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, 2001
                         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 Number
Incorporation or organization)

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

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

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

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

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes XX     No

         As of June 30, 2001, the Registrant had outstanding  91,662,467  shares
of common stock, no par value per share, which is the Registrant's only class of
common stock.

                    Documents Incorporated by Reference: None


                                       1
<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 its gyroplane  technology,  described  below,  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
complete  development and  manufacture the gyroplane by itself.  Because of this
change in business  focus,  the Company  became a development  stage business on
July 1, 1993 under  SFAS No. 7. In  January  2001,  the  Company's  wholly-owned
subsidiary,  Sego Tool, Inc.,  changed its name to Groen Brothers  Aviation USA,
Inc.

         The Company,  through its now 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 fifteen 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.




                                       2
<PAGE>


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.

         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 with  helicopters,  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.


                                       3
<PAGE>

         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
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 helicopter promised 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 had tunnel
vision regarding the helicopter, mainly because of lucrative military contracts.
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. In addition,  under a climate of reduced  military sales,
the helicopter  companies have much less  discretionary  budget for research and
development.

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
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

                                       4
<PAGE>

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 both the Hawk 6 and
Hawk 8 will be jet  turboprops.  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.

         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
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. In 2001, the Company has flown the
Hawk 4 at the Sun n' Fun air show and at the EAA AirVenture 2001 air show.

         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.

         In addition to its Hawk series  models,  the Company has  completed the
assembly  of its  Revcon  6G  Gyroplane,  a six seat,  technology  demonstrator,
employing  a  Rolls-Royce  turbine  engine,  and  utilizing  a  modified  Cessna
Skymaster fuselage. To date,  government,  law enforcement and military entities
have expressed  interest in the Revcon 6G.  Although the Company will not pursue
FAA  Certification  of the Revcon 6G in the near  future,  this  gyroplane  will
receive GBA Certification.  The Revcon 6G is currently undergoing testing at the
Company's Buckeye facility in Arizona,  and the Company  anticipates that it may
begin  delivery of the Revcon 6G early in 2002.  It is the intent of the company
to further modify this machine to assess and demonstrate its gyrodyne technology
as a precursor to developing gyrodyne commuter aircraft in the future..


                                       5
<PAGE>

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 gryoplane 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.

         GBA held its Pre-Type  Certificate Board Meeting, on March 3, 1998, and
at that  meeting  submitted  to the  FAA its  formal  application  for the  Type
Certificate on the Hawk 4 Gyroplane.  An esteemed  gathering of aviation experts
met to conduct  the  Pre-Type  Certificate  Board  Meeting at the Salt Lake City
headquarters of Groen Brothers Aviation. The FAA board members came from several
regional directorates,  making up the highly competent government team necessary
to type certify Groen  Brothers'  21st century  version of the  gryoplane.  Also
attending were several FAA DERs and FAA DARs (consulting specialists approved by
the FAA for this work).  The meeting is historically  important  because GBA has
added  new  technology  and  capability  to a form  of  flight  that  has had no
commercial significance for more than half a century.

         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.


                                       6
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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.

         The manufacturing plan includes a transition period during which GBA is
currently  assembling  the first  Hawk 4s in its Salt Lake  City  facility.  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.

         In August 2001,  the Company  announced that it will move its corporate
headquarters and principal  manufacturing facility from Salt Lake City, Utah, to
Glendale, Arizona (See "Item 2. Properties," below).

THE MARKET

         As  helicopters  have  become  commonplace,  many  potential  users  of
ultra-short  take off and landing  (U-STOL)  aircraft  have  realized how useful
vertical  flight  would  be if only  they  could  afford  it.  This  demand  for
affordable  vertical  flight should provide a market for GBA gyroplanes  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:

o        Law enforcement  (police,  sheriff,  border patrol,  customs,  and drug
         interdiction).
o        Public service organizations (fire patrol, medical transport,  wildlife
         and land management).
o        Military (courier, armed surveillance, VIP transport, forward artillery
         control, ground attack, unmanned aerial vehicle).
o        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).
o        Private (commuting, sport flying, training).


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<PAGE>

Dealer Network

         Groen  Brothers  Aviation has  established,  and is  continuing  to add
Authorized  Dealers in major cities across the United  States and Canada.  There
also are Authorized  Dealers in Costa Rica and the Bahamas.  GBA Dealers will be
responsible for sales,  service,  maintenance,  and flight training. To become a
dealer,  aircraft  deposits  are  given  to  GBA  based  on  a  quota  for  each
metropolitan  statistical  area. At present,  the Company has received more than
140 down payment deposits from its dealers and private individuals.  The dealers
in turn take deposits from customers as orders are received. Dealers will handle
all sales,  including  government  agencies and fleet sales, except for military
sales, which will be made directly by GBA.

         During the past ten years of  developing  the Hawk  Gyroplane,  GBA has
received sales  inquiries from  thousands of potential  customers,  domestic and
foreign. In addition to establishing a USA dealer network, the Company is now in
discussion with several overseas companies about foreign dealerships. In support
of all  this,  the  Company  has  established  its own  internet  site  with two
addresses, www.groenbros.com and www.gbagyros.com. Each GBA Authorized Dealer is
linked to the main GBA web site as well as having their own internet  site.  The
Company also makes available collateral printed 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 detailed  discussions  with several  different  foreign  companies and
governments.

