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, 1999
                         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)                         (Zip Code)

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

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

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


                         Common Stock (Par Value $.005)
                         -----------------------------
                                (Title of Class)

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

         As of June 30, 1999, the Registrant had outstanding  57,844,801  shares
of common stock, par value $.005 per share, which is the Registrant's only class
of common stock.

                    Documents Incorporated by Reference: None

Note:  Exhibit index required by item 601 of Regulation S-K appears on page 12.





                                        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 the  technology to other  entities to develop the
gyroplane, and the Company would receive royalties on its technology.  Effective
July 1, 1993,  the Company  determined  that it would 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.

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

         In an effort to pursue an easy-to-fly and cost-efficient gyroplane that
could  effectively  compete 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 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 thirteen  years bringing their
idea to fruition, enthusiasm for the GBA Hawk within the aviation community runs
high. In recent months,  the Company has been  approached by many interested law
enforcement  agencies,  commercial flying entities,  and individuals in the U.S.
and abroad,  which has helped  position  the  Company to attract the  investment
needed to accelerate the current transition into production.

THE PRODUCT

         What is a Gyroplane?

         Gyroplane  is an  official  term  designated  by the  Federal  Aviation
Administration (FAA) describing an aircraft that gets its lift from rotor blades
and its  thrust  from an  engine-driven  propeller.  Historically,  this type of

                                        2

<PAGE>



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, because
the Hawk takes off and lands vertically without having to hover.  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,  for mail delivery from the
roofs of post offices.  Thousands of flights carrying millions of pieces of mail
were   performed   by  Kellett  and  Pitcairn   gyroplanes   flying  in  Camden,
Philadelphia, Chicago, New Orleans, Washington, D.C., and other cities.

         By the 1940s the private  aircraft  market had collapsed with the Great
Depression,  and the main source of  investment  in aviation  came from the U.S.
military.  At the time, Igor Sikorsky was supplying the government with a number

                                        3

<PAGE>



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,
and 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  two basic
models of high  performance  gyroplanes,  the Hawk 4 (four seat)  andHawk 6 (six
seat).  A Hawk 8 (eight  seat) is planed  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
(pitch is the blade's angle of attack to the relative wind) that can be operated
between  two  extreme  settings.  This means  that  during  flight,  by moving a
collective  pitch control lever, the pilot can change,  in varying degrees,  the

                                        4

<PAGE>



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 vertical takeoffs and
landings, eliminating the need for 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 vertically. Just before liftoff,
the power to the rotor is disengaged,  and 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  vertical  takeoff  using  a  prerotation  technique.  The  Hawk  4's
Continental  350 hp  engine  provides  prerotation  power and  thrust  following
liftoff.  The  main  powerplants  for  both  the  Hawk 6 and  Hawk 8 will be jet
turboprops,  and the Company  expects to have a turbine  version for the Hawk 4.
Turbines,  compared to piston engines, are expensive, but the cost per passenger
mile of the Hawk series should remain a fraction of a comparable helicopter.

         Vertical landing is normally a power-off, steep approach to the landing
site,  followed by a slight  pull back on the  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.  Rolling  takeoffs and landings are also  possible with the GBA
gyroplanes, which all have wheeled landing gear instead of skids.

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 US  manufacturer  to mass-produce  its
aircraft  "type,"  insuring  that each  gryoplane  that  flies  away from  Groen
Brothers'  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.

                                        5

<PAGE>



         GBA's  certification  plan,  which had to be  approved by the FAA, is a
description of the method GBA is using to prove  compliance with the FAR's.  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 representatives of Continental Motors, ATI and Simula, as well as
a host of 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
thirty  vertical-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.

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. A larger
manufacturing  plant will be planned.  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.

                                        6

<PAGE>



Procedural manuals have been developed for requisitioning, purchasing, materials
control, store keeping, parts lists, raw materials controls and accounting.

THE MARKET

         As helicopters  have become  commonplace,  many potential users of VTOL
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:

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

Dealer Network

         Groen Brothers Aviation is presently establishing Authorized Dealers in
major  cities  across the United  States.  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 123 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 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  Dealer  will be
linked to the main GBA web site as well as having their own internet  site.  The
Company also makes available out printed material.

         The Company  introduced the Hawk 4 gyroplane at the world's largest air
show,  AirVenture  '99 in  Oshkosh,  Wisconsin  the last week of July 1999.  The
Company's booth and outside display were busy with visitors from across the U.S.
and around the world. GBA dealers were also at the show.


