GYRODYNE CO OF AMERICA INC - FORM 10-Q

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EX-31 - EXHIBIT 31.1 - GYRODYNE CO OF AMERICA INC	ex31-1.htm
EX-31 - EXHIBIT 31.2 - GYRODYNE CO OF AMERICA INC	ex31-2.htm
EX-32 - EXHIBIT 32.1 - GYRODYNE CO OF AMERICA INC	ex32-1.htm
EX-32 - EXHIBIT 32.2 - GYRODYNE CO OF AMERICA INC	ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - GYRODYNE CO OF AMERICA INC	Financial_Report.xls

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 0-1684

Gyrodyne Company of America, Inc.

(Exact name of registrant as specified in its charter)

New York	11-1688021
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Flowerfield, Suite 24, St. James, NY 11780

(Address and Zip Code of principal executive offices)

		(631) 584-5400
	(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 X No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes_X__ No___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒

Non-accelerated filer ☐ Smaller reporting company ☐

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X

On November 5, 2014, 1,482,680 shares of the Registrant’s common stock, par value $1.00 per share, were outstanding.

INDEX TO QUARTERLY REPORT OF GYRODYNE COMPANY OF AMERICA, INC.

QUARTER ENDED SEPTEMBER 30, 2014

	Seq. Page

Form 10-Q Cover	1

Index to Form 10-Q	2

PART I - FINANCIAL INFORMATION	3

Item 1. Financial Statements.	3

Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	3

Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 2014 and 2013 (unaudited)	4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine and three months ended September 30, 2014 and 2013 (unaudited)	5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	43

Item 4. Controls and Procedures.	43

PART II - OTHER INFORMATION	43

Item 1. Legal Proceedings.	43

Item 6. Exhibits.	44

SIGNATURES	45

EXHIBIT INDEX	46

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GYRODYNE COMPANY OF AMERICA, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS
REAL ESTATE
Rental property:
Land	$	1,733,693		$	1,785,293
Building and improvements		11,307,442			11,205,934
Machinery and equipment		344,733			344,733
		13,385,868			13,335,960
Less accumulated depreciation		4,807,276			4,557,615
		8,578,592			8,778,345
Land held for development:
Land		558,466			558,466
Land development costs		1,923,822			1,823,847
		2,482,288			2,382,313
Total real estate, net		11,060,880			11,160,658

Assets held for sale		22,411,392			22,024,321
Cash and cash equivalents		4,377,093			13,048,827
Investment in marketable securities		6,071,506			3,380,864
Rent receivable, net of allowance for doubtful accounts of approximately $74,000 in 2014 and 2013		31,988			82,663
Deferred rent receivable		48,365			57,369
Prepaid expenses and other assets		350,848			618,279
Prepaid pension costs		586,401			608,807
Total Assets	$	44,938,473		$	50,981,788

LIABILITIES AND EQUITY

LIABILITIES:
Accounts payable	$	250,523		$	1,603,279
Accrued liabilities		513,515			3,246,403
Deferred rent liability		23,557			21,387
Tenant security deposits payable		253,100			271,658
Liabilities related to assets held for sale		365,923			381,966
Deferred income taxes		1,315,000			1,315,000
Dividend payable		682,033			-
Notes payable		16,447,427			16,144,614
Total Liabilities		19,851,078			22,984,307

Commitments and contingencies

EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares; 1,723,888 shares issued; 1,482,680 shares outstanding		1,723,888			1,723,888
Additional paid-in capital		17,753,505			17,753,505
Accumulated other comprehensive income		118,219			118,789
Deficit		(9,863,126	)		(9,119,471	)
		9,732,486			10,476,711
Less cost of shares of common stock held in treasury; 241,208		(1,537,697	)		(1,537,697	)
Total Gyrodyne Stockholders’ Equity		8,194,789			8,939,014
Non-controlling interest in GSD, LLC		16,892,606			19,058,467
Total equity		25,087,395			27,997,481
Total Liabilities and Equity	$	44,938,473		$	50,981,788

See notes to condensed consolidated financial statements

GYRODYNE COMPANY OF AMERICA, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenues
Rental income	$	1,762,890		$	1,902,907		$	578,148		$	667,757
Rental income - tenant reimbursements		239,217			284,008			60,355			86,816
Total		2,002,107			2,186,915			638,503			754,573

Expenses
Rental expenses		1,140,057			1,051,013			373,935			337,583
General and administrative expenses		1,676,938			7,277,635			526,572			5,713,020
Strategic alternative expenses		1,246,096			2,803,021			373,555			2,151,392
Depreciation		249,660			264,321			82,042			91,058
Insurance claim recoveries in excess of cost		(184,339	)		-			(184,339	)		-
Impairment charges		200,000			2,100,000			-			2,100,000
Total		4,328,412			13,495,990			1,171,765			10,393,053

Other Income (Expense):
Interest income		78,526			188,066			32,602			59,437
Interest expense		(542,570	)		(5,748	)		(206,224	)		-
Total		(464,044	)		182,318			(173,622	)		59,437

Net Loss before Condemnation Expense and Provision for Income Taxes		(2,790,349	)		(11,126,757	)		(706,884	)		(9,579,043	)
Expense on Condemnation		-			(2,360	)		-			-
Net loss before Provision for Income Taxes		(2,790,349	)		(11,129,117	)		(706,884	)		(9,579,043	)
Benefit for Income Taxes		-			(58,182,122	)		-			(58,182,122	)
Net (loss) income from continuing operations		(2,790,349	)		47,053,005			(706,884	)		48,603,079
Discontinued Operations
Income from discontinued operations attributable to Gyrodyne		-			-			-			-
Income from discontinued operations attributable to non-controlling interest		562,866			327,471			301,327			104,911
Net (loss) income		(2,227,483	)		47,380,476			(405,557	)		48,707,990
Net Loss from Non-Controlling Interest in GSD, LLC		(2,165,861	)		-			(385,748	)		-
Net (loss) income Attributable to Gyrodyne	$	(61,622	)	$	47,380,476		$	(19,809	)	$	48,707,990
Net (loss) income attributable to Gyrodyne per common share:
From continuing operations		(0.04	)		31.96			(0.01	)		32.85
From discontinued operations		0.00			0.00			0.00			0.00
Total (loss) income -Basic and diluted	$	(0.04	)	$	31.96		$	(0.01	)	$	32.85
Weighted average number of common shares outstanding:
Basic and diluted		1,482,680			1,482,680			1,482,680			1,482,680

See notes to condensed consolidated financial statements

GYRODYNE COMPANY OF AMERICA, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2014			2013			2014			2013
Net (loss) income attributable to Gyrodyne	$	(61,622	)	$	47,380,476		$	(19,809	)	$	48,707,990
Unrealized (loss) gain on investments		(570	)		(92,293	)		(58,888	)		2,353
Comprehensive (loss) income attributable to Gyrodyne		(62,192	)		47,288,183			(78,697	)		48,710,343
Comprehensive loss attributable to non-controlling interest		(2,165,861	)		-			(385,748	)		-
Comprehensive (loss) income	$	(2,228,053	)	$	47,288,183		$	(464,445	)	$	48,710,343

See notes to condensed consolidated financial statements

GYRODYNE COMPANY OF AMERICA, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(2,227,483	)	$	47,380,476
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		564,595			758,577
Impairment charges		200,000			2,100,000
Bad debt expense		45,000			30,000
Net periodic pension benefit cost		22,406			264,442
Deferred income taxes		-			(61,649,000	)
Noncash interest expense		302,813			-
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Rent receivable		7,215			34,812
Deferred rent receivable		(90,907	)		6,681
Prepaid expenses and other assets		129,312			(149,923	)
(Decrease) increase in liabilities:
Accounts payable		(1,420,869	)		1,911,545
Accrued liabilities		(2,700,510	)		5,027,148
Deferred rent liability		13,678			55,372
Tenant security deposits		(10,374	)		3,932
Total adjustments		(2,937,641	)		(51,606,414	)
Net cash used in operating activities		(5,165,124	)		(4,225,938	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of building improvements and equipment		(712,473	)		(499,983	)
Land development costs		(102,925	)		(80,751	)
Purchase of marketable securities		(3,138,943	)		-
Principal repayments of investments in marketable securities		447,731			865,941
Net cash (used in) provided by investing activities		(3,506,610	)		285,207

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans payable		-			(5,013,415	)
Net cash used in financing activities		-			(5,013,415	)

Net decrease in cash and cash equivalents		(8,671,734	)		(8,954,146	)
Cash and cash equivalents at beginning of period		13,048,827			94,164,722
Cash and cash equivalents at end of period	$	4,377,093		$	85,210,576

Supplemental cash flow information:
Interest paid	$	-		$	26,676
Income and excise taxes paid	$	133,000		$	3,466,878

Noncash Investing and Financing Activities:
Dividend payable	$	682,033		$	98,685,000
Issuance of note to settle PIK interest	$	302,813		$	-

See notes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	The Company:

Gyrodyne Company of America, Inc. (“Gyrodyne” or the “Company”) is a self-managed and self-administered real estate investment trust (“REIT”) formed under the laws of the State of New York. The Company manages its business as one operating segment. Prior to December 30, 2013, the Company’s primary business was the investment in and the acquisition, ownership and management of a geographically diverse portfolio of medical office, industrial and development of industrial and residential properties located in the Northeast region of the United States. On December 30, 2013, the Company distributed to its shareholders, as the non-cash portion of the special dividend announced on September 12, 2013 (the “Special Dividend”), all of the equity interests of its subsidiary Gyrodyne Special Distribution LLC (“GSD”), which owned 100% of the interests (through GSD’s subsidiaries) in the Company’s four real estate properties, subject to related mortgage debt in favor of Flowerfield Mortgage Inc., also a subsidiary of the Company, with the Company having the contractual right to manage the business and properties of GSD. Based on management provisions set forth in GSD’s limited liability company agreement which designates sole management authority in the Company, the Company concluded that GSD is a variable interest entity and that GSD’s financial statements should be consolidated with the Company’s. Accordingly, we may use references to "we" or "our" to refer to the Company and GSD and "the Company's properties" or "GSD's properties" (or derivations thereof) interchangeably in this report. In that connection, however, it should be noted that GSD has legal title to the properties and will incur any operating or capital losses resulting from the properties, due to risks as outlined below or otherwise. However, such losses may adversely impact GSD's ability to meet debt service obligations and or repayments of mortgages to Flowerfield Mortgage, Inc. or payment of management fees or result in capital needs at GSD that might require additional capital from the Company, or external sources.

Substantially all of GSD’s properties are subject to net leases in which the tenant reimburses GSD for a portion, all of or substantially all of the costs and/ or cost increases for utilities, insurance, repairs and maintenance, and real estate taxes. Certain leases provide that GSD is responsible for certain operating expenses.

As of September 30, 2014, the Company had an investment in three separate mortgages due from GSD of approximately $13,130,800 and a receivable under a revolving line of credit of $3,000,459. The mortgages and revolving line of credit contain a 5% effective rate and both principal and interest are eliminated in consolidation. The mortgages contain a first lien on the medical parks related real estate owned by GSD. Additionally, the Company owns an estimated 9.32% limited partnership interest in Callery Judge Grove, L.P. (the “Grove”), a limited partnership, which in 2013 sold its only property, an undeveloped Florida property (the “Grove Property”). For further information see Footnote 18.

Following the December 30, 2013 distribution of all of the common membership interests of GSD to the Company’s shareholders in the Special Dividend, the Company has been managing GSD pursuant to the terms of GSD’s limited liability company agreement (the “GSD Agreement”). The GSD Agreement provides that the Company has sole and absolute discretion regarding the management and affairs of GSD. In its capacity as GSD’s managing member, the Company has unilateral authority, without seeking GSD shareholder approval, over the management of the real estate assets, including leasing and sale of its real estate holdings and the execution of any agency and brokerage agreements to facilitate such leases and sales, investing in its real estate holdings through capital improvements and proceeding strategically with seeking to maximize the value of the undeveloped Flowerfield property. Under GSD’s limited liability company agreement, the Company is entitled to market-rate compensation for its services as well as reimbursement for any costs and expenses incurred by and properly allocable to GSD. In April 2014, the Company’s board of directors approved a cost-plus based management fee to be charged to GSD (see footnote 4 for additional detail on the methodology of the cost plus mark-up), which percentage falls in the lower quartile of similar fees charged by comparable companies according to a benchmarking study. Pursuant to the GSD LLC agreement, the Company was obligated to provide an initial liquidity facility to GSD in an amount not to exceed $2.5 million, which amount the Company may determine from time to time. During the third quarter of 2014, the board of directors authorized an increase in the revolving line of credit to $3.5 million. The interest on the debt facilities payable by GSD to the Company is REIT qualified income. The foregoing income earned by the Company for managing GSD is not deemed to be REIT qualified income and therefore is appropriately payable to its taxable REIT subsidiary, Flowerfield Properties, Inc.

The Company, through its managing member control of GSD (albeit with no ownership interest) controls two medical office parks and ten of fourteen buildings in a third medical park, together comprising approximately 131,000 rentable square feet and a multitenant industrial park comprising approximately 130,000 rentable square feet. In addition, the Company, through the same managing member control, maintains approximately 68 acres of property in St. James, New York.

The Company believes it has qualified, and expects to continue to qualify, as a REIT under Section 856(c) (1) of the Internal Revenue Code of 1986 as amended (the “Code”). Accordingly, the Company generally will not be subject to federal and state income tax, provided that distributions to its shareholders equal at least 90% of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualifications as a REIT. However, these activities must be conducted in an entity which elected to be treated as a taxable REIT subsidiary (“TRS”) under the Code. The Company has one taxable REIT subsidiary which is subject to federal and state income tax on the income from these activities.

The Company conducts its operations either directly or indirectly through (1) property owning subsidiaries and lender subsidiaries, or (2) Flowerfield Properties, Inc. a wholly owned TRS. Property owner subsidiaries are landlords leasing properties in which the Company has a managing member control but no ownership interest, and lender subsidiaries are lenders loaning funds where the Company made an investment in a loan asset, but in all cases these subsidiaries are separate and distinct legal entities. The Company is the sole managing member of GSD with managerial authority and investment/disposition authority. Flowerfield Mortgage Inc. (“FMI”) is a lender subsidiary wholly owned by the Company with three loan assets secured by property held in the property owner subsidiaries.