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 will move its corporate
headquarters from Salt Lake City, Utah, to a brand new $14 million manufacturing
facility in Glendale, Arizona. The new plant will be in excess of 160,000 square

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<PAGE>

feet and be capable of producing up to four  aircraft per day.  This  production
facility will incorporate the latest aircraft production technology, proprietary
fabrication  procedures  and  techniques  as well  as a  cutting  edge  computer
numeric-control machining center. Now that the City of Glendale has granted site
approval  for the  project,  the plant may be fully  operational  by the  fourth
quarter of 2002.  The  Company  considers  Glendale,  Arizona,  to be a superior
choice  because the local climate  provides a maximum  number of flying days for
test flight operations, and because of the number of aviation-related industries
in the area, which means a local workforce with aviation-specific skills.

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
this 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.  The  Company  plans  to  hold  its  Annual  Meeting  of
Shareholders meeting in December 2001.

                                    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

                                       9
<PAGE>

         The number of shareholders of record for the Company's  common stock as
of June 30, 2001,  were 1,246,  and the number of shares issued and  outstanding
were 91,662,467.


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

Results of Operations

         Income

         During 2001, total income  increased to $398,000,  compared to $126,000
in 2000. This was due to an increase in interest income. The majority of Company
income in 2001 and 2000, consisted of interest income.

         Costs and Expenses

         During 2001,  research and  development  costs increased to $ 7,035,000
compared to $6,451,000 in 2000. That increase took place across the board as the
number of employees and  consultants  increased in preparation for production of
the  Hawk  4.  During  2001,  general  and  administrative  costs  increased  to
$3,619,000  compared to $2,272,000  in 2000.  The increase was in support of the
continuing FAA certification process and an increase in personnel.  During 2001,
interest  expense  increased  to  $1,027,000  compared to $199,000 in 2000.  The
increase was due to increased interest expense incurred on notes payable to fund
operations and on interest paid on deposits.

         Net Earnings

         During  2001 and 2000 the  Company  continued  to  record  losses as it
conducted flight tests,  built new models,  and made the transition  toward full
marketing and  manufacturing of the Hawk Gyroplane series. In 2001, the net loss
was $11,283,000 compared to $8,796,000 in 2000.

         Liquidity and Capital Resources

         The Company  estimates that capital  requirements  will continue at the
present pace over the next year. The Company is now making the  transition  into
manufacture  of the  Hawk  4.  The  actual  schedule  of the  planned  expansion
ultimately depends upon the Company's ability to attract capital.

         Over the past four years the  Company  has  raised  $22.3  million  for
operations  through the sale of equity,  of which $7.8 million was raised during
the past fiscal  year.  In the past the Company has been  successful  in raising
capital as needed.  During the next fiscal  year the Company  will need to raise
approximately $14 million for operations at its current  development level While
recent  national  events  generated  additional  interest  in GBA  aircraft  for

                                       10
<PAGE>

surveillance and law enforcement purposes, these events have negatively impacted
the equity  financial  markets.  There can be no guarantee or assurance that the
Company will be successful in its ability to raise capital at favorable rates or
at all. If the Company is not  successful in raising  capital,  as it has in the
past, the Company,  like other  companies,  may have to  temporarily  reduce its
level of development to maximize limited capital resources.

         In the second fiscal quarter, the Company received an equity investment
from an institutional investor ("the Purchaser"). 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 and  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  purchases,  the  investors  hold a "put"  option
exercisable in three years.  The Company,  at its option,  may honor the put (if
exercised) in stock or in cash. If paid in stock, the exercise price is at $2.00
per share and the  number of shares to be issued  would be based on the  average
bid price for the twenty  trading  days prior to the put.  If paid in cash,  the
exercise  price is $1.60 per share.  Additionally,  the  Company  holds a "call"
option to purchase the Shares at anytime up to twenty-four  months from issue 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.  The Purchaser was also
issued  warrants in the amount of 1,250,000  shares which are exercisable at the
average bid price for the twenty trading days prior to the time of issue.

         In the fourth fiscal quarter, the Company received a binding commitment
from an institutional investor to provide up to $50 million in equity financing.
Over the next three years,  the Company will have the right to obtain as much as
$50 million through the issuance of common stock to the  institutional  investor
in a series of periodic draw-downs. The timing, dollar amount, and minimum price
per share of each draw-down,  are at the sole discretion of the Company, subject
to certain contractual provisions which include volume and price limitations. On
the initial  closing  date,  the Company  issued to investor  three  warrants to
purchase up to 1,700,000 warrant shares, in the aggregate. The exercise price of
850,000  warrant shares was 105% of the average of the closing bid prices during
the  fifteen  trading  days  immediately  prior  to the  initial  closing  date,
approximately  $0.80 per share. The exercise price of the 425,000 warrant shares
shall be equal to $2.00 and the  exercise  price of the 425,000  warrant  shares
shall be equal to $3.00. The minimum  investment  amount for any draw-down shall
be $100,000 and the maximum  investment  amount as to each draw-down shall be 6%
of the EQY weighted average price field (as reported on Bloomberg Financial L.P.
using the BLPH  function) for the common stock for the sixty calendar day period
immediately  prior to the applicable  commencement  date multiplied by the total
trading volume in respect of the common stock for such period.  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 the  investor  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 the investor.