                                        7

<PAGE>



Export Sales

         GBA has been  approached  by  companies  in more  than a dozen  foreign
countries on five  continents  requesting  to be dealers.  The Company is having
detailed discussions with several different foreign companies and governments at
present, but has signed an agreement with only one country, China. China was the
first foreign country to express an interest in the Hawk gyroplane.  The Company
has  signed  a  conditional   agreement  with  Shanghai   Energy  and  Chemicals
Corporation  (SECC) for the purchase of 200 Hawk gyroplanes,  with options on an
additional 300 gyroplanes.  The condition is that the Company first type certify
the  Hawk 4 with  the  FAA.  Following  certification,  the  gyroplane  purchase
contract  calls for  deliveries of the aircraft  over a three year period,  with
first payments  contingent upon GBA qualifying its Hawk gyroplanes for flight in
China.

         Groen Brothers  Aviation Chairman Jay Groen, who speaks fluent Chinese,
held high level  meetings  with China  Civil  Aviation  Authorities  (CAAC - the
Chinese  counterpart  to the FAA).  These  authorities  confirmed  that once FAA
certification is achieved,  they will issue a verified type certificate allowing
the  Hawk to be flown  in  China.  The  Chairman  of GBA also met with  Aviation
Industries  of China  (AVIC),  a single  entity  tasked with  managing  national
aviation   manufacturing.   Additional  meetings  were  held  with  the  Nanjing
University  of  Aeronautics  and  Astronautics,  a  prestigious  body capable of
performing  airworthiness testing. Each of these entities has confirmed the need
for this type of  aircraft in dealing  with  China's  burgeoning  transportation
crisis.  Groen  Brothers  Aviation is working with Albury  Overseas  Corporation
(AOC),  a company in Nanjing,  which helped secure the agreement  with SECC, and
which gives the Company continuous representation in China.

         SECC is a major  corporation in Shanghai that principally  develops and
produces clean energy, fine chemicals and electro-mechanical equipment, however,
the  company  has  recently  made a  significant  move  into the  transportation
industry.  Established in 1990, SECC has grown into a comprehensive  entity with
more than 20  subsidiary  companies.  SECC owns  facilities  in the provinces of
Jiangsu, Zhejiang and Shanghai.  Shanghai Energy and Chemicals Corporation plans
to establish a private air taxi company in China,  using GBA  gyroplanes  as its
main form of transport.

Patents

         GBA presently owns three US 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  rotorhead
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  rotorhead,  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.  Groen Brothers
Aviation's patents are filed in Japan, Korea, Canada, and Brazil. In addition to
the three US Patents, GBA has been awarded  international  patents in Australia,
the  EU,  Belgium,  France,  Germany,  Italy,   Netherlands,   Portugal,  Spain,
Switzerland, and the United Kingdom.


                                        8

<PAGE>



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.

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

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

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

         The Company's common stock,  $.005 par value,  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

The number of shareholders  of record for the company's  Common stock as of June
30,  1998  were  931,  and the  number of shares  issued  and  outstanding  were
57,844,801.

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

Results of Operations

                                        9

<PAGE>



         Revenue

         During 1999, total revenue decreased  compared to 1998, from $14,000 to
$4,000 because there was a decrease in interest income.  Company revenue in 1999
and 1998 consisted only of interest income.

         Research and Development Costs

         During 1999,  development  costs  increased from  $1,670,000 in 1998 to
$6,140,000,  a 268 percent increase. The increase took place across the board as
the number of employees and consultants doubled, and tooling and equipment costs
went up by a large multiple in preparation for production of the Hawk 4.

         During 1998, part of the same trend,  development  costs increased from
approximately $768,000 in 1997 to $1,669,000, a 117 percent increase.

         General and Administrative Costs

         General and  administrative  costs in 1999 increased to $2,079,000 from
$1,275,000,  in 1997,  an  increase of 63 percent.  The  increase  was needed to
support the large increase in R & D personnel and FAA certification process.

         General and  administrative  costs in 1998 increased to $1,275,000 from
$1,026,000,  in 1997, an increase of 24 percent.  The large increase reflected a
larger  work force and a move into a bigger  facility,  which  will  accommodate
initial manufacturing of the Company's aircraft.

         Net Earnings

         During  1999 and 1998 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 .

         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 next twelve  months the Company  plans to fund its  operations
with up to $5 million in equity  investments  and/or  loans.  Beginning in 1999,
sales of gyroplanes is providing 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.