On October 21, 2013, the Company filed a preliminary proxy statement with the Securities and Exchange Commission (“SEC”) which contains, among other matters, the Board’s recommendation that the shareholders vote in favor of a plan of merger. The Company received comments from the SEC on November 18, 2013. Consequently, the Company proceeded with holding its 2013 annual meeting without seeking authorization for the merger transaction at that time because of NASDAQ rules requiring listed companies to hold an annual meeting not later than twelve months following the fiscal year end. On May 8, 2014, the Company responded to such comments and filed a revised preliminary proxy statement with the SEC. The Company received comments from the SEC on May 29, 2014 and responded to such comments and filed a revised proxy statement (Amendment No. 2) with the SEC on June 17, 2014. The Company received comments from the SEC on June 24, 2014 and responded to such comments and filed a revised proxy statement (Amendment No. 3) with the SEC on June 26, 2014. The Company received comments from the SEC on June 26, 2014 and responded to such comments and filed a definitive proxy statement (Amendment No. 4) with the SEC on July 1, 2014. On June 5, 2014, the Company announced that a special meeting of shareholders of Gyrodyne Company of America, Inc., would be held at Flowerfield Celebrations, Mills Pond Road, Saint James, New York 11780 on August 14, 2014, at 11:00 a.m., Eastern Time. At the special meeting, the Company was asking the shareholders of record on June 30, 2014 to authorize a plan of merger and the transactions contemplated thereby, including the merger of the Company and GSD with and into Gyrodyne, LLC, a subsidiary of the Company. Shareholders of record at the close of business on June 30, 2014, were entitled to vote at the special meeting or its adjournment or postponement, if any, provided such meeting takes place by August 30, 2014. On August 25, 2014, the Company announced the postponement of the special meeting. The Company rescheduled the special meeting to December 5, 2014 to allow additional time for shareholders to vote on the proposed merger and changed the shareholder record date to October 31, 2014. The Company has been advised by its proxy solicitor, MacKenzie Partners, that with approximately 45% of the outstanding shares voted thus far by delivery of proxy cards, approximately 97% of such shares represented by delivered proxy cards have been voted in favor of the merger. Despite the overwhelming percentage of received votes in favor of the merger not enough shares have been voted to reach the two-thirds majority needed under New York law. Accordingly, on November 4, 2014, the Company announced a further postponement of the special meeting until the first half of 2015. The Company and its advisors will continue to analyze potential options in the best interests of the Company and its shareholders, which may include enhancements designed to facilitate the ability to complete the merger transaction.

2.	Significant accounting policies:

The below disclosures are in addition to the significant accounting policies disclosed on Form 10-K for the year ended December 31, 2013.

Revenue recognition – Base rents from rental properties are recognized on a straight-line basis over the terms of the related leases. The excess of rents recognized over amounts contractually due, if any, are included in deferred rents receivable on the Company's balance sheets. Alternatively, rents received in advance of rents recognized, if any, are included in deferred rent liability on the Company’s balance sheet. Certain leases also provide for tenant reimbursements of common area maintenance, other operating expenses and real estate taxes all of which are reported in tenant reimbursements on the consolidated statements of operations. Ancillary and other property related income is recognized in the period earned.

Gains on sales of real estate - Gains on sales of real estate are recognized based upon the specific timing of the sale as measured against various criteria related to the terms of the transactions and any continuing involvement associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent GSD sells a property and retains a partial ownership interest in the property, the Company recognizes gain to the extent of the third-party ownership interest.

Assets Held For Sale and Discontinued Operations- Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the Consolidated Balance Sheets as “Assets held for Sale”, with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the Consolidated Statements of Operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that do not meet the held for sale criteria are accounted for as operating properties.

3.	Basis of Quarterly Presentations:

The accompanying quarterly financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The financial statements of the Company included herein have been prepared by the Company pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all adjustments which are necessary to present fairly the results for the three and nine-month periods ended September 30, 2014 and 2013.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

This report should be read in conjunction with the audited financial statements and footnotes therein included in the Annual Report on Form 10-K for the year ended December 31, 2013 and with the definitive proxy statement/prospectus filed with the SEC on July 1, 2014.

The results of operations for the three and nine-month periods ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year.

4.	Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of Gyrodyne Company of America, Inc. and all majority owned subsidiaries. The Company consolidates its wholly owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). If an investment is determined to be a VIE, the Company performs an analysis to determine if the Company is the primary beneficiary of the VIE. GAAP requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that has a controlling financial interest in an entity. In order for a party to have a controlling financial interest in an entity, it must have (1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses or the right to receive benefits of an entity that could potentially be significant to the VIE.

The Company's consolidated VIE, GSD, was determined to be a VIE primarily because the Company has the power to direct activities of GSD that most significantly impact the entity's economic performance and has the obligation to absorb losses or the right to receive benefits of the entity. GSD owns all of the real estate that was previously owned by the Company prior to the distribution of ownership interests in GSD to the Company’s shareholders on December 30, 2013. GSD owes mortgage obligations payable to a wholly owned subsidiary of the Company of $13,130,802 and $13,840,889 as of September 30, 2014 and December 31, 2013, respectively. As previously discussed in the Company’s 2013 Annual Report filed on Form 10-K, the estimated fair value of the real estate net of its mortgage obligations and other direct liabilities was $30,685,000 on December 30, 2013. At September 30, 2014 and December 31, 2013, the net book value of GSD was approximately $16,893,000 and $19,058,000, respectively. GSD is essentially being managed and operated by the Company where the Company is the primary obligor for liabilities incurred on behalf of GSD. As a result, the Company could be held liable for current and future obligations of GSD, and in turn it would be the Company’s obligation to seek reimbursement from GSD.

Investments in affiliates in which the Company has the ability to exercise significant influence, but not control, are accounted for under the equity method. The Company did not have any such investments at September 30, 2014. Investment interests in excess of 5% in limited partnerships are accounted for under the equity method. All consolidated subsidiaries are wholly owned. All intercompany balances and transactions have been eliminated. There were no investments accounted for under the equity method as of September 30, 2014.

Management Services Arrangements

Under GSD’s Amended and Restated Limited Liability Company Agreement, Gyrodyne, in its capacity as managing member of GSD, is entitled to market-rate compensation for its services as well as reimbursement for any costs and expenses incurred by and properly allocable to GSD. Gyrodyne also is obligated to provide an initial liquidity facility to GSD in an amount not to exceed $2.5 million, which Gyrodyne may determine from time to time. During the third quarter of 2014, the board of directors authorized an increase in the revolving line of credit to $3.5 million.

Taking into account a number of factors, including a management services benchmarking study commissioned by Gyrodyne, we implemented a management services arrangement under which GSD will pay certain fees to or reimburse Gyrodyne as follows:

● GSD will reimburse Gyrodyne for 85% of Gyrodyne's General and Administrative (G&A) Expenses and pay a fee to Gyrodyne equal to 8.5% of such reimbursed amount; plus

● GSD will reimburse Gyrodyne for all rental expenses, whether value added (such as contractor and payroll expenses) or non-value added (such as utilities and taxes) paid by Gyrodyne in respect of the Contributed Properties; plus

● GSD will pay a fee to Gyrodyne equal to 8.5% of all value added rental expenses paid by Gyrodyne in respect of the Contributed Properties, but no fee will be payable in respect of non-value added rental expenses; plus

● GSD will reimburse 100% (without mark-up) of any bonuses (under the Bonus Plan (See "Interests of Our Directors and Executive Officers—Bonus Plan") or otherwise) paid by Gyrodyne to its employees and directors and related payroll taxes on account of any sales of the Contributed Properties; plus

● Gyrodyne will be entitled to interest at the rate of 5.0% per annum on any funds advanced by Gyrodyne pursuant to the liquidity facility made available to GSD.

The foregoing management services arrangements are subject to change pending further analysis and completion of documentation of such arrangements and formal adoption by our Board. Upon such adoption of definitive documentation with respect to the management services arrangements, Gyrodyne will file a current report on Form 8-K containing disclosure of the terms of such arrangements as so adopted, which disclosure will identify any modifications of the foregoing.

5.	Consolidating Financial Information

Our consolidated assets at September 30, 2014 and December 31, 2013 include total assets of $33,811,227 and $33,730,130, respectively, of a variable interest entity (VIE) that can only be used to settle liabilities of that VIE. These assets, prior to reclassifying applicable items to discontinued operations, include real estate of $32,790,481 and $32,739,678, deferred rent of $306,616 and $215,709, rent receivable of $43,614 and $0, and prepaid and other assets of $670,516 and $774,743, respectively. Our consolidated liabilities at September 30, 2014 and December 31, 2013, prior to reclassifying applicable items to discontinued operations, include liabilities of a VIE consisting of $463,737 and $474,111, respectively of tenant security deposits, accounts payable of $183,645 and $0, respectively, accrued liabilities of $32,378 and $0, respectively, and deferred rent liability of $107,600 and $93,922, respectively. The VIE also has mortgages payable, prior to reclassifying applicable items to discontinued operations, to a wholly-owned subsidiary of Gyrodyne of $13,130,802 and $13,840,889, respectively and an outstanding balance in a revolving debt facility of $3,000,459 and $254,740 at September 30, 2014 and December 31, 2013, respectively, that are eliminated in consolidation.

The tables below are the unaudited consolidating September 30, 2014 Balance Sheet and Statement of Operations reflecting the operations of Gyrodyne Company of America, Inc. and subsidiaries and GSD.

	Gyrodyne Company of America, Inc. and Subsidiaries			GSD, LLC			Total			Eliminations			Consolidated

ASSETS
REAL ESTATE
Rental property:
Land	$	-		$	1,733,693		$	1,733,693		$	-		$	1,733,693
Building and improvements		-			11,307,442			11,307,442			-			11,307,442
Machinery and equipment		-			344,733			344,733			-			344,733
		-			13,385,868			13,385,868			-			13,385,868
Less accumulated depreciation		-			4,807,276			4,807,276			-			4,807,276
		-			8,578,592			8,578,592			-			8,578,592
Land held for development:
Land		-			558,466			558,466			-			558,466
Land development costs		-			1,923,822			1,923,822			-			1,923,822
		-			2,482,288			2,482,288			-			2,482,288
Total real estate, net		-			11,060,880			11,060,880			-			11,060,880
Assets held for sale		-			22,411,392			22,411,392			-			22,411,392
Cash and cash equivalents		4,377,093			-			4,377,093			-			4,377,093
Investment in marketable securities		6,071,506			-			6,071,506			-			6,071,506
Rent receivable, net of allowance for doubtful accounts of approximately $74,000		-			31,988			31,988			-			31,988
Deferred rent receivable		-			48,365			48,365			-			48,365
GSD Line of Credit		3,000,459			-			3,000,459			(3,000,459	)		-
Prepaid expenses and other assets		92,246			258,602			350,848			-			350,848
Prepaid pension costs		586,401			-			586,401			-			586,401
Mortgage receivable		13,130,802			-			13,130,802			(13,130,802	)		-
Total Assets	$	27,258,507		$	33,811,227		$	61,069,734		$	(16,131,261	)	$	44,938,473

LIABILITIES AND EQUITY

LIABILITIES:
Accounts payable	$	105,743		$	144,780		$	250,523		$	-		$	250,523
Accrued liabilities		513,515			-			513,515			-			513,515
Deferred rent liability		-			23,557			23,557			-			23,557
Tenant security deposits payable		-			253,100			253,100			-			253,100
Liabilities related to assets held for sale		-			9,667,675			9,667,675			(9,301,752	)		365,923
GSD Line of Credit		-			3,000,459			3,000,459			(3,000,459	)		-
Mortgage Payable		-			3,829,050			3,829,050			(3,829,050	)		-
Deferred income taxes		1,315,000			-			1,315,000			-			1,315,000
Dividend payable		682,033						682,033						682,033
Notes payable		16,447,427			-			16,447,427			-			16,447,427
Total Liabilities		19,063,718			16,918,621			35,982,339			(16,131,261	)		19,851,078

Commitments and contingencies

EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares; 1,723,888 shares issued; 1,482,680 shares outstanding		1,723,888			-			1,723,888			-			1,723,888
Additional paid-in capital		17,753,505			-			17,753,505			-			17,753,505
Accumulated other comprehensive income		118,219			-			118,219			-			118,219
Deficit		(9,863,126	)		(2,173,862	)		(12,036,988	)		2,173,862			(9,863,126	)
		9,732,486			(2,173,862	)		7,558,624			2,173,862			9,732,486
Less cost of shares of common stock held in treasury; 241,208		(1,537,697	)		-			(1,537,697	)		-			(1,537,697	)
Total Gyrodyne Stockholders’ Equity		8,194,789			(2,173,862	)		6,020,927			2,173,862			8,194,789
Non-controlling interest in GSD, LLC					19,066,468			19,066,468			(2,173,862	)		16,892,606
Total equity		8,194,789			16,892,606			25,087,395			-			25,087,395
Total Liabilities and Equity	$	27,258,507		$	33,811,227		$	61,069,734		$	(16,131,261	)	$	44,938,473

Consolidated Statement of Operations – Nine Months Ended September 30, 2014

	Gyrodyne Company of America, Inc.			GSD, LLC			Total			Eliminations			Consolidated
Revenues
Rental income	$	-		$	1,762,890		$	1,762,890			-		$	1,762,890
Rental income - tenant reimbursements		-			239,217			239,217			-			239,217
Other income		3,883,142			-			3,883,142			(3,883,142	)		-
Total		3,883,142			2,002,107			5,885,249			(3,883,142	)		2,002,107

Expenses
Reimbursable expenses		1,150,057			-			1,150,057			(1,150,057	)		-
Rental expenses		-			1,178,942			1,178,942			(38,885	)		1,140,057
General and administrative expenses		1,676,938			1,544,988			3,221,926			(1,544,988	)		1,676,938
Strategic alternative expenses		1,246,096			1,149,212			2,395,308			(1,149,212	)		1,246,096
Depreciation		-			249,660			249,660			-			249,660
Insurance claim recoveries in excess of cost		-			(184,339	)		(184,339	)		-			(184,339	)
Impairment charges		-			200,000			200,000			-			200,000
Total		4,073,091			4,138,463			8,211,554			(3,883,142	)		4,328,412