         Deposits  on  gyroplanes,   which  began  in  1999,  have  provided  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  also is actively
pursuing  the sale of Revcon  6G  Gyroplanes,  which  could  provide  additional
financial resources in the near future. As with all GBA aircraft, development of
the Revcon 6G is dependant on successful private placements for capital.


                                       11
<PAGE>

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


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

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

         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-8

              Notes to consolidated financial statements                 F-10

<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, 2001,
and the related consolidated statements of operations, stockholders' deficit and
cash flows for the two years ended June 30, 2001 and 2000 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, 2001,  and the results of their  operations  and
their cash flows for the two years ended June 30, 2001 and 2000,  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
August 16, 2001


                                                                             F-1
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                             June 30, 2001
----------------------------------------------------------------------------------------------------------

       Assets
       ------
<S>                                                                                     <C>

Current assets:
   Cash                                                                                 $          116,000
   Accounts receivable                                                                               5,000
   Related party notes receivable                                                                  207,000
   Prepaid expenses                                                                                115,000
                                                                                        ------------------

         Current assets                                                                            443,000

Investment assets                                                                                  715,000
Deferred offering costs                                                                            867,000
Property and equipment, net                                                                      1,026,000
                                                                                        ------------------

         Total assets                                                                   $        3,051,000
                                                                                        ------------------

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

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

Current liabilities:
   Accounts payable                                                                     $          975,000
   Accrued expenses                                                                              2,266,000
   Short-term notes payable                                                                        110,000
   Related party notes payable                                                                   2,157,000
   Current portion of long-term debt                                                               469,000
                                                                                        ------------------

         Total current liabilities                                                               5,977,000

Long-term debt                                                                                     621,000
Deposits                                                                                         2,758,000
                                                                                        ------------------

         Total liabilities                                                                       9,356,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' deficit:
   Common stock, no par value, 200,000,000 shares authorized;
     91,662,467 shares issued and outstanding                                                   31,486,000
   Class A preferred stock, no par value, 200,000,000 shares authorized; 10,000,000
     shares issued and outstanding (aggregate liquidation preference of $0)                     10,000,000
   Class A preferred stock subscription receivable                                             (10,323,000)
   Deficit accumulated during the development stage                                            (37,468,000)
                                                                                        ------------------

         Total stockholders' deficit                                                            (6,305,000)
                                                                                        ------------------

         Total liabilities and stockholders' deficit                                    $        3,051,000
                                                                                        ------------------

----------------------------------------------------------------------------------------------------------
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
                                                            2001             2000            Amounts
                                                     -----------------------------------------------------
<S>                                                  <C>                   <C>              <C>
Income:
     Related party interest                          $          336,000    $           -    $      336,000
     Interest and other                                          62,000          126,000           228,000
                                                     -----------------------------------------------------

                  Total income                                  398,000          126,000           564,000
                                                     -----------------------------------------------------

Costs and expenses:
     Research and development                                 7,035,000        6,451,000        22,838,000
     General and administrative expenses                      3,619,000        2,272,000        11,528,000
     Interest expense                                         1,027,000          199,000         1,798,000
                                                     -----------------------------------------------------

                  Total costs and expenses                   11,681,000        8,922,000        36,164,000
                                                     -----------------------------------------------------

         Net loss before income taxes                       (11,283,000)      (8,796,000)      (35,600,000)

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

                  Net loss                           $      (11,283,000)   $  (8,796,000)   $  (35,600,000)
                                                     -----------------------------------------------------

Net loss per share - basic and diluted               $             (.13)   $        (.13)   $         (.78)
                                                     -----------------------------------------------------

Weighted average common and common
  equivalent shares - basic and diluted                      83,812,000       70,186,000        45,751,000
                                                     -----------------------------------------------------

----------------------------------------------------------------------------------------------------------
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, 2001 and 2000, and Cumulative Amounts
----------------------------------------------------------------------------------------------------------


                                                                                                       Deficit
                                                         Preferred                                  Accumulated
                                     Preferred Stock        Stock            Common Stock              During
                                 ----------------------- Subscription    ------------------------    Development
                                   Shares      Amount     Receivable     Shares       Amount            Stage        Total
                                 -----------------------------------------------------------------------------------------

<S>                                       <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

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)

(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

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

                                                                                                       Deficit
                                                         Preferred                                  Accumulated
                                     Preferred Stock        Stock            Common Stock              During
                                 ----------------------- Subscription    ------------------------    Development
                                   Shares      Amount     Receivable     Shares       Amount            Stage        Total
                                 -----------------------------------------------------------------------------------------

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

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                     -           -             -   43,561,000    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                                 -           -             -            -        4,000            -        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-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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

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

                                                                                                       Deficit
                                                         Preferred                                  Accumulated
                                     Preferred Stock        Stock            Common Stock              During
                                 ----------------------- Subscription    ------------------------    Development
                                   Shares      Amount     Receivable     Shares       Amount            Stage        Total
                                 -----------------------------------------------------------------------------------------

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

Issuance of common stock for:
  Cash (.52)                               -           -             -   12,776,233    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 of 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)

Issuance of Class 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 (.70)      -           -             -       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

(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

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


                                                                                                       Deficit
                                                         Preferred                                  Accumulated
                                     Preferred Stock        Stock            Common Stock              During
                                 ----------------------- Subscription    ------------------------    Development
                                   Shares      Amount     Receivable     Shares       Amount            Stage        Total
                                 -----------------------------------------------------------------------------------------

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

Net loss                                  -            -             -            -            -   (11,283,000) (11,283,000)
                                ------------------------------------------------------------------------------------------

