,  which do
not require the use of certificated  aircraft,  the Hawk 4 is particularly  well
suited,  performing  such missions far more  effectively,  and at lower relative
cost than any other air or ground vehicle.

         The Company is therefore reorienting its priorities towards offering to
our government,  and to governments of friendly countries,  the Hawk 4 Gyroplane
in its already  well-tested  and proven form as a highly  efficient,  safe,  and
inexpensive  means of  providing  needed  surveillance.  This plan gives GBA the
opportunity  to  begin  receiving  revenues  before  FAA  certification  can  be
achieved.  The certification effort on the Hawk 4 will continue, but at a slower
pace until the capital  markets turn around or until  revenues are  generated by
potential  government  sales. The Company has also instituted  certain temporary
measures to cut costs and conserve capital.  See Liquidity and Capital Resources
section, below.

         Management  believes  that these changes are essential to insuring that
the valuable  technology  that the Company has developed will not be lost to the
detriment of the country,  as well as those investors that have made it possible
for GBA to develop its remarkable and revolutionary aircraft.

Manufacturing and Materials Management

         GBA is  implementing  materials  management  procedures  to  guide  the
manufacturing process. In broad terms, materials management is an administrative
and  operational  function that directly  supports  manufacturing  activities in
providing  all the  materials  and  component  parts  that go into the  finished
product.  Materials  control will manage the Company's program to maintain parts
history files in accordance with FAA requirements.

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         The  Company  has  developed a family of FAA  certified  suppliers  for
subcontracting  the  cutting,  machining  and  forming  of metal  and  composite
components,  and the  purchasing of  off-the-shelf  components,  such as wheels,
instruments,   avionics,  switches,  etc.  Purchased  parts  and  materials  are
scheduled  to  optimize  quantity  and  timing of  deliveries.  The need to have
readily  available spare parts to meet the requirements of service to customers,
as well as to replace parts scrapped in manufacturing,  dictates the maintenance
of parts  inventories  at levels  that  satisfy  delivery  of  finished  product
requirements.  Close  coordination  with suppliers,  engineering,  marketing and
sales is  necessary  and is taken into account in each  department's  long-range
plan.  Procedural  manuals have been developed for  requisitioning,  purchasing,
materials  control,  store  keeping,  parts lists,  raw  materials  controls and
accounting.

THE MARKET

         As  helicopters  have  become  commonplace,  many  potential  users  of
ultra-short take off and landing (U-STOL) and off-airport aircraft have realized
how useful vertical flight would be if only they could afford it. The affordable
vertical flight offered by GBA gyroplanes will open a market that is much larger
than the existing helicopter market.

Government and Commercial Aviation

         The  market  for the Hawk is large and  varied.  The  world has  become
dependent upon helicopters  where runways are not available or if slow flight is
required.  The Company  believes the Hawk is a low cost  alternative,  which can
perform competitively with helicopters and airplanes in many roles including the
following:

1.       Law enforcement  (homeland security,  police,  sheriff,  border patrol,
         customs, and drug interdiction).
2.       Public service organizations (fire patrol, medical transport,  wildlife
         and land management).
3.       Military (courier, armed surveillance, VIP transport, forward artillery
         control, ground attack, unmanned aerial vehicles).
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, and training).

Homeland Security

         In light of the tragic  events of September  11,  2001,  and the United
States  Government's  increased  emphasis  on  Homeland  Security,  GBA has been
presenting  the case for the Hawk 4's  usefulness  in this  role to  members  of
Congress,  appropriate Federal Agencies, and to State and local agencies in Utah
and Arizona, and also has engaged the services of a Washington firm to represent

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the usefulness of the Hawk 4 in Homeland Security. The Company believes that the
Hawk 4 is ideally suited for, and can play a significant  role in the protection
of the United  States'  borders,  transportation  infrastructure,  nuclear power
plants, drinking water, agriculture, cities, and citizenry.

         During the third fiscal quarter, the Hawk 4 was prominently featured on
the CNN and Fox News networks,  and also was covered by NBC, CBS, German TV, and
Tech TV. The Hawk 4 also was  reported  in the print  media by  Aviation  Week &
Space  Technology,  Aviation Week's Business and Commercial  Aviation,  Aviation
Week's  Homeland  Security and Defense  newsletter,  Flight  International,  the
February  2002  Rolls-Royce  Rotor  Report,   HAI  Convention  News,   Ag-Pilot,
Agricultural Aviation, and local newspapers in Salt Lake City and Phoenix..

         The international  coverage given the Company and its aircraft centered
on the use of the Hawk 4 Gyroplane,  equipped as the Hawk 4 "Homeland Defender,"
(TM) by the Utah Olympic Public Safety Command (UOPSC) as an aerial  observation
platform in support of increased security at the Salt Lake International Airport
and surrounding  environs.  UOPSC used the Hawk 4 under public use laws. 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 completed 67 missions and accumulated 75 hours of maintenance-free flight
time.

         Later in the fiscal year, Groen Brothers Aviation, Inc. was selected to
participate in the Small Business Homeland Defense Expo 2002 in Washington,  DC.
Groen Brothers  Aviation,  Inc. attended the Expo to inform federal  procurement
agents and members of the U.S. Congress of the homeland security applications of
GBA's Homeland Defender Gyroplane. GBA was accepted,  through nomination by Utah
Senator  Orrin Hatch,  to display the Hawk 4 Homeland  Defender (TM) in front of
the Russell Senate Office Building in Washington, D.C., for the Expo on July 10,
2002.

         Senators Christopher S. Bond (R-MO) and John F. Kerry (D-MA) co-chaired
the Small Business Homeland Security Expo. 2002, where 50 companies (chosen from
hundreds of applicants)  from around the nation showcased  products  designed to
strengthen  homeland  security.  The Hawk 4 was one of only two chosen to have a
full display outside on special showcase.  Tom Ridge,  Director of the Office of
Homeland Security, was one of the featured speakers at the Expo.

         In a live CNN broadcast, Senator Kerry said his favorite product at the
Expo, with its very short takeoff and landing  capabilities,  high  performance,
high  reliability and low operating cost, was the Hawk 4 Gyroplane.  The Hawk 4,
dressed in Navy gray,  looked every bit the part of Homeland  Defender,  and was
well  received by  numerous  Senators  and their  staffs,  including  Utah's own
Senator  Hatch and Senator  Bennett.  Others  attending  the event were  various
representatives  of  the  military  branches  and  executive  agencies  who  are
potential users of such an aircraft.  U.S. Small Business  Administrator  Hector

                                       10
<PAGE>

Barreto, who was pictured with the Hawk 4 in an edition of the Washington Times,
personally   congratulated   the   Groen   Brothers   Aviation   team  on  their
accomplishments.

         Following  the event,  through  July 15, the  Company  performed  daily
flight  demonstrations  and gave  familiarization  rides at a nearby  airport in
Leesburg,  VA. 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. Law enforcement attendees included the D.C. Metro Police Department,
Virginia State Police,  and the Henrico County  Virginia Police  Department.  In
addition,  reporters from the Washington  Post and the Aircraft  Owners & Pilots
Association Magazine attended the demonstration and flew in the aircraft.

         The Hawk 4 Homeland  Defender (TM) gyroplane was recently  showcased in
segments that aired on "National  Geographic Today" and on "National  Geographic
This Week." The segments highlighted the utility and effectiveness of the Hawk 4
Gyroplane as a public use aircraft in a homeland security role. At the center of
the coverage  given by this popular  cable and satellite TV program was a report
filed by a special aviation correspondent Pat Woodard.  Underscoring the economy
inherent  in the design and  operation  of the  world's  first  turbine  powered
gyroplane,  Woodard said "With so few moving parts, a gyroplane costs about half
as much to maintain as a helicopter."  In its  examination of the widely ranging
homeland security  applications to which the aircraft  effectively lends itself,
National  Geographic's  coverage emphasized the Hawk 4's unique security role as
an aerial  observation  platform  during  the 2002  Winter  Olympics.  "National
Geographic  This  Week"  host  Tom  Foreman  commented  on the  Hawk 4  Homeland
Defender's (TM) relevance as an affordable aerial observation platform in a post
9-11  world.  Brilliantly  produced,  this  piece  made a  clear  case  for  the
employment of the modern gyroplane as a homeland defense tool.