Other Income (Expense):
Interest income		281,679			-			281,679			(203,153	)		78,526
Interest expense		(542,570	)		(203,153	)		(745,723	)		203,153			(542,570	)
Total		(260,891	)		(203,153	)		(464,044	)		-			(464,044	)
Net Loss from continued operations		(450,840	)		(2,339,509	)		(2,790,349	)		-			(2,790,349	)
Net Income from discontinued operations		389,218			173,648			562,866			-			562,866
Net Loss	$	(61,622	)	$	(2,165,861	)	$	(2,227,483	)	$	-		$	(2,227,483	)

Consolidated Statement of Operations – Three Months Ended September 30, 2014

	Gyrodyne Company of America, Inc.			GSD, LLC			Total			Eliminations			Consolidated

Revenues
Rental income	$	-		$	578,148		$	578,148		$	-		$	578,148
Rental income – tenant reimbursements		-			60,355			60,355			-			60,355
Other income		1,227,109			-			1,227,109			(1,227,109	)		-
Total rental income		1,227,109			638,503			1,865,612			(1,227,109	)		638,503

Expenses
Reimbursable expenses		383,935			-			383,935			(383,935	)		-
Rental expenses		-			388,881			388,881			(14,946	)		373,935
General and administrative expenses		526,572			483,717			1,010,289			(483,717	)		526,572
Strategic alternative expenses		373,555			344,511			718,066			(344,511	)		373,555
Depreciation		-			82,042			82,042			-			82,042
Insurance claim recoveries in excess of cost		-			(184,339	)		(184,339	)		-			(184,339	)
Impairment charges		-			-			-			-			-
Total		1,284,062			1,114,812			2,398,874			(1,227,109	)		1,171,765

Other income (expense):
Interest income		115,632			-			115,632			(83,030	)		32,602
Interest expense		(206,224	)		(83,030	)		(289,254	)		83,030			(206,224	)
Total		(90,592	)		(83,030	)		(173,622	)		-			(173,622	)
Net loss from continued operations		(147,545	)		(559,339	)		(706,884	)		-			(706,884	)
Net income from discontinued operations		127,736			173,591			301,327			-			301,327
Net loss	$	(19,809	)	$	(385,748	)	$	(405,557	)	$	-		$	(405,557	)

6.	Real Estate Assets Held for Sale and Discontinued Operations:

FASB ASC Topic 360-10, Property, Plant and Equipment – Overall requires a long-lived asset to be classified as “held for sale” in the period in which certain criteria are met. The Company classifies real estate assets and their related liabilities as held for sale after the following conditions have been satisfied: (1) the receipt of approval from its board of directors to sell the asset, (2) the initiation of an active program to sell the asset, and (3) the asset is available for immediate sale and it is probable that the sale of the asset will be completed within one year. When assets are classified as held for sale, they are recorded at the lower of the assets’ carrying amount or fair value, less the estimated selling costs.

The Company and Gyrodyne Special Distribution LLC, its consolidated Variable Interest Entity, periodically classifies real estate assets as held for sale, and these assets and their liabilities are stated separately on the accompanying condensed consolidated balance sheets. During the second quarter of 2014, the Company’s board of directors approved the hiring of real estate brokers to facilitate the sale of the Cortlandt Manor Medical Center and Fairfax Medical Center. The Company expects to complete the sale of these properties within one year.

	Assets Held for Sale
	9/30/2014		12/31/2013
Property
Cortlandt Manor Medical Center ⁽¹⁾	$	8,189,751	$	8,272,231
Fairfax Medical Center		13,539,850		13,306,789
Accounts receivable		11,626		13,166
Deferred rent receivable		258,251		158,340
Prepaid expenses and other		411,914		273,795
Total Assets Held for Sale	$	22,411,392	$	22,024,321

	Liabilities Related to Real Estate Assets Held for Sale
	9/30/2014		12/31/2013
Accounts payable	$	38,865	$	106,978
Accrued liabilities		32,378		-
Deferred rent liability		84,043		72,535
Tenant security deposit payable		210,637		202,453
Total Liabilities Related to Real Estate Assets Held for Sale	$	365,923	$	381,966

(1)

The Cortlandt Manor Medical Center is inclusive of the two adjacent lots.

The results of operations and the gains or losses from operating properties that are held for sale and or disposed of in accordance with FASB ASC Topic 360-10, Property, Plant and Equipment – Overall, these assets and their liabilities are separately stated on the accompanying condensed consolidated balance sheets as “assets held for sale” or liabilities related to assets held for sale. Gains and losses, the results of operations, interest expense, and all expenses related to the retirement of debt from operating properties that are disposed of are included in discontinued operations in the period incurred and are shown separately in the condensed consolidated statements of operations as income from discontinued operations.

The following table summarizes the discontinued operations for the three and nine months ended September 30, 2014 and 2013 (unaudited):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenues
Rental income	$	533,784	$	488,603	$	1,575,875	$	1,457,539
Rental income - tenant reimbursements		41,265		37,274		152,925		145,478
Total rental income		575,049		525,877		1,728,800		1,603,017

Expenses
Rental Expenses		273,722		269,139		850,999		826,312
Depreciation		-		151,827		314,935		449,234
Total expenses		273,722		420,966		1,165,934		1,275,546

Net income from discontinuing operations	$	301,327	$	104,911	$	562,866	$	327,471

The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value. During the three and nine months ended September 30, 2014 and 2013, the Company did not recognize any impairment charges in discontinued operations, relating to real estate assets that were classified as held for sale.

During the second quarter of 2014, the Company recognized aggregate impairment charges of $200,000 on real estate assets classified in continuing operations. (See footnote 19)

7.	Investment in Marketable Securities:

The Company determines the appropriate classification of securities at the time of purchase and reassesses the appropriateness of such classification at each reporting date. All marketable securities held by the Company have been classified as available-for-sale and, as a result, are stated at fair value, based on a pricing model that incorporates coupon type, prepayment speeds and the type of collateral backing the securities. Unrealized gains and losses on available-for-sale securities are recorded as a separate component of stockholders’ equity. Any realized gains and losses on the sale of securities, as determined on a first-in, first-out basis, will be included in the Consolidated Statements of Operations.

The Company reviews its investments on a regular basis to evaluate whether or not each security has experienced an other-than-temporary decline in fair value. If it is believed that an other-than-temporary decline exists, the Company will write down the investment to market value and record the related write-down in the Consolidated Statements of Operations.

The historical cost and estimated fair value of investments in marketable securities available for sale as of September 30, 2014 and December 31, 2013 are as follows:

	September 30, 2014			December 31, 2013
Amortized cost	$	6,137,249		$	3,446,037
Gross Unrealized Losses		(65,743	)		(65,173	)
Fair Value*	$	6,071,506		$	3,380,864

*The Company received $447,731 in principal repayments during the nine months ended September 30, 2014

The Company’s investment is in conforming agency fixed rate mortgage pass through securities (“mortgage-backed securities)”, each of which contained either AA or AAA ratings, the principal of which is fully guaranteed by agencies of the U.S. Government. At September 30, 2014 and December 31, 2013, marketable securities based on amortized cost, reflect a yield of approximately 2%, have contractual maturities of 15 or 30 years and an adjusted duration of less than four years. The fair value of mortgage-backed securities was estimated based on a Level 2 methodology, additional details of which are discussed further in Note 18 – Fair Value of Financial Instruments. None of the securities with an unrealized loss at September 30, 2014 is considered to be other-than-temporarily impaired; therefore the unrealized loss was reported in the Consolidated Statement of Comprehensive Income (Loss).

8.	Notes Payable:

The transfer of the properties by the Company to GSD resulted in the recognition of approximately $28.4 million of capital gain income by the Company in 2013. Giving effect to offsetting deductions, the Company determined that it would have approximately $18 million in REIT income for 2013. In order to satisfy applicable REIT distribution requirements, on December 20, 2013, the Company declared an additional dividend, payable to the Company’s shareholders of record as of December 31, 2013 on January 31, 2014. The Second Special Dividend was paid in the form of interests in a global dividend note due June 30, 2017 (“Dividend Note”) aggregating $16,150,000 ($10.89 per share) in principal amount. The Dividend Note bears interest at 5.0% per annum, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 2014, and may be payable in cash or in the form of additional notes. On June 16, 2014, the initial semi-annual interest payment on the Dividend Note was paid in kind in the form of uncertificated interests in a global subordinated note due June 30, 2017 in the principal amount of $302,813 that otherwise is identical to the Dividend Note other than as to the initial semi-annual interest payment date thereunder.

	June 30, 2014		December 31, 2013
Global Dividend Note Payable	$	16,144,614	$	16,144,614
Global Note Payable		302,813		-
Total Notes Payable	$	16,447,427	$	16,144,614

9.	Dividend payable

On September 12, 2014, the Board of Directors declared a special supplemental dividend in the amount of $682,033 or $0.46 per share of Gyrodyne common stock. The dividend will be payable in the form of non-transferrable interests in a subordinated dividend note, unless Gyrodyne’s Board of Directors otherwise determines to pay all or part of such dividend in cash and subject to any applicable law, rule or regulation. The dividend will be payable on December 31, 2014 to all shareholders of record on September 26, 2014. The dividend is intended to prevent the imposition of federal corporate income tax on the Company's undistributed 2013 REIT taxable income.

10.	Earnings per Share:

Basic earnings per common share are computed by dividing net income (loss), attributable to Gyrodyne, by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share give effect to stock options and warrants which are considered to be dilutive common stock equivalents. Treasury shares have been excluded from the weighted average number of shares. The Company does not have any outstanding common stock equivalents as of September 30, 2014, and 2013.

	Nine Months Ended September 30,
BASIC	2014			2013
Net (loss) income attributable to Gyrodyne:
Continuing operations	$	(61,622	)	$	47,380,476
Discontinued operations		-			-
Net (loss) income attributable to Gyrodyne		(61,622	)		47,380,476
Weighted average number of common shares outstanding		1,482,680			1,482,680
Net (loss) income per common share attributable to Gyrodyne (“EPS”):
Continuing operations	$	(0.04	)	$	31.96
Discontinued operations		-			-
Net (loss) income per common share attributable to Gyrodyne (“EPS”)	$	(0.04	)	$	31.96

11.	Income Taxes:

The Company files a consolidated U.S. Federal Tax Return that includes all 100% owned subsidiaries. State tax returns are filed on a consolidated or separate basis depending on the applicable laws. The Company files a separate US Federal Tax Return for Gyrodyne Special Distribution LLC.

Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Deferred income tax liabilities consist of the following:

	September 30,			December 31,
	2014			2013


Deferred Tax Liabilities:
Unrealized gain on investment in Citrus Grove	$	(1,315,000	)	$	(1,315,000	)
Net Deferred Income Taxes	$	(1,315,000	)	$	(1,315,000	)

The Company is taxed as a REIT for federal and state income tax purposes under section 856(c)(1) of the Internal Revenue Code (the “Code”). As long as the Company qualifies for taxation as a REIT, it generally will not be subject to federal and state income tax, with the exception of its taxable REIT subsidiary which is subject to both federal and state income tax. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal and state income tax on its taxable income at regular corporate rates. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified for taxation as a REIT for the four taxable years following the year in which it loses its qualification. Even if the Company qualifies as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.

12.	Retirement Plans:

On November 25, 2013 the Company’s Board voted to terminate the noncontributory defined benefit pension plan (the “Plan”), subject to regulatory approval, and has begun the process of termination. On February 28, 2014, the Company submitted the necessary application and related documents to the IRS and to the Pension Benefit Guarantee Corporation (“PBGC”) in August 2014. Both the PBGC and the IRS must approve the termination. The Company expects to receive the approval from the PBGC and the IRS in the fourth quarter of 2014.

As a result of the Board’s vote to terminate the pension plan, on February 28, 2014 the non-vested benefits became fully vested, and the effects of future contribution levels will cease to be an obligation. The Pension plan has an accumulated net unrecognized gain. Any gain (loss) from termination will be added to (netted against) the unrecognized pension gain and recognized in the financial statements.

The Plan contains two options for employees and beneficiaries to choose from upon termination of the Plan; Annuity or Lump Sum. The below pension asset reflects an annuity obligation where assets will exceed the obligations.

The following table provides the components of net periodic pension benefit cost for the Plan for the three and nine months ended September 30, 2014 and 2013 including the required and expected contributions:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Pension Benefits
Service Cost	$	139,280		$	195,775		$	46,427		$	65,258
Interest Cost		137,126			188,726			45,708			62,909
Expected Return on Plan Assets		(270,932	)		(244,639	)		(90,310	)		(81,546	)
Amortization of prior service costs		16,932			16,932			5,644			5,644
Amortization of Actuarial Loss		-			107,648			-			35,883
Net Periodic Pension Benefit Cost After Curtailments and Settlements	$	22,406		$	264,442		$	7,469		$	88,148
Minimum required contribution	$	-		$	-		$	-		$	-
Expected contribution	$	-		$	-		$	-		$	-

During the three and nine-months ended September 30, 2014 and 2013, the Company did not make any contribution to the Plan. The Company does not have a minimum required contribution for the December 31, 2014 plan year. As a result of the termination of the pension plan, the Company may have to make a contribution of up to approximately $1,600,000 to satisfy the lump sum payment options and to purchase annuities.

13.	Incentive Compensation Plan:

Benefits under the Company’s Incentive Compensation Plan (the “ICP”) are realized upon either a Change-in-Control (as defined in the ICP) of the Company, or upon the issuance by the Company of an “Excess Dividend” (as defined in the ICP) following certain asset sales. The ICP provides that payments made in connection with an Excess Dividend may not exceed the hypothetical ICP payments that would have been made had there instead been a Change in Control transaction consummated on the dividend payment date. The ICP payments that would have been made had there been a Change in Control transaction consummated on December 30, 2013, the payment date of the $98,685,000 special dividend, were approximately $5,277,800. The ICP payments actually made in respect of the $68,000,000 cash portion of the special dividend totaled $5,044,600. Consequently, remaining ICP payments to be made in connection with the special dividend when and to the extent that GSD holders receive cash in respect of their GSD interests may not exceed $233,200 ($5,277,800 - $5,044,600).