Balance, June 30, 2001            10,000,000  $10,000,000  $(10,323,000) 91,662,467  $31,486,000  $(37,468,000) $(6,305,000)
                                --------------------------------------------------------------------------------------------

(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 Cash Flows

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



                                                                                            Cumulative
                                                              2001             2000           Amounts
                                                        --------------------------------------------------
<S>                                                         <C>             <C>             <C>
Cash flows from operating activities:
   Net loss                                                 $ (11,283,000)  $  (8,796,000)  $  (35,600,000)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and amortization expense                        366,000         331,000        1,195,000
     Common stock issued for services and expenses                145,000          16,000        1,591,000
     Common stock issued for interest                             590,000          31,000          621,000
     Common stock issued for employer
       contribution to 401(k)                                      50,000               -           50,000
     Stock warrants and options issued for services                17,000               -           31,000
     Interest accrued against subscription receivable            (323,000)              -         (323,000)
     Interest accrued against related party note receivable       (13,000)              -          (13,000)
     Artwork for royalty and other expenses                       150,000               -          150,000
     Loss on disposal of assets                                         -          18,000           44,000
     (Increase) decrease in:
       Prepaid expenses                                           (59,000)        260,000          (65,000)
     Increase (decrease) in:
       Accounts payable                                           497,000        (971,000)       1,122,000
       Accrued expenses                                           750,000         600,000        2,424,000
       Deposits                                                   340,000       1,816,000        2,156,000
                                                        --------------------------------------------------

         Net cash used in
         operating activities                                  (8,773,000)     (6,695,000)     (26,617,000)
                                                        --------------------------------------------------

Cash flows from investing activities:
   Purchase of property and equipment                            (428,000)       (403,000)      (1,405,000)
   Sale of property and equipment                                       -          12,000        2,212,000
   Issuance of related party notes receivable                     (74,000)        (94,000)        (200,000)
   Collections on related party receivables and advances            3,000               -            8,000
   Proceeds from art sale                                               -          37,000           39,000
                                                        --------------------------------------------------

         Net cash (used in) provided by
         investing activities                                    (499,000)       (448,000)         654,000
                                                        --------------------------------------------------

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

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

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

                                                                                            Cumulative
                                                              2001             2000           Amounts
                                                        --------------------------------------------------
<S>                                                         <C>             <C>             <C>
Cash flows from financing activities:
   Proceeds from short-term notes payable                         100,000               -          110,000
   Proceeds from long-term debt                                         -               -        1,352,000
   Reduction of long-term debt                                          -        (130,000)        (251,000)
   Increase in capital lease obligation                           221,000         339,000        1,447,000
   Reduction of capital lease obligation                         (265,000)       (341,000)      (1,012,000)
   Proceeds from related party notes payable                    1,970,000         270,000        2,729,000
   Reduction of related party notes payable                      (270,000)              -         (387,000)
   Proceeds from issuance of common stock                       7,761,000       6,686,000       22,333,000
   Payment of commissions related to issuance of
     common stock                                                (543,000)                        (543,000)
   Payment of deferred offering costs                             (10,000)              -          (10,000)
   Proceeds from issuance of call options                               -           5,000           55,000
   Proceeds from issuance of put options                          250,000               -          250,000
                                                        --------------------------------------------------

         Net cash provided by
         financing activities                                   9,214,000       6,829,000       26,073,000
                                                        --------------------------------------------------

         Net (decrease) increase in cash                          (58,000)       (314,000)         110,000

Cash, beginning of period                                         174,000         488,000            6,000
                                                        --------------------------------------------------

Cash, end of period                                     $         116,000   $     174,000   $      116,000
                                                        --------------------------------------------------


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

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

                                                                   June 30, 2001
--------------------------------------------------------------------------------

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.  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.

                         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 Assets Held For Resale
                         The  Company  holds  investment  art and an  investment
                         aircraft for resale. The Company carries the investment
                         assets at the lower of cost or market.


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

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

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

1.   Organization        Deferred Offering Costs
     and                 Deferred  offering costs  represent  origination  costs
     Summary of          incurred to obtain equity financing.  Deferred offering
     Significant         costs  will  be  reduced   "dollar-for-dollar"  against
     Accounting          common  stock as the equity  financing  is  realized or
     Policies            charged to expense should they exceed the actual equity
     Continued           received.

                         Property and Equipment
                         Property  and  equipment  are  carried  at  cost,  less
                         accumulated depreciation and amortization. Depreciation
                         and  amortization  are  computed  under an  accelerated
                         method  based  on the  estimated  useful  lives  of the
                         assets or term of the lease. When assets are retired or
                         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.

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

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

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

1.   Organization        Advertising
     and                 Advertising  costs are  non-direct  in nature,  and are
     Summary of          expensed  over the  periods  in which  the  advertising
     Significant         takes place.  Advertising  expense totaled $393,000 and
     Accounting          $231,000  for the years  ended June 30,  2001 and 2000,
     Policies            respectively.
     Continued
                         Research and Development
                         Research   and   development   costs  are  expensed  as
                         incurred.

                         Loss Per Common and Common Equivalent Share
                         The  computation  of  basic  loss per  common  share is
                         computed  using the weighted  average  number of common
                         shares outstanding during each year.

