The statements made in this Form 10-K that are not historical facts contain "forward-looking information" within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as "may," "will," "anticipates," "expects," "projects," "estimates," "believes," "seeks," "could," "should," or "continue," the negative thereof, other variations or comparable terminology. Important factors, including certain risks and uncertainties, with respect to such forward-looking statements that could cause actual results to differ materially from those reflected in such forward-looking statements include, but are not limited to, the effect of economic and business conditions, including risks inherent in the real estate markets of Suffolk and Westchester Counties in New York, Palm Beach County in Florida and Fairfax County in Virginia, the ability to obtain additional capital in order to develop the existing real estate, uncertainties associated with the Company's litigation against the State of New York for just compensation for the Flowerfield property taken by eminent domain, and other risks detailed from time to time in the Company's SEC reports. The Company assumes no obligation to update the information in this Form 10-K.

Overview

As used herein, the terms "we," "us," "our" or the "Company" refer to Gyrodyne Company of America, Inc., a New York corporation. We operate as a fully integrated, self-administered and self-managed real estate investment trust ("REIT") focused on acquiring, developing, owning, leasing and managing medical, commercial and industrial real estate. Our tenants include unrelated diversified entities with a recent emphasis on medical office parks and properties. Our properties are generally located in markets with well established reputations, including Suffolk and Westchester counties in New York.

As of December 31, 2008, our portfolio consisted of three properties, representing 19 buildings with an aggregate of approximately 199,000 rentable square feet. We also own undeveloped land parcels adjacent to existing properties for which plans are currently being formulated.

In the first quarter of 2009, but in no event later than April 30, 2009, we expect to close on a property in Fairfax, Virginia which will add approximately 59,000 rentable square feet to our portfolio and approximately $1,345,000 in annual rental income. Successfully closing title on this property will complete our reinvestment of the $26.3 million Advance Payment from condemnation proceeds in a tax efficient manner pursuant to Section 1033 of the Internal Revenue Code.

Factors Which May Influence Future Operations

Our operating focus is on acquiring, developing, owning, leasing and managing medical, commercial and industrial space. As of December 31, 2008, our operating portfolio was 90% leased to 86 tenants with two occupancies scheduled for February and April 2009 upon completion of certain tenant improvements. As of December 31, 2007, our operating portfolio was 92% leased to 73 tenants. The decrease in the overall leasing percentage is a reflection of an increase in the rentable square footage in our portfolio, which increased by approximately 29,811 rentable square feet in the year ended December 31, 2008 as a result of the acquisition of the Cortlandt Medical Center; total leased square footage during the same period increased by approximately 24,338 square feet.

Leases representing approximately 38% of our leased square footage expire during 2009 and leases representing approximately 27% of our leased square footage expire during 2010. Our leasing strategy for 2009 focuses on leasing currently vacant space, negotiating renewals for leases scheduled to expire during the year, and identifying new tenants or existing tenants seeking additional space to occupy the spaces for which we are unable to negotiate such renewals.

Lease Expirations

The following is a summary of lease expirations and related revenues of leases
in place at December 31, 2008. This table assumes that none of the tenants
exercise renewal options or early termination rights, if any, at or prior to the
scheduled expirations:

                                                        % of Gross Annual
                          Number of  Square    Total     Rental Revenues
                           Leases     Feet     Annual      Represented
          Fiscal Year End Expiring  Expiring    Rent     By Such Leases
               2009          53       67,369 $1,126,744            32.33%
               2010          27       47,517    928,014            26.63%
               2011          16       36,652    880,890            25.28%
               2012           2        3,853     57,524             1.65%
               2013           1        1,616     46,660             1.34%
            Thereafter        4       22,129    444,882            12.77%

The success of our leasing and acquisition strategy will be dependent upon the general economic conditions and more specifically real estate market conditions and trends in the United States and in our target markets of New York and the eastern portion of the United States. We cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current contractual rental rates or at all.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. On an ongoing basis, we evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical in that they address the most material parts of our financial statements, require complex judgment in their application or require estimates about matters that are inherently uncertain.