Employees	Number of Units under Plan		Maximum Benefit relating to the 2013 Non-Cash Dividends
COO		14,850	$	31,482
Employees		4,400	$	9,328
Directors		53,900	$	114,268
Total ICP excluding termed employees and directors		73,150	$	155,078
Former CEO		20,350	$	43,142
All other former employees		8,250	$	17,490
Former director		8,250	$	17,490
Total former Board members and former employees		36,850	$	78,122
Total maximum ICP to be paid		110,000	$	233,200

14.	Retention/ Incentive Bonus Plan:

In September 2013, our board of directors determined that it is in the best interests of the Company and its shareholders to pursue the actual disposition of the Company’s remaining assets and to complete the Company’s tax liquidation by means of the proposed merger of the Company and GSD with and into Gyrodyne, LLC, if approved and consummated. Following the proposed merger, Gyrodyne, LLC would operate with a business plan to dispose of the properties previously transferred from the Company to GSD (the “Contributed Properties”), and any other assets, in each case in an orderly manner designed to obtain the best value reasonably available for such assets. Accordingly, in May 2014, our board of directors authorized a Retention Bonus Plan designed to recognize the nature and scope of the responsibilities related to such business plan, to reward and incent performance in connection therewith, to align the interests of directors, executives and employees with our shareholders and to retain such persons during the term of such plan. The Retention Bonus Plan provides for bonuses to directors and discretionary bonuses to officers and employees determined by the gross sales proceeds from the sale of each property and the date of sale.

The Retention Bonus Plan consists of a bonus pool that would be funded with an amount equal to 5% of the specified appraised value of each of the Contributed Properties (to be set forth in the plan), so long as the gross selling price of a property is equal to or greater than 100% of its appraised value (based on appraisals utilized to support the value of the real estate included in the non-cash dividend distributed on December 30, 2013). Additional funding of the bonus pool would occur on a property-by-property basis when the gross sales price of a property is in excess of its appraised value as follows: 10% on the first 10% of appreciation, 15% on the next 10% of appreciation and 20% on appreciation greater than 20%. Furthermore, if a specified property is sold on or before a designated date to be specified in the Retention Bonus Plan, an additional amount equal to 2% of the gross selling price of such property also would be funded into the bonus pool.

The bonus pool is distributable in the following proportions to the named participants in the bonus plan for so long as they are directors or employees of the Company, GSD or Gyrodyne, LLC: 15% for the Chairman, 50% for the directors other than the chairman (10% for each of the other five directors) and 35% (the Employee Pool”) for the Company’s executives and employees. Such share of the bonus pool is earned only upon the completion of the sale of a property at a gross selling price equal to or greater than its appraised value and is paid to the named beneficiaries of the Retention Bonus Plan or their designees within 60 days of the completion of such sale or, if later, within 60 days of receipt of any subsequent post-completion installment payment related to such sale. All allocations to individual beneficiaries in the Employee Pool are discretionary and shall be determined from time to time by the board of directors of the Company or its successor in consultation with its President.

Pursuant to the terms of the Management Services Arrangement, the foregoing bonus payments made by the Company will be reimbursed by GSD (See “Management Services Arrangements”).

15.	Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and securities issued with the guarantee of U.S. Government Agencies. The Company places its temporary cash investments with high credit quality financial institutions and generally limits the amount of credit exposure in any one financial institution. The Company maintains bank account balances, which exceed insured limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash. Management does not believe significant credit risk existed at September 30, 2014 and December 31, 2013.

16.	Commitments and Contingencies:

Lease revenue commitments - The approximate future minimum revenues from rental property under the terms of all noncancellable tenant leases, assuming no new or renegotiated leases are executed for such premises, are as follows:

Twelve Months Ending September 30,	Amount

2015	$	3,789,000
2016		3,044,000
2017		2,262,000
2018		1,941,000
2019		1,567,000
Thereafter		3,126,000
	$	15,729,000

Other commitments and contingencies As of September 30, 2014, other commitments and contingencies are summarized in the below table:

Incentive Compensation Plan	$	233,200
Management Employment agreements with bonus and severance commitment contingencies		600,000
Other employee severance commitment contingencies		120,000
Total	$	953,200

Employment agreements - The Company has compensation arrangements with its Chief Executive Officer and Chief Financial Officer (collectively, the “Agreements”), each executed during the quarter ended June 30, 2013. Each of the Agreements contains a bonus of $125,000 payable upon a change of control as defined in the agreements. In addition, each agreement provides for severance equivalent to 6 months of base salary and the vesting and related payment of the change of control bonus.

The Company also has a compensation arrangement with its Chief Operating Officer executed on May 8, 2014 which provides for severance equivalent to 6 months of base salary.

Under Company policy the aggregate severance commitment contingency to other employees is approximately $120,000.

17.	Recent Accounting Pronouncements:

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of the net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The pronouncement is effective for fiscal years and interim periods ending after December 15, 2012. The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial position or results of operations.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. ASU 2013-11 amends the current guidance to eliminate the diversity in practice in the presentation of unrecognized tax benefits. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The pronouncement is effective prospectively for fiscal years and interim periods beginning after December 15, 2013, and retrospective application is permitted. The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial position or results of operations.

In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statement (Topic 205), Liquidation Basis of Accounting.” The amendment requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the plan execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces. Financial statements prepared using the liquidation basis of accounting are required to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any item it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities. An entity should recognize and measure liabilities in accordance with U.S. GAAP that otherwise applies to those liabilities. The entity is also required to accrue and separately present the costs that it expects to incur and the income that it expects to earn during the expected duration of the liquidation, including any costs associated with sale or settlement of those assets and liabilities. Additionally, the amendment requires disclosures about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process. The pronouncement is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013 and interim reporting periods therein, early adoption is permitted. The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial position and results of operations.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 on Discontinued Operations changes the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements. Under the new guidance, a discontinued operation is defined as: (i) a disposal of a component or group of components that is disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (ii) an acquired business or nonprofit activity that is classified as held for sale on the date of acquisition. The standard states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Under the current US GAAP, an entity is prohibited from reporting a discontinued operation if it has certain continuing cash flows or involvement component after the disposal. The new guidance eliminates these criteria. The pronouncement is effective for fiscal years and interim periods ending after December 15, 2014. The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The amendments in this Update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments supersede the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and create new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The adoption of this pronouncement is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this pronouncement is not expected to have a material effect on Company’s consolidated financial position or results of operations.

18.	Fair Value of Financial Instruments:

Assets and Liabilities Measured at Fair-Value – The Company follows authoritative guidance on fair value measurements, which defines fair-value, establishes a framework for measuring fair-value, and expands disclosures about fair-value measurements. The guidance applies to reported balances that are required or permitted to be measured at fair-value under existing accounting pronouncements.

The Company follows authoritative guidance on the fair value option for financial assets, 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.

The guidance 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, the guidance 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). 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.

The following table represents the carrying value and fair value of the Company’s financial assets and liabilities as of September 30, 2014 and December 31, 2013, respectively.

September 30, 2014

December 31, 2013

Description

Carrying Value

Fair Value

(Level 2)

Carrying Value

Fair Value

(Level 2)

Investment in Marketable Securities

6,071,506

6,071,506*

3,380,864

*The Company received $447,731 in principal repayments during the first nine-months of 2014.

During 2012 and June through July 2014, the Company purchased mortgage backed securities with either AA or AAA ratings fully guaranteed by US government agencies (the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation). The fair values of mortgage backed securities originated by US government agencies are based on a pricing model that incorporates coupon type, prepayment speeds and the type of collateral backing the securities. A discount rate is applied to the cash flows in the model to arrive at the fair value. Market quotes, current yields, and their spreads to benchmark indices are obtained for each type of security. With this data, a yield curve is derived for each category of mortgage backed securities. Each security is priced by discounting the cash flow stream by the appropriate yield found on the yield curve. As the significant inputs used to derive the value of the mortgage-backed securities are observable market inputs, the fair value of these securities are included in the Level 2 fair value hierarchy.

The Company estimates that fair value approximates carrying value for cash equivalents, rents receivable, prepaid and other assets, and accounts payable due to the relatively short maturity of the instruments.

Fair Value Measurements:

The following tables present the Company's assets and liabilities from continuing operations measured at fair value on a recurring and non-recurring basis as of September 30, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall:

	Balance		Fair Value Measurements Using
Description	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Impaired real estate assets	$	6,181,331	$	—	$	—	$	6,181,331

	Balance		Fair Value Measurements Using
Description	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired real estate assets	$	6,508,394	$	—	$	—	$	6,508,394

The Company estimates the fair value of its real estate assets by using income and market valuation techniques. The Company may estimate fair values using market information such as broker opinions of value, appraisals, and recent sales data for similar assets or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.

The Company incurred a $200,000 impairment charge during the 9 months ended September 30, 2014. During the nine months ended September 30, 2013 the Company incurred an impairment charge of $2,100,000.

The Company has maintained an interest in the Grove, which originally represented a 20% limited partnership interest in the Grove. Based on four subsequent capital raises through 2009, each of which the Company chose not to participate in, the Company’s share was diluted to approximately 9.99% as of December 31, 2010, and has since been diluted to 9.32%. On March 18, 2011, the Grove’s lender, Prudential Industrial Properties, LLC (“Prudential”), commenced an action against the Grove by filing a complaint in the Circuit Court of Palm Beach County to foreclose upon the Grove property, alleging that the Grove had defaulted on its loan from Prudential and that the Grove was indebted to Prudential in the amount of over $37 million in principal and over $8 million in interest and fees. On September 19, 2013, the Grove was sold, the foreclosure action was dismissed and the Grove’s debt to Prudential was repaid. The investment is held in a taxable REIT subsidiary of the Company with $0 value and the Company has a $1,315,000 deferred tax liability related to the Grove, which represents taxable losses not yet recorded pursuant to the equity method of accounting. Gyrodyne did not receive any distribution in connection with the sale. Under the agreement with the purchaser, Grove may receive certain additional payments if certain development benchmarks are achieved by the purchaser. Gyrodyne cannot predict whether these benchmarks will be achieved or as to the timing or amount of any further distributions by Grove. Gyrodyne does anticipate it will be required to recognize its deferred tax liability during the fourth quarter of 2014.

The facts and circumstances of the Grove make it unreasonable to present a fair value utilizing a Level 3 methodology, the lowest methodology which allows for broad assumptions; therefore, in accordance with the exception rules for thinly traded/lack of marketability of distressed assets, the Company is not presenting a fair value. The Company is accounting for the investment under the equity method. As of September 30, 2014, the carrying value of the Company’s investment was $0.

19.

Impairment of Real Estate Investments:

The Company assesses on a regular basis whether there are any indicators that the carrying value of real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value.

During the second quarter of 2014, the Company recognized aggregate impairment charges of $200,000 on real estate assets classified in continuing operations. The Company has explored the possible disposition of some of its medical properties and determined that the expected undiscounted cash flows based upon revised estimated holding periods of the Port Jefferson Professional Park are below the current carrying value. Accordingly, the Company reduced the carrying value of this property to its estimated fair value. There was no impairment charge during the three months ended September 30, 2014. There was an impairment charge of $2,100,000 incurred during the 9 months ended September 30, 2013.

20.	Accumulated Other Comprehensive Income:

Accumulated other comprehensive income as of September 30, 2014 and December 31, 2013 was $118,219 and $118,789, respectively. The balances were comprised of the following:

	September 30, 2014			December 31, 2013
Unrecorded loss on investments	$	(65,743	)	$	(65,173	)
Unrecorded gain on pension		183,962			183,962
Accumulated other comprehensive income	$	118,219		$	118,789

The change in other comprehensive income was restricted to unrealized gain or loss in marketable securities, a balance sheet item, and had no impact on net income. Therefore, there were no reclassifications from other comprehensive income to net income for the periods presented.

21.	Reclassifications:

Certain amounts in the prior period, including strategic alternative expenses previously included in general and administrative expenses in the condensed consolidated statement of operations have been reclassified to conform to the classification used in the current period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

When we use the terms “Gyrodyne,” the “Company,” “we,” “us,” and “our,” we mean Gyrodyne Company of America, Inc. and all entities owned or controlled by us, including non-consolidated entities, except where it is clear that the term means only the parent company. References herein to our Quarterly Report are to this Quarterly Report on Form 10-Q for the three and nine-months ended September 30, 2014.

Cautionary Statement Concerning Forward- Looking Information. This Quarterly Report and the documents incorporated by reference into this Quarterly Report contain forward-looking statements about the Company within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “intends,” “plans,” “seeks,” “will,” “may,” “should,” “would,” “projects,” “continues” and similar expressions or the negative of these terms constitutes forward-looking statements that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and they are included in this Quarterly Report for the purpose of invoking these safe harbor provisions. Such statements are based on current expectations and are subject to risks, uncertainties and changes in condition, significance, value and effect. In September 2013, the Board of Directors approved a plan of liquidation intended to qualify as a tax liquidation, which included a plan of merger and other related transactions. The risks, uncertainties and changes in condition, significance, value and effect that could cause the Company’s actual results to differ materially from anticipated results include risks and uncertainties relating to the process of exploring strategic alternatives, risks associated with the Company’s ability to implement the tax liquidation, plan of liquidation or the plan of merger, the risk that the proceeds from the sale of our assets may not be sufficient to satisfy our obligations to our current and future creditors, the risk of shareholder litigation relating to the tax liquidation, the plan of liquidation or the plan of merger and other unforeseeable expenses related to the proposed liquidation, the tax treatment of condemnation proceeds, the effect of economic and business conditions, 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 to develop the Company’s existing real estate and other risks detailed from time to time in the Company’s SEC filings. Except as may be required under federal law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur.

Overview

Gyrodyne Company of America, Inc. (“Gyrodyne” or the “Company”) is a self-managed and self-administered real estate investment trust (“REIT”) formed under the laws of the State of New York. The Company manages its business as one operating segment. Prior to December 30, 2013, the Company’s primary business was the investment in and the acquisition, ownership and management of a geographically diverse portfolio of medical office, industrial and development of industrial and residential properties located in the Northeast region of the United States. On December 30, 2013, the Company distributed to its shareholders, as the non-cash portion of the special dividend announced on September 12, 2013 (the “Special Dividend”), all of the equity interests of its subsidiary Gyrodyne Special Distribution LLC (“GSD”), which owns 100% of the interests (through GSD’s subsidiaries) in the Company’s four real estate properties, subject to related mortgage debt in favor of Flowerfield Mortgage Inc., also a subsidiary of the Company, with the Company having the contractual right to manage the business and properties of GSD. Based on management provisions set forth in GSD’s limited liability company agreement which designates sole management authority in the Company, the Company concluded that GSD is a variable interest entity and that GSD’s financial statements should be consolidated with the Company’s. Accordingly, we may use references to "we" or "our" to refer to the Company and GSD and "the Company's properties" or "GSD's properties" (or derivations thereof) interchangeably in this report. In that connection, however, it should be noted that GSD has legal title to the properties and will incur any operating or capital losses resulting from the properties, due to risks as outlined below or otherwise. However, such losses may adversely impact GSD's ability to meet debt service obligations and or repayments of mortgages to Flowerfield Mortgage, Inc. or payment of management fees or result in capital needs at GSD that might require additional capital from Gyrodyne, or external sources.