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

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

                                       10

<PAGE>



         Index to Consolidated Financial Statements

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

         Financial statements:

                  Consolidated balance sheet, June, 30, 1999.                F-2

                  Consolidated  statement of operations for the
                  two years ended June 30, 1999 and 1998 and
                  cumulative amounts.                                        F-3

                  Consolidated statement of stockholder's (deficit)
                  for the two years ended June 30, 1999 and 1998
                  and cumulative amounts.                                    F-4

                  Consolidated  statement of cash flows for the
                  two years ended June 30, 1999 and 1998 and
                  cumulative amounts.                                        F-6

                  Notes to consolidated financial statements.                F-7


<PAGE>

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

                                                    INDEPENDENT AUDITORS' REPORT


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

We have audited the  accompanying  consolidated  balance sheet of Groen Brothers
Aviation, Inc. and subsidiary, (the Company), a development stage company, as of
June  30,  1999,  and  the  related   consolidated   statements  of  operations,
stockholder's  deficit  and cash flows for the two years ended June 30, 1999 and
cumulative  amounts  since July 1, 1993  (date of  commencement  of  development
stage).  These consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Groen  Brothers
Aviation,  Inc. and  subsidiary,  as of June 30, 1999,  and the results of their
operations  and their cash  flows for the two years  ended  June 30,  1999,  and
cumulative  amounts  since July 1, 1993  (date of  commencement  of  development
stage), in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 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 11, 1999

                                                                             F-1

<PAGE>
<TABLE>
<CAPTION>


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

                                                                                             June 30, 1999
----------------------------------------------------------------------------------------------------------



              Assets

Current assets:
<S>                                                                                     <C>
     Cash                                                                               $          488,000
     Receivables                                                                                    25,000
     Prepaid expenses                                                                              316,000
                                                                                        ------------------

                  Current assets                                                                   829,000

Investment art held for sale                                                                     1,149,000
Machinery and equipment, net                                                                       631,000
                                                                                        ------------------

                  Total assets                                                          $        2,609,000
                                                                                        ------------------

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

              Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable                                                                   $        1,644,000
     Accrued liabilities                                                                         1,258,000
     Note payable                                                                                  100,000
     Related party notes payable                                                                 1,260,000
     Current portion of long-term debt                                                             588,000
                                                                                        ------------------

                  Total current liabilities                                                      4,850,000
                                                                                        ------------------

Long-term debt                                                                                     585,000
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' deficit:
     Preferred stock, par value $.001 authorized
       50,000,000 shares, no shares outstanding                                                          -
     Common stock, par value $.005, authorized
       100,000,000 shares, issued and outstanding 57,844,801 shares                                289,000
     Additional paid-in capital                                                                 14,274,000
     Accumulated deficit                                                                       (17,389,000)
                                                                                        ------------------

                  Total stockholders' deficit                                                   (2,826,000)
                                                                                        ------------------

                  Total liabilities and stockholders' deficit                           $        2,609,000
                                                                                        ------------------

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

                                                                      Consolidated Statement of Operations

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

                                                                                            Cumulative
                                                           1999              1998            Amounts
                                                    ------------------------------------------------------

Revenue-
<S>                                                 <C>                 <C>               <C>
     interest and other                             $            4,000  $         14,000  $         40,000
                                                    ------------------------------------------------------

Expenses:
     Research and development                                6,140,000         1,670,000         9,352,000
     General and administrative expenses                     2,079,000         1,275,000         5,637,000
     Interest expense                                          124,000           125,000           572,000
                                                    ------------------------------------------------------

                  Total expenses                             8,343,000         3,070,000        15,561,000
                                                    ------------------------------------------------------

                  Net loss                          $       (8,339,000) $     (3,056,000) $    (15,521,000)
                                                    ------------------------------------------------------

Net loss per share - basic and diluted              $             (.17) $           (.07) $           (.41)
                                                    ------------------------------------------------------

Weighted average equivalent shares -
  basic and diluted                                         50,471,000        42,650,000        38,633,000
                                                    ------------------------------------------------------


----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                       F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                              GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
                                                                             (A Development Stage Company)
                                                           Consolidated Statement of Stockholders' Deficit

                                                    Years Ended June 30, 1999, 1998 and Cumulative Amounts
-----------------------------------------------------------------------------------------------------------

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

<S>                                   <C>         <C>           <C>            <C>           <C>
Balance, July 1, 1993                 27,153,509  $    136,000  $     938,000  $ (1,868,000) $    (794,000)

Issuance of common stock for:
     Cash                              1,083,611         5,000        275,000             -        280,000
     Collateral on a loan              4,000,000        20,000        (20,000)            -              -
     Commissions                          40,857             -         10,000             -         10,000
     Satisfaction of debt obligations    172,222         1,000         29,000             -         30,000
     Services                             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       162,000      1,257,000    (2,348,000)      (929,000)