                         The  computation  of diluted  loss per common  share is
                         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
                         30,117,521  and  14,699,721  shares of common  stock at
                         prices  ranging from $.09 to $3.00 were  outstanding at
                         June 30,  2001 and  2000,  respectively.  Common  stock
                         equivalents  arising out of convertible debt agreements
                         totaling 2,603,532 and 317,187,  with conversion prices
                         ranging   from  $.60  to  $1.25,   and   common   stock
                         equivalents arising out of convertible  preferred stock
                         totaling  40,000,000 and 0, with a conversion  price of
                         $1.00,  were also  outstanding  during the years  ended
                         June 30,  2001 and  2000,  respectively.  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-12
<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 2000 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 related party notes receivable from
officers and shareholders bearing interest at 8%,
due on demand.                                            $         159,000

Unsecured related party note receivable from a
shareholder bearing interest at 12%, due on
demand.                                                              48,000
                                                          -----------------

                                                          $         207,000
                                                          -----------------


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

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

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

4.   Investment          Investment assets consist of the following:
     Assets
                         Investment art                   $         575,000

                         Investment aircraft                        140,000
                                                          -----------------

                                                          $         715,000
                                                          -----------------

5.   Property            Property and equipment consists of the following:
     and
     Equipment           Equipment and tools              $       1,505,000
                         Computer equipment                         410,000
                         Leasehold improvements                     151,000
                         Aircraft                                    88,000
                         Furniture                                   73,000
                         Vehicles                                    42,000
                                                          -----------------

                                                                  2,269,000

                                                                 (1,243,000)
                                                          -----------------

                                                          $       1,026,000
                                                          -----------------

6.   Accrued             Accrued expenses consist of the following:
     Expenses

                         Compensation                     $       1,578,000
                         Interest                                   478,000
                         Consultants fees                           129,000
                         Commissions                                 31,000
                         Other                                       50,000
                                                          -----------------

                                                          $       2,266,000
                                                          -----------------

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

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

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

7.   Short-Term          Short-term notes payable is comprised of the following:
     Notes
     Payable

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

Unsecured note payable to a company
  with interest at 15%, due on demand                                10,000
                                                          -----------------

                                                          $         110,000
                                                          -----------------

                         The  individual  may  choose  to  convert   outstanding
                         principal  and  interest  balances to common stock at a
                         price of $.69 per share. At June 30, 2001,  $100,000 of
                         principal and interest  could have been  converted into
                         145,571 shares of the Company's common stock.

8.   Related             Related   party  notes  payable  is  comprised  of  the
     Party Notes         following:
     Payable

Unsecured notes payable to shareholders with
interest at 18%.  The notes are due on demand.            $       1,977,000

Unsecured note payable to an entity which is
owned by some of the members of senior
management.  The note bears interest at 12%
and is due on demand.                                               180,000
                                                          -----------------

                                                          $       2,157,000
                                                          -----------------

                         The  shareholder  related party note holders may choose
                         to convert outstanding  principal and interest balances
                         to common stock.  The prices per share range from $0.60
                         per  share  to  $1.25  per  share.  At June  30,  2001,
                         $2,157,000  of principal  and interest  could have been
                         converted into 2,457,961 shares of the Company's common
                         stock.

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

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

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

9.   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% (9% at
June 30, 2001).                                           $         100,000

Capital lease obligations (see note 10)                             990,000
                                                          -----------------

                                                                  1,090,000

Less current portion                                               (469,000)
                                                          -----------------

                                                          $         621,000
                                                          -----------------



                         Future maturities of long-term debt are as follows:


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

                           2002                           $         469,000
                           2003                                     382,000
                           2004                                     128,000
                           2005                                     101,000
                           2006                                      10,000
                                                          -----------------

                                                          $       1,090,000
                                                          -----------------

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

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

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

10.  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         $         585,000
                         Accumulated amortization                  (227,000)
                                                          -----------------

                                                          $         358,000
                                                          -----------------

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


                         Future minimum lease payments are as follows:


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

                             2002                         $         594,000
                             2003                                   334,000
                             2004                                   154,000
                             2005                                   110,000
                             2006                                    10,000
                                                          -----------------

     Total minimum lease payments                                 1,202,000

     Less amount representing interest                             (212,000)
                                                          -----------------

     Present value of minimum lease payments              $         990,000
                                                          -----------------

                         The  Company  has entered  into an  arrangement  with a
                         shareholder  in which the person 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,  2001 and 2000,
                         the number of shares under this option is approximately
                         400,000 and 887,500 shares, respectively.

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

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

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

11.  Preferred           The  Company  has  authorized   200,000,000  shares  of
     Stock               preferred  stock  having no par  value.  There are four
                         classes  of  preferred  stock  with  50,000,000  shares
                         authorized  within  each class.  The rights,  terms and
                         preferences of preferred stock will be set by the Board
                         of Directors.

                         At June 30, 2001 and 2000,  there were 10,000,000 and 0
                         shares  of  Class  A  Preferred   Stock  (the   Shares)
                         outstanding,   respectively.  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 convertible into common stock of the
                             Company  on  a  one-for-four   (1:4)  basis,  at  a
                             conversion  price of $1 per  share.  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.


12.  Subscription        During the year ended June 30, 2001,  the  President of
     Receivable          the  Company  acquired  10,000,000  shares  of  Class A
                         Preferred  Stock in exchange for a note  receivable  in
                         the amount of  $10,000,000  from 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  Class  A  Preferred  Stock.
                         Principal and accrued interest are due in one lump sum,
                         upon   maturity.   This  note  and  the   corresponding
                         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.