Investments in Real Estate

Investments in real estate are carried at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:

Buildings and improvements 10-39 years Machinery & equipment 3 to 20 years

Our estimates of useful lives have a direct impact on our net income. If expected useful lives of our investments in real estate were shortened, we would likewise depreciate the assets over a shorter time period, resulting in an increase to depreciation expense and a corresponding decrease to net income on an annual basis.

Management must make significant assumptions in determining the value of assets and liabilities acquired. The use of different assumptions in the allocation of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses.

Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repairs and maintenance costs include all costs that do not extend the useful life of an asset or increase its operating efficiency. Significant replacements and betterments represent costs that extend an asset's useful life or increase its operating efficiency.

Allowance for doubtful accounts - Management must make estimates of the uncollectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

A ssets and Liabilities Measured at Fair-Value - On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair-value, establishes a framework for measuring fair-value, and expands disclosures about fair-value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair-value under existing accounting pronouncements; accordingly, the standard does not require any new fair-value measurements of reported balances.

On January 1, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits companies to choose to measure certain financial instruments and other items at fair-value in order to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently. However, we have not elected to measure any additional financial instruments and other items at fair-value (other than those previously required under other GAAP rules or standards) under the provisions of this standard.

SFAS 157 emphasizes that fair-value is a market-based measurement, not an entity-specific measurement. Therefore, a fair-value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair-value measurements, SFAS 157 establishes a fair-value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair-value measurement is based on inputs from different levels of the fair-value hierarchy, the level in the fair-value hierarchy within which the entire fair-value measurement falls is based on the lowest level input that is significant to the fair-value measurement in its entirety. Our assessment of the significance of a particular input to the fair-value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, we have investments in hybrid mortgage-backed securities, with a AAA rating fully guaranteed by U.S. government agencies (the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation). The fair values of mortgage-backed securities originated by U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine appropriate average life of mortgage-backed securities. The spreads are sourced from broker/dealer's trade prices and the new issue market. As the significant inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy.

Newly Issued Accounting Pronouncements

See Notes to Consolidated Financial Statements included elsewhere herein for disclosure and discussion of new accounting standards.

The following is a comparison, for the years ended December 31, 2008 and 2007 of the operating results of Gyrodyne Company of America, Inc.

The Company is reporting net income of $1,542,249 for the fiscal year ended December 31, 2008 compared to a net loss of $1,551,654 for the twelve months ended December 31, 2007. Diluted per share income amounted to $1.20 for 2008 compared to a per share loss of ($1.21) for the prior year. Both periods included the recognition of tax benefits totaling $2,496,000 and $403,989 for 2008 and 2007, respectively, and are more fully described in a latter section of this report.

Rental Revenues. Revenues are comprised solely of rental income and amounted to $3,091,542, representing a $1,254,522 or a 68% improvement over the 2007 total of $1,837,020. These improved earnings reflect a full year of operating the Port Jefferson Professional Park which was acquired in June of 2007, seven months of operating the Cortlandt Medical Center which was acquired earlier this year, and improved results at the Flowerfield facility. The increases over 2007 results per property amounted to $510,633, $567,315, and $176,574 for Port Jefferson, Cortlandt, and Flowerfield, respectively.

In 2009, rental income is expected to increase to approximately $4,680,000 compared to $3,092,000 in 2008, a variance of $1,588,000. Approximately $1,010,000 of this increase will be a result of the anticipated acquisition of property in Fairfax, Virginia in March 2009. This increase represents nine months of the Fairfax property's $1,345,000 projected annual rental income. Complimenting this increase will be another $454,000 of rental income representing the ownership of the Cortlandt Medical Center for a full year in 2009 compared to seven months in 2008. The remainder of the increase is primarily related to one tenant under lease as of December 31, 2008, but expected to occupy space and incur rent as of April 1, 2009.

