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, 1997
                     Commission File Number 0-18958

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


                Utah                                  87-0376766
   -------------------------------           ------------------------------
   (State or other jurisdiction of           I.R.S. Employer Identification
    Incorporation or organization)                     Number

1784 West 500 South, Salt Lake City, Utah                     84104
-----------------------------------------                   ----------
(Address of principal executive offices)                    (Zip Code)

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 (Par Value $.005)         
                      ------------------------------    
                            (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, 1997, the Registrant had outstanding 41,758,711 shares of
common stock, par value $.005 per share, which is the Registrant's only class
of common stock.

            Documents Incorporated by Reference:  None

Note:  Exhibit index required by item 601 of Regulation S-K appears on page 13.


             Page 1 of 34 pages, including exhibits.
<PAGE>
                              PART I

Item 1.   Business

The Company

     Groen Brothers Aviation, Inc. ("the Company") was incorporated in the
state of Utah on July 28, 1980.  On September 18, 1990, the Company exchanged
80 percent of its common stock for 100 percent of the common stock of Sego
Tool, Inc., a Utah Corporation.  This was in effect a reverse acquisition of
the Company by the owners of Sego Tool.  The Company changed its name from New
Wave Energy to Groen Brothers Aviation on October 3, 1990.  Prior to July 1,
1993 the Company's intent was to lease the technology to other entities to
develop the gyroplane, and the Company would receive royalties on its
technology.  Effective July 1, 1993, the Company determined that it would be
best for the Company to complete development itself and then manufacture the
gyroplane.  Because of this change in business focus, the Company became a
development stage business on July 1, 1993 under SFAS No. 7.

     The Company, through its now wholly-owned Subsidiary, Sego Tool, is
developing for manufacture the Hawk gyroplane.  The Company's only operations
are through its wholly-owned subsidiary.  Hereafter, "the Company" will refer
to the operations of Groen Brothers Aviation, Inc. and its wholly-owned
subsidiary, Sego Tool, Inc.  

The Product

     The Company's product, the Hawk gyroplane (Hawk), flies on the same
principle as the gyroplane (or autogiro) of the 1930s, but with modern
aerospace design and performance.  The Hawk is a rotorcraft which is a hybrid
cross between the helicopter and the airplane, employing a free-spinning rotor
blade for lift and an engine driven propeller for thrust.  It is far easier to
operate and maintain and it is quieter in flight than all helicopters and many
airplanes.  The Hawk is capable of vertical takeoff and landing, and yet is
relatively inexpensive to operate.

     Hawk Series

     The Company is now flight testing its H2X prototype from which is being
derived the Hawk III (3 seats).  The H2X is the Company's third, successfully
flying prototype.  The Company is presently planning for and has built in
mockup form, the Hawk V, a five seat gyroplane.  The FAA has issued the
Company a research and development airworthiness certificate, under which the
Company runs its flight test programs.

     The Hawk III will be the basis of a subassembly package to be assembled
and sold in China, and will also be offered to the U.S. "public use" market in
finished form.  The Hawk III is the first of four planned gyroplane models to
be FAA type-certified for manufacture, including the Hawk III (3 seat), Hawk V
(5 seat), Night Hawk (tandem 2 seat), and Hawk VIII (8 seat).

                                       2
<PAGE>
     The H2X

     The H2X is presently being flown successfully with vertical takeoff and
landing (VTOL) capability, employing the Company's patented rotorhead
technology.  The H2X VTOL performance is a significant improvement over that
of gyroplanes in the past.  The Company has set a weight and density altitude
record for vertical takeoffs by a gyroplane. 

     For vertical takeoff, a pre-rotator spins the rotor to approximately 140
percent of flight operating rpm at flat pitch.  Adding pitch with the
collective pitch control lifts the H2X into the air using kinetic energy.  No
forward roll is necessary, and transition into autorotative flight is
immediate.  Vertical landing is performed power-off, with a flare and pitch
pull, and no forward roll is required.  The H2X has been built to the FAR Part
27 standards for type-certification, but it is being powered by a non-
certified powerplant, a liquid-cooled automobile engine modified for aviation.

     It was hoped that an automotive derivative engine would be cheaper to
produce and lighter in weight than a traditional aircraft engine.  The Company
has decided that any benefits from an automotive derivative engine, if they
exist at all, are marginal.  Therefore, the Company has now chosen to power
the Hawk III with the Continental TSIOL-550 FAA-certified aircraft engine. 
Continental Motors has agreed to provide significant assistance to the Company
in its FAA certification of the Hawk III using the Continental engine.

     FAA Type-Certified Gyroplane Series

     The Hawk V will account for the majority of the Company's planned
gyroplane production.  The Hawk V will seat two in front and three in back on
a bench seat, similar to helicopters of this size.  All other models will be
variants, using the same basic rotor system.  The fuselage of the Hawk III
will be shortened and the Hawk VIII will be stretched.  The fuselage of the
Nighthawk will be a narrow version of the Hawk V used in air surveillance and
crop spraying.  A mockup of the Hawk V now exists.  It is designed to carry
five people, each weighing 180 pounds, and five bags, each weighing 35 pounds. 
The planned range of the Hawk V is 500 miles.  

     Jets may be added to the tips of the rotor blades of the heavier
gyroplanes of the Hawk series to better facilitate vertical takeoff and
landing.  At present the company is evaluating ramjets and pulse jets for this
role.  The main powerplants on the larger of the Hawk series will be FAA
certified turboprop jet engines.  

     In addition to the safety of a backup power source, jet-tipped rotors
can provide a light-weight solution to the prerotation method now used for
vertical takeoff in the H2X.  With the rotor being powered at the tips of the
rotor blades, there is no torque to be counteracted, and therefore no need for
an antitorque device such as a tail rotor.  A jet-tipped rotor is capable of
sustaining flight for emergency landings (or greatly extending the glide
path), but because of high fuel consumption, the rotor will be powered
normally for very short periods, mainly during takeoff.

                                       3
<PAGE>
     The Company presently has twenty-one full-time employees.  The Company
employs twenty additional consultants, which includes FAA airworthiness
conformity and design engineering.  For further discussion see Item 7 and Item
13.  

Marketing

     The projected market for gyroplanes can be broken into three general
categories, with their respective sub-categories as shown in the following
tabulation.