Dealer Network

         Groen  Brothers  Aviation 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  from its Dealers and private  individuals  more than 145 down  payment
deposits on aircraft. The dealers in turn take deposits from customers as orders
are  received.  Except for military  sales,  which will be made directly by GBA,
dealers will handle all sales, including government agencies and fleet sales.

         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

                                       11
<PAGE>

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.

Export Sales

         GBA has been  approached  by  companies  in more  than a dozen  foreign
countries on five continents  requesting to be dealers. At present,  the Company
is having discussions with several different foreign entities.

         The Company is seeking orders from foreign  governments  with intensive
border  patrol   needs.   Also,   since  the  Hawk  4  Gyroplane   excels  where
infrastructure  is  relatively  undeveloped,  the  potential  for  sales in many
foreign countries is great.

Patents

         GBA presently owns three U.S. patents and several 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.
The Company has filed for patent protection in nearly every country in the world
containing aircraft manufacturing  capability of any significance and with which
the U.S. has reciprocal agreements on intellectual  property.  GBA's patents are
filed in Japan,  Korea,  Canada,  and  Brazil.  In  addition  to the three  U.S.
patents,  GBA has been  awarded  international  patents  in  Australia,  the EU,
Belgium, France, Germany, Italy, Netherlands,  Portugal, Spain, Switzerland, and
the United Kingdom.

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

         The Company leases its Salt Lake City,  Utah facility of  approximately
25,000 square feet,  within which it is assembling the Hawk 4, and designing the
follow-on models. This interim development/manufacturing  facility is located at
2640 W. California Avenue, Suite A, Salt Lake City, UT 84104-4593.  In addition,
the  Company  leases  a  flight  facility  in  Buckeye  Airport,   Arizona,   of
approximately 12,000 square feet.

         In August 2001, the Company  announced that it would move its corporate
headquarters from Salt Lake City, Utah, to a brand 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  in its
current facility in Salt Lake City, Utah.


                                       12
<PAGE>

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

         The Company is a plaintiff in litigation in Germany. Pursuant to a loan
agreement with a German citizen and two European  banks,  the Company  delivered
four million  shares of common stock as  collateral  in July of 1993. A loan was
never  received on the  collateral  and in  December  of 1993 the Company  filed
criminal  charges  and  retained  a  law  firm  in  Germany  to  commence  civil
litigation.  In 1997, the German Courts judged  favorably for the Company on all
counts.  The defendant  appealed on a technicality and the appellate court ruled
in favor of the Company.  The Company  expects to have its stock returned during
the coming fiscal year.

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.

             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

                                       13
<PAGE>


         The number of shareholders of record for the Company's  common stock as
of June 30, 2002,  were 1,323,  and the number of shares issued and  outstanding
were 87,254,857.

Recent Sales of Unregistered/Restricted Securities

         During  the  past  fiscal  year the  Company  has  obtained  investment
capital,  or the relief of debt and accounts payable through the private sale of
unregistered/restricted  common  shares.  These sales were to  sophisticated  or
accredited  investors  at  prices  fluctuating  with  the  market  price  of the
Company's common stock. Additionally,  on a more limited basis, 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. Such document is incorporated by
reference.

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

Results of Operations

         Income

         Total income increased to $428,000 from $398,000.  The increase was due
to the sale of an aircraft  engine that  formerly had been  expensed to research
and  development.  The  increase was  partially  offset by a decrease in related
party interest income,  due in part to renegotiating  the principal  balance and
interest rate on a related party note receivable.

         Expenses

         During 2002, research and development  expenses decreased to $3,342,000
compared  to $ 7,035,000  in 2001.  This was due to the  Company's  cost-cutting
measures  and change in  business  plan,  which  resulted  in a decrease  in the
purchase of  production  materials and parts and a reduction in workforce as the
work emphasis on the Hawk 4 and RevCon 6G shifted from constructing the aircraft
almost exclusively to flight testing.

         During  2002,   general  and   administrative   expenses  decreased  to
$3,259,000  compared  to  $3,619,000  in 2001.  There was a general  decrease in
general and  administrative  purchasing as the Company  conducted a company wide
reduction  of expenses,  with a resulting  reduction  in  workforce.  Management
deemed this to be prudent when the capital  markets  became  constricted  in the
wake of the terrorist attacks in September 2001.

         During 2002, the Company  determined  that there had been an impairment
of $867,000 in deferred  stock  offering costs and a decrease in the fair market
value  of  investment  artwork.  During  2002,  interest  expense  increased  to
$1,074,000  compared  to  $1,027,000  in 2001.  This was due to an  increase  in
accrued interest on notes payable, accrued payroll, and vendor payables.

         Net Earnings

         During  2002 and 2001 the  Company  continued  to  record  losses as it
conducted  flight tests and continued the  transition  toward full marketing and
manufacturing of the Hawk Gyroplane series. In 2002, the net loss was $8,362,000
compared to  $11,283,000  in 2001.  In 2002,  the net loss  applicable to common
stockholders was $12,460,000 compared to $11,283,000 in 2001. 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.

                                       14
<PAGE>

         Liquidity and Capital Resources

         During development stage activities, the Company has raised $24 million
for operations  through the sale of equity.  The Company had been  successful in
obtaining external funding to support its aircraft development until impacted by
the  fall in the  stock  market  for  technology  products  last  year,  greatly
exacerbated  by the  terrorist  action  in  September  2001  and  the  necessary
responses  to it,  circumstances  that make it  extremely  difficult  to rely on
outside investment at the levels required.

         In the second  fiscal  quarter,  the Company  implemented  cost cutting
measures by a layoff of those  personnel  primarily  associated  with the Hawk 4
commercial aviation program and not immediately required by the new applications
of the aircraft,  mentioned  above.  This resulted in an immediate  reduction in
force of GBA workers and, therefore, an immediate reduction in payroll expenses.
The Company further cut back on many other controllable expenditures.

         Additionally, 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.  Since the end of the fiscal  year,  certain of the
promissory notes have expired and are thus  technically in default.  The Company
is,  however,  in negotiation  with those vendors and  anticipates  that it will
reach  agreement  with each vendor  either to extend the  existing  note or to a
payment plan satisfactory to the parties.

         During the past fiscal year,  $1.7 million was raised  through the sale
of equity, and $0.5 million through the sale of assets, principally engines. The
Company has also raised $1.6 million (net of reduction) in Notes Payable  during
the latest  fiscal  year.  Accrued  expenses,  particularly  deferral of officer
salaries, also reduced cash requirements by $1.6 million.

         Management  does not  anticipate  that  revenues  or  expenses  will be
materially affected by inflation during fiscal year 2003.

         The Company is seeking to raise $40 million  during fiscal year 2003 to
permit a return  to its  planned  certification  program  on a stable  financial
basis.  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.

         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

                                       15
<PAGE>

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  were  impaired,  due to the fact that the  Company  has 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,
2002, it is not in the Company's financial interest to complete the registration
process at this time.

         If the  Company was to register  unrestricted  shares of common  stock,
subject to other contractual limitations and based on the number and fair market
value of issued and outstanding shares as of June 30, 2002, the Company would be
limited to the issue of a maximum of  8,638,231  shares for a  draw-down  on the
line of equity of $2,160,000.

         The Company  carries the 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.  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 balance sheet,  lowering assets by $159,000,
and by increasing  deficit  accumulated during the development stage 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.