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

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

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

13.  Equity              In the second fiscal quarter,  the Company  received an
     Financing           equity   investment  from  an  institutional   investor
                         (Investor 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   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  purchases,  Investor  A holds a put  option
                         exercisable in three years. The Company, at its option,
                         may honor the put (if  exercised)  in stock or in cash.
                         If paid in stock,  the  exercise  price is at $2.00 per
                         share and the  number  of shares to be issued  would be
                         based on the average  bid price for the twenty  trading
                         days prior to the put.  If paid in cash,  the  exercise
                         price is $1.60 per  share.  Additionally,  the  Company
                         holds 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 A was also  issued
                         warrants in the amount of  1,250,000  shares  which are
                         exercisable  at the  average  bid price for the  twenty
                         trading  days  prior to the time of  issuance  (between
                         $.81 and $.90 per share).

                         The  purchase  rights  allow  Investor  A the option to
                         participate in any  securities  issuance under the same
                         price,  terms, and conditions offered in that issuance,
                         limited to the  purchase of  securities  sufficient  to
                         preserve  the  Purchaser's  percentage  interest in the
                         Company's  equity on a  diluted  basis.  Certain  stock
                         issuances  such  as  qualified   public  offerings  are
                         excluded.  Investor A must own at least 100,000  shares
                         of common stock to exercise such right.

                         The  co-sale  rights  allow  Investor  A the  option to
                         participate  in any transfer of common shares  proposed
                         by certain  officers  and  shareholders  of the Company
                         under the same price,  terms, and conditions offered in
                         that transfer.

                         According  to these  agreements,  certain  officers and
                         shareholders   of  the  Company  are  restricted   from
                         selling,  pledging,  transferring,  or conveying any of
                         their shares of common stock for three years.


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

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

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

13.  Equity              If the Company  issues  shares of common  stock at less
     Financing           than $0.40 per share, additional shares of common stock
     Continued           shall be  issued to  Investor  A in  accordance  with a
                         specified formula.

                         In the second fiscal quarter,  the Company  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
                         client  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  client
                         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.

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

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

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

13.  Equity              In the fourth fiscal  quarter,  the Company  received a
     Financing           binding  commitment  from  an  institutional   investor
     Continued           (Investor  C) to  provide  up to $50  million in equity
                         financing.  Over the next three years, 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. The minimum  investment  amount for any
                         draw-down shall be $100,000 and the maximum  investment
                         amount  as to  each  draw-down  shall  be 6% of the EQY
                         weighted  average price field (as reported on Bloomberg
                         Financial  L.P. using the BLPH function) for the common
                         stock for the sixty  calendar  day  period  immediately
                         prior to the applicable commencement date multiplied by
                         the total trading volume in respect of the common stock
                         for such  period.  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.

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

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

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

14.  Stock               Under the  Company's ISO 2000 stock option plan (Plan),
     Option 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.  Shares  issued  under  the Plan will be
                         "restricted"   as  defined  under  the  Securities  and
                         Exchange Commission Rule 144.

15.  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, 1999                 13,827,031      $   .09 - 2.00
     Granted                                  1,128,176          .40 - 1.41
     Exercised                                 (184,236)         .22 -  .55
     Expired                                    (71,250)                .40
                                    ---------------------------------------
Outstanding at June 30, 2000                 14,699,721          .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
                                    ---------------------------------------

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

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

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

15.  Stock Options       The Company has adopted the disclosure-only  provisions
     and Stock-          of Statement of Financial  Accounting  Standards (SFAS)
     Based               No.  123,  Accounting  for  Stock-Based   Compensation.
     Compensation        Accordingly,  no compensation  cost has been recognized
     Continued           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
                            ---------------------------------------------------
                                  2001             2000            Amounts
                            ---------------------------------------------------

Net loss - as reported      $   (11,283,000)  $   (8,796,000)  $   (35,600,000)
Net loss - pro forma        $   (22,876,000)  $   (8,910,000)  $   (52,607,000)
Loss per share -
as reported                 $          (.13)  $         (.13)  $          (.78)
Loss per share -
pro forma                   $          (.27)  $         (.13)  $         (1.15)
                            ---------------------------------------------------

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


                                                         June 30,
                                            -----------------------------------
                                                   2001             2000
                                            -----------------------------------

Expected dividend yield                     $              -    $           -
Expected stock price volatility                           85 %            150 %
Risk-free interest rate                                  4.6 %            5.0 %
Expected life of options                          .5 - 5 years      3 - 5 years
                                            -----------------------------------

                         The weighted average fair value of options and warrants
                         granted  during  2001  and  2000  was  $.69  and  $.87,
                         respectively.