     Public Sector Sales

          A.  Law Enforcement Agencies (Hawk III, Night Hawk)
               1.  Police Forces
               2.  Highway Patrol
               3.  Border Patrol
               4.  Coast Guard
               5.  Sheriff Departments
               6.  Customs and Excise Departments
               7.  Drug Enforcement Agencies

          B.  Public Protection Services (Night Hawk, Hawk III, V, VIII)
               1.  Fire Departments
               2.  Forest Management and Fire Patrol
               3.  Fish and Wildlife
               4.  Land Management

          C.  Military (Night Hawk)
               1.  Manned & Unmanned Observation and Surveillance
               2.  Armed Escort
               3.  Ground Attack

     Commercial Sector Sales (Hawk III, V, VIII, Night Hawk)
          A.  Oil/Gas Pipe Line and Power Line Inspection
          B.  Land Survey and Inspection
          C.  Aerial Photography
          D.  Agricultural Spraying, Herd Management, Etc.
          E.  Air Taxi Services

     Private Sector Sales (Hawk III, V, VIII)
          A.  Personal Travel
          B.  Flying Clubs
          C.  Sport Aviation

     At present the U.S. and international market for rotorcraft described
above is largely not being served.  Airplanes are not capable of vertical
takeoff and landing, which is a requirement of the above markets in many
cases, and helicopters are too expensive.  While the acquisition price of a
Hawk V and a  Bell 206 helicopter (5 seat) will be about the same, the

                                       4
<PAGE>
operating cost (fuel, maintenance, insurance) of the Hawk will be less than
half that of the Bell.  It is the Company's plan, with its prototype
gyroplanes, to deliver rotary wing (helicopter) performance at near fixed wing
(airplane) operating costs.  The estimated price of the Hawk III is to be $270
thousand.  The estimated prices of the Hawk V and Hawk VIII are to be  $900
thousand and $1.2 million respectively.

     The Company is attempting to serve the U.S. market first.  However,
there has been acute interest by foreign companies and governments, with
attractive monetary offers, for locating manufacturing facilities in those
countries.  These  include Canada, China, and Portugal.  The Company has
signed a contract with a private company in China, the Shanghai Energy and
Chemical Company (SECC).  This contract is for the Company to supply 200 Hawk
III gyroplanes, an order totaling more than $40 million.  The Company
consolidated financial statements do not reflect these pending orders, as no
money has yet changed hands.  A key provision of the sales contract with SECC
is that the gyroplanes first be certified for the Chinese market.  

     The China Market

     SECC delivers natural gas and propane to urban housing, as well as fine
chemicals to industry. In doing so, it has entered into the transportation
business as a necessity in distributing its energy and chemical products.  As
an extension of this business, SECC plans to transport people in a regional
air-taxi business, using the Hawk Gyroplane.  Provisions in the Contract
between the Company and SECC will allow SECC to substitute, at the higher
cost, Hawk Vs for Hawk IIIs as they become available.  The plan is eventually
to ship subassemblies of the Hawk III to Nanjing, China for final assembly by
a Chinese subsidiary which is wholly owned by the Company.  Creating a
subsidiary in China is more difficult than participating in a joint venture,
but it insures complete control by the Company.

     It is common practice for aircraft manufacturing companies to take
orders up to two years before delivery, especially on a new design such as the
Hawk gyroplane.  The Hawk V and VIII will eventually be used in China. 
Following extensive studies of the Company's projected models, the Chinese see
roles in private and government use.

     China's economy is growing at a real rate of more than 10 percent per
year on a very large economic base, and the population of 1.2 billion is
showing signs of stabilizing.  The transportation sector which serves an area
as large as the U.S., but with no comparable highway system, is falling behind
due to increased demand for personal travel and the movement of goods.  All
forms of transport will remain heavily oversubscribed for years to come.  The
air taxi service eventually will fill an important market niche serving high
government officials, wealthy Chinese, and foreign residents who cannot afford
to spend the distressingly long time it takes to travel by train or bus to
cities that are not served by airlines.  The Hawk V will be able to take off
and land vertically, eliminating the need for runways, but it will be much
safer than a helicopter and will operate at a fraction of the cost.  The taxi
service will be most profitable at distances up to 350 miles, but could reach
550 miles on one fueling.

                                       5
<PAGE>
United States Public Use-Market

     The Company has begun to respond to demands from the public-use market
for its gyroplanes.  The public-use market includes all civil government use
of aircraft, primarily law enforcement.  Under pubic-use law, government
entities may fly aircraft that have not been certified by the FAA, because
these entities do not fall under the jurisdiction of the FAA.  Although the
Company is building its aircraft to FAA specifications (FAR Part 27), and will
in the future achieve an FAA type certificate, it has an opportunity to enter
the commercial market early through public-use.  In recent months, the Company
has received over five hundred direct inquiries from Sheriff and Police
Departments from numerous states. 

Manufacturing

     In 1997, the Company moved into a new facility with enough floor space
to create an interim manufacturing facility, with parts being made by
subcontractors.  This interim manufacturing plan provides guidelines and
procedures for all materials management, floor plan, FAA quality control, and
assembly.  The Company still plans to build a full manufacturing facility in
the city of Tooele.
     
     Portugal

     After an initial approach by the Portuguese government in 1994, the
Company has continued negotiations for government grants and loans to build a
new manufacturing facility in Portugal.  A Portuguese manufacturing plant
would mainly serve the European market.  To qualify for the grants and loans,
and to meet the application requirements, the Company has formed a Portuguese
subsidiary company called Groen Brothers Aviation Portuguesa Aeronaves.

     The Company had planned to finalize a contract with the Portuguese
government during the first quarter of the 1997 calender year, however, the
government has slowed the process of application, and a final result cannot
now be predicted.  There is still a small window of opportunity for the
Portuguese, but as the Company continues to expand, the window will soon
close.
     
Item 2.   Properties

     The Company leases its present facility, occupying approximately 25,000
square feet, within which it is constructing its prototype gyroplanes.  This
interim development/ manufacturing facility is located at 2320 W. California
Avenue, Suite A, Salt Lake City, UT 84104.
     
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

                                       6
<PAGE>
criminal charges and retained a law firm in Germany to commence civil
litigation there.  In 1997, the German Courts judged favorably for the Company
on all counts.  The defendant has appealed on a technicality.  The Company has
obtained injunctions preventing the transfer and/or sale of the collateral. 