As of September 30, 2014 and December 31, 2013, the Company has an investment in three separate mortgages of approximately $13,130,800 and $13,841,000, respectively, which is eliminated in consolidation. The mortgages contain a first lien on the medical parks related real estate it previously owned. The previously owned real estate was included in a distribution to shareholders of ownership interests in Gyrodyne Special Distribution LLC (“GSD LLC”) on December 30, 2013 subject to the mortgages owned by the Company along with the Company retaining managing member control in GSD LLC. Additionally, the Company provides a revolving line of credit facility to GSD which is currently capped at $3.5 million and has an outstanding balance of $3,000,459.

Following the December 30, 2013 distribution of all of the common membership interests of GSD to the Company’s shareholders in the Special Dividend, the Company has been managing GSD pursuant to the terms of GSD’s limited liability company agreement which provides that the Company has sole and absolute discretion regarding the management and affairs of GSD. In its capacity as GSD’s managing member, the Company has unilateral authority, without seeking GSD shareholder approval, over the management of the real estate assets, including leasing and sale of its real estate holdings and the execution of any agency and brokerage agreements to facilitate such leases and sales, investing in its real estate holdings through capital improvements and proceeding strategically with seeking to maximize the value of the undeveloped Flowerfield property. Under GSD’s limited liability company agreement, the Company is entitled to market-rate compensation for its services as well as reimbursement for any costs and expenses incurred by and properly allocable to GSD. In April 2014, the Company’s board of directors approved a full cost mark-up based management fee to be charged to GSD equal to reimbursement of expenses plus a mark-up of 8.5%, which percentage falls in the lower quartile of similar fees charged by comparable companies according to a benchmarking study. In connection with such management services, the Company was obligated to provide an initial liquidity facility to GSD in an amount not to exceed $2.5 million which the Company may determine from time to time. During the third quarter of 2014, the board of directors authorized an increase in the revolving line of credit to $3.5 million. The interest income on the debt facilities provided to GSD is REIT qualified income. The foregoing income earned by the Company for managing GSD is not deemed to be REIT qualified income and therefore is appropriately payable to its taxable REIT subsidiary, Flowerfield Properties, Inc.

The Company, through its managing member control in GSD, with no ownership interest, controls two medical office parks and ten of fourteen buildings in a third medical park, together comprising approximately 131,000 rentable square feet and a multitenant industrial park comprising approximately 130,000 rentable square feet. In addition, the Company, through the same managing member control, maintains approximately 68 acres of property in St. James, New York.

The Company believes it has qualified, and expects to continue to qualify as a REIT under Section 856(c) (1) of the Internal Revenue Code of 1986 as amended (the “Code”). Accordingly, the Company generally will not be subject to federal and state income tax, with the exception of the taxable REIT subsidiary, Flowerfield Properties, Inc., provided that distributions to its shareholders equal at least 90% of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualifications as a REIT; However these activities must be conducted in an entity which elected to be treated as a taxable REIT subsidiary (“TRS”) under the Code. The Company has one taxable REIT subsidiary which is subject to federal and state income tax on the income from these activities.

The Company conducts its operations either directly or indirectly through (1) property owned subsidiaries and lender subsidiaries, or (2) Flowerfield Properties, Inc. a wholly owned TRS. Property owner subsidiaries are landlords leasing properties in which the Company has a managing member control but no ownership interest, and lender subsidiaries are lenders loaning funds where the Company made an investment in a loan asset, but in all cases these subsidiaries are separate and distinct legal entities. GSD is a property owner subsidiary in which the Company is the sole managing member with managerial authority and investment/disposition authority. Flowerfield Mortgage Inc. (“FMI”) is a lender subsidiary wholly owned by the Company with three loan assets secured by property held in the property owner subsidiaries.

In addition, the Company, through its’ taxable REIT subsidiary, has an estimated 9.32% limited partnership interest in Callery Judge Grove, L.P. (the “Grove”), a limited partnership, which in September 2013 sold its only asset, an undeveloped Florida property, the “Grove Property”. Gyrodyne did not receive any distribution in connection with the sale. Under the agreement with the purchaser, the Grove may receive certain additional payments if certain development benchmarks are achieved by the purchaser, which could enable future distributions to Gyrodyne. Gyrodyne cannot predict whether these benchmarks will be achieved or as to the timing or amount of any further distributions by Grove. Gyrodyne does anticipate it will be required to recognize its deferred tax liability during 2014.

Strategic Process

In July 2012, the Company received $167,530,657 (which was in addition to the initial payment of $26,315,000) from the State of New York in payment of the judgments in the Company’s favor in the Company’s condemnation litigation with the State and consisted of $98,685,000 in additional damages (the “2012 Proceeds”), $1,474,941 in costs, disbursements and expenses, and $67,370,716 in interest. Subsequent to receiving the payment, the State notified the Company of a $29,000 overpayment, which the Company returned, due to an error in the interest calculation by the State.

In August 2012, the Company announced that it was undertaking a strategic review, which was designed to maximize shareholder value through one or more potential cash distributions and/or through a potential sale, merger or other strategic combination, consistent with the Company’s stated goal of providing one or more tax efficient liquidity events to its shareholders. In August 2012, the Company retained Rothschild, Inc., as financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP, as legal advisor, and authorized a committee of its Board (the “Strategic Alternatives Committee”), to lead the strategic review process. Commencing in October 2012, the Company solicited interest in proposals to acquire the Company from over 260 entities, and, in March 2013, an information memorandum was circulated to over 30 entities who had executed nondisclosure agreements. In the several months thereafter, members of its Board and management met with several bidders, permitted such bidders to conduct due diligence and indicative bids were received from a number of parties. Some of such indicative bids were for the whole Company and others contemplated the sale of a partial interest to a bidder who would assume control, but none of such bids were fully developed or contained value parameters and other terms acceptable to the Company’s board.

Following a change in tax law in January 2013 reducing the recognition period applicable for the 2012 and 2013 taxable year to five years, the Company applied for a private letter ruling from the IRS in March 2013 and ultimately received a favorable ruling on August 28, 2013 (the “PLR”). The PLR concluded that the Company’s receipt of the 2012 Proceeds occurred outside of the applicable recognition period for 2012, thus permitting the Company to distribute, by means of a dividend such as the Special Dividend described below, the gains realized from its receipt of the 2012 Proceeds, subject to a 4% excise tax but without incurring the built-in gains tax.

Further to the Company’s previously stated goal of providing one or more tax efficient liquidity events to its shareholders and taking into account, among other factors, the Company’s receipt of the PLR, the Board concluded that it is in the best interests of Gyrodyne and its shareholders to liquidate the Company for federal income tax purposes. On September 12, 2013, the Board adopted a plan of liquidation, pursuant to which the Company intends to dispose of its remaining assets in an orderly manner designed to obtain the best reasonably available value for such assets and to complete a tax liquidation, including pursuant to a merger into a new wholly owned limited liability company within a two year period from the adoption of the plan of liquidation.

On September 13, 2013, the board declared a special dividend in the amount of $98,685,000, or $66.56 per share, of which approximately $68,000,000, or $45.86 per share, was paid in cash on December 30, 2013. The balance of the Special Dividend consisted of all of the equity interests of its subsidiary, Gyrodyne Special Distribution, LLC (“GSD”), another newly formed wholly-owned subsidiary of the Company, which would own 100% of the interests in the Company’s former real estate properties, subject to related mortgage debt in favor of Flowerfield Mortgage Inc., also a subsidiary of the Company, with the Company having the contractual right to manage the business and properties of GSD.

In a meeting held on October 9, 2013, the board determined that in order to most clearly and directly accomplish its goal of distributing the $98.7 million as a return of capital to shareholders, and in light of relevant consideration of issues of business continuity, shareholder liquidity and timeliness of execution, the Company would pursue the tax liquidation by means of a merger of the Company into Gyrodyne, LLC, a New York limited liability company and wholly-owned subsidiary of the Company.

The transfer of the properties by the Company to GSD resulted in the recognition of approximately $28.4 million of capital gain income by the Company in 2013. Giving effect to offsetting deductions, the Company determined that it would have approximately $18 million in REIT income for 2013. In order to satisfy applicable REIT distribution requirements, on December 20, 2013, the Company declared an additional dividend, payable to the Company’s shareholders of record as of December 31, 2013 on January 31, 2014. The Second Special Dividend was paid in the form of interests in a global dividend note due June 30, 2017 (“Dividend Notes”) aggregating $16,150,000 ($10.89 per share) in principal amount. The Dividend Notes bear interest at 5.0% per annum, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 2014, and may be payable in cash or in the form of additional notes. On June 16, 2014, the initial semi-annual interest payment on the Dividend Notes was paid in kind in the form of uncertificated interests in a global 5% subordinated note due June 30, 2017 in the principal amount of $302,813 that otherwise is identical to the Dividend Note other than as to the initial semi-annual interest payment date thereunder.

In connection with the strategic process that resulted in the Special Dividend, the company incurred costs of $3.4 million for the 4% excise tax, $1.6 million for transaction costs, and approximately $5.1 million for Incentive Compensation Plan payments.

On October 21, 2013, the Company filed a preliminary proxy statement with the Securities and Exchange Commission (“SEC”) which contained, among other matters, the Board’s recommendation that the shareholders vote in favor of the plan of merger at the annual shareholders meeting for the year ended December 31, 2012. The Company received comments from the SEC on November 18, 2013. Consequently, the Company proceeded with holding its 2013 annual meeting without seeking authorization for the merger transaction at that time because of NASDAQ rules requiring listed companies to hold an annual meeting not later than twelve months following the fiscal year end. On May 8, 2014, the Company responded to such comments and filed a revised preliminary proxy statement (amendment No. 1) with the SEC. The Company received additional comments from the SEC on May 29, 2014 and responded to such additional comments and filed a revised proxy statement (Amendment No. 2) with the SEC on June 17, 2014. The Company received comments from the SEC on June 24, 2014 and responded to such comments and filed a revised proxy statement (Amendment No. 3) with the SEC on June 26, 2014. The Company received further comments from the SEC on June 26, 2014 and responded to such further comments and filed a definitive proxy statement (Amendment No. 4) with the SEC on July 1, 2014. On June, 5, 2014 the Company announced that a special meeting of shareholders would be held on August 14, 2014 at which the Company was asking the shareholders of record on June 30, 2014 (provided the meeting takes place prior to August 30, 2014) to authorize a plan of merger and the transactions contemplated thereby, including the merger of the Company and GSD with and into Gyrodyne, LLC. The Company rescheduled the special meeting to December 5, 2014 to allow additional time for shareholders to vote and changed the shareholder of record date to October 31, 2014. The Company has been advised by its proxy solicitor, MacKenzie Partners, that with approximately 45% of the outstanding shares voted thus far by delivery of proxy cards, approximately 97% of such shares have been voted in favor of the merger. Despite the overwhelming percentage of received votes in favor of the merger not enough shares have been voted to reach the two-thirds majority needed under New York law. Accordingly, on November 4, 2014, the Company announced a further postponement of the special meeting until the first half of 2015. The Company and its advisors will continue to analyze potential options in the best interests of the Company and its shareholders, which may include enhancements designed to facilitate the ability to complete the merger transaction.

On September 15, 2014, the Board of Directors declared a special supplemental dividend in the amount of $682,033 or $0.46 per share of Gyrodyne common stock. The dividend will be payable in the form of non-transferrable interests in a dividend note, unless Gyrodyne’s Board of Directors otherwise determines to pay all or part of such dividend in cash and subject to any applicable law, rule or regulation. The dividend will be payable on December 31, 2014 to all shareholders of record on September 26, 2014. The dividend is intended to prevent the imposition of federal corporate income tax on Gyrodyne’s undistributed 2013 REIT taxable income.

The foregoing description of the Company’s strategic process is qualified in its entirety by the more in-depth description contained in such definitive proxy statement, which description is incorporated by reference into this Quarterly Report.

Economic Conditions

Health Care Legislation: The Federal health care legislation enacted in 2010 has affected our medical office properties due to the direct impact on its tenant base. While the full impact cannot be known due to the multi-year phase in period of the legislation, medical professionals are reviewing their real estate options which include remaining status quo, increasing tenant space to address higher patient volumes as well as combining practices with other professionals, or joining larger healthcare organizations including hospitals. As a result, in some cases our business has been impacted by factors including (1) difficulty transitioning doctors to longer term leases, (2) difficulty raising rates and (3) increased challenges in re-leasing space.

As of September 30, 2014, the average effective rental revenue per square foot adjusted for tenant improvements was $19.79 compared to $18.71 on December 31, 2013. The Company defines the effective revenue per square foot as the annual rate per square foot stated in the lease reduced by the average annual tenant improvement allowance provided for in such leases.

Business Strategy

On December 30, 2013, the Company distributed to its shareholders all of the equity interests of GSD, which owned and continues to own 100% of the interests in the Company’s four real properties, subject to related mortgage debt in favor of Flowerfield Mortgage Inc., a subsidiary of the Company, with the Company having the contractual right to manage the business and properties of GSD. The Board has also approved the Plan of Merger, subject to the approval of shareholders of the Company holding at least two-thirds of the outstanding shares, pursuant to which the Company and GSD will be merged with and into Gyrodyne, LLC with the Company’s shareholders, holders of GSD equity interests and holders of interests in the Dividend Note all exchanging their respective interests for equity interests in Gyrodyne, LLC. On September 25, 2014, the Company announced the 2014 Annual meeting and the previously postponed special meeting to vote on the proposed merger will be held coextensively on December 5, 2014 at Flowerfield Celebrations, Mills Pond Road, Saint James, New York 11780, at 11:00 a.m., Eastern Time. The Company has been advised by its proxy solicitor, MacKenzie Partners, that with approximately 45% of the outstanding shares voted thus far by delivery of proxy cards, approximately 97% of such shares have been voted in favor of the merger. Despite the overwhelming percentage of received votes in favor of the merger not enough shares have been voted to reach the two-thirds majority needed under New York law. Accordingly, on November 4, 2014, the Company announced that the Company’s special meeting originally scheduled for August 14, 2014 and previously postponed to August 27, 2014 and then again to December 5, 2014, has been further postponed until the first half of 2015. At the special meeting, the Company will ask the shareholders as of the record date to authorize the plan of merger. The Company and its advisors will continue to analyze potential options in the best interests of the Company and its shareholders, which may include enhancements designed to facilitate the ability to complete the merger transaction.