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

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

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

15.  Stock Options       The following table summarizes  information about stock
     and Stock-          options and warrants outstanding at June 30, 2001:
     Based
     Compensation
     Continued
                                                       Options and Warrants
          Options and Warrants Outstanding                   Exercisable
--------------------------------------------------------------------------------
                                          Weighted
                                           Average
                             Weighted     Remaining                  Weighted
   Range of                   Average    Contractual                 Average
   Exercise      Number      Exercise       Life        Number       Exercise
    Prices     Outstanding     Price       (Years)    Exercisable     Price
--------------------------------------------------------------------------------

$ 0.09 - 0.40    6,502,500   $ 0.14         2.05       6,502,500    $     0.14
  0.50 - 0.90    4,513,514     0.66         3.01       4,513,514          0.66
  1.00 - 1.41   17,229,840     1.02         5.29       4,229,840          1.01
  2.00 - 3.00    1,871,667     2.23         1.51       1,871,667          2.23
--------------------------------------------------------------------------------

$ 0.09 to 3.00  30,117,521   $ 0.85         4.01      17,117,521    $     0.75
--------------------------------------------------------------------------------


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

                                 Years Ended June 30,
                           --------------------------------    Cumulative
                                 2001            2000          Amounts
                           ------------------------------------------------

Income tax benefit at
  federal statutory rate   $      3,836,000   $   2,990,000   $ (12,739,000)
Change in valuation
  allowance                      (3,836,000)     (2,990,000)    (12,739,000)
                           ------------------------------------------------

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

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

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

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

16.  Income Taxes         Deferred tax assets (liabilities) are as follows:
     Continued

Net operating loss carryforwards                          $      12,146,000
Research and development credit carryforward                        593,000
Valuation allowance                                             (12,739,000)
                                                          -----------------

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

                         At June 30, 2001,  the Company has net  operating  loss
                         carryforwards available to offset future taxable income
                         of approximately $35,723,000 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.

                         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.


17.  Supplemental        During the year ended June 30, 2001, the Company:
     Cash Flow
     Information         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.


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

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

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

17.  Supplemental        o   Issued  10,000,000  shares  of  preferred  stock in
     Cash Flow               exchange for a $10,000,000  subscription receivable
     Information             from an officer of the Company.
     Continued
                         o   Issued   14,286  shares  of  its  common  stock  in
                             exchange  for  a  related  party  note   receivable
                             totaling $10,000.

                         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.

                         During the year ended June 30, 2000, the Company:

                         o   Issued  100,000  shares of common stock in exchange
                             for investment art valued at $70,000.

                         o   Issued  40,110 shares of common stock and exchanged
                             investment  art valued at $80,000 for  property and
                             equipment of $96,000.

                         o   Acquired  property  and  equipment  in exchange for
                             long-term debt of $152,000.

                         o   Issued  18,300  shares of common  stock in exchange
                             for property and equipment valued at $18,000.


--------------------------------------------------------------------------------
                                                                            F-26
<PAGE>

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

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

17.  Supplemental        o   Issued  1,393,893  shares of common stock to retire
     Cash Flow               long-term debt of $537,000 and accounts  payable of
     Information             $147,000.
     Continued
                         o   Issued  stock  options in exchange for property and
                             equipment of $13,000.

                         o   Recorded  deposits of $295,000 in exchange  for the
                             cancellation of stock options.

                         o   Issued stock  options in  satisfaction  of accounts
                             payable of $7,000.

                         o   Issued   212,734   shares   of   common   stock  in
                             satisfaction of accrued expenses of $177,000.

                         o   Recorded deposits in satisfaction of long-term debt
                             of $513,000.

                         Actual amounts of cash paid for:


                                  Years Ended June 30,
                           -----------------------------------   Cumulative
                                 2001              2000            Amounts
                           -----------------------------------------------------

     Interest              $         113,000  $      168,000     $    402,000
                           -----------------------------------------------------

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


--------------------------------------------------------------------------------
                                                                            F-27
<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  payment  required  under  these  leases  are as
                         follows:

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

                               2002                       $         148,000
                               2003                                   5,000
                               2004                                   4,000
                                                          -----------------

     Present value of minimum lease payments              $         157,000
                                                          -----------------

                         Rental  expenses for  noncancellable  operating  leases
                         were $265,000 and $284,000 for the years ended June 30,
                         2001 and 2000, 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 15% 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 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
                         will be  "restricted"  as defined under the  Securities
                         and Exchange Commission Rule 144.

20.  Commitments         In June 2001,  the Company  entered  into an  agreement
     and                 with an  investor  relations  and media  communications
     Contingencies       firm.  Under the  terms of the  contract,  the  Company
                         shall pay the firm $9,000 per month,  and will issue to
                         the firm 50,000  options at an exercise price of $0.79.
                         The  Company  may  terminate  the  contract in December
                         2001.  If not  terminated,  the contract  will continue
                         until June 2002.

--------------------------------------------------------------------------------
                                                                            F-28
<PAGE>

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

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

20.  Commitments         In June 2001,  the Company  entered  into an  agreement
     and                 with a brokerage firm. Under the terms of the contract,
     Contingencies       the  Company  shall  pay the firm  $5,000  per month in
     Continued           cash,  stock or other agreed value. The initial term of
                         the  contract  is three  months,  and the  Company  may
                         extend the contract.

                         The Company has entered into employment agreements with
                         certain   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 related  technology  and the officers
                         have a covenant  not to  compete  for a period of three
                         years.  Royalty payments of 1% of the gross sales price
                         of the  gyroplane  are to be paid to the  inventors who
                         are also officers of the Company.