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

     No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

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

     The Company's common stock, $.005 par value, is traded Over The Counter,
and 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
    
1995            1st             .59             .31
                2nd             .56             .09
                3rd             .44             .09
                4th             .38             .03
1996            1st             .44             .25
                2nd             .66             .44
                3rd            2.75             .94
                4th            2.00             .94
1997            1st            1.88            1.25 
                2nd            1.69             .94

The number of shareholders of record for the company's common stock as of June
30, 1996 were 616, and the number of shares issued and outstanding were
41,758,711.

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

Results of Operations

     Revenue

     Based on current factors, the Company anticipates that it will earn
initial revenue from the sales of gyroplane in fiscal 1998.  

     During 1997, total revenue decreased by 358 percent compared to 1996,
from $7,761 to $1,694, because there was a decrease in interest income.
Although the percentage decrease is large, the base for comparison was small. 
Revenue in 1997 and 1996 consisted of interest income.

     During 1996, total revenue increased by more than 206 percent compared
to 1995 because there was an increase in interest income.  Investment money
was brought in as it was needed.

                                       7 
<PAGE>

     Research and Development Costs

     During 1997, development costs increased from $477,138 to $768,424, a 61
percent over the 1996 level.  The increase continues the accelerated
development trend started in 1996.

     During 1996, development costs increased 220 percent over 1995.  The
substantial  increase was large, reflects a recent, high level of activity
within the Company to finish the Hawk III development phase and to transition
into FAA certification and production.

     General and Administrative Costs

     General and administrative costs in 1997 increased 106 percent compared
to 1996 to $1,026,798 from $497,814.  The large increase reflects a larger
work force and a move into a bigger facility, which will accomodate initial
manufacturing of the Company's aircraft.

     General and administrative costs in 1996 increased by 2 percent compared
to 1995.  The increase was not significant, indicating that the administrative
structure was adequate for supporting the large increase in R & D personnel.

     Net Earnings

     During 1997 and 1996 the Company continued to record losses as it
conducted flight tests, built new models, and moved toward full marketing and
manufacturing of the Hawk gyroplane. 

Liquidity and Capital Resources  

     The Company estimates that capital requirements will increase
significantly over the next year as more resources are required to reach
planned goals.  Testing of the H2X has been successful to date, and the
Company is now designing the production version of the Hawk III.  The actual
schedule of the planned expansion ultimately depends upon the Company's
ability to attract capital. 

     The capital necessary to move the Company into full scale manufacturing
within three years is approximately $24 million; of which an estimated $7.5
million will be spent on FAA Type Certification and building demonstrator
aircraft.  Eventually, an estimated $13 million will be spent on the
manufacturing plant, equipment, and hangar facilities.  The Company is
pursuing an equity investment of up to $24 million from an investment banking
source, Benefit Capital Corporation of Irvine, California.

     Over the next six months the Company plans to fund its operations with
up to $3 million  equity investment from accredited investors.  The Company
anticipates that beginning June 1998, sales of gyroplanes will provide an
additional source of capital in the form of cash from down payments.  It is
common practice in the aircraft industry to take down payments to establish
delivery positions on new aircraft which may not be delivered for two years or
more.  High capital costs, and the lack of competition resulting from strict
FAA regulation are responsible for this practice.  The Company continues to
receive foreign and domestic interest in its products.

     Management does not anticipate that revenues or expenses will be
materially affected by inflation over the next twelve months.

                                       8 
<PAGE>
Item 7.   Financial Statements

     Index to Consolidated Financial Statements 

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

     Financial statements:

          Consolidated balance sheet, June, 30, 1997.          F-2

          Consolidated statement of operations for the two
          years ended June 30, 1997 and 1996.                  F-3

          Consolidated statement of stockholder's
          (deficit) for the two years ended June 30, 1997
          and 1996.                                            F-4

          Consolidated statement of cash flows for the two
          years ended June 30, 1997 and 1996.                  F-8

          Notes to consolidated financial statements.          F-10
                                                              


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; the term
of office as a director and any period during which he has served as such.

     Name                     Age            Positions
     ----                     ---            ---------     
     David L. Groen           46             Director and President
     H. Jay Groen             53             Director 
     Philip F. Cannon         83             Director
     Nathan W. Drage          39             Vice-President

                                       9 
<PAGE>
Term of Office

     The term of Messrs. Groen, and Cannon for service as members of the
Board of Directors continues until the next annual meeting of the
stockholders.  These persons respective appointments were adopted, ratified
and approved by the stockholders at a meeting thereof called  for that purpose
on October 7, 1991.  Stockholders' meetings have been waved since then.  With
the exception of compliance with the duties of a director as set forth in the
Articles of Incorporation or Bylaws 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 was 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 L. Groen is a Director and President of the Registrant. 
Immediately prior to forming Groen Brothers Aviation, David Groen was a
partner and accountant for Seagull Recycling Company.  Previously, he held
executive positions in the helicopter industry with Sales and Marketing,
Safety Officer, Branch Manager, and chief Pilot responsibilities.  Groen has
logged more than 7,000 military and commercial hours in rotor-wing aircraft
and 400 hours in fixed-wing aircraft.  As a U.S. Army warrant officer in
Vietnam he flew hundreds of combat missions.  In Vietnam, Groen was promoted
to Senior Aircraft Commander of the 61st Assault Helicopter company (AHC) at
age 20, the youngest person at that time ever to attain that position.  As the
Mission Planning Officer for the 61st AHC, during an unprecedented expansion
of the company's combat role, Groen lost no aircraft or men.  Groen received
his Certificate of Graduation in 1970 from the U.S. Army Warrant Officer
Flight School.  He is flight qualified in most American and French
helicopters, and has attended Aerospatiale factory schools on the models
SA315, SA316 and SA319.  Over the years, Groen's commercial helicopter
missions have involved such work as emergency medical service, power line
construction, topographical survey, long line seismic, and wildcat oil
drilling operations.  Groen is co-author, along with his brother Jay, of a
best selling Vietnam War novel entitled Huey.