Issuance of common stock for:
     Assets                                2,286             -          1,000             -          1,000
     Cash                              1,028,923         5,000        427,000             -        432,000
     Commissions                          18,546             -          9,000             -          9,000
     Satisfaction of debt obligation     487,027         3,000         52,000             -         55,000
     Services                            138,860         1,000         60,000             -         61,000


Net loss                                       -             -              -      (710,000)      (710,000)
                                 -------------------------------------------------------------------------

Balance, June 30, 1995                34,139,026       171,000      1,806,000    (3,058,000)    (1,081,000)

Issuance of common stock for:
     Assets                              100,000         1,000         50,000             -         51,000
     Cash                              1,669,404         8,000        539,000             -        547,000
     Commissions                         124,719         1,000         40,000             -         41,000
     Satisfaction of debt obligation      10,000             -          2,000             -          2,000
     Services                            686,708         3,000        165,000             -        168,000


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

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

Balance, June 30, 1996                36,729,857       184,000      2,602,000    (4,104,000)    (1,318,000)

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


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

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





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

Issuance of common stock for:
<S>                                 <C>              <C>      <C>          <C>             <C>
     Assets                          2,500,000        13,000    2,188,000             -     2,201,000
     Cash                            1,359,442         7,000    1,209,000             -     1,216,000
     Commissions                        11,607             -       13,000             -        13,000
     Satisfaction of debt obligation   689,802         3,000      474,000             -       477,000
     Services                          468,003         2,000      265,000             -       267,000

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

Balance, June 30, 1997              41,758,711       209,000    6,751,000    (5,994,000)      966,000


Issuance of common stock for:
     Cash                            1,613,622         8,000      795,000             -       803,000
     Commission                        109,299         1,000       53,000             -        54,000
     Services                           79,617             -       58,000             -        58,000

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

Balance, June 30, 1998              43,561,000       218,000    7,657,000    (9,050,000)   (1,175,000)

Issuance of common stock for:
     Assets                          2,954,944        15,000    1,211,000             -     1,226,000
     Cash                            9,458,124        47,000    4,560,000             -     4,607,000
     Commission                      1,574,216         8,000      678,000             -       686,000
     Debt                              194,935         1,000       73,000             -        74,000
     Services                          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  $    289,000  $14,274,000  $(17,389,000) $ (2,826,000)
                                ---------------------------------------------------------------------

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


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

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

                                                                                       Cumulative
                                                         1999            1998            Amounts
                                                   --------------------------------------------------

Cash flows from operating activities:
<S>                                                <C>               <C>              <C>
   Net loss                                        $     (8,339,000) $    (3,056,000) $   (15,521,000)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and amortization expense                  191,000          157,000          498,000
     Common stock issued for services                       727,000          111,000        1,430,000
     Stock options issued for services                        4,000                -           14,000
     Loss on disposal of assets                                   -           26,000           26,000
     (Increase) decrease in:
         Accounts receivable                                                   3,000                -
         Prepaid expense                                   (156,000)        (110,000)        (266,000)
     Increase (decrease) in:
         Accounts payable                                 1,513,000          120,000        1,596,000
         Accrued liabilities                                229,000          141,000        1,071,000
                                                   --------------------------------------------------

             Net cash used in
             operating activities                        (5,831,000)      (2,608,000)     (11,152,000)
                                                   --------------------------------------------------

Cash flows from investing activities:
   Purchase of property and equipment                      (339,000)        (219,000)        (574,000)
   Sale of property and equipment                                 -        2,200,000        2,200,000
   Increase in note receivable                              (24,000)               -          (30,000)
   Collections on notes receivable and advances                   -                -            6,000
   Proceeds from art sale                                     2,000                -            2,000
                                                   --------------------------------------------------

             Net cash (used in) provided by
             investing activities                          (361,000)       1,981,000        1,604,000
                                                   --------------------------------------------------

Cash flows from financing activities:
   Proceeds from long-term debt                           1,080,000                -        1,362,000
   Reduction of long-term debt                              (50,000)          (3,000)        (121,000)
   Increase in capitalized lease obligation                 887,000                -          887,000
   Reduction of capitalized  lease obligation              (134,000)        (146,000)        (406,000)
   Proceeds from related party debt                               -                -          489,000
   Reduction of related party debt                                -                -         (117,000)
   Proceeds from issuance of common stock                 4,607,000          804,000        7,886,000
   Proceeds from issuance of options                         50,000                -           50,000
                                                   --------------------------------------------------

             Net cash provided by
             financing activities                         6,440,000          655,000       10,030,000
                                                   --------------------------------------------------

             Net increase in cash                           248,000           28,000          482,000

Cash, beginning of period                                   240,000          212,000            6,000
                                                   --------------------------------------------------

Cash, end of period                                $        488,000  $       240,000  $       488,000
                                                   --------------------------------------------------

-----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
                                                                                                  F-6

<PAGE>
</TABLE>


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

                                                                   June 30, 1999
--------------------------------------------------------------------------------


1.   Organization and Summary of Significant Accounting Policies

Organization
The financial statements include those of Groen Brothers Aviation,
Inc., and its wholly owned subsidiary Sego Tool, Inc. (the
Company).  The primary business purpose of the Company is the
manufacturing and marketing of the "gyroplane."