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


                                       16
<PAGE>

Item 7.     Financial Statements
--------------------------------
                                                                        Page
                                                                        ----
         Index to Consolidated Financial Statements

         Independent auditors' report of Tanner + Co.                   F-1

         Consolidated financial statements:

                  Consolidated balance sheet                            F-2

                  Consolidated statement of operations                  F-3

                  Consolidated statement of stockholder's
                       deficit                                          F-4

                  Consolidated statement of cash flows                 F-11

                  Notes to consolidated financial statements           F-13



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                 51               Director, President, Chief
                                                    Executive Officer, and
                                                    Treasurer
    H. Jay Groen                   58               Director, Chairman of the
                                                    Board of Directors
    James P. Mayfield              54               Director, Executive Vice-
                                                    President, Corporate
                                                    Secretary

Term of Office

         The terms of service of Messrs.  Groen and Mr.  Mayfield  as members of
the  Board  of  Directors   continue  until  the  next  annual  meeting  of  the
stockholders.  These persons' respective appointments were adopted, ratified and
approved by the stockholders at a meeting for that purpose on May 20, 2000. With

                                       17
<PAGE>

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.

Family Relationships

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

Background on Directors and Officers

         David  Groen is  President  & CEO,  Treasurer,  and a  Director  of the
Registrant.  Immediately prior to forming Groen Brothers  Aviation,  David 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 Sales and Marketing,  Safety Officer,  Branch  Manager,  and Chief
Pilot  responsibilities.  Having extensive military and commercial experience in
helicopters,  Mr.  Groen has logged  more than  7,000  hours in  rotor-wing  and
fixed-wing  aircraft.  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. He is qualified as a pilot in most American and French helicopters, and
has attended  Aerospatiale  factory schools on the SA315B Lama and the SA316 and
SA319 Alouette III helicopters.  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 patrol,  topographical
survey,  USGS  map  making,   wildlife  management,   predator  control,   heard
management,  back country tour guides,  heli-skiing,  forest fire fighting, long
line seismic oil  exploration,  and wildcat  on-shore and off-shore oil drilling
operations.  These  years  of  commercial  flying  gave Mr.  Groen a  wealth  of
management and leadership experience in a variety of related fields. David Groen
is co-author, along with his brother Jay, of a best selling novel entitled Huey.

         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

                                       18
<PAGE>

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.

         James P.  Mayfield  III, is Vice  President,  Chief  Operating  Officer
(COO),  Chief of Flight  Operations,  and a Director  of the  Registrant.  James
Mayfield,  one of only a handful of individuals  certified as a gyroplane  pilot
examiner  by the FAA,  brings to GBA more  than  3,300  hours of flight  time in
gyroplanes.  As GBA's Chief Test Pilot,  Mr.  Mayfield was  recently  honored by
being  inducted  into  "The  Society  of  Experimental  Test  Pilots,"  an elite
world-wide  organization of only 1,800 pilots,  whose  distinguished  membership
include Chuck Yeager, Deke Slayton, Scott Crossfield and Jimmy Doolittle II. Mr.
Mayfield  has logged more than  14,900  total  hours  flight time that  includes
extensive  experience test flying a wide range of aircraft. A career U.S. Marine
Corps officer, Mr. Mayfield retired from the Marines in 1989 following nearly 25
years of distinguished service and leadership experience.  His last tour of duty
was in the Operations Department at Camp Pendleton, California,  responsible for
the safety and security of Special Weapons in the Pacific  region.  With a staff
of 400 people reporting to him, he was responsible for training, outfitting, and
evaluating  the First  Marine  Division  (30,000  Marines)  in  Special  Weapons
employment and defense. Mr. Mayfield possesses two baccalaureate degrees, one in
psychology and a second in sociology, bestowed by the University of New York.

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

         No  director  or  executive  officer of the  Registrant  received  cash
compensation  in excess of  $100,000  during the past fiscal  year.  David Groen
holds  options  to  purchase  1,475,000  common  shares  at $.09 per share to be
purchased by 2003,  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 $.50 per
share to be purchased by 2006, options to purchase 250,000 common shares at $.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,  and options to  purchase  100,000
common shares at $.25 per share to be purchased by 2007. Jay Groen holds options
to purchase  2,075,000  common shares at $.09 per share to be purchased by 2003,
options to purchase  25,000  common  shares at $.50 per share to be purchased by
2006,  options  to  purchase  250,000  common  shares  at $.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, and options to purchase  100,000 common shares at
$.25 per share to be purchased by 2007. James Mayfield holds options to purchase
1,000,000  common  shares at $.09 per share to be purchased by 2003,  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 $.50 per share to be purchased by
2006,  options  to  purchase  250,000  common  shares  at $.63  per  share to be
purchased by 2006,  and options to purchase  100,000  common  shares at $.25 per
share to be purchased by 2007.



                                       19
<PAGE>


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

         The  following  shows the shares of common  stock  owned as of June 30,
2002,  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, President                  10,749,184               12.32
2640 California Avenue
Salt Lake City, UT 84104

Jay Groen, Director                      5,184,344                5.94
2640 California Avenue
Salt Lake City, UT 84104

James P. Mayfield, Vice President           70,760                0.08
2640 W. California Avenue
Salt Lake City, UT 84104

All Officers and Directors              16,004,288               18.34

Lyle Campbell                            4,718,585                5.41
c/o Chapman & Cutler
111 W. Monroe Street
Chicago, IL 60603

         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.

                                       20
<PAGE>

         The above does not include  common stock  options owned by David Groen,
Jay Groen,  and James  Mayfield  that could have been  exercised  as of June 30,
2002, to purchase  3,550,000  shares,  4,100,000  shares,  and 3,075,000  shares
respectively.  If such shares were purchased,  their ownership would equal 14.59
percent, 9.48 percent, and 3.21 percent respectively.

         During the year ended June 30,  2001,  the  Company  received an equity
investment from certain institutional investors.  Pursuant to the funding terms,
a total of 12,500,000  shares of common stock and put options were purchased for
an aggregate of $5 million.  During the year ended June 30, 2002,  the investors
surrendered  all  12,500,000  shares of common stock and put options in exchange
for 15,000 shares of Series B 15%  Cumulative  Redeemable  Non-Voting  Preferred
Stock with a stated  value of $15 million.  On October 31, 2003,  the Company is
obligated to redeem all issued and outstanding shares of Series B 15% Cumulative
Redeemable  Non-Voting Preferred Stock, and the Company at its option may redeem
these shares in either cash or common  stock.  See footnote 12 to the  financial
statements regarding "Equity Financing."

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 matures in 3 years, 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, 2002, was $197,000.

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

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

                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)

                                      Index to Consolidated 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-11


Notes to consolidated financial statements                             F-13


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

                                       21
<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)

                                                    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), a development stage company, as of June 30, 2002,
and the related consolidated statements of operations, stockholders' deficit and
cash  flows for the two years  ended  June 30,  2002 and  2001,  and  cumulative
amounts since July 1, 1993 (date of  commencement of development  stage).  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, 2002,  and the results of their  operations  and
their cash flows for the two years ended June 30, 2002 and 2001,  and cumulative
amounts  since July 1, 1993 (date of  commencement  of  development  stage),  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.



                                        TANNER + CO.