     H. Jay Groen 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, 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, Groen spent ten years as an economist for the Central
Intelligence Agency (CIA) doing original research on Asia, with a particular
interest on the China.  As part of his responsibilities with the CIA, Groen
prepared written and oral briefs for the White House staff and members of
Congress, and lectured at the National War College.  Groen served in the U.S.
Air Force as a Chinese linguist in both Vietnam and Asia.  He is the co-
author, along with his brother David, of a best selling book entitled Huey, a
novel about the Vietnam War.  Groen has also published several other writings
including: 1) The Sweet and Sour China Market," China Under the Four
Modernizations; and 2) "Buying from China," U.S. China Economic Relations: A

                                      10
<PAGE>
Reappraisal.  In 1970 and 1973, respectively, Groen received a B.A. in
Economics from the University of Utah and an M.A. in Economics from Virginia
Polytechnic Institute and State University.  He also received a Language
Certificate in Mandarin Chinese from Yale University in 1964.  A private pilot
with a practical background in aeronautical design, Groen has added much
innovation to the Hawk gyroplane.

     Philip F. Cannon is a director of the Registrant.  Philip Cannon began
his distinguished career in international business as an engineer for Colgate
Company, then assumed management consulting and production manufacturing posts
with McKinsey & Company, Emhart Manufacturing, Federal Pacific Electric
Company, and Hoover Worldwide Corporation.  As a Vice President at Hoover,
Cannon oversaw all of the company's production trouble-shooting in Canada,
Latin America and England.  He was a founder of Coloney, Cannon, Main and
Pursell, a diversified management consulting firm with offices in London and
New York.  This firm was acquired by Towers, Perrin, from which Cannon retired
as Vice President in 1979.  Following an additional six years of private
consulting in Europe, Cannon returned to Salt Lake City and joined GBA as
Director of Manufacturing in 1990.  In his current position, Cannon is
responsible for the overall production strategy and management for the
manufacturing of GBA's Hawk series gyroplanes.  He has written a comprehensive
manufacturing plan and facilities plan for the continuing phases of the
company's development.

     Nathan W. Drage is an officer of the Registrant.  Nathan Drage is an
attorney licensed to practice law in Utah and California who has been
affiliated with the Company for more than eight years.  Drage obtained his
Bachelor of Science in Finance from the University of Utah in 1983, and his
Law Degree from McGeorge School of Law in 1987.  Specializing in securities
and corporate law, he is a member of the Securities Law and International Law
sections of the Utah Bar Association and American Bar Association.  In his
private practice he has represented publicly and privately held corporate
clients throughout the U.S. in various financing matters.  Appointed by the
Governor of Utah, he is former Chairman of the Advisory Committee to the Utah
Division of Corporations. 

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

     No director or executive officer of the Registrant received cash
compensation in excess of $100,000 during the last fiscal year.  Both Jay
Groen and David Groen hold options of 2,475,000 shares at $.09 per share to be
purchased by 1999.  Nathan Drage holds an option to purchase one million
shares at $.25 per share.

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

     The following shows the shares of common stock owned as of June 30, 1997
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.

                                      11  
<PAGE>
Name  and  Address                      Amount of               Percent
of Beneficial Owner                     Ownership               of Class
-------------------                     ----------              --------

David Groen, President                  9,973,797                  23.88
2320 California Avenue
Salt Lake City, UT 84104

Jay Groen, Director                     6,260,078                  14.99  
2320 California Avenue
Salt Lake City, UT 84104

Philip Cannon, Director                   561,544                  01.34
2320 California Avenue
Salt Lake City, UT 84104

Nathan Drage, Vice President              144,925                  00.35 
2320 W. California Avenue
Salt Lake City, UT 84104

All Officers and Directors             16,940,344                  40.56 

Lyle Campbell                           3,604,400                  08.63
c/o Chapman & Cuttler
111 W. Monroe Street
Chicago, IL 60603


     1.   Includes 117,593 shares held by the Nathan W. Drage Family Trust.  
          Mr. Drage does not claim any beneficial ownership under the trust

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

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





                                       12
<PAGE>
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
                                                              Page
                                                              ----
     Independent auditors' report of Tanner + Co.             F-1

     Financial statements:

          Consolidated balance sheet, June, 30, 1997.         F-2

          Consolidated statement of operations for            F-3  
          the two years ended June 30, 1997, 1996.

          Consolidated statement of stockholder's equity      F-4
          (deficit) for the years ended June 30, 1997,
          1996.

          Consolidated statement of cash flows for the two    F-8
          years ended June 30, 1997, 1996.

          Notes to consolidated financial statements.         F-10








                                      13  
<PAGE>

                                 Signatures


     Pursuant to the requirements of Section 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 15, 1997         
     ------------------------           ----------------------------
     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 15, 1997         
     ------------------------           ----------------------------
     H. Jay Groen   Director  


      s/ David L. Groen                 Date:     September 15, 1997         
     ------------------------           ----------------------------
      
     David L. Groen Director


      s/ Philip Cannon                  Date:     September 15, 1997         
     ------------------------           ----------------------------
      
     Philip Cannon  Director









                                      14  
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Index to Consolidated Financial Statements
                                                    and Supplemental Schedules
------------------------------------------------------------------------------
     
                                                                    
                                                                Page      
                                                                ----

     Independent auditors' report                                F-1  
     
     Financial statements:
     
         Consolidated balance sheet, June 30, 1997               F-2  
     
         Consolidated statement of operations for the
         two years ended June 30, 1997 and 1996 and
         cumulative amounts since July 1, 1993 (date
         of commencement of development stage)                   F-3  
     
         Consolidated statement of stockholders' equity
         (deficit) for the two years ended June 30, 1997
         and 1996 and cumulative amounts since July 1, 1993
         (date of commencement of development stage)             F-4  
     
         Consolidated statement of cash flows for the
         two years ended June 30, 1997 and 1996 and
         cumulative amounts since July 1, 1993 (date
         of commencement of development stage)                   F-8  
     
         Notes to consolidated financial statements.            F-10



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


<PAGE>

     
     
                                                INDEPENDENT AUDITORS' REPORT
     
     
                     
To the Board of Directors and Stockholders
of Groen Brothers Aviation, Inc. and Subsidiary
     
We have audited the accompanying consolidated balance sheet of Groen Brothers
Aviation, Inc. and subsidiary, (the Company), a development stage company, as
of June 30, 1997, and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for each of the two years in the
period ended June 30, 1997 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 generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.
    
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Groen
Brothers Aviation, Inc. and subsidiary, as of June 30, 1997, and the results
of their operations and their cash flows for each of the two years in the
period ended June 30, 1997, and cumulative amounts since July 1, 1993 (date of
commencement of development stage), in conformity with generally accepted
accounting principles.
   