We focus our business strategy on maximizing the intrinsic value per share through aligning our operating and investment strategy with our goal of executing on a tax efficient liquidity event or series of tax efficient liquidity events. This strategy involves a balance between preserving capital and improving the market value of the real estate portfolio which we currently manage for GSD. Our objectives are as follows:

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managing the real estate portfolio currently held by GSD to improve operating cash flow while simultaneously increasing the market values of the underlying operating properties;

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managing the sale of properties;

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pursuing the re-zoning effort of the Flowerfield property on behalf of GSD to maximize its value;

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focusing use of capital by the Company or GSD to that which preserves or improves the market value of GSD’s real estate portfolio;

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maximizing Funds From Operations (“FFO”) and company adjusted FFO (“AFFO”);

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managing the merger and liquidation process.

We believe these objectives will help us achieve our strategic objective in the long term and strengthen our business and enhance the value of our underlying real estate portfolio in the short term.

It is the current intent of the Company’s Board to seek shareholder approval for the merger and, if such approval is obtained, to consummate the merger. Although the consummation of the merger will complete the tax liquidation, the Board currently intends that, following the merger, Gyrodyne, LLC will operate with a business plan to dispose of its current real property assets in an orderly manner designed to obtain the best value reasonably available for such assets. Proceeds of such dispositions will be used to settle any claims, pending or otherwise, against Gyrodyne, LLC and to make distributions to holders of Gyrodyne, LLC interests. When all properties of Gyrodyne, LLC are disposed of, it is intended that Gyrodyne, LLC will dissolve and a final distribution will be made.

Sales of properties, either by GSD or by Gyrodyne, LLC if the merger is consummated, could take the form of individual sales of assets, sales of groups of assets organized by business, type of asset or otherwise, a single sale of all or substantially all of the assets, or some other form of sale (including the sale of GSD itself prior to the merger). The assets may be sold to one or more purchasers in one or more transactions over a period of time.

It is not required or anticipated that any shareholder votes will be solicited with respect to the approval of the specific terms of any particular sales of assets approved by the Company’s Board, or if after the merger by Gyrodyne, LLC’s Board. The prices at which the various assets may be sold depends largely on factors beyond our control, including, without limitation, the condition of financial markets, the availability of financing to prospective purchasers of the assets, U.S. and foreign regulatory approvals, public market perceptions, and limitations on transferability of certain assets.

Assuming the merger is effected and completion of the liquidation of Gyrodyne, LLC’s assets took until December 31, 2016, and giving effect to its estimated cash flow from operation of its existing properties until their sale, the Company expects Gyrodyne, LLC would have a cash balance of approximately $43.6 million at the end of December 31, 2016. Such cash would equate to future post-merger liquidating distribution of $29.38 per share. For a further discussion see the definitive proxy filed on July 1, 2014 including the section titled The Estimated Distribution to Shareholders (including Estimated Distribution to holders of Gyrodyne, LLC shares), which is located on pages 67 through 69 inclusive.

Third Quarter 2014 Transaction Summary

The following summarizes our significant transactions and other activity during the three months ended September 30, 2014.

For a discussion of the Management Services Arrangement see Footnote 4, Principles of Consolidation.

Under the aforementioned agreement, the Company received reimbursement of costs and management fees in the quarter ended September 30, 2014 of $1,421,471 and $89,727, respectively, and earned interest income on its debt facilities to GSD of $200,399.

Investments

During the three months ended September 30, 2014, the Company invested approximately $1.6 million in additional hybrid mortgage backed securities with AA and AAA rating fully guaranteed by US government agencies (the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation). The Company received principal payments during the three months ended September 30, 2014 of approximately $220,000 from its investments in conforming agency fixed rate mortgage pass through securities with either AA or AAA ratings fully guaranteed by US government agencies (the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation). The portfolio is currently generating a yield of approximately 2%.

Leasing

During the three months ended September 30, 2014, the Company executed nine lease renewals encompassing approximately 15,000 square feet, and approximately $292,000 in annual revenue. In addition, the Company entered into four new leases encompassing approximately 2,000 square feet and $47,000 in annual revenue. The Company realized a decrease in net deferred revenue of $18,194 between June 30 and September 30, 2014.

The new leases and lease extensions signed during the quarter ended September 30, 2014 included tenant allowances which the Company estimates at a cost of approximately $83,000, and rent abatements of approximately $16,000. The Company incurred approximately $16,000 in lease commissions during the third quarter ended September 30, 2014, affiliated with total commitment revenue over the term of the respective leases of approximately $639,000.

Lease terminations/defaults

There were four terminations during the three month period ended September 30, 2014, comprising approximately 10,000 square feet and approximately $138,000 in annual revenue, inclusive of one tenant in default, who was evicted, at the Flowerfield Industrial Park. There was no bad debt expense in the three month period ended September 30, 2014 relating to the default. The Company received a judgment on the default totaling approximately $42,000 for past rent and legal fees which the Company will not recognize until paid.

The continued economic volatility for small businesses and medical practices has impacted property management firms, including the Company’s ability to renew leases at comparable rates if at all, without providing either rent abatements or comparable other lease incentives. During 2012 through September 2014, medical office parks and industrial parks continued to face challenges to maintain both rental rates and occupancy. Rental revenues, excluding revenues included in discontinued operations, were $578,148 and $572,783 for the three months ended September 30, 2014, and June 30, 2014, respectively, a quarter over quarter increase of $5,365. Although the Company successfully avoided significant portfolio wide rental revenue degradation, the company sees continuing challenges to maintain both rental rates and occupancy during the slow economic recovery. The below table reflects the Company’s rental revenue inclusive of rental revenue from discontinued operations, at its industrial park vs. the combined rental revenue of its medical parks and the related occupancy rate and effective rental rate of each.

	Three Months Ended September 30, 2014			Three Months Ended June 30, 2014
Industrial Park Rental Revenue	$	383,230		$	380,695
Combined Medical Park Rental Revenue	$	728,702		$	725,493

Occupancy Rate Industrial Park		72	%		74	%
Occupancy Rate Combined Medical Parks		85	%		85	%
Total Occupancy Rate		78	%		79	%
Average Effective Rental Rate Per Square Foot – Industrial Park	$	14.57		$	13.97
Effective Rental Rate Per Square Foot- Medical Parks	$	24.20		$	24.03
Average Total Effective Rental rate per square foot	$	19.79		$	19.38

Our leasing activity has resulted in total lease commitments as of September 30, 2014 and June 30, 2014 of $15,729,000 and $16,181,000, respectively. There were four new leases and nine renewals during the quarter, with the resulting annual revenue commitment partially offset by four terminations during the quarter. The Company has launched aggressive leasing strategies at each of its medical parks. During the third quarter the Company estimates approximately $99,000 of tenant incentives, inclusive of rent abatements of approximately $16,000, were provided to attract new tenants. However, the economy continues to be challenging and, to compete effectively with other local landlords, the Company may offer aggressive tenant improvements in exchange for signing medium and long term lease commitments.

Retention/incentive bonus plan

The bonus pool is distributable in the following proportions to the named participants in the bonus plan for so long as they are directors or employees of the Company, GSD or Gyrodyne, LLC: 15% for the Chairman, 50% for the directors other than the Chairman (10% for each of the other five directors) and 35% (the “Employee Pool”) for the Company’s executives and employees. Such share of the bonus pool is earned only upon the completion of the sale of a property at a gross selling price equal to or greater than its appraised value and is paid to the named beneficiaries of the Retention Bonus Plan or their designees within 60 days of the completion of such sale or, if later, within 60 days of receipt of any subsequent post-completion installment payment related to such sale. All allocations to individual beneficiaries of the Employee Pool shall be determined from time to time by the board of directors of the Company or its successor in consultation with its President.

Pursuant to the terms of the Management Services Arrangement, the foregoing bonus payments made by the Company will be reimbursed by GSD (See “Management Services Arrangements”). There were no bonus payments made during the three and nine months ended September 30, 2014.

Proxy/Prospectus – Merger with GSD

The Company received comments from the SEC on November 18, 2013. Consequently, the Company proceeded with holding its 2013 annual meeting without seeking authorization for the merger transaction at that time because of NASDAQ rules requiring listed companies to hold an annual meeting not later than twelve months following the fiscal year end. On May 8, 2014, the Company responded to such comments and filed a revised preliminary proxy statement (amendment No. 1) with the SEC. The Company received comments from the SEC on May 29, 2014 and responded to such comments and filed a revised proxy statement (Amendment No. 2) with the SEC on June 17, 2014. The Company received comments from the SEC on June 24, 2014 and responded to such comments and filed a revised proxy statement (Amendment No. 3) with the SEC on June 26, 2014. The Company received comments from the SEC on June 26, 2014 and responded to such comments and filed a definitive proxy statement (Amendment No. 4) with the SEC on July 1, 2014. On September 25, 2014, the Company announced the Annual and special meetings will be held coextensive on December 5, 2014 at Flowerfield Celebrations, Mills Pond Road, Saint James, New York 11780, at 11:00 a.m., Eastern Time. The Company has been advised by its proxy solicitor, MacKenzie Partners, that with approximately 45% of the outstanding shares voted thus far by delivery of proxy cards, approximately 97% of such shares have been voted in favor of the merger. Despite the overwhelming percentage of received votes in favor of the merger not enough shares have been voted to reach the two-thirds majority needed under New York law. Accordingly, on November 4, 2014, the Company announced that the Company’s special meeting originally scheduled for August 14, 2014 and previously postponed to August 27, 2014 and then again to December 5, 2014, has been further postponed until the first half of 2015. At the special meeting, the Company will ask the shareholders of the record date to authorize the plan of merger. The Company and its advisors will continue to analyze potential options in the best interests of the Company and its shareholders, which may include enhancements designed to facilitate the ability to complete the merger transaction.

Dividend note

The transfer of the properties by the Company to GSD resulted in the recognition of approximately $28.4 million of capital gain income by the Company in 2013. Giving effect to offsetting deductions, the Company determined that it would have approximately $18 million in REIT income for 2013. In order to satisfy applicable REIT distribution requirements, on December 20, 2013, the Company declared an additional dividend, payable to the Company’s shareholders of record as of December 31, 2013 on January 31, 2014. The Second Special Dividend was paid in the form of interests in a global dividend note due June 30, 2017 (“Dividend Notes”) aggregating $16,150,000 ($10.89 per share) in principal amount. The Dividend Notes bear interest at 5.0% per annum, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 2014, and may be payable in cash or in the form of additional notes. On June 16, 2014, the initial semi-annual interest payment on the Dividend Notes was paid in kind in the form of uncertificated interests in a global 5% subordinated note due June 30, 2017 in the principal amount of $302,813 that otherwise is identical to the Dividend Note other than as to the initial semi-annual interest payment date thereunder.

Discontinued operations

The Company is in the process of marketing for sale the Cortlandt Manor Medical Center including the two neighboring lots and the Fairfax Medical Center.

Shareholder Rights Plan- On July 25, 2014, the board of directors of the Company authorized an amendment to its shareholder rights agreement dated as of August 10, 2004 (the “Rights Agreement”) to extend the expiration of the rights pursuant to the Rights Agreement from August 11, 2014 to August 11, 2015. The amendment is not in response to any acquisition proposal and no other amendments were authorized to be made to the Rights Agreement.

Subsequent Events

Leasing- Subsequent to September 30, 2014, the Company signed four lease extensions and one expansion encompassing approximately 7,400 square feet and approximately $128,000 in annual revenue. There were no new leases or terminations.

The Grove

The Company has maintained an interest in the Grove, which originally represented a 20% limited partnership interest in the Grove. Based on four subsequent capital raises through 2009, each of which the Company chose not to participate in, the Company’s share was diluted to approximately 9.99% as of December 31, 2010, and has since been diluted to 9.32%. On March 18, 2011, the Grove’s lender, Prudential Industrial Properties, LLC (“Prudential”), commenced a foreclosure action against the Grove by filing a complaint in the Circuit Court of Palm Beach County to foreclose upon the Grove property, alleging that the Grove defaulted on its loan from Prudential and that the Grove was indebted to Prudential in the amount of over $37 million in principal and over $8 million in interest and fees. On September 19, 2013, the Grove was sold, the foreclosure lawsuit was dismissed and the Grove’s debt to Prudential was repaid. The investment is held in a taxable REIT subsidiary of the Company with $0 value and the Company has a $1,315,000 deferred tax liability related to the Grove, which represents taxable losses not yet recorded pursuant to the equity method of accounting. Gyrodyne did not receive any distribution in connection with the sale. Under the agreement with the purchaser, Grove may receive certain additional payments if certain development benchmarks are achieved by the purchaser. Gyrodyne cannot predict whether these benchmarks will be achieved or as to the timing or amount of any further distributions by Grove. Gyrodyne does anticipate it will be required to recognize its deferred tax liability during 2014.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The condensed consolidated financial statements of the Company include accounts of the Company and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the Company's condensed consolidated financial statements and related notes. In preparing these financial statements, management has utilized information available including its past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. On a regular basis, we evaluate our assumptions, judgments and estimates. However, application of the critical accounting policies below involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact comparability of the Company's results of operations to those of companies in similar businesses. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2013.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of Gyrodyne Company of America, Inc. and all majority owned subsidiaries.

The Company consolidates its wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE").

If an investment is determined to be a VIE, the Company performs an analysis to determine if the Company is the primary beneficiary of the VIE. GAAP requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that has a controlling financial interest in an entity. In order for a party to have a controlling financial interest in an entity, it must have (1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses or the right to receive benefits of an entity that could potentially be significant to the VIE.