Development Stage Company
Effective July 1, 1993, the Company is considered a development stage Company as
defined in SFAS  No.7.  The  Company  has,  at the  present  time,  not paid any
dividends and any dividends  that may be paid in the future will depend upon the
financial requirements of the Company and other relevant factors.


Principles of Consolidation
The consolidated  financial  statements include the accounts of the Company, and
its subsidiary. All significant intercompany balances and transactions have been
eliminated.


Concentration of Credit
The Company is in the business of developing  and  manufacturing  the gyroplane.
Substantially all operations relate to this business.


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


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


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

                                                                             F-7

<PAGE>


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

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



1.   Organization and Summary of Significant Accounting Policies
     Continued

Machinery and Equipment
Machinery  and  equipment are carried at cost,  less  accumulated  depreciation.
Depreciation  is computed  under an  accelerated  method based on the  estimated
useful lives of the assets.  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.


Investment Art Held For Resale
During the year ended June 30,  1999,  the Company  acquired  investment  art in
exchange for common stock.  The  investment art was valued at the estimated fair
value of the common shares issued. The Company carries the investment art at the
lower of cost or market.


Income Taxes
The Company  accounts for its income taxes based on the  provisions  of SFAS 109
"Accounting  for Income  Taxes." The asset and  liability  method  requires  the
recognition  of deferred tax  liability  and assets for the expected  future tax
consequences of temporary  differences between tax bases and financial reporting
bases of other assets and liabilities.


Revenue
Revenue consists of interest and is recognized when earned.


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 the year.


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

                                                                             F-8

<PAGE>


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

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



1.   Organization and Summary of Significant Accounting Policies
     Continued

Loss Per Common and Common  Equivalent  Share -  Continued  The  computation  of
diluted loss per common share is based on the weighted  average number of shares
outstanding during the year 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.  Common  stock
equivalents  are not  included in the diluted  loss per share  calculation  when
their effect is antidilutive.


Accounting Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.


2.   Going Concern

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  Because of  significant  operating
losses, the excess of current  liabilities over current assets, 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  and/or  capital.  As outlined in note 14,  management of the
Company has arranged for equity financing  through the issuance of common stock.
However,  it is not  possible  to predict the  outcome of future  operations  or
whether financing arrangements can be restructured or if the financing mentioned
above  and in note  14 will be  adequate  for the  Company's  operations  in the
current period.  The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.



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

                                                                             F-9

<PAGE>


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

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




3.   Machinery and Equipment

Machinery and equipment consists of the following:


Aircraft                                               $          88,000
Office equipment                                                 308,000
Shop equipment and tools                                         676,000
Furniture                                                         56,000
Leasehold improvements                                            37,000
Vehicles                                                          22,000
                                                       -----------------

                                                               1,187,000

Less accumulated depreciation and
  amortization                                                  (556,000)
                                                       -----------------

                                                       $         631,000
                                                       -----------------



4.   Note Payable

At June 30, 1999, the Company had a $100,000 note payable to a bank. The note is
due on  demand  and has an  interest  rate of prime  plus 2%  (7.75% at June 30,
1999).  The note is secured by stand-by  letters of credit.  Subsequent  to year
end, this note was paid in full.


5.   Related Party Transactions

The Company has an unsecured  note payable  totaling  $180,000 to Hawk Autogyro,
owned by some of the members of senior management with interest at 12%. The note
is due on demand and has accrued interest of $96,000.


Included  in  accrued  expenses  is  payroll  payable  to  officers/shareholders
totaling $697,000.


The Company has unsecured notes payable to a shareholder  totaling $950,000 with
interest  at 18%.  The notes  are due on demand  and have  accrued  interest  of
$38,000.


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

                                                                            F-10

<PAGE>


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

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



5.   Related Party Transactions
     Continued

The Company has unsecured notes payable to shareholders  totaling  $130,000 with
interest  ranging from 8% to 15%. The notes are due in August and October  1999,
and have accrued interest  totaling $2,000.  Subsequent to year end, these notes
were paid in full.