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in note 10 to
the consolidated financial statements, the Company has suffered recurring
losses and has a net working capital deficiency that 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 10.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
     
     
Salt Lake City, Utah
August 1, 1997


                                                                           F-1

<PAGE>

                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                                    Consolidated Balance Sheet

                                                                 June 30, 1997
------------------------------------------------------------------------------

 
           Assets
           ------
Current assets:
    Cash                                              $   211,818
    Receivables                                             3,875
    Equipment held for sale                             2,200,000
                                                      -------------
                   Current assets                       2,415,693
                                                      -------------
Machinery and equipment less accumulated 
  depreciation of $211,992                                423,420
                                                      -------------

                Total assets                          $ 2,839,113
                                                     =============
______________________________________________________________________________

           Liabilities and Stockholders' Deficit
           -------------------------------------
Current liabilities:
    Accounts payable                                   $   20,414
    Accrued payroll                                       518,405
    Accrued interest                                      208,552
    Accrued liabilities                                   161,970
    Related party debt - current                          195,658
    Note payable                                          150,000
    Current portion of long-term debt                     405,803
                                                       ------------
               Total current liabilities                1,660,802
                                                       ------------
Long-term debt                                            212,372
                                                       ------------
Commitments and contingency                                     -  

Stockholders' equity:
    Common stock, par value $.005 per share; 
      authorized 100,000,000 shares, issued and 
      outstanding 41,758,711 shares                       208,794

    Additional paid-in capital                          6,751,266
    Retained deficit                                   (5,994,121)
                                                       ------------
               Total stockholders' equity                 965,939
                                                       ------------
               Total liabilities and stockholders
               equity                                 $ 2,839,113
                                                      =============
______________________________________________________________________________
See accompanying notes to consolidated financial statements.              F-2

<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                          Consolidated Statement of Operations

                                           Years Ended June 30, 1997, 1996 and
                                         Cumulative Amounts Since July 1, 1993
                                   (Date of Commencement of Development Stage)
------------------------------------------------------------------------------

 
                                                                   Cumulative
                                                                    Amounts
                                                                  Since July 1,
                                             1997          1996        1993
                                       ----------------------------------------
Revenue-
   Interest and other                   $      1,694   $    7,761  $    21,027
                                       ----------------------------------------
Expenses:
   Research and development                  768,424      477,138    1,542,006
   General and administrative expenses     1,026,798      497,814    2,380,853
   Interest expense                           96,574       78,571      295,329
                                       ----------------------------------------
            Total expenses                 1,891,296    1,053,523    4,218,188
                                       ----------------------------------------
            Net loss                    $ (1,889,602) $(1,045,762) $(4,197,161)
                                       ========================================
Loss per share                          $       (.05) $      (.03) $      (.12)
                                       ========================================
Weighted average shares outstanding       38,296,858   35,430,406   34,764,283
                                       ========================================
     
     







______________________________________________________________________________
See accompanying notes to consolidated financial statements.              F-3


<PAGE>

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

                                        Years Ended June 30, 1997 and 1996 and
                                         Cumulative Amounts Since July 1, 1993
                                   (Date of Commencement of Development Stage)
------------------------------------------------------------------------------

<TABLE>
<S>                      <C>            <C>          <C>          <C>            <C>

                                                       Additional
                                 Common Stock            Paid-In      Retained
                          --------------------------
                               Shares       Amount       Capital      Deficit      Total
                          -------------------------------------------------------------------

Balance, July 1, 1993        27,153,509      135,768      937,642   (1,867,555)    (794,145)

Issuance of common
stock for cash                1,083,611        5,418      275,377          -        280,795

Issuance of common
stock for collateral on a
loan (see note 10)            4,000,000       20,000      (20,000)         -            -  

Issuance of common
stock in satisfaction of
debt obligations                172,222          861       28,927          -         29,788

Issuance of common
stock for services               63,185          316       14,572          -         14,888

Issuance of common
stock for commissions            40,857          204        9,642          -          9,846

Cancellation of shares
previously issued               (50,000)        (250)         250          -             -  

Issuance of stock options 
at 50% of bid at option
date (see note 10)                 -             -         10,000          -         10,000

Net loss for the year 
ended June 30, 1994                -             -            -       (479,995)    (479,995)

                          --------------------------------------------------------------------
Balance, June 30, 1994       32,463,384      162,317    1,256,410    (2,347,550)   (928,823)
</TABLE>

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

<PAGE>

                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                         Consolidated Statement Stockholders' Equity (Deficit)
                                                                     Continued

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

<TABLE>
<S>                         <C>           <C>          <C>          <C>            <C>

                                                       
                                 Common Stock          Additional
                          --------------------------     Paid-In      Retained
                               Shares       Amount       Capital      Deficit      Total
                          -------------------------------------------------------------------

Issuance of common
 stock for services             138,860          694       59,525          -         60,219

Issuance of common 
stock in satisfaction of 
debt obligation                 487,027        2,435       54,253          -         56,688

Issuance of common  
stock for commissions            18,546           93        8,907          -          9,000

Issuance of common 
stock for cash                1,028,923        5,145      426,777          -        431,922

Issuance of common  
stock for assets                  2,286           11          989          -          1,000

Net loss for the year 
ended June 30, 1995                -            -            -         (711,207)   (711,207)
                           ------------------------------------------------------------------
Balance, June 30, 1995       34,139,026      170,695    1,806,861    (3,058,757) (1,081,201)

Issuance of common 
stock for services              686,708        3,434      164,800          -        168,234
 
Issuance of common 
stock in satisfaction of 
debt obligation                  10,000           50        2,450          -          2,500

Issuance of common 
stock for commissions           124,719          624       39,782          -         40,406
                                                                    
Issuance of common 
stock for cash                1,669,404        8,347      539,103          -        547,450

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

<PAGE>

                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                         Consolidated Statement Stockholders' Equity (Deficit)
                                                                     Continued

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

<TABLE>
<S>                       <C>             <C>          <C>          <C>            <C>

                                                       Additional
                                 Common Stock            Paid-In      Retained
                          --------------------------
                               Shares       Amount       Capital      Deficit      Total
                          -------------------------------------------------------------------


Issuance of common 
stock for assets                100,000          500       49,500          -         50,000