Salt Lake City, Utah
September 12, 2002

                                                                             F-1

<PAGE>
<TABLE>
<CAPTION>


                                                                             GROEN BROTHERS AVIATION, INC.
                                                                             (A Development Stage Company)

                                                                                Consolidated Balance Sheet

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

       Assets
       ------
<S>                                                                                     <C>
Current assets:
   Cash                                                                                 $           16,000
   Accounts receivable                                                                               5,000
   Related party notes receivable                                                                  125,000
   Prepaid expenses                                                                                 25,000
                                                                                        ------------------

         Current assets                                                                            171,000

Investment art                                                                                     173,000
Property and equipment, net                                                                        655,000
                                                                                        ------------------

         Total assets                                                                   $          999,000
                                                                                        ------------------

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

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

Current liabilities:
   Accounts payable                                                                     $        1,108,000
   Accrued expenses                                                                              3,804,000
   Short-term notes payable                                                                        893,000
   Related party notes payable                                                                   3,641,000
   Current portion of long-term debt                                                               908,000
                                                                                        ------------------

         Total current liabilities                                                              10,354,000

Long-term debt                                                                                     100,000
Deposits                                                                                         2,699,000
                                                                                        ------------------

         Total liabilities                                                                      13,153,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' deficit:
   Series B 15% cumulative redeemable non-voting preferred stock, no
     par value, 50,000,000 shares authorized; 15,918 shares issued and
      outstanding (aggregate liquidation preference of $15,918,000)                              9,098,000
   Common stock, no par value, 200,000,000 shares authorized;
     87,254,857 shares issued and outstanding                                                   24,578,000
   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)                                                               2,597,000
   Series A convertible preferred stock subscription receivable                                 (2,597,000)
   Deficit accumulated during the development stage                                            (45,830,000)
                                                                                        ------------------

         Total stockholders' deficit                                                           (12,154,000)
                                                                                        ------------------

         Total liabilities and stockholders' deficit                                    $          999,000
                                                                                        ------------------


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

<PAGE>
<TABLE>
<CAPTION>


                                                                             GROEN BROTHERS AVIATION, INC.
                                                                             (A Development Stage Company)

                                                                      Consolidated Statement of Operations

                                                               Years Ended June 30, and Cumulative Amounts
----------------------------------------------------------------------------------------------------------

                                                                                            Cumulative
                                                            2002             2001            Amounts
                                                     -----------------------------------------------------
<S>                                                  <C>                  <C>              <C>
Income:
     Related party interest                          $           13,000   $      336,000   $       349,000
     Interest and other                                         415,000           62,000           643,000
                                                     -----------------------------------------------------

                  Total income                                  428,000          398,000           992,000
                                                     -----------------------------------------------------

Costs and expenses:
     Research and development                                 3,342,000        7,035,000        26,180,000
     General and administrative expenses                      3,259,000        3,619,000        14,787,000
     Impairment of assets                                     1,115,000                -         1,115,000
     Interest expense                                         1,074,000        1,027,000         2,872,000
                                                     -----------------------------------------------------

                  Total costs and expenses                    8,790,000       11,681,000        44,954,000
                                                     -----------------------------------------------------

         Net loss before income taxes                        (8,362,000)     (11,283,000)      (43,962,000)

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

                  Net loss                           $       (8,362,000)  $  (11,283,000)  $   (43,962,000)
                                                     -----------------------------------------------------

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

                  Net loss applicable to
                  common stockholders                       (12,460,000)     (11,283,000)      (48,060,000)
                                                     -----------------------------------------------------

Net loss per share - basic and diluted               $             (.14)  $         (.13)  $          (.91)
                                                     -----------------------------------------------------

Weighted average common and common
  equivalent shares - basic and diluted                      91,065,000       83,812,000        53,011,000
                                                     -----------------------------------------------------

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

<PAGE>
<TABLE>
<CAPTION>

                                                                                                   GROEN BROTHERS AVIATION, INC.
                                                                                                   (A Development Stage Company)
                                                                                 Consolidated Statement of Stockholders' Deficit

                                                                       Years Ended June 30, 2002 and 2001 and Cumulative Amounts
--------------------------------------------------------------------------------------------------------------------------------


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

<S>                               <C> <C>      <C>          <C>             <C> <C>       <C>        <C>           <C>
Balance, July 1, 1993             -   $    -   27,153,509  $ 1,074,000      -   $    -    $      -   $ (1,868,000) $    (794,000)

Issuance of common stock for:
    Cash (.26)                    -        -    1,083,611      280,000      -        -           -              -        280,000
    Collateral on a loan          -        -    4,000,000            -      -        -           -              -              -
    Commissions (.24)             -        -       40,857       10,000      -        -           -              -         10,000
    Debt (.17)                    -        -      172,222       30,000      -        -           -              -         30,000
    Services (.24)                -        -       63,185       15,000      -        -           -              -         15,000

Cancellation of shares
  previously issued               -        -      (50,000)           -      -        -           -              -              -

Issuance of stock options
  at 50% of bid at option
  date                            -        -            -       10,000      -        -           -              -         10,000

Net loss                          -        -            -            -      -        -           -       (480,000)      (480,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1994            -        -   32,463,384    1,419,000      -        -           -     (2,348,000)      (929,000)

Issuance of common stock for:
    Assets (.44)                  -        -        2,286        1,000      -        -           -              -          1,000
    Cash (.42)                    -        -    1,028,923      432,000      -        -           -              -        432,000
    Commissions (.49)             -        -       18,546        9,000      -        -           -              -          9,000
    Debt (.11)                    -        -      487,027       55,000      -        -           -              -         55,000
    Services (.44)                -        -      138,860       61,000      -        -           -              -         61,000

         (Note - per share data is included in parenthesis)


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

<PAGE>
<TABLE>
<CAPTION>


                                                                                                   GROEN BROTHERS AVIATION, INC.
                                                                                                   (A Development Stage Company)
                                                                                 Consolidated Statement of Stockholders' Deficit
                                                                                                                       Continued
--------------------------------------------------------------------------------------------------------------------------------


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

<S>                               <C>      <C> <C>         <C>              <C>      <C>         <C>   <C>             <C>
Net loss                          -        -            -            -      -        -           -       (710,000)      (710,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1995            -        -   34,139,026    1,977,000      -        -           -     (3,058,000)    (1,081,000)

Issuance of common stock for:
    Assets (.51)                  -        -      100,000       51,000      -        -           -              -         51,000
    Cash (.33)                    -        -    1,669,404      547,000      -        -           -              -        547,000
    Commissions (.33)             -        -      124,719       41,000      -        -           -              -         41,000
    Debt (.20)                    -        -       10,000        2,000      -        -           -              -          2,000
    Services (.24)                -        -      686,708      168,000      -        -           -              -        168,000

Net loss                          -        -            -            -      -        -           -     (1,046,000)    (1,046,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1996            -        -   36,729,857    2,786,000      -        -           -     (4,104,000)    (1,318,000)

Issuance of common stock for:
    Assets (.88)                  -        -    2,500,000    2,201,000      -        -           -              -      2,201,000
    Cash (.89)                    -        -    1,359,442    1,216,000      -        -           -              -      1,216,000
    Commissions (1.12)            -        -       11,607       13,000      -        -           -              -         13,000
    Debt (.69)                    -        -      689,802      477,000      -        -           -              -        477,000
    Services (.57)                -        -      468,003      267,000      -        -           -              -        267,000

Net loss                          -        -            -            -      -        -           -     (1,890,000)    (1,890,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1997            -        -   41,758,711    6,960,000      -        -           -     (5,994,000)       966,000

        (Note - per share data is included in parenthesis)


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

<PAGE>
<TABLE>
<CAPTION>


                                                                                                   GROEN BROTHERS AVIATION, INC.
                                                                                                   (A Development Stage Company)
                                                                                 Consolidated Statement of Stockholders' Deficit
                                                                                                                       Continued
--------------------------------------------------------------------------------------------------------------------------------


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

<S>                               <C>      <C>  <C>            <C>          <C>      <C>         <C>   <C>             <C>
Issuance of common stock for:
    Cash (.50)                    -        -    1,613,622      803,000      -        -           -              -        803,000
    Commission (.49)              -        -      109,299       54,000      -        -           -              -         54,000
    Services (.73)                -        -       79,617       58,000      -        -           -              -         58,000

Net loss                          -        -            -            -      -        -           -     (3,056,000)    (3,056,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1998            -        -   43,561,249    7,875,000      -        -           -     (9,050,000)    (1,175,000)