On a pro forma basis, the comparison of rental revenues for the years ended December 31, 2008 and 2007 as if all the properties operated for twelve months is estimated as follows:

        Facility Rental Revenue         December 31, 2008       December 31, 2007
    Port Jefferson Professional Park   $           986,604     $         1,011,680
        Cortlandt Medical Center                   967,033                 956,764
      Flowerfield Industrial Park                1,537,623               1,361,049
                 Total                 $         3,491,260     $         3,329,493

Total Expenses. Expenses amounted to $4,135,388 for the current year and reflect a decrease of $532,975 when compared to the prior year results which totaled $4,668,363. Although the Company experienced increased rental property and depreciation expenses as a result of adding the two new properties to its portfolio, it also reduced general and administrative expenses by $781,619. Additionally, expenses were reduced when compared to the prior year due to a non-recurring event in 2007 amounting to $332,377, as described later in this report.

Rental Operations Expense. Reflecting the additional facilities, rental expenses increased by $371,571, totaling $1,225,049 in 2008 compared to $853,478 during the prior year. The increases over the 2007 results per property amounted to $154,273, $173,665, and $43,633 for Port Jefferson, Cortlandt, and Flowerfield, respectively. Similarly, reflecting the addition of the newly acquired facilities, depreciation expense increased by $209,450, amounting to $359,626 in 2008 compared to $150,176 during the prior year.

In 2009, rental operating expenses are expected to increase to approximately $1,625,000 compared to $1,225,000 in 2008, a variance of $400,000. Approximately $290,000 of this increase will be a result of the anticipated acquisition of property in Fairfax, Virginia and $115,000 is a result of having the Cortlandt Medical Center for a full year in 2009. Reflecting the aforementioned addition of new properties, depreciation expense is forecasted to increase by $294,000, amounting to $654,000 in 2009 compared to $360,000 in 2008.

On a pro forma basis, the comparison of rental expenses for the years ended December 31, 2008 and 2007 as if all the properties operated for twelve months is as follows:

        Facility Rental Expense         December 31, 2008       December 31, 2007
    Port Jefferson Professional Park   $           290,783     $           261,342
        Cortlandt Medical Center                   319,128                 312,832
      Flowerfield Industrial Park                  760,602                 716,969
                 Total                 $         1,370,513     $         1,291,143

In 2009, the Company anticipates incurring condemnation expenses of $652,000 compared to $520,000 in 2008, an increase of $132,000. The increase includes legal expenses of $76,500, anticipated increased engineering costs of $31,000 and costs related to traffic analysis and appraisals of $26,000.

Interest Income. Interest income for the most part represents earnings from the Company's investment in mortgage backed securities issued by U.S. Government Agencies. Interest income declined by $482,092, totaling $556,058 in 2008 compared to $1,038,150 in the prior year. The decrease is directly attributable to the sale of securities and the redirection of those funds into real estate investments and the normal reductions associated with the payment stream of funds in a mortgage portfolio.

Interest Expense. Interest expense associated with the funding of the two new facilities is also reflected in the 2008 results, increasing by $303,513 for the year and totaling $465,963 compared to $162,450 for the prior year. Since the Company finances its real estate acquisitions, interest expense is projected to increase in 2009 with the anticipated purchase of the Fairfax Medical Center and the full year ownership of the Cortlandt Medical Center. The projected total for 2009 is approximately $942,703 compared to $465,963 for 2008.

On a pro forma basis, the comparison of interest expense for the years ended December 31, 2008 and 2007 as if all the properties operated for twelve months is as follows:

       Facility Interest Expense        December 31, 2008       December 31, 2007
    Port Jefferson Professional Park   $           314,128     $           319,212
        Cortlandt Medical Center                   253,593                 242,778
                 Total                 $           567,721     $           561,990

As a result of the changes in rental revenue, total expenses and other income (expense), the Company is reporting a loss before benefit for income taxes of $953,751 for 2008 as compared to a loss of $1,955,643 for the previous year.

Income Taxes. For 2008, the Company has recorded a benefit for income taxes totaling $2,496,000. Of that total, a benefit of $2,800,000 is directly attributable to the acquisition of the Cortlandt Medical Center under Section 1033 of the Internal Revenue Code. Additionally, the Company has booked a deferred tax adjustment of $304,000 attributable to its limited partnership investment in the Callery-Judge Grove. In 2007, the Company recorded a benefit for taxes totaling $403,989 which was comprised of a $725,000 benefit associated with the acquisition of the Port Jefferson Professional Park under Section 1033 of the Internal Revenue Code, a benefit from prior years tax refunds of $100,989, and a deferred tax adjustment of $422,000 attributable to its limited partnership investment in the Callery-Judge Grove.