Net loss for the year 
ended June 30, 1996                -            -            -       (1,045,762) (1,045,762)
                          -------------------------------------------------------------------

Balance, June 30, 1996       36,729,857      183,650    2,602,496    (4,104,519) (1,318,373)

Issuance of common 
stock for services              468,003        2,340      265,266          -        267,606

Issuance of common   
stock in satisfaction of
debt obligation                 689,802        3,449      474,451          -        477,900

Issuance of common 
stock for commissions            11,607           58       12,879          -         12,937

Issuance of common 
stock for cash                1,359,442        6,797    1,208,674          -      1,215,471

Issuance of common 
stock for assets              2,500,000       12,500    2,187,500          -      2,200,000

Net loss for the year 
ended June 30, 1997                -            -            -       (1,889,602) (1,889,602)
                          -------------------------------------------------------------------

Balance, June 30, 1997    $  41,758,711 $    208,794 $  6,751,266    $(5,994,121) $ 965,939
                          ===================================================================
</TABLE>
______________________________________________________________________________
See accompanying notes to consolidated financial statements.              F-6

<PAGE>

                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                          Consolidated Statement of Cash Flows

                                           Years Ended June 30, 1997, 1996 and
                                         Cumulative Amounts Since July 1, 1993
                                   (Date of Commencement of Development Stage)
------------------------------------------------------------------------------


                                                                   Cumulative 
                                                                     Amounts 
                                                                  Since July 1,
                                                 1997       1996      1993
                                           ------------------------------------
Cash flows from operating activities:
   Net loss                                $(1,889,602)$(1,045,762)$(4,126,566)
   Adjustments to reconcile net loss to net
     cash used in operating activities:        110,762      18,852     150,347
      Depreciation expense                     280,543     208,640     591,524
      Common stock issued for services            -           -         10,000
      Stock options issued below market
      Increase (decrease) in:
          Accounts receivable                   (1,000)     (2,875)     (3,875)
          Accounts payable                     (13,600)     25,075     (37,111)
          Accrued payroll                      (32,169)    112,929     433,489
          Accrued interest                      34,052      46,460     164,267
          Accrued liabilities                       (7)    145,772     103,488
                                           ------------------------------------
             Net cash used in 
             operating activities           (1,511,021)   (490,909) (2,714,437)
                                           ------------------------------------


Cash flows from investing activities:
   Purchase of property and equipment             -           -        (16,244)
   Sale of property and equipment                   30        -             30
   Increase in note receivable                    -           -         (6,250)
   Collections on notes receivable and
     advances                                     -          3,750       6,250
                                           ------------------------------------
          Net cash provided by (used in)
          investing activities                      30       3,750     (16,214)
                                           ------------------------------------


Cash flows from financing activities:        
   Proceeds from long-term debt                150,000      53,000     282,000
   Reduction of long-term debt                    -        (17,500)    (67,500)
   Reduction of capitalized lease obligation  (118,286)     (7,550)   (125,836)
   Proceeds from related party debt            350,000     109,000     488,894
   Reduction of related party debt                -        (92,000)   (116,690)
   Proceeds from issuance of common stock    1,215,471     547,450   2,475,638
                                           ------------------------------------
          Net cash provided by
          financing activities               1,597,185     592,400   2,936,506
                                           ------------------------------------
______________________________________________________________________________
See accompanying notes to consolidated financial statements.              F-7
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                          Consolidated Statement of Cash Flows
                                                                     Continued
------------------------------------------------------------------------------


                                                                   Cumulative 
                                                                     Amounts 
                                                                  Since July 1,
                                                 1997       1996      1993
                                           ------------------------------------

      Net increase in cash                      86,194    105,241    205,855

Cash, beginning of period                      125,624     20,383      5,963
                                           ------------------------------------

Cash, end of period                        $   211,818  $ 125,624 $  211,818
                                           ====================================
Schedule of supplemental disclosures:

   Interest paid                           $    71,023  $  24,345 $  102,125
                                           ====================================
   Income taxes paid                       $       100  $     100 $      400
                                           ====================================

     
     
     Schedule of non-cash investing and financing activities:
     
     During the year ended June 30, 1997:  
     
         The Company issued 689,802 shares of its restricted common stock
              to satisfy $469,400 of related party debt and $8,500 of accrued
              interest.
     
         The Company issued 2,500,000 shares of its restricted common stock
              to purchase equipment held for sale costing $2,200,000 .
     
         The Company assumed capital lease obligations totaling $299,882 in
              exchange for the use of property and equipment.
     
     During the year ended June 30, 1996:  
     
         The Company issued 24,584 shares of its restricted common stock to
              satisfy $2,500 of debt and $4,800 of accrued interest.
     
         The Company issued 100,000 shares of its restricted common stock
              to purchase $50,000 of equipment.
     
         The Company assumed capital lease obligations totaling $168,959 in
              exchange for the use of property and equipment.
     
         The Company issued 503,028 shares of its restricted common stock
                            of $100,830 to satisfy a current liability.
______________________________________________________________________________
See accompanying notes to consolidated financial statements.              F-8
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements 
                                                                     Continued

                                                                 June 30, 1997
------------------------------------------------------------------------------
     
1.            Summary of Significant Accounting Policies
     
Organization
The financial statements include those of Groen Brothers Aviation, Inc., and
its wholly owned subsidiary Sego Tool, Inc. (Company).
     
The primary business purpose of the Company is the manufacturing and marketing
of 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 has, at the present time, not paid any
dividends and any dividends that may be paid in the future will depend upon
the financial requirements of the Company and other relevant factors.
     
Machinery and Equipment
Machinery and equipment are carried at cost, less accumulated depreciation. 
Depreciation is computed under the accelerated method based on estimated
useful lives of five to thirty-nine years.  When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recognized in
income for the period.  The cost of maintenance and repairs is charged to
income as incurred; significant renewals and betterments are capitalized.
    
Income Taxes
The Company accounts for its income taxes based on the provisions of SFAS 109
"Accounting for Income Taxes."  The asset and liability method requires the
recognition of deferred tax liability and assets for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities.
     
Income (Loss) Per Common Share
Income (loss) per share of common stock is calculated based on the weighted
average number of common and common equivalent shares outstanding during the
period.  Common equivalent shares consist of the Company's stock options
considered to be dilutive common equivalents, determined using the treasury
stock method.  Fully diluted earnings per share is the same or anitdiulitve,
and, accordingly, is not presented.