Issuance of common stock for:
    Assets (.41)                  -        -    2,954,944    1,226,000      -        -           -              -      1,226,000
    Cash (.49)                    -        -    9,458,124    4,607,000      -        -           -              -      4,607,000
    Commission (.44)              -        -    1,574,216      686,000      -        -           -              -        686,000
    Debt (.38)                    -        -      194,935       74,000      -        -           -              -         74,000
    Services (.40)                -        -      101,333       41,000      -        -           -              -         41,000

Issuance of common stock
  options for:
    Cash                          -        -            -       50,000      -        -           -              -         50,000
    Services                      -        -            -       40,000      -        -           -              -          4,000

Net loss                          -        -            -            -      -        -           -     (8,339,000)    (8,339,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 1999            -        -   57,844,801   14,563,000      -        -           -    (17,389,000)    (2,826,000)


        (Note - per share data is included in parenthesis)


--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                                                 F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                                   GROEN BROTHERS AVIATION, INC.
                                                                                                   (A Development Stage Company)
                                                                                 Consolidated Statement of Stockholders' Deficit
                                                                                                                       Continued
--------------------------------------------------------------------------------------------------------------------------------


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

<S>                               <C>      <C> <C>           <C>            <C>           <C>    <C>  <C>            <C>
Issuance of common stock for:
  Cash (.52)                      -        -   12,766,233    6,686,000      -             -      -              -      6,686,000
  Investment art (.70)            -        -      100,000       70,000      -             -      -              -         70,000
  Property and equipment (.58)    -        -       58,410       34,000      -             -      -              -         34,000
  Accounts payable (.48)          -        -      303,883      147,000      -             -      -              -        147,000
  Accrued expenses (.83)          -        -      212,734      177,000      -             -      -              -        177,000
  Long-term debt (.49)            -        -    1,090,010      537,000      -             -      -              -        537,000
  Services (1.06)                 -        -       15,146       16,000      -             -      -              -         16,000
  Interest expense (.71)          -        -       43,847       31,000      -             -      -              -         31,000

Issuance for common stock
 options for:
  Cash                            -        -            -        5,000      -             -      -              -          5,000
  Property and equipment          -        -            -       13,000      -             -      -              -         13,000
  Accounts payable                -        -            -        7,000      -             -      -              -          7,000

Cancellation of stock options
 in exchange for deposits         -        -            -     (295,000)     -             -      -              -       (295,000)

Net loss                          -        -            -            -      -             -      -     (8,796,000)    (8,796,000)
                              --------------------------------------------------------------------------------------------------

Balance, June 30, 2000            -        -   72,445,064   21,991,000      -             -     -    (26,185,000)    (4,194,000)


        (Note - per share data is included in parenthesis)


--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                                                 F-7
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                                       GROEN BROTHERS AVIATION, INC.
                                                                                                       (A Development Stage Company)
                                                                                     Consolidated Statement of Stockholders' Deficit
                                                                                                                           Continued
------------------------------------------------------------------------------------------------------------------------------------


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

<S>                               <C>      <C> <C>           <C>        <C>         <C>          <C>   <C>            <C>
Issuance of Series A
 preferred stock for
 subscription receivable          -        -            -            -  10,000,000  10,000,000   (10,000,000)        -            -

Accrued interest on
  subscription receivable         -        -            -            -           -           -      (323,000)        -     (323,000)

Issuance of common stock for:
  Cash (.44)                      -        -   17,606,815    7,761,000           -           -             -         -    7,761,000
  Deferred offering costs
    (1.00)                        -        -       10,000       10,000           -           -             -         -       10,000
  Investment aircraft (.50)       -        -      280,000      140,000           -           -             -         -      140,000
  Commissions                     -        -       69,333            -           -           -             -         -            -
  Accounts payable (1.04)         -        -       10,571       11,000           -           -             -         -       11,000
  Related party note receivable   -        -       14,286       10,000           -           -             -         -       10,000
  Services and expenses (.40)     -        -      360,117      145,000           -           -             -         -      145,000
  Interest expense (.99)          -        -      595,126      590,000           -           -             -         -      590,000
  Deposit converted to stock
    (.97)                         -        -      260,375      253,000           -           -             -         -      253,000
  Employer contribution to
    401(k) (.90)                  -        -       55,641       50,000           -           -             -         -       50,000

Other changes in stockholders'
 deficit:
  Deferred offering costs         -        -            -      847,000           -           -             -         -      847,000
  Put options                     -        -            -      250,000           -           -             -         -      250,000
  Options for services            -        -            -       17,000           -           -             -         -       17,000
  Commissions                     -        -            -     (569,000)          -           -             -         -     (569,000)
  Redemption of common stock
   for investment art (.45)       -        -      (44,861)     (20,000)          -           -             -         -      (20,000)


        (Note - per share data is included in parenthesis)


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                                                     F-8
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                                       GROEN BROTHERS AVIATION, INC.
                                                                                                       (A Development Stage Company)
                                                                                     Consolidated Statement of Stockholders' Deficit
                                                                                                                           Continued
------------------------------------------------------------------------------------------------------------------------------------


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

<S>                        <C>     <C>       <C>          <C>         <C>         <C>          <C>         <C>          <C>
Net loss                        -          -           -           -           -           -             - (11,283,000) (11,283,000)
                           ---------------------------------------------------------------------------------------------------------

Balance, June 30, 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 (.26)                    -          -   6,568,700   1,679,000           -           -            -            -    1,679,000
  Commissions                   -          -     225,428           -           -           -            -            -            -
  Vehicles (.20)                -          -     155,301      31,000           -           -            -            -       31,000
  Accounts payable (.27)        -          -      18,804       5,000           -           -            -            -        5,000
  Accrued expenses (.47)        -          -      68,770      32,000           -           -            -            -       32,000
  Related party notes
   payable (.24)                -          -     987,681     240,000           -           -            -            -      240,000
  General and
   administrative
    expenses (.19)              -          -      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

        (Note - per share data is included in parenthesis)


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                                                     F-9
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                                       GROEN BROTHERS AVIATION, INC.
                                                                                                       (A Development Stage Company)
                                                                                     Consolidated Statement of Stockholders' Deficit
                                                                                                                           Continued
------------------------------------------------------------------------------------------------------------------------------------


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

<S>                        <C>    <C>        <C>        <C>          <C>         <C>              <C>   <C>            <C>
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)
                           ---------------------------------------------------------------------------------------------------------


        (Note - per share data is included in parenthesis)


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                                                    F-10
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                             GROEN BROTHERS AVIATION, INC.
                                                                             (A Development Stage Company)

                                                                      Consolidated Statement of Cash Flows

                                                               Years Ended June 30, and Cumulative Amounts
----------------------------------------------------------------------------------------------------------



                                                                                            Cumulative
                                                              2002             2001           Amounts
                                                        --------------------------------------------------
<S>                                                     <C>                 <C>             <C>
Cash flows from operating activities:
   Net loss                                             $      (8,362,000)  $ (11,283,000)  $  (43,962,000)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and amortization expense                        319,000         366,000        1,514,000
     Common stock issued for services and expenses                 13,000         145,000        1,604,000
     Common stock issued for interest                                   -         590,000          621,000
     Common stock issued for employer
       contribution to 401(k)                                           -          50,000           50,000
     Stock warrants and options issued for services               240,000          17,000          271,000
     Interest accrued against subscription receivable             323,000        (323,000)               -
     Interest accrued against related party note
      receivable                                                  (13,000)        (13,000)         (26,000)
     Artwork for royalty and other expenses                             -         150,000          150,000
     Impairment of assets                                       1,115,000               -        1,115,000
     (Gain) loss on disposal of assets                           (365,000)              -         (321,000)
     (Increase) decrease in:
       Prepaid expenses                                            90,000         (59,000)          25,000
     Increase (decrease) in:
       Accounts payable                                         1,041,000         497,000        2,163,000
       Accrued expenses                                         1,618,000         750,000        4,042,000
       Deposits                                                   (59,000)        340,000        2,097,000
                                                        --------------------------------------------------