The following summary discussion of our cash flows is based on the consolidated statements of cash flows in "Item 8. Financial Statements and Supplementary Data" and is not meant to be an all inclusive discussion of the changes in our cash flows for the periods presented below:

                                                           2008             2007
        Net cash used in operating activities          $ (1,257,615 )   $ (3,649,919 )
 Net cash (used in) provided by investing activities   $ (5,895,488 )   $  9,399,693
 Net cash provided by (used in) financing activities   $  4,903,855     $ (5,245,920 )
      Ending cash and cash equivalents balance         $  1,205,893     $  3,455,141

Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007

Net cash used in operating activities was $1,257,615 and $3,649,919 during the years ended December 31, 2008 and 2007, respectively. The cash used in operating activities in the current year was primarily related to increased land development costs of $431,666 and increased payments to vendors of $237,610. The cash used in operating activities in the prior year was primarily related to the payment of $2,000,000 to Landmark National in consideration for services previously provided by Landmark and for Landmark's agreement not to pursue any claim under the Golf Operating Agreement or the Asset Management Agreement, each dated April 9, 2002, for 10% of all proceeds from the condemnation of 245.5 acres of Flowerfield and any future sale and / or development of the remaining Flowerfield acreage. There were also increased land development costs of $459,912.

Net cash used in investing activities amounted to $5,895,488 for the year ended December 31, 2008 compared to net cash provided by investing activities of $9,399,693 for the year ended December 31, 2007. This fluctuation was caused by the liquidation of marketable securities in preparation for the acquisition of the Port Jefferson Professional Park in 2007 as well as the acquisition of the Cortlandt Medical Center in 2008.

Net cash provided by financing activities amounted to $4,903,855 compared to cash used in financing activities of $5,245,920 for the years ended December 31, 2008 and 2007, respectively. The primary reason for the cash provided by financing activities in 2008 was the financing of the acquisition of the Cortlandt property. The net cash used during fiscal 2007 was principally the result of a cash distribution payment of $5,160,157.

At December 31, 2008, the Company had cash, cash equivalents and marketable securities of $9,619,172 to meet its current obligations and has sufficient resources to continue to investigate possible acquisitions. In the first quarter of 2009 we expect to close on a property in Fairfax, Virginia. It is anticipated that the purchase price of this property will be approximately $13.1 million with $8 million of the purchase price to be paid for in the form of mortgage financing.

For the year ending December 31, 2009, the Company has a capital expenditure budget of approximately $1,152,100 excluding acquisitions of properties. These capital expenditures are for tenant improvements, general upgrades, necessary repairs that qualify as capital expenditures and costs related to the land held for development. Of the above budget, $571,500 of the improvement expenditures have been folded into the rental payments and will be recovered over the terms of the leases. At the Flowerfield property, $124,700 is required for the removal of underground oil tanks and conversion of the related building to natural gas. Costs capitalized with regard to the land held for development is budgeted to be $134,500 for the year ending December 31, 2009 and includes such items as real estate taxes, consulting and legal expenses. The remaining $246,400 includes $50,000 for expenditures related to the Fairfax, Virginia property, if acquired. The capital expenditure budget and equity contribution for the Fairfax, Virginia acquisition will be funded by cash and the sale of marketable securities.

The Company anticipates being able to fund its operations for the year ending December 31, 2009 from the generation of cash from operations and earnings from investments.

Beginning in the second half of 2007, the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining residential home values and increasing inventory nationwide. This "credit crisis" spread to the broader commercial credit markets and has reduced the availability of financing and widened spreads. These factors, coupled with a slowing economy, have reduced the volume of real estate transactions and increased capitalization rates. Despite the fact that the Company has invested in medical office buildings, an asset . . .