The Company's consolidated VIE, GSD, was determined to be a VIE primarily because the Company has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses or the right to receive benefits of the entity. The VIE owns all of the real estate that was previously owned by the Company prior to the distribution of ownership interests in GSD. The VIE holds mortgage obligations payable to a wholly-owned subsidiary of the Company of $13,130,802 and $13,840,889, as of September 30, 2014 and December 31, 2013, respectively. As previously discussed in the Company’s Annual Report filed on form 10-K, the estimated fair value of the real estate net of its mortgage obligations and other direct liabilities was $30,685,000 on December 30, 2013. At September 30, 2014 and December 31, 2013, the net book value of GSD was approximately $16,893,000 and $19,058,000, respectively. The VIE is essentially being managed and operated by the Company where the Company is the primary obligor for liabilities incurred on behalf of the VIE. As a result, the Company could be held liable for current and future obligations of the VIE, and in turn it would be the Company’s obligation to seek reimbursement from the VIE.

Investments in affiliates in which the Company has the ability to exercise significant influence, but not control, are accounted for under the equity method. Investment interests in excess of 5% in limited partnerships are accounted for under the equity method. All consolidated subsidiaries are wholly owned. All inter-company balances and transactions have been eliminated. With the exception of the investment in the Grove, which has a carrying value of $0, there were no investments accounted for under the equity method as of September 30, 2014 and December 31, 2013.

Revenue Recognition

Rental revenue is recognized on a straight-line basis, which averages minimum rents over the terms of the leases. The excess of rents recognized over amounts contractually due, if any, is included in deferred rents receivable on the Company's balance sheet. Alternatively, rents received in advance of rents recognized, if any, are included in deferred rent liability on the Company’s balance sheet. Certain leases also provide for tenant reimbursements of common area maintenance and other operating expenses and real estate taxes. Tenant reimbursements to the Company for expenses where the Company negotiates, manages, contracts and pays the expense on behalf of the tenant are recognized as revenue when they become estimable and collectible. Ancillary and other property related income is recognized in the period earned. The only exception to the straight line basis is for tenants at risk of default. Revenue from tenants where collectability is in question is recognized on a cash basis when the rent is received.

Gains on sales of real estate. Gains on sales of real estate are recognized based upon the specific timing of the sale as measured against various criteria related to the terms of the transactions and any continuing involvement associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent the Company sells a property and retains a partial ownership interest in the property, the Company recognizes gain to the extent of the third-party ownership interest.

Assets Held For Sale and Discontinued Operations. Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the Consolidated Balance Sheets as “Assets held for Sale”, with assets and liabilities being separately stated in the accompanying footnote. The operating results of these properties are reflected as discontinued operations in the Consolidated Statements of Operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that do not meet the held for sale criteria are accounted for as operating properties.

Real Estate

Rental real estate assets, including land, buildings and improvements, furniture, fixtures and equipment are recorded at cost. Tenant improvements, which are included in buildings and improvements, are also stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

Depreciation is computed utilizing the straight-line method over the estimated useful life of ten to thirty-nine years for buildings and improvements and three to twenty years for machinery and equipment.

The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties. These assessments have a direct impact on the Company's net income. Should the Company lengthen the expected useful life of a particular asset, it would be depreciated over more years, and result in less depreciation expense and increased annual net income.

Real estate held for development is stated at the lower of cost or net realizable value. In addition to land, land development and construction costs, real estate held for development includes interest, real estate taxes and related development and construction overhead costs which are capitalized during the development and construction period. Net realizable value represents estimates, based on management’s present plans and intentions, of sale price less development and disposition cost, assuming that disposition occurs in the normal course of business.

The definitive proxy statement/prospectus filed on July 1, 2014 includes a merger and plan of liquidation. If the shareholders approve the merger/plan of liquidation, then the Company will be required to adopt the Liquidation Basis of Accounting. Financial statements prepared using the liquidation basis of accounting are required to present real estate assets at the amount of the expected cash proceeds from liquidation.

Long Lived Assets

On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties may be impaired. A property's value is considered to be impaired if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. Such future cash flow estimates consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment occurs, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.

The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments. These assessments have a direct impact on the Company's net income, since an impairment charge results in an immediate negative adjustment to net income. In determining impairment, if any, the Company has adopted Accounting for the Impairment or Disposal of Long Lived Assets.

Assets and Liabilities Measured at Fair-Value

On January 1, 2008, the Company adopted Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair-value measurements. The guidance for Fair Value Measurements 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, the Company adopted 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, the Company has 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.

The guidance for the Fair Value Option for Financial Assets and Financial Liabilities 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, the guidance 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 the Company has 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 are 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. The Company’s 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.

Income taxes

Effective May 1, 2006, the Company has operated as a real estate investment trust (REIT) for federal and state income tax purposes. As a REIT, the Company is generally not subject to income taxes. To maintain its REIT status, the Company is required to distribute at least 90% of its annual REIT taxable income, as defined by the Internal Revenue Code (“IRC”), to its shareholders, among other requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income tax on its taxable income at regular corporate tax rates. Although the Company qualified for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and Federal income and excise taxes on its undistributed income.

The Company’s investment in the Grove is held in a taxable REIT subsidiary of the Company and is subject to federal and state income taxes. Taxable REIT subsidiaries perform non-customary services for tenants, hold assets that the Company cannot hold directly and generally may engage in any real estate or non-real estate related business. Accordingly, through the investment in the Grove, the Company is subject to corporate federal and state income taxes on the Company’s share of the Grove’s taxable income.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company follows the guidance of FASB Accounting Standards Codification, Accounting for Uncertainty in Income Taxes. This guidance, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This interpretation specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2014 compared with the Three Months Ended September 30, 2013.

Rental revenues are comprised solely of rental income and amounted to $578,148 and $667,757 for the three months ended September 30, 2014 and 2013, respectively, a decrease of $89,609 or 13%. The degradation in revenue was mainly driven by the drop in occupancy at the Flowerfield Industrial Park to 72% at September 30, 2014 compared to approximately 83% at September 30, 2013. The drop in revenue was mainly driven by three tenants in the Flowerfield Industrial Park who terminated four of their leases and downsized a fifth lease by 2,170 square feet. The five terminations/downsizes comprise approximately 18,000 square feet and rental revenue per month of approximately $21,000. One of the tenants was Stony Brook University (the “University”), who terminated two of its three leases effective March 31, 2014, comprising approximately 9,000 square feet and approximately $135,000 in annual revenue. Furthermore, we are continuing to work with the University on solutions to their real estate demands and believe that a portion of our available vacant space may meet some of their future needs. In addition, a second tenant terminated two of its leases in two stages, January and September of 2014, comprising approximately 7,000 square feet and approximately $100,000 in annual revenue. In addition, there were two lease defaults, comprising approximately 7,000 square feet and approximately $87,000 in annual rental revenue plus tenant reimbursements. Both tenants were evicted in the third quarter. The Port Jefferson Professional Park also experienced net terminations resulting in a reduction in occupancy rate to approximately 70% at September 30, 2014 compared to 73% at September 30, 2013. The drop in occupancy rate was due to two terminations comprising 1,200 square feet and $33,000 in annual revenue plus tenant reimbursements.

Tenant reimbursements represent expenses negotiated, managed and incurred directly by the Company on behalf of or for the benefit of the tenants. Tenant reimbursements were $60,355 and $86,816 for the three months ended September 30, 2014 and 2013, respectively, a decrease of $26,461 or approximately 30%. The tenant reimbursement decrease was mainly attributable to an approximate $25,000 decrease in tenant reimbursements at the Flowerfield Industrial Park, mainly attributable to the drop in occupancy supplemented by an approximate $1,000 decrease in the Port Jefferson Professional Park. The decrease in tenant reimbursements at the Port Jefferson Professional Park was due to lease renewal terms, lower pass through expenses and a lower occupancy rate of 70% in September compared to 73% in September 2013. Due to local market competition, we are forecasting that renewal terms will continue to adversely affect both rental rates and tenant reimbursements.

Rental expenses for the three months ended September 30, 2014 and 2013 were $373,935 and $337,583, respectively, an increase of $36,352 or 11%. Approximately $34,000 of the increase was due to major roof and pavement repairs resulting from the prior year snow storms. In addition, the Company incurred an increase in insurance and real estate taxes for the period of $6,000 and $3,000, respectively, offset by lower utilities.

General and administrative expenses for the three months ended September 30, 2014 and 2013 were $526,572 and $5,713,020, respectively, a decrease of $5,186,448. The general and administrative expenses for the three months ended September 30, 2013 included incentive compensation costs to Directors, employees and former employees of approximately $5,044,600 which were triggered by the dividends declared and paid in 2013. The Company did not incur any incentive compensation costs during 2014, and as a result this was a major contributing factor to acheiving lower costs in the three months ended September 30, 2014.

Strategic alternative expenses for the three months ended September 30, 2014 and 2013 were $373,555 and $2,151,392, respectively, a decrease of $1,777,837. This decrease is mainly attributable to the reduction in investment banking, legal and related financial advisory fees following the conclusion of the initial strategy to implement a tax plan of liquidation. The Company’s transaction fees are mainly comprised of fees for counsel, financial advisors and other professional consultants to pursue the proposed merger /tax plan of liquidation which is further discussed in the amended proxy prospectus filed on July 1, 2014. The merger is being voted on at a special shareholder meeting scheduled for December 5, 2014. The Company may incur an increase in strategic alternative costs over the next 3 to 6 months to successfully complete the merger or in the event the merger is not approved by the shareholders, to implement an alternative strategy that will complete the tax plan of liquidation.

Depreciation expense for the three months ended September 30, 2014 and 2013 was $82,042 and $91,058, respectively, a decrease of $9,016 or 10%.

Insurance claim recoveries in excess of cost for the three months ended September 30, 2014 was $184,339. The Company had no insured costs net of recoveries for 2013. The Company incurred storm related damages during 2013 that was covered under its insurance policy and received reimbursement in excess of the basis of the building damage. The costs to replace the damaged roof and related fixtures is capitalized and depreciated over its useful life.

There were no impairment charges for the three months ended September 30, 2014. Impairment charges for the three months ended September 30, 2013 were $2,100,000.

Interest income was $32,602 and $59,437 for the three months ended September 30, 2014 and 2013, respectively, a decrease of $26,835. The decrease is mainly attributable to the significant reduction in the Company’s cash balances, and thereby related interest income, resulting from the Company’s cash dividend of $68,000,000 which was paid on December 30, 2013.

Interest expense for the three months ended September 30, 2014 was $206,224. The Company did not have any interest expense during the three months ended September 30, 2013. The increase in interest expense is the result of the Company’s issuance on January 31, 2014 of a Global Dividend Note, payable in kind (“Cash” or “PIK”) in the amount of $16,150,000, bearing interest (PIK) at 5% payable semiannually (PIK) as well as the issuance of a second global note in the amount of $302,813 in satisfaction of the semiannual interest due on June 15, 2014.

Net loss before condemnation and provision for income taxes was $706,884 and $9,579,043, for the three months ended September 30, 2014 and 2013, respectively. The primary factors driving the decrease in loss was the decrease in strategic alternative expenses, the decrease in impairment charges and the decrease in incentive compensation payments supplemented by the remaining items discussed above.

Condemnation income and expenses were not realized during the three months ended September 30, 2014 and 2013. The Company successfully concluded its condemnation case during the second quarter of 2012. The Company does not believe any remaining condemnation costs will be incurred as the case was settled with the State of New York in 2012.

The Company did not have a benefit or provision for income taxes for the three months ended September 30, 2014. The Company had a benefit for income taxes for the three months ended September 30, 2013 of $58,182,122. The benefit for the three months ended September 30, 2013 is comprised of the income tax benefit of $61,649,000 derived from the dividend declared in September, 2013 offset by the excise tax costs of $3,396,320 and income taxes of $70,558.

The Company is reporting a net (loss) income from continuing operations of $(706,884) and $48,603,079 for the three months ended September 30, 2014 and 2013, respectively. The primary factors driving the reduction in income from 2013 to 2014 was the income tax benefit of $58,182,122 recognized in the three months ended September 30, 2013 offset by the savings in 2014 achieved through lower strategic alternative costs, no impairment charges and lower incentive compensation expense supplemented by the remaining items discussed above.

The Company is reporting net income from discontinued operations of $301,327 and $104,911, for the three months ended September 30, 2014, and 2013, respectively. The increase in net income from discontinued operations is mainly attributable to an increase in the occupancy rate at the Fairfax Medical Center which was 93% at the end of September 2014 compared to 89% at September 2013 and an increase in occupancy rate at the Cortlandt Manor Medical Park which was 88% at September 30, 2014 compared to 80% at September 30, 2013. This was further supplemented by the benefit of no depreciation expense in the third quarter for assets held for sale net of the increase in expenses attributable to the new leases.

The Company is reporting a net (loss) income of $(405,557) and $48,707,990 for the three months ended September 30, 2014 and 2013, respectively. The primary factors driving the reduction in income from 2013 to 2014 was the income tax benefit of $58,182,122 recognized in the three months ended September 30, 2013 supplemented by the remaining items discussed above.

The net loss from the non-controlling interest for the three months ended September 30, 2014 was $385,748. The Company did not have a non-controlling interest for the three months ended September 30, 2013. The non-controlling interest is comprised of Gyrodyne Special Distribution LLC which represents the non-cash portion of the first special dividend in 2013.

The net (loss) income attributable to Gyrodyne Company of America for the three months ended September 30, 2014 and 2013 was $(19,809) and $48,707,990, respectively.

Nine Months Ended September 30, 2014 compared with the Nine Months Ended September 30, 2013.

Rental revenues are comprised solely of rental income and amounted to $1,762,890 and $1,902,907 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $140,017 or 7%. The degradation in revenue was mainly driven by the drop in occupancy at the Flowerfield Industrial Park to 72% at September 30, 2014 compared to approximately 83% at September 30, 2013. The drop in revenue was mainly driven by three tenants in the Flowerfield Industrial Park who terminated four of their leases and downsized a fifth lease by 2,170 square feet. The five terminations/downsizes comprise approximately 18,000 square feet and rental revenue per month of approximately $21,000. One of the tenants was Stony Brook University who terminated two of its three leases effective March 31, 2014, comprising approximately 9,000 square feet and approximately $135,000 in annual revenue. Furthermore, we are continuing to work with the University on solutions to their real estate demands and believe that a portion of our available vacant space may meet some of their future needs. In addition, a second tenant terminated two of its leases in two stages, January and September of 2014, comprising approximately 7,000 square feet and approximately $100,000 in annual revenue. In addition, there were two lease defaults comprising approximately 7,000 square feet and approximately $87,000 in annual rental revenue plus tenant reimbursements. Both tenants were evicted in the third quarter. The Port Jefferson Professional Park also experienced net terminations resulting in a reduction in occupancy rate to approximately 70% at September 30, 2014 compared to 73% at September 30, 2013. The drop in occupancy rate was due to two terminations comprising 1,200 square feet and $33,000 in annual revenue plus tenant reimbursements.