         Net cash used in
         operating activities                                  (4,040,000)     (8,773,000)     (30,657,000)
                                                        --------------------------------------------------

Cash flows from investing activities:
   Purchase of property and equipment                             (19,000)       (428,000)      (1,424,000)
   Sale of property and equipment                                   3,000               -        2,215,000
   Issuance of related party notes receivable                           -         (74,000)        (200,000)
   Collections on related party receivables and
    advances                                                       79,000           3,000           87,000
   Proceeds from art sale                                               -               -           39,000
   Proceeds from helicopter sale                                  120,000               -          120,000
   Proceeds from R&D equipment sale                               408,000               -          408,000
                                                        --------------------------------------------------

         Net cash provided by (used in)
         investing activities                                     591,000        (499,000)       1,245,000
                                                        --------------------------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                          F-11
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                             GROEN BROTHERS AVIATION, INC.
                                                                             (A Development Stage Company)

                                                                      Consolidated Statement of Cash Flows
                                                                                                 Continued

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

                                                                                            Cumulative
                                                              2002             2001           Amounts
                                                        --------------------------------------------------
<S>                                                     <C>                 <C>             <C>

Cash flows from financing activities:
   Proceeds from short-term notes payable                         100,000         100,000          210,000
   Reduction of short-term notes payable                           (1,000)              -           (1,000)
   Proceeds from long-term debt                                         -         221,000        2,799,000
   Reduction of long-term debt                                    (82,000)       (265,000)      (1,345,000)
   Proceeds from related party notes payable                    1,819,000       1,970,000        4,548,000
   Reduction of related party notes payable                      (104,000)       (270,000)        (491,000)
   Proceeds from issuance of common stock                       1,679,000       7,761,000       24,012,000
   Payment of commissions related to issuance of
     common stock                                                 (62,000)       (543,000)        (605,000)
   Payment of deferred offering costs                                   -         (10,000)         (10,000)
   Proceeds from issuance of call options                               -               -           55,000
   Proceeds from issuance of put options                                -         250,000          250,000
                                                        --------------------------------------------------

         Net cash provided by
         financing activities                                   3,349,000       9,214,000       29,422,000
                                                        --------------------------------------------------

         Net (decrease) increase in cash                         (100,000)        (58,000)          10,000

Cash, beginning of period                                         116,000         174,000            6,000
                                                        --------------------------------------------------

Cash, end of period                                     $          16,000   $     116,000   $       16,000
                                                        --------------------------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.                                          F-12
</TABLE>

<PAGE>

                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements

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

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  subsidiary  Groen Brothers  Aviation USA,
     Accounting          Inc.  (formerly  Sego Tool,  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,  the Company is  considered  a
                         development  stage Company as defined in SFAS No.7. The
                         Company's  development stage activities  consist 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.

                         Concentration of Credit
                         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.

                         Investment Art
                         The  Company  holds  investment  art  for  resale.  The
                         Company carries the investment art at the lower of cost
                         or market.

                         Deferred Offering Costs
                         Deferred  offering costs  represent  origination  costs
                         incurred to obtain equity financing.  Deferred offering
                         costs reduces  "dollar-for-dollar" against common stock
                         as the  equity  financing  is  realized  or  charged to
                         expense should they exceed the actual equity received.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      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
     Policies            assets 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 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.

                         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.

                         Advertising
                         Advertising  costs are  non-direct  in nature,  and are
                         expensed  over the  periods  in which  the  advertising
                         takes place.  Advertising  expense totaled $190,000 and
                         $393,000  for the years  ended June 30,  2002 and 2001,
                         respectively.

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


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      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
                         34,079,334  and  30,117,521  shares of common  stock at
                         prices  ranging from $.09 to $3.00 were  outstanding at
                         June 30,  2002 and  2001,  respectively.  Common  stock
                         equivalents  arising out of convertible debt agreements
                         totaling  9,381,533  and  2,603,532,  were  outstanding
                         during  the  years   ended  June  30,  2002  and  2001,
                         respectively,  with conversion prices ranging from $.20
                         to  $1.25.  Common  stock  equivalents  arising  out of
                         Series B 15% Cumulative Redeemable Non-Voting Preferred
                         Stock may arise in October 2003, 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, 2003. If Series B
                         15% Cumulative  Redeemable  Non-Voting  Preferred Stock
                         had been  required  to have been  redeemed  at June 30,
                         2002,  the  redemption  price would have been $0.19 per
                         common  share,  resulting in the issuance of 83,778,947
                         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,  2003.
                         Common  stock  equivalents  were  not  included  in the
                         diluted loss per share  calculation  because the effect
                         would have been antidilutive.

                         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.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

1.   Organization        Accounting Estimates
     and                 The  preparation of financial  statements in conformity
     Summary of          with accounting  principles  generally  accepted in the
     Significant         United  States of America  requires  management to make
     Accounting          estimates  and  assumptions  that  affect the  reported
     Policies            amounts of assets and  liabilities  and  disclosure  of
     Continued           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.

                         Reclassification
                         Certain   amounts   in   the   consolidated   financial
                         statements for 2001 have been  reclassified  to conform
                         with the current year presentation.


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,   the  Company's   ability  to
                         continue 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             Related   party   notes   receivable   consist  of  the
     Party Notes         following:
     Receivable





                         Unsecured notes receivable
                         from officers and
                         shareholders bearing interest
                         at 8%, due on demand.             $          72,000

                         Unsecured note receivable
                         from a shareholder
                         bearing interest at 12%,
                         due on demand.                               53,000
                                                           -----------------

                                                           $         125,000
                                                           -----------------


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

4.   Property            Property and equipment consists of the following:
     and
     Equipment           Equipment and tools             $       1,486,000
                         Computer equipment                        422,000
                         Leasehold improvements                     61,000
                         Aircraft                                   88,000
                         Furniture                                  74,000
                         Vehicles                                   72,000
                                                         -----------------

                                                                 2,203,000

                         Accumulated depreciation
                         and amortization                       (1,548,000)
                                                         -----------------

                                                         $         655,000
                                                         -----------------

5.   Accrued             Accrued expenses consist of the following:
     Expenses
                         Compensation                    $       2,194,000
                         Related party interest                  1,010,000
                         Interest                                  364,000
                         Consultants fees                          117,000
                         Commissions                                75,000
                         Other                                      44,000
                                                         -----------------

                                                         $       3,804,000
                                                         -----------------


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

6.   Short-Term          Short-term notes payable is comprised of the following:
     Notes
     Payable             Unsecured notes payables to vendors
                         with interest at 20% for the first
                         three months and 25% thereafter:
                           In default as of June 2002     $         125,000
                           In default as of July 2002                88,000
                           In default as of August 2002              31,000
                           Due October 2002                          31,000
                           Due December 2002                        366,000
                           Due January 2003                          42,000

                         Unsecured note payable to an
                         individual with interest at 18%,
                         due on demand                              100,000

                         Unsecured note payable to an
                         individual with interest at 12%,
                         due September 2003                         100,000

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

                                                          $         893,000
                                                          -----------------

                         The  individuals  may  choose  to  convert  outstanding
                         principal  and  interest  balances  to common  stock at
                         prices ranging from $.50 to $.69 per share. At June 30,
                         2002,  $228,000 of principal  and  interest  could have
                         been  converted  into 389,800  shares of the  Company's
                         common stock.