                         The  Company  has  various   agreements  to  compensate
                         individuals  and companies 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 March 2000, the Financial Accounting Standards Board
     Accounting          issued  Interpretation  No. 44 ("FIN 44"),  "Accounting
     Pronounce-          for Certain Transactions  Involving Stock Compensation,
     ments               an  Interpretation  of  APB  Opinion  No.  25".  FIN 44
                         clarifies the application of Opinion No. 25 for (a) the
                         definition of employee for purposes of applying Opinion
                         No. 25, (b) the criteria for determining whether a plan
                         qualifies   as  a   non-compensatory   plan,   (c)  the
                         accounting  consequence of various modifications to the
                         terms of a previously  fixed stock option or award, and
                         (d)  the   accounting   for  an   exchange   of   stock
                         compensation awards in a business  combination.  FIN 44
                         became effective July 1, 2000, but certain  conclusions
                         cover specific  events that occur after either December
                         15, 1998, or January 12, 2000.  FIN 44 had no effect on
                         the  Company's   consolidated   financial  position  or
                         results of operations.


--------------------------------------------------------------------------------
                                                                            F-29
<PAGE>

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

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

22.  Recent              The Company has adopted Staff  Accounting  Bulletin No.
     Accounting          101  (SAB  101"),   Revenue  Recognition  in  Financial
     Pronounce-          Statements, which provides guidance on the recognition,
     ments               presentation,  and  disclosure  of revenue in financial
     Continued           statements  filed with the SEC.  SAB 101  outlines  the
                         basic  criteria  that must be met to recognize  revenue
                         and provides guidance for disclosure related to revenue
                         recognition policies.  The adoption of this standard in
                         fiscal  2001  did  not  result  in any  changes  to the
                         Company's financial statements.


--------------------------------------------------------------------------------
                                                                            F-30
<PAGE>

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

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

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

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

         Name                  Age            Positions
         ----                  ---            ---------

    David L. Groen             50        Director, President and Chief Executive
                                         Officer
    H. Jay Groen               57        Director
    James P. Mayfield          53        Director and Executive  Vice-President,
                                         and Chief Operating Officer

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,  which is scheduled for December 2001.  These persons'  respective
appointments  were  adopted,  ratified  and  approved by the  stockholders  at a
meeting for that purpose on May 20, 2000.  With the exception of compliance with
the  duties of a  director  as set forth in the  Articles  of  Incorporation  or

                                       12
<PAGE>

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 and was  awarded the Air Medal and Bronze  Star.  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
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.


                                       13
<PAGE>

         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 of  150,000  shares at $1.10 per share to be  purchased  by 2005,
options of 1,475,000  shares at $.09 per share to be purchased by 2003,  options
of 25,000  shares at $.50 per share to be  purchased  by 2004,  and  options  of
2,000,000 at $1.00 per share to be purchased by 2003. Jay Groen holds options of
2,475,000  shares at $.09 per share to be purchased  by 2003,  options of 25,000
shares at $.50 per share to be  purchased  by 2004,  and options of 2,000,000 at
$1.00 per  share to be  purchased  by 2003.  James  Mayfield  holds  options  of
3,150,000  shares  at $1.10  per  share to be  purchased  by  2005,  options  of
1,000,000  shares at $.09 per share to be purchased by 2003,  options of 500,000
shares at $.50 per share to be purchased by 2004,  options of 500,000  shares at
$.50 per share to be purchased by 2003, and options of 25,000 shares at $.50 per
share to be purchased by 2004.  JoRene Bishop holds options of 225,000 shares at
$1.00 per share to be purchased by 2007,  options of 10,000 shares at $.50 to be
purchased by 2004.

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

         The  following  shows the shares of common  stock  owned as of June 30,
2001,  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                          10,740,584              11.71
2640 California Avenue
Salt Lake City, UT 84104

Jay Groen, Director                              5,512,502               6.01
2640 California Avenue
Salt Lake City, UT 84104

James P. Mayfield, Vice President                   70,760               0.01
2640 W. California Avenue
Salt Lake City, UT 84104

JoRene Bishop, Secretary                           258,323               0.07
2640 W. California Avenue
Salt Lake City, UT 84104

                                       14
<PAGE>

All Officers and Directors                      16,582,169              18.09

Lyle Campbell                                    4,519,585               4.93
c/o Chapman & Cutler
111 W. Monroe Street
Chicago, IL 60603

Epsilon Global Active Value Fund, LTD,          12,500,000              13.63
Epsilon Investment Management, LLC,
Capital Strategies Fund, LTD, and
Steve G. Stevanovich
7280 W. Palmetto Park Rd.
Suite 310
Boca Raton, FL 33433


                                       15
<PAGE>

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

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

C        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.

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

         The above does not include  common stock  options owned by David Groen,
Jay Groen,  James Mayfield,  and JoRene Bishop that could have been purchased as
of June 30, 2001, to purchase 3,500,000 shares, 4,500,000 shares, 2,025,000, and
10,000 shares respectively. If such shares were purchased, their ownership would
equal 12.04 percent, 8.47 percent, 1.77 percent, and 0.23 percent respectively.

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 $10,000,000  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 Class A 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.



                                       16
<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                                 F-2

              Consolidated statement of operations                       F-3

              Consolidated statement of stockholder's deficit            F-4

              Consolidated statement of cash flows                       F-8

              Notes to consolidated financial statements                 F-10


                                       17
<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:   October 11, 2001
         ---------------------------              --------------------------
         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:   October 11, 2001
         ---------------------------              --------------------------
         H. Jay Groen, Director


           /s/David L. Groen                      Date:   October 11, 2001
         ---------------------------              --------------------------
         David L. Groen, Director


           /s/James P. Mayfield                   Date:   October 11, 2001
         ---------------------------              --------------------------
         James P. Mayfield, Director





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