6.   Long-Term Debt

Long-term debt is comprised of the following:


Unsecured  notes payable to a local                   $          150,000
governmental   agency,    including
interest  at the prime rate plus 2%
(8.5%  at  June  30,  1999).  After
principal  amount is paid,  monthly
installments of 3% of monthly gross
revenues    are   due    until   an
additional  $150,000  is paid  (see
note 11).  The notes are in default
and are due on demand.

Unsecured   notes   payable   to  a
governmental sponsored organization
due in monthly  installments  of 3%
of    gross    monthly    revenues,
including  interest  at prime  rate
plus 2% (8.5% at June 30, 1999).                                 100,000

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

Capital lease obligations (see note
7)                                                               913,000
                                                       -----------------

                                                               1,173,000

Less current portion                                            (588,000)
                                                       -----------------

                                                       $         585,000
                                                       -----------------



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

                                                                            F-11

<PAGE>


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

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




6.   Long-Term Debt
     Continued

Future maturities of long-term debt are as follows:


Year Ending June 30:                                        Amount
                                                       -----------------

                          2000                         $         588,000
                          2001                                   224,000
                          2002                                   220,000
                          2003                                   141,000
                                                       -----------------

                                                       $       1,173,000
                                                       -----------------


7.   Capital Lease Obligations

The  Company  has  entered  into  capital  lease   agreements   with   financial
institutions for certain property and equipment. Assets under capital lease have
been capitalized and are included in machinery and equipment as follows:


Office equipment                                       $         161,000
Shop equipment and tools                                       1,085,000
Furniture                                                         19,000
Leasehold Improvements                                            37,000
                                                       -----------------

Total property and equipment                                   1,302,000

Accumulated amortization                                        (193,000)
                                                       -----------------

                                                       $       1,109,000
                                                       -----------------



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

                                                                            F-12

<PAGE>


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

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




7.   Capital Lease Obligations
     Continued

Future minimum lease payments at June 30, 1999 are as follows:


Year Ending June 30,

     2000                                              $         408,000
     2001                                                        278,000
     2002                                                        274,000
     2003                                                        174,000
                                                       -----------------

     Total minimum lease payments                              1,134,000

     Less amount representing interest                          (221,000)
                                                       -----------------

     Present value of net minimum lease                $         913,000
payments
                                                       -----------------



The  Company  has entered  into an  arrangement  with a third party in which the
person has the option to pay 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,
1999, the number of shares under this option is approximately 1,030,0000 shares,
none of which have been exercised.


8.   Income Taxes

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


                               Years Ended June 30,        Cumulative
                          ------------------------------
                               1999           1998          Amounts
                          ----------------------------------------------

Income tax benefit
  at federal
  statutory rates         $     2,835,000  $   1,039,000  $    5,913,000
Change in valuation
  allowance                    (2,835,000)    (1,039,000)     (5,913,000)
                          ----------------------------------------------

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



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

                                                                            F-13

<PAGE>


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

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



8.   Income Taxes
     Continued

Deferred tax assets (liabilities) at June 30, 1999 is as follows:


Tax benefit of net operating loss carryforward         $       5,913,000
Valuation allowance                                           (5,913,000)
                                                       -----------------

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



The  Company  has  incurred  net   operating   losses   totaling   approximately
$17,390,000. The operating loss carryforwards begin to expire in 2006.


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


9.   Preferred Stock

The  Company  filed  amended  Articles  of  Incorporation  in which the  Company
authorized four additional  classes of preferred stock. Each class is authorized
to have  50,000,000  shares  having a $.001 par value.  The rights,  terms,  and
preferences  are to be set by the board of  directors.  As of June 30, 1999,  no
preferred stock has been issued.


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

                                                                            F-14

<PAGE>


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

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



10.  Stock Options and Stock-Based Compensation

A summary of the stock  option and warrant  activity  for fiscal  years 1998 and
1999 is as follows:


                                             Number         Range of
                                               of           Exercise
                                             Options         Prices
                                        --------------------------------

Outstanding at July 1, 1997                     7,843,139  $  .09 - 2.00
     Granted                                       86,667           2.00
     Exercised                                          -              -
     Expired                                     (500,000)           .40
                                        -----------------
Outstanding at June 30, 1998                    7,429,806     .09 - 2.00
     Granted                                    7,419,114     .35 - 2.00
     Exercised                                 (1,021,889)   .23 -   .39
                                        -----------------
Outstanding at June 30, 1999                   13,827,031  $  .09 - 2.00
                                        -----------------



The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards (SFAS) No. 123,  Accounting for Stock-Based  Compensation.
Accordingly,   no  compensation  cost  has  been  recognized  in  the  financial
statements.  Had  compensation  cost for the  Company's  stock option plans been
determined based on the fair value at the grant date for awards in 1999 and 1998
consistent  with the  provisions of SFAS No. 123, the Company's net earnings and
earnings  per share would have been reduced to the pro forma  amounts  indicated
below:


                                                Years Ended June 30,
                                        ------------------------------------
                                               1999              1998
                                        ------------------------------------

Net loss - as reported                  $       (8,339,000)  $    (3,056,000)
Net loss - pro forma                    $      (12,903,000)  $    (3,147,000)
Loss per share - as reported            $             (.17)  $          (.05)
Loss per share - pro forma              $             (.26)  $          (.07)
                                        ------------------------------------



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

                                                                            F-15

<PAGE>


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

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



10.  Stock Options and Stock-Based Compensation
     Continued

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


                                                       June 30,
                                          ----------------------------------
                                                1999             1998
                                          ----------------------------------

Expected dividend yield                   $              -    $           -
Expected stock price volatility                      152 %            152 %
Risk-free interest rate                              5.0 %            5.6 %
Expected life of options                      .5 - 5 years          5 years
                                          ----------------------------------



The weighted average fair value of options granted during 1999 and 1998 are $.62
and $1.07, respectively.


The following table summarizes information about fixed stock options outstanding
at June 30, 1999:


                      Options Outstanding             Options Exercisable
             ---------------------------------------------------------------
                            Weighted
                             Average
                Number     Remaining    Weighted      Number     Weighted
  Range of    Outstanding Contractual    Average   Exercisable    Average
  Exercise        at          Life      Exercise        at       Exercise
   Prices       6/30/99      (Years)      Price      6/30/99       Price
----------------------------------------------------------------------------

$  .09 to .22   5,250,000    4.06    $   0.10       5,250,000     $     0.10
   .25 to .50   7,490,364    4.95        0.73       7,490,364           0.73
         2.00   1,086,667    1.96        2.00       1,086,667           2.00
----------------------------------------------------------------------------

$ .09 to 2.00  13,827,031    4.38    $   0.59      13,827,031     $     0.59
----------------------------------------------------------------------------



11.  Commitments

Part of the conditions to obtaining  financing from a local  government  agency,
the Company has agreed to pay royalties to the agency.  The royalties will be 3%
of the monthly  revenues  until a total of $150,000 has been paid.  No royalties
have been earned or paid as of June 30, 1999.


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

                                                                            F-16

<PAGE>


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

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



11.  Commitments
     Continued

Also,   as  conditions  to  obtain   financing   from  a  government   sponsored
organization,  the Company has agreed to assume a royalty agreement of a company
related by common ownership,  previously licensed with the autogyro  technology.
The terms of the agreement state that the Company must pay monthly  royalties of
3% of its gross revenues up to a total of $149,000.


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


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

     2000                                              $         163,000
     2001                                                        175,000
     2002                                                        152,000
                                                       -----------------

                                                       $         490,000
                                                       -----------------



Rental expenses for  noncancellable  operating leases were $119,000 and $142,000
for the years ended June 30, 1999 and 1998, respectively.


The Company has entered into employment  agreements with several officers of the
Company.  The  employment  agreements  can  be  terminated  at  any  time.  Upon
termination,  the Company  retains all rights to the  gyroplane and the relating
technology and the officers have a covenant not to compete for a period of three
years.  Royalty  payments of 1% of the gross sales price of the gyroplane are to
be paid to the inventors who are also officers of the Company.


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

                                                                            F-17

<PAGE>


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

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



12.  Supplemental Cash Flow Information

During the year ended June 30, 1999:

     o                    The Company issued common stock in exchange for
                          investment art valued at $1,201,000.

     o                    The Company prepaid advertising expenses in exchange
                          for investment art valued at $50,000.

     o                    The Company issued  common stock in exchange for
                          machinery and equipment of $25,000.

     o                    The Company acquired machinery and equipment in
                          exchange for capital lease obligations of $865,000.

     o                     The Company issued common stock in exchange for debt
                          of $74,000.



                                     Years Ended              Cumulative
                          ---------------------------------
                                1999            1998            Amounts
                          --------------------------------------------------

Actual amounts of cash
paid for:

     Interest             $         19,000  $        76,000  $       121,000
                          --------------------------------------------------

     Income taxes         $            200  $           100  $           700
                          --------------------------------------------------



13.  Fair Value of Financial Instruments

None of the Company's financial  instruments are held for trading purposes.  The
Company  estimates that the fair value of all financial  instruments at June 30,
1999,  does not differ  materially  from the  aggregate  carrying  values of its
financial  instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been  determined by the Company using  available  market
information and appropriate valuation  methodologies.  Considerable judgement is
necessarily  required in  interpreting  market data to develop the  estimates of
fair value, and,  accordingly,  the estimates are not necessarily  indicative of
the amounts that the Company could realize in a current market exchange.