7.   Related             Related   party  notes  payable  is  comprised  of  the
     Party Notes         following:
     Payable
                         Unsecured notes payable to
                         stockholders with interest at
                         18%, due on demand               $       3,011,000

                         Note payable to a stockholder
                         with interest at 18%, due on
                         demand, secured by investment art          200,000


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

7.   Related             Unsecured note payable to an
     Party Notes         entity owned by certain members
     Payable             of senior management with
     Continued           interest at 12%, due on demand             180,000

                         Unsecured note payable to a
                         stockholder with interest at
                         12.5%, due October 2002                    100,000

                         Unsecured note payable to a
                         stockholder with interest at 12%.
                         Subsequent to June 30, 2002,
                         the note was paid in full                   65,000

                         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 of the Company with
                         interest at 8%, due on demand               18,000

                         Unsecured note payable to a
                         stockholder with interest at 12%,
                         due on demand                               17,000
                                                          -----------------

                                                          $       3,641,000
                                                          -----------------

                         The  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  $1.25  per  share.  At June  30,  2002,
                         $4,171,000  of principal  and interest  could have been
                         converted into 8,991,733 shares of the Company's common
                         stock.



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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

8.   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% (6.75% at June 30,
                         2002).                           $         100,000

                         Capital lease obligations
                         (see note 9)                               908,000
                                                          -----------------

                                                                  1,008,000

                         Less current portion                      (908,000)
                                                          -----------------

                                                          $         100,000
                                                          -----------------

                         Future maturities of long-term debt are as follows:


                         Years Ending June 30:                  Amount
                         ---------------------            -----------------

                           2003                           $         908,000
                           2004                                     100,000
                                                          -----------------

                                                          $       1,008,000
                                                          -----------------

9.   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                  (243,000)
                                                          -----------------

                                                          $         338,000
                                                          -----------------


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

9.   Capital             Depreciation  expense for assets under capital lease is
     Lease               included  with  depreciation   expense  for  all  other
     Obligations         depreciable assets.
     Continued
                         Future minimum lease payments are as follows:


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

                         2003                             $       1,097,000

                         Less amount representing
                           interest                                (189,000)
                                                          -----------------

                          Present value of minimum
                           lease payments                 $         908,000
                                                          -----------------

                         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,  2002
                         and 2001,  the number of shares  under  this  option is
                         approximately 200,000 and 400,000 shares, respectively.

                         Under the terms of the capital leases, if a lease is in
                         default  the lessor  has the  ability to declare as due
                         and payable all unpaid  rentals under the lease.  As of
                         June 30, 2002, all capital leases were in default.


10.  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.

                         At June 30,  2002 and 2001,  there  were  15,000  and 0
                         shares of Series B 15% Cumulative Redeemable Non-Voting
                         Preferred Stock outstanding,  respectively. 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.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

10.  Preferred           o   Each  share's  original  Stated  Value,  upon which
     Stock                   unpaid dividends may accumulate, is $1,000.
     Continued
                         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   On October 31, 2003, the Company shall be obligated
                             to redeem all issued and  outstanding  shares equal
                             to the  Stated  Value plus all  accrued  but unpaid
                             dividends  thereon.  At the Company's  option,  the
                             mandatory  redemption may be paid, at a premium, in
                             registered,  unrestricted,  freely  tradable common
                             stock of the Company with a redemption  price equal
                             to  125%  of the  Stated  Value  plus  125%  of all
                             accrued but unpaid dividends thereon.

                         At June 30, 2002 and 2001, 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-22

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

 11.  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 3 years,  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 10).

                         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, 2002, was $197,000.


12.  Equity              Investor Group A
     Financing           During  the year  ended  June  30,  2001,  the  Company
                         received   an   equity    investment    from    certain
                         institutional investors (Investor Group A). Pursuant to
                         the funding  terms,  a total of 12,500,000  shares (the
                         Shares) of common stock were purchased for an aggregate
                         of $5  million.  The  funding  agreement  included  the
                         issuance of put and call  options,  and  warrants.  The
                         Shares  could not  be publicly  resold  for a period of
                         three years.



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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

12.  Equity              In connection with the Share purchases,  Investor Group
     Financing           A held a put  option  that  was  exercisable  in  three
     Continued           years. The Company,  at its option,  could have honored
                         the put (if  exercised) in stock or in cash. If paid in
                         stock,  the  exercise  price  would have been $2.00 per
                         share and the number of shares to be issued  would have
                         been  based on the  average  bid price  for the  twenty
                         trading  days  prior to the put.  If paid in cash,  the
                         exercise price would have been $1.60 per share.

                         Additionally,   the  Company  held  a  call  option  to
                         repurchase  the  Shares at  anytime  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.  Investor  Group A was  also  issued
                         warrants in the amount of 1,250,000 shares which remain
                         exercisable  at the  average  bid price for the  twenty
                         trading  days  prior to the time of  issuance  (between
                         $.81 and $.90 per share).

                         During the year ended June 30, 2002,  Investor  Group A
                         offered to surrender  all  12,500,000  shares of common
                         stock and all related put options, originally purchased
                         for $5 million, in exchange for 15,000 shares of Series
                         B 15% Cumulative  Redeemable Non-Voting Preferred Stock
                         with a Stated Value of $15 million.

                         There  is a $10  million  difference  between  Investor
                         Group A's surrender of 5 million shares of common stock
                         and  related put options and its receipt of $15 million
                         in  Series  B  15%  Cumulative   Redeemable  Non-Voting
                         Preferred   Stock.   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.

                         On October 31, 2003, the Company is obligated to redeem
                         all  issued  and  outstanding  shares  of  Series B 15%
                         Cumulative  Redeemable Non- Voting Preferred Stock. The
                         redemption price may be paid, at the Company's  option,
                         in  either  cash or  registered,  unrestricted,  freely
                         tradeable   shares  of  common  stock  (see  Note  10).
                         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.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

12.  Equity              Investor B
     Financing           During  the year  ended  June  31,  2001,  the  Company
     Continued           received an equity  investment from a private  investor
                         (Investor B). Pursuant to the funding terms, a total of
                         1,625,000  shares of common stock were purchased for an
                         aggregate of $650,000.  The funding agreement  includes
                         the issuance of put and call options, and warrants. The
                         shares cannot be publicly  resold for a period of three
                         years. In connection with the share purchase,  Investor
                         B holds a put option  exercisable  in three years.  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  Investor B such
                         that Investor B's 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.

                         Investor C
                         During  the year  ended  June  30,  2001,  the  Company
                         received  a binding  commitment  from an  institutional
                         investor  (Investor  C) to provide up to $50 million in
                         equity  financing.  Over the three year period from the
                         date of the  contract,  the Company will have the right
                         to obtain as much as $50 million  through the  issuance
                         of common  stock to  Investor C 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
                         Investor C 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.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

12.  Equity              The minimum  investment  amount for any draw-down shall
     Financing           be  $100,000  and the maximum  investment  amount as to
     Continued           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.

                         This  commitment 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   Investor  C  to  have
                         beneficial  ownership  of  greater  than  9.9%  of  the
                         outstanding shares of 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 Investor C.


13.  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.


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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



14.  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, 2000                 14,700,021      $   .09 - 2.00
     Granted                                 19,400,000          .79 - 3.00
     Exercised                                 (517,500)         .40 -  .50
     Canceled                                (1,400,000)        1.00 - 1.09
     Expired                                 (2,065,000)               2.00
                                    ---------------------------------------

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

                         The Company has adopted the disclosure-only  provisions
                         of Statement of Financial  Accounting  Standards (SFAS)
                         No.  123,  Accounting  for  Stock-Based   Compensation.
                         Accordingly,  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,            Cumulative
                            ---------------------------------------------------
                                  2002             2001            Amounts
                            ---------------------------------------------------

Net loss - as reported      $     (8,362,000) $    (11,283,000) $   (43,962,000)
Net loss - pro forma        $    (11,207,000) $    (22,876,000) $   (63,814,000)
Loss per share -
  as reported               $           (.09) $           (.13) $          (.83)
Loss per share -
  pro forma                 $           (.12) $           (.27) $         (1.20)
                            ---------------------------------------------------


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

14.  Stock Options       The fair value of each  option and  warrant  granted is
     and Stock-          estimated on the date of grant using the  Black-Scholes
     Based               option pricing model with the following assumptions:
     Compensation
     Continued                                            June 30,
                                            -----------------------------------
                                                   2002             2001
                                            -----------------------------------

        Expected dividend yield             $               -   $            -
        Expected stock price volatility                   82%             85 %
        Risk-free interest rate                          4.0%            4.6 %
        Expected life of options                  4 - 5 years     .5 - 5 years
                                            -----------------------------------

                         The weighted average fair value of options and warrants
                         granted  during  2002  and  2001  was  $.18  and  $.69,
                         respectively.