-------------------------------------------------------------------------------
                                                                        F-9
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

1.     Summary of Significant Accounting Policies - Continued
     
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and labilities and disclosure of
contingent assets and labilities 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.
    
Concentration of Credit
The Company is in the business of developing and manufacturing the gyroplane. 
Substantially all operations relate to this business.
   
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.
     
Revenue
Revenue consists of interest and sales-of-information packages.  Revenue is
recognized when earned.
    
     
2.   Equipment Held for Sale
     
The Company in 1996, issued 2,500,000 shares of its common stock for a
McDonnell Douglas helicopter.  The common stock was issued at $.88 per share
which approximated both the trading value of the common stock and the fair
market value of the helicopter.  The Company is not using the helicopter in
its operations and is in the process of selling the helicopter.


-------------------------------------------------------------------------------
                                                                        F-10
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

3.   Machinery and Equipment
     
Machinery and equipment consisted of the following at June 30:
     
                Aircraft                                66,497
                Office equipment                        58,890
                Shop equipment and tools                 4,936
                Furniture                               36,278
                Leased property under capital leases   468,811
                                                     -----------
                                                       635,412
                Less accumulated depreciation and
                amortization                           211,992
                                                     -----------
                                                     $ 423,420
                                                     ===========
     
     
4.   Note Payable
     
At June 30, 1997, the Company had a note payable consisting of a line of
credit payable to a bank of $150,000.  The line of credit matures in March
1998, and provides for the Company to borrow up to $200,000.  Interest is at
the banks prime lending rate plus 2.0%.  The line of credit is secured by
stand-by letters of credit.















-------------------------------------------------------------------------------
                                                                        F-11
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

5.   Long-Term Debt
     
Long-term debt consist of the following at June 30:
     
     
     Notes payable to a local governmental
     agency, including interest at 2% above
     the prime rate (10.50% at June 30,
     1997).  After principal amount is paid,
     monthly installments of 3% of monthly
     gross revenues are due until an
     additional $150,000 is paid.  The notes
     were in default at June 30, 1997                  $  150,000
     
     Notes payable to a governmental
     sponsored organization due in monthly
     installments of 3% of gross monthly
     revenues, including interest at 2%
     above the prime rate (10.50% at June
     30, 1997)                                            100,000
     
     Note payable to a company at 15%
     interest, due on demand, unsecured                    10,000
     
     Capital lease obligations (see note 6)               343,005
                                                       ----------
                                                          603,005
     
     Less:  current portion                              (405,803)
                                                       ----------
                                                       $  197,202
                                                       ==========
     
     
     
     
Future maturities of long-term debt at June 30, 1997, are as follows:
     
     
               Year                        Amount
             --------                   -----------
               1998                     $  405,803
               1999                        151,351
               2000                         45,851
                                        -----------
                                        $  603,005
                                        ===========
     
     
     

-------------------------------------------------------------------------------
                                                                        F-12
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

     
6.   Capital Lease Obligations
     
During the year ended June 30, 1997, the Company has entered into capital
lease agreements with a financial institution for certain property and
equipment.  Assets under capital lease have been capitalized and are included
in property and equipment as follows:
    
                  Office equipment                  $  161,034
                  Shop equipment and tools             252,260
                  Furniture                             18,778
                  Leasehold Improvements                36,739
                                                    -----------
                  Total property and equipment         468,811

                  Accumulated amortization             (97,364)
                                                    -----------
                                                    $  371,447
                                                    ===========
     
Future minimum lease payments at June 30, 1997 are as follows:
     
                  Year Ending June 30,
                  --------------------
                      1998                          $  191,943
                      1999                             171,727
                      2000                              48,386
                                                    -----------
                  Total minimum lease payments         412,056

                  Less amount representing interest    (69,051)
                                                    -----------
                  Present value of net minimum
                  lease payments                    $  343,005
                                                    ===========


During the year ended June 30, 1996, the Company entered into an arrangement
with a third party in which the person has the option to pay the capital lease
in a  dollar-for-dollar exchange for stock valued at $.40 per share.  At June
30, 1997, the number of shares under this option is 1,030,140 shares, none of
which have been exercised as of June 30, 1997.

-------------------------------------------------------------------------------
                                                                        F-13
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------



7.   Preferred Stock
     
During the year ended June 30, 1996, the Company filed amended Articles of
Incorporation in which the Company authorized four additional classes of
preferred stock.  Each class is authorized to have 50,000,000 shares having a
$.001 par value.  The rights, terms, and preferences are to be set by the
board of directors.  As of June 30, 1997, no preferred stock has been issued.
     
     
8.   Related Party Transactions
     
The Company has notes payable to shareholders totaling $30,828 at June 30,
1997.  These notes are all due within on year at interest rates from 8.00% to
18%, unsecured.  The Company has a note payable totaling $180,000 to Hawk
Autogyro, a company related by common ownership with interest at 12%.  The
note was past due at September 26, 1995, and remains delinquent at June 30,
1997.  Accrued interest totaled $72,557 at June 30, 1997.
    
The Company has receivables totaling $3,875 from officer shareholders of the
Company.  Included in accrued expenses is payroll payable to officer
shareholders totaling $503,289.
     
Future maturities of related party debt at June 30, 1997 are as follows:
    
                  Year Ending June 30,
                  --------------------
                      1998                          $  195,658
                      1999                               5,707
                      2000                               6,182
                      2001                               3,281
                                                    -----------
                                                    $  210,828
                                                    ===========
9.   Commitments
     
As conditions to obtain financing from a local government agency, the Company
has agreed to, in effect, pay royalties to the agency.  The royalties will be
3% of the monthly revenues until a total of $150,000 has been paid.  No
royalties have been earned or paid as of June 30, 1997.

-------------------------------------------------------------------------------
                                                                        F-14
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

9.   Commitments - Continued
     
Also, as conditions to obtain financing from a government sponsored
organization, the Company has agreed to assume a royalty agreement of a
company related by common ownership, previously licensed with the autogyro
technology.  The terms of the agreement state that the Company must, in
effect, pay monthly royalties of 3% of its gross revenues up to a total of
$149,100.
     