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

                                                                            F-18

<PAGE>


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

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


14.  Subsequent Event

Subsequent to year-end,  the Company issued  approximately  10,267,000 shares of
common stock for approximately $6,250,000.

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

                                                                            F-19
<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                48            Director and President
         H. Jay Groen                  55            Director
         James P. Mayfield             51            Director and Vice-President

Term of Office

         The terms of service of Messrs.  Groen,  and Mayfield as members of the
Board of Directors  continue until the next annual meeting of the  stockholders.
Excepting Mr. Mayfield,  who replaced  deceased  Director Philip Cannon in 1998,
these persons'  respective  appointments were adopted,  ratified and approved by
the stockholders at a meeting for that purpose on October 7, 1991. Stockholders'
meetings have been waived since then.  With the exception of compliance with the
duties of a director as set forth in the Articles of  Incorporation or Bylaws of
the Registrant or in the provisions of the Utah Business  Corporation Act, there
are no  arrangements  or  understandings  pursuant to which any of the foregoing
persons 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

                                       11

<PAGE>



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

Background on Directors and Officers

         David Groen is President & CEO, Secretary and 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  7,000  hours in  rotor-wing
aircraft  and  400  hours  in  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  missions  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,   forest  fire  fighting,   long  line  seismic  oil
exploration,  and wildcat on shore and off shore oil drilling operations.  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.  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.

         James P. Mayfield III, is a Vice  President,  Chief  Operating  Officer
(COO), Chief of Flight  Operations,  and replaces Philip Cannon as 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  1800  pilots,   whose  distinguished
membership  include  Chuck  Yeager,  Deke Slayton,  Scott  Crossfield  and Jimmy
Doolittle  II. Mr.  Mayfield has logged more than 12,800 total hours flight time
that  includes  extensive  experience  test flying a wide range of  aircraft.  A

                                       12

<PAGE>



career U.S. Marine Corps officer,  Mr. Mayfield retired from the Marines in 1989
following nearly 25 years of distinguished service. 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 has two baccalaureate  degrees,  psychology
and 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.  Jay Groen and
David  Groen each  holds  options  of  2,475,000  shares at $.09 per share to be
purchased by 2003,  each holds  options of 25,000 shares at $.50 per share to be
purchased by 2004,  and each holds options of 2,000,000 at $1.00 per share to be
purchased by 2004.  Jim  Mayfield  holds  options of 500,000  shares at $.50 per
share to be purchased by 2003,  and options of 525,000  shares at $.50 per share
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,
1998  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                      Amount of                   Percent
of Beneficial Owner                     Ownership                   of Class
-------------------                     ---------                   --------

David Groen, President                  8,657,968                     14.97
2640 California Avenue
Salt Lake City, UT 84104

Jay Groen, Director                     6,085,078                     10.52
2640 California Avenue
Salt Lake City, UT 84104

James P. Mayfield, Vice President          71,000                       .00
2640 W. California Avenue
Salt Lake City, UT 84104

All Officers and Directors             14,814,046                     25.49

Lyle Campbell                           3,604,400                     06.23
c/o Chapman & Cuttler
111 W. Monroe Street
Chicago, IL 60603

         Does not include options by David Groen, Jay Groen, and Jim Mayfield to
purchase 4,475,000 shares,  4,475,000 shares, and 1,025,000 shares respectively.
If such shares were purchased,  their ownership would equal 22.71 percent, 18.26
percent, and 1.78 percent respectively.

                                       13

<PAGE>


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

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

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

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

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

         Financial statements:

                  Consolidated balance sheet, June, 30, 1999.               F-2

                  Consolidated statement of operations for the
                  two years ended June 30, 1999, 1998 and
                  cumulative amounts.                                       F-3

                  Consolidated  statement of stockholder's
                  equity (deficit) for the two years ended
                  June 30, 1999, 1998 and cumulative amounts.               F-4

                  Consolidated statement of cash flows for
                  the two years ended June 30, 1999, 1998
                  and cumulative amounts.                                   F-6

                  Notes to consolidated financial statements.               F-7


                                       14

<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 4, 1999
         -------------------------            -------------------------
         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 4, 1999
         -------------------------            -------------------------
         H. Jay Groen, Director


         /s/ David L. Groen                   Date:     October 4, 1999
         -------------------------            -------------------------
         David L. Groen, Director


         /s/ James P. Mayfield                Date:     October 4, 1999
         -------------------------            -------------------------
         James P. Mayfield, Director


                                       15