                         The following table summarizes  information about stock
                         options and warrants outstanding at June 30, 2002:

                                                        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   12,439,313   $      .20      2.94       8,539,313   $       .18
   .50 - .90    6,513,514          .63      2.94       5,513,514           .63
  1.00 - 1.41  14,254,840         1.03      4.36       6,529,840          1.02
  2.00 - 3.00     871,667         2.49      1.80         871,667          2.49
--------------------------------------------------------------------------------

$ .09 to 3.00  34,079,334   $      .69      3.50      21,454,334   $       .64
--------------------------------------------------------------------------------


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

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

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

                               Years Ended June 30,
                           --------------------------------    Cumulative
                                 2002            2001            Amounts
                           ------------------------------------------------

Income tax benefit at
  federal statutory rate   $      2,843,000   $   3,836,000    $ 14,947,000
Research and
  development credit                405,000         349,000       1,348,000
Other                              (219,000)       (161,000)       (656,000)
Change in valuation
  allowance                      (3,029,000)     (4,024,000)    (15,639,000)
                           ------------------------------------------------

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

                         Deferred tax assets (liabilities) are as follows:

                         Net operating loss
                           carryforwards                    $      14,846,000
                         Research and development
                           credit carryforward                      1,348,000
                         Valuation allowance                      (16,194,000)
                                                            -----------------

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

                         At June 30, 2002,  the Company has net  operating  loss
                         carryforwards available to offset future taxable income
                         of approximately $43,666,000 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.


--------------------------------------------------------------------------------
                                                                            F-29

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

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

                                             2002              2001
                                       -----------------------------------

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

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


17.  Supplemental        During the year ended June 30, 2002, the Company:
     Cash Flow
     Information         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.

                         o   Issued a related party note payable in satisfaction
                             of an account payable of $25,000.

                         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.

--------------------------------------------------------------------------------
                                                                            F-30

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

 17.  Supplemental       o   Accretion  of  Series B 15%  Cumulative  Redeemable
      Cash Flow              Non-Voting   Preferred   Stock  (see  Statement  of
      Information            Stockholders' Deficit).
      Continued
                         o   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.

                         During the year ended June 30, 2001, the Company:

                         o   Exchanged  $496,000 of artwork to retire  long-term
                             debt of $150,000,  accrued interest of $196,000 and
                             royalties of $150,000.

                         o   Retired  44,861  shares of common stock in exchange
                             for $20,000 of investment art held for sale.

                         o   Issued 10,571 shares of the Company's  common stock
                             to retire accounts payable of $11,000.

                         o   Converted  a $20,000  related  party note  payable,
                             with $18,000 converted to a deposit on aircraft and
                             $2,000 clearing a related party note receivable.

                         o   Issued  260,375  shares  of  its  common  stock  in
                             exchange for return of a deposit of $253,000.

                         o   Issued  10,000,000  shares  of  preferred  stock in
                             exchange for a $10,000,000  subscription receivable
                             from an officer of the Company.


--------------------------------------------------------------------------------
                                                                            F-31

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

17.  Supplemental        o   Issued   14,286  shares  of  its  common  stock  in
     Cash Flow               exchange  for  a  related  party  note   receivable
     Information             totaling $10,000.
     Continued
                         o   Issued  280,000  shares  of  its  common  stock  in
                             exchange  for an aircraft  investment  asset with a
                             fair market value of $140,000.

                         o   Issued 69,333 shares of its common stock in payment
                             of  commissions  related to the  issuance of common
                             stock.

                         o   Issued a $27,000  related  party note  payable to a
                             shareholder in exchange for a $27,000  payment on a
                             capital lease.

                         o   Issued  10,000 shares of its common stock valued at
                             $10,000 and warrants to purchase  846,508 shares of
                             its common  stock valued at $847,000 as payment for
                             $857,000 in deferred offering costs.

                         o   Increased accrued expenses $26,000 for commissions.


                         Actual amounts of cash paid for:


                                Years Ended June 30,
                           -----------------------------------   Cumulative
                                 2002              2001            Amounts
                           -----------------------------------------------------

     Interest              $        59,000    $      113,000    $       461,000
                           -----------------------------------------------------

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


--------------------------------------------------------------------------------
                                                                            F-32

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

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

                         Years Ending June 30,                  Amount
                         ---------------------                  ------

                             2002                         $         135,000
                             2003                                   139,000
                             2004                                   116,000
                                                          -----------------

                                                          $         390,000
                                                          -----------------

                         Rental  expenses for  noncancellable  operating  leases
                         were $156,382 and $265,000 for the years ended June 30,
                         2002 and 2001, respectively.

19.  401(k)              Through the staff leasing service that it employs,  the
     Savings Plan        Company  has  a  401(k)  Plan  (the  Plan)  to  provide
                         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 2002 the
                         Company made no matching  contributions to the Plan. In
                         fiscal  year  2001,  and  based  on   contributions  by
                         employees during calendar year 2000, the Company made a
                         matching contribution to the Plan in the form of 55,641
                         shares of its common  stock  valued at $50,000.  Shares
                         issued under the Plan are "restricted" as defined under
                         the Securities and Exchange Commission Rule 144.

20.  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.


--------------------------------------------------------------------------------
                                                                            F-33

<PAGE>


                                                   GROEN BROTHERS AVIATION, INC.
                                                   (A Development Stage Company)
                                      Notes to Consolidated Financial Statements
                                                                       Continued

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

20.  Commitments         Royalty  payments of 1% of the gross sales price of the
     and                 gyroplane  are to be paid to the inventors who are also
     Contingencies       the  Company's  founders and are officers and directors
     Continued           of the Company.

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


21.  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.

22.  Recent              In August  2001,  the  Financial  Accounting  Standards
     Accounting          Board (FASB) issued  Statement of Financial  Accounting
     Pronounce-          Standards (SFAS) No. 144, Accounting for the Impairment
     ments               or Disposal of  Long-Lived  Assets,  effective  for the
                         Company  on July  1,  2002.  The  Company  expects  the
                         adoption  of this  standard  will not  have a  material
                         impact on its financial statements.


--------------------------------------------------------------------------------
                                                                            F-34

<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:  September 30, 2002
  -----------------------------------                 --------------------------
  David L. Groen, President



         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:  September 30, 2002
  ------------------------------------                --------------------------
  H. Jay Groen, Director


    /s/David L. Groen                                 Date:  September 30, 2002
  -----------------------------------                 --------------------------
  David L. Groen, Director


    /s/James P. Mayfield                              Date:  September 30, 2002
  ---------------------------------                   --------------------------
  James P. Mayfield, Director



                                       22
<PAGE>
                            CERTIFICATION PURSUANT TO
                               18 U.S.C. ss. 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


         In connection with the Annual Report of Groen Brothers  Aviation,  Inc.
(the "Company") on Form 10KSB for the period ending June 30, 2002, as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
David Groen,  Chief Executive  Officer of the Company,  certify,  pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:

         (1)  the Report fully complies with the  requirements  of Section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  the information  contained in the Report fairly  presents,  in all
              material   respects,   the  financial   condition  and  result  of
              operations of the Company.


/s/David Groen
-----------------------
David Groen
President, Chief Executive Officer and Treasurer
September 30, 2002

                                       23
<PAGE>