The Company leases certain property and facilities under noncancellable
operating leases.  Future minimum rental payments required under these leases
are as follows:
     
                  Year Ending June 30,
                  ---------------------
                      1998                          $  192,330
                      1999                             192,330
                      2000                             192,330
                      2001                             192,330
                      2002                              96,165
                  Thereafter                               -
                                                   ------------
                                                    $  865,485
                                                   ============


Rental expenses for noncancellable operating leases were $60,738 and $19,602
for the years ended June 30, 1997 and 1996, respectively.
     
Effective September 1, 1990, the Company entered into employment agreements
with several officers of the Company.  The employment agreements can be
terminated at any time.  Upon termination, the Company retains all rights to
the gyroplane and the relating technology and the officers have a covenant not
to compete for a period of three years.  Royalty payments of 1% of the gross
sales price of the gyroplane are to be paid to the majority shareholders.
     
During the year ended June 30, 1993, the Company entered into noncancellable
operating leases of office equipment.  The total amount paid for the years
ending June 30, 1997 and 1996 was $3,923 and $3,554, respectively.  Future
minimum lease payments total $3,923 and $1,308 for the years ended June 30,
1998 and 1999, respectively.

-------------------------------------------------------------------------------
                                                                        F-15
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

     
10.  Going Concern
     
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  Because of significant operating
losses, the excess of current liabilities over current assets, 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 and/or
capital.  Management of the Company is currently following a plan to obtain
additional working capital through a capital infusion and/or governmental and
corporate borrowing.  As part of the plan, the Company has been given a
fifteen acre parcel of real estate by a governmental unit in which to
construct a manufacturing facility.  It is not possible to predict the outcome
of future operations or whether the necessary alternative financing or
additional capital may be arranged.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
    
     
11.  Unasserted Claim
    
In 1990, the Company has been informed that an action may be brought against
the Company as a result of the termination of the agreement to develop and
manufacture the gyroplane.  Management is unable to determine the financial
impact, if any, of the proposed action against the Company and no amounts have
been reflected in the financial statements.  As of the date of the financial
statements, no claim has been made.
    
     
12.  Income Taxes
     
The Company accounts for its income taxes under SFAS No. 109, "Accounting for
Income Taxes," which requires the liability approach to account for the
effects of income taxes.  
     
The (provision) benefit for income taxes differs from the amount computed at
the federal statutory rate as follows:
     
     
                                                  1997      1996
                                              -----------------------
           Income tax benefit at federal
             statutory rates                  $  705,000  $  355,000

           Valuation allowance                  (705,000)   (355,000)
                                              -----------------------

           Total current income taxes         $     -     $     -   
                                              =======================

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                                                                        F-16
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

     
12.  Income Taxes - Continued
     
At June 30, 1997, the Company had incurred net operating losses totaling
approximately $5,996,000.  These losses will be carried forward to offset
taxable income in future periods.  This operating loss carryforward begins to
expire in 2006.  The consolidated taxable loss of GBA includes the operations
of GBA for the seven years ended June 30, 1997, and the operations of Sego
Tool, Inc., for the period from September 18, 1990, to June 30, 1997.  The
deferred tax asset at June 30, 1997 is as follows:
     
     
     Tax benefit of net operating loss carryforward     $  2,039,000
     Valuation allowance                                  (2,039,000)
                                                        -------------
     
     Net tax benefit                                    $     -  
                                                        =============


Due to uncertainties surrounding the utilization of the net operating loss
carryforwards, a valuation allowance has been established to offset a deferred
income tax benefit of such net operating loss carryforwards.
     












-------------------------------------------------------------------------------
                                                                        F-17
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------

13.  Stock-Based Compensation
     
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) which established financial accounting and reporting
standards for stock-based compensation.  The new standard defines a fair value
method of accounting for an employee stock option or similar equity
instrument.  This statement gives entities the choice between adopting the
fair value method or continuing to use the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25 with footnote disclosures of
the pro forma effects if the fair value method had been adopted.  The Company
has opted for the latter approach.  Accordingly, no compensation expense has
been recognized for the stock option plans.  Had compensation expense for the
Company's stock option plan been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the provisions of FAS
No. 123, the Company's results of operations would have been reduced to the
pro forma amounts indicated below:
    

                                             June 30,
                                  -------------------------------
                                         1997         1996
                                  -------------------------------
Net Income - as reported          $   (1,889,602)  $  (1,045,762)
Net Income - pro forma            $         -      $  (1,804,627)
Earnings per share - as reported  $         (.05)  $        (.03)
Earnings per share - pro forma    $         (.05)  $        (.05)
                                  -------------------------------
                                       
     
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:


                                             June 30,
                                  -------------------------------
                                        1997          1996
                                  -------------------------------

Expected dividend yield           $     -        $     -   
Expected stock price volatility          157%           157%
Risk-free interest rate                  4.5%           4.5%
Expected life of options            1-3 years      2-5 years
                                  -------------------------------
     
     
The weighted average fair value of options granted during 1997 and 1996 are $0
and $.41 respectively.

-------------------------------------------------------------------------------
                                                                        F-18
<PAGE>
                                  GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                 (A Development Stage Company)
                                    Notes to Consolidated Financial Statements
                                                                     Continued
------------------------------------------------------------------------------




13.  Stock-Based Compensation - Continued
     
The following table summarizes information about fixed stock options
outstanding at June 30, 1997:
     
     
                    Options Outstanding             Options Exercisable
            ----------------------------------------------------------------
                             Weighted
                             Average
                 Number     Remaining    Weighted       Number     Weighted
  Range of     Outstanding  Contractual  Average      Exercisable  Average
  Exercise        at           Life      Exercise         at       Exercise
   Prices       6/30/97      (Years)      Price         6/30/97      Price
----------------------------------------------------------------------------

$ .09 to .14    5,260,000      1.6       $  0.09       5,260,000 $   0.09
  .22 to .26    1,349,061      1.7          0.24       1,345,061     0.24
  .34 to .40    1,794,078      1.5          0.40       1,794,078     0.40
----------------------------------------------------------------------------

$ .09 to .40    8,403,139      1.6       $  0.18       8,403,139 $   0.18
============================================================================
     
     
14.  Fair Value of Financial Instruments
     
None of the Company's financial instruments are held for trading purposes. 
The company estimates that the fair value of all financial instruments at June
30, 1997, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet.  The
estimated fair value amounts have been determined by the company using
available market information and appropriate valuating methodologies. 
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amount that the Company could realize in a
current market exchange.
     






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                                                                        F-19