Tenant reimbursements represent expenses negotiated, managed and incurred directly by the Company on behalf of or for the benefit of the tenants. Tenant reimbursements were $239,217 and $284,008 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $44,791 or approximately 16%. The tenant reimbursement decrease was mainly attributable to the reduction in occupancy rates at both the Flowerfield Industrial Park and the Port Jefferson Professional Park.

Rental expenses for the nine months ended September 30, 2014 and 2013 were $1,140,057 and $1,051,013, respectively, an increase of $89,044 or 8%. Approximately $39,000 of the increase was due to major roof and pavement repairs from the prior year snow storms. In addition, the Company incurred an increase in insurance and real estate taxes for the period of $19,000 and $8,000, respectively, with the balance of the increase mainly comprised of an increase in annual maintenance costs.

General and administrative expenses for the nine months ended September 30, 2014 and 2013 were $1,676,938 and $7,277,635, respectively, a decrease of $5,600,697. The general and administrative expenses for the nine months ended September 30, 2013 included incentive compensation costs to Directors, employees and former employees of approximately $5,044,600 which were triggered by the dividends declared and paid in 2013. The Company did not incur any incentive compensation costs during 2014 and as a result this was a major contributing factor to acheiving lower costs in the nine months ended September 30, 2014. Additionaly, during the nine months ended 2013 the Company incurred mortgage prepayment penalties and related costs of approximately $254,000 and approximately $64,000 in restructuring charges. The remaining difference is mainly the reduction in pension expense of approximately $242,000. The reductions were partially offset by an increase in compensation expense and benefit expenses of approximately $69,000 mainly due to hiring a permanent Chief Executive Officer. In addition, the Company incurred an increase in accounting fees of $60,000 stemming from the strategic alternative process and the associated fees to service the Variable Interest Entity, Gyrodyne Special Distribution Company, LLC. The company also incurred approximately $27,000 in bad debt expense attributable to two lease defaults at the Flowerfield Industrial Park. Both tenants have been evicted.

Strategic alternative expenses for the nine months ended September 30, 2014 and 2013 were $1,246,096 and $2,803,021, respectively, a decrease of $1,556,925. This decrease is mainly attributable to the fees related to the preparation of the definitive proxy statement filed on July 1, 2014 with the SEC. The Company’s transaction fees are mainly comprised of fees for counsel, financial advisors and other professional consultants to pursue the proposed merger /tax plan of liquidation which is further discussed in the amended proxy prospectus filed on July 1, 2014. The merger is currently being voted on at a special shareholder meeting scheduled for December 5, 2014. The Company may incur an increase in strategic alternative costs over the next 3 to 6 months to successfully complete the merger or in the event the merger is not approved by the shareholders, to implement an alternative strategy that will complete the tax plan of liquidation. The prior year fees are mainly attributable to the process of analyzing the values attributable to the strategic alternatives available to the company.

Depreciation expense for the nine months ended September 30, 2014 and 2013 was $249,660 and $264,321, respectively, a decrease of $14,661 or 6%.

Insurance claim recoveries in excess of cost for the nine months ended September 30, 2014 was $184,339. The Company had no insured costs net of recoveries for 2013. The Company incurred storm related damages during 2013 that was covered under its insurance policy and received reimbursement in excess of the basis of the building damage. The costs to replace the damaged roof and related fixtures is capitalized and depreciated over its useful life.

Impairment charges for the nine months ended September 30, 2014 and 2013 was $200,000 and 2,100,000, respectively.

Interest income was $78,526 and $188,066 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $109,540. The decrease is mainly attributable to the significant reduction in its cash balances, and thereby related interest income, resulting from the Company’s cash dividend of $68,000,000 which was paid on December 30, 2013.

Interest expense for the nine months ended September 30, 2014 and 2013 was $542,570 and $5,748, respectively. The increase in interest expense is the result of the Company’s issuance on January 31, 2014 of a Global Dividend Note, payable in kind in the amount of $16,150,000, bearing interest (PIK) at 5% payable semiannually (PIK) and the decision to issue a second global in June 2015 to satisfy the semiannual interest payment due June 15^thon the first global note.

Net loss before condemnation and provision for income taxes was $2,790,349 and $11,126,757, for the nine months ended September 30, 2014 and 2013, respectively. The primary factors driving the decrease in loss was the decrease in incentive compensation costs of $5,044,600, supplemented by the net remaining items discussed above.

Condemnation income and expenses were not realized during the nine months ended September 30, 2014 compared to $2,360 during the comparable period in 2013. The Company successfully concluded its condemnation case during the second quarter of 2012. The Company does not believe any remaining condemnation costs will be incurred as the case was settled with the State of New York in 2012.

The Company did not have a benefit or provision for income taxes for the nine months ended September 30, 2014. The Company had a benefit for income taxes for the nine months ended September 30, 2013 of $58,182,122. The benefit for the nine months ended September 30, 2013 is comprised of the income tax benefit of $61,649,000 derived from the dividend declared in September, 2013 offset by the excise tax costs of $3,396,320 and income taxes of $70,558.

The Company is reporting a net (loss) income from continuing operations of $(2,790,349) and $47,053,005 for the nine months ended September 30, 2014 and 2013, respectively. The primary factors driving the reduction in income from 2013 to 2014 was the income tax benefit of $58,182,122 recognized in the nine months ended September 30, 2013 supplemented by the remaining items discussed above.

The Company is reporting net income from discontinued operations of $562,866 and $327,471, for the nine months ended September 30, 2014, and 2013, respectively. The increase in net income from discontinued operations is mainly attributable to an increase in the occupancy rate at the Fairfax Medical Center which was 93% at the end of September 2014 compared to 89% at September 2013 and an increase in occupancy rate at the Cortlandt Manor Medical park which was 88% at September 30, 2014 compared to 80% at September 30, 2013. This was further supplemented by the benefit of no depreciation expense in the third quarter for assets held for sale net of the increase in expenses attributable to the new leases.

The Company is reporting a net (loss) income of $(2,227,483) and $47,380,476 for the nine months ended September 30, 2014 and 2013, respectively. The primary factors driving the reduction in income from 2013 to 2014 was the income tax benefit of $58,182,122 recognized in three months ended September 30, 2013 offset by the savings in 2014 achieved through lower strategic alternative costs, no impairment charges and lower incentive compensation expense supplemented by the remaining items discussed above.

The net loss from the non-controlling interest for the nine months ended September 30, 2014 was $2,165,861. The Company did not have a non-controlling interest for the nine months ended September 30, 2013. The non-controlling interest is comprised of Gyrodyne Special Distribution LLC which represents the non-cash portion of the first special dividend in 2013.

The net (loss) income attributable to Gyrodyne Company of America for the nine months ended September 30, 2014 and 2013 was $(61,622) and $47,380,476, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Variable Interest Entities

On December 30, 2013, the Company distributed Gyrodyne Special Distribution LLC (GSD) directly to the Company’s shareholders with the Company retaining a management interest. Pursuant to the limited liability company agreement of GSD, the Company has unilateral control over the management of GSD including the ability to sell GSD or its assets, sign leases, make capital improvements and pursue the rezoning effort on the Flowerfield Industrial Park and its undeveloped land. In addition, the Company is providing GSD with a financing facility of up to $3.5 million. GSD does not have any working capital or management to support its operations, and therefore relies 100% on the services and working capital of the Company to manage and finance the operations of GSD.

In general, a reporting company must include in its consolidated financial statements the financial position and results of any entity in which the reporting company has a controlling financial interest. The Company has no equity ownership in GSD, but through its management interest it has the unilateral authority over GSD’s real estate assets, including negotiating leases, making decisions regarding capital improvements, financing, acquisitions and dispositions, the rezoning strategy on undeveloped property, negotiating management agreements, changing governance documents and timing of dissolution or liquidation. Based on the foregoing, and in accordance with ASC Topic 810-10, paragraph 15-14, the Company believes that it controls GSD. GSD is therefore a variable interest entity.

The Company has consolidated GSD’s financial statements with the Company’s because the Company is considered to be the primary beneficiary of GSD. The Company does not have any other variable interest entities. The consolidated variable interest entity assets and liabilities at September 30, 2014 and December 31, 2013 were $33,811,227 and $16,918,621 and $33,730,130 and $14,671,663, respectively. The Company monitors the credit quality of the mortgage obligations of GSD which are securitized by the underlying related medical property each of which resides in a single asset LLC. The discussion of the liquidity and capital resources is on a consolidated basis including the variable interest entity, GSD.

For a discussion on the Management Services Arrangement see footnote 4, Principles of Consolidation.

Cash Flows: As we pursue strategic alternatives, we believe that a main focus of management is to effectively manage our balance sheet through cash flow management of our tenant leases, maintaining or improving occupancy, and pursuing and recycling capital.

We generally finance our operations and acquisitions through cash on hand. On November 3, 2014, the Company announced that the Company’s special meeting originally scheduled for August 14, 2014 and previously postponed to August 27, 2014 and then again to December 5, 2014, has been further postponed until the first half of 2015. At the special meeting, the Company will ask the shareholders of the record date to authorize the plan of merger and the transactions contemplated thereby, including the merger of Gyrodyne and Gyrodyne Special Distribution, LLC with and into a limited liability company, Gyrodyne, LLC.

The Company filed definitive proxy materials with the SEC on July 1, 2014, which included a plan of liquidation via a downstream merger into Gyrodyne, LLC (a newly formed wholly-owned subsidiary) which will be owned post-merger by the former shareholders of Gyrodyne, shareholders of GSD and interest holders of dividend notes. If the shareholders approve the proposed merger, the Company will be reporting under the Liquidation Basis of Accounting and expects to complete the sale of its assets and related distributions to shareholders by December 31, 2016.

As of September 30, 2014, the Company had cash and cash equivalents totaling approximately $4.4 million and investments in U.S. guaranteed hybrid mortgage backed securities of approximately $6.0 million. The Company anticipates that the combination of its current cash balance and cash flow from continuing operations will be adequate to fund business operations and the pursuit of the merger/tax plan of liquidation over the next twelve months. The proposed merger requires the approval by holders of 2/3 of all outstanding shares. The Company has been advised by its proxy solicitor, MacKenzie Partners, that with approximately 45% of the outstanding shares voted thus far by delivery of proxy cards, approximately 97% of such shares have been voted in favor of the merger. Despite the overwhelming percentage of received votes in favor of the merger not enough shares have been voted to reach the two-thirds majority needed under New York law. Accordingly, on November 4, 2014, the Company announced that the Company’s special meeting originally scheduled for August 14, 2014 and previously postponed to August 27, 2014 and then again to December 5, 2014, has been further postponed until the first half of 2015. The Company and its advisors will continue to analyze potential options in the best interests of the Company and its shareholders, which may include enhancements designed to facilitate the ability to complete the merger transaction.

The Company believes that the merger, which Company shareholders have voted overwhelmingly in favor of, will preserve the tax benefits from distributions under a tax plan of liquidation and simultaneously mitigate potential information reporting penalties from any failure to achieve a tax liquidation in the 2 year period ending September 2015. The Company has approximately $10.4 million comprised of cash and investments in mortgage backed securities which will be partially used to fund the strategic alternative expenses in pursuit of the merger/tax plan of liquidation. The Company estimated and reported in the proxy statement/prospectus filed on July 1, 2014, under the heading “Estimated Cash Proceeds and Outlays: Indicated Distribution Range” total gross cash proceeds from the sale of its assets of approximately $45.0 million. Based on the Company’s current cash balance and the above forecast, the Company estimates distributable cash stemming from the liquidation of the Company of approximately $43.6 million.

In addition to these ongoing requirements, the continued economic challenges for small businesses, including the lack of available credit to many of our tenant classes who are small businesses and the uncertainty facing medical tenants brought about by the 2010 Federal health care reform legislation, could adversely affect our operating results and accordingly the estimated cash proceeds from the plan of liquidation.

Net cash used in operating activities were $5,165,124 and $4,225,938 during the nine months ended September 30, 2014 and 2013, respectively. The underlying factors that impact working capital and therefore cash flows from operations are the timing of collections of rents and related tenant reimbursements and the payment of operating and general and administrative expenses including the strategic alternative expenses to execute on the tax plan of liquidation. The cash used in the current period was primarily related to the payment of $2,850,199 Incentive Compensation payments to the Board of Directors and a former director that became payable on December 30, 2013, the payment date of the cash portion of the first special dividend of $68 million. In addition, the company paid approximately $970,000 to Rothschild in full satisfaction of its obligations under the contract with the Company. The operating cash flow included net income from discontinued operations of $562,866 and $327,471, respectively which are net of depreciation expense for the periods of $314,935 and $449,234, respectively (see Footnote 6). Looking forward the cash flows from operations will be adversely affected following the sale of its real estate included in Discontinued Operations as the Company will continue to incur substantial costs to complete the tax plan of liquidation while simultaneously taking steps to maximize the value of its remaining real estate.

Net cash (used in) provided by investing activities were $(3,506,610) and $285,207 during the nine months ended September 30, 2014 and 2013, respectively. Cash used in investing activities in the current period was primarily the acquisition of mortgage backed securities of $3,138,943 supplemented by $712,473 in capital improvements to its real estate portfolio and land development costs of $102,925, partially offset by the receipt of principal repayments of $447,731 on the investments in mortgage backed securities. Cash provided by investing activities in the prior period was primarily related to the receipt of principal repayments of approximately $865,941 on the investment made in 2012 partially offset by $499,983 of capital improvements to its real estate portfolio and land development costs of $80,751. The Company continues to explore various alternatives to maximize the value of its undeveloped land which may result in an increase in land development costs to acheive certain, but yet to be decided rezoning initiatives.

There was no cash provided by or used in financing activities in the current period. Net cash used in financing activities in the prior period was $5,013,415 and related to the principal prepayment and the prepayment penalties on the mortgage secured by the Port Jefferson Professional Park.

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. During 2013 interest rates on residential and commercial mortgages began to show signs of rising; however volatility in the economic recovery has generated mixed signals on when long term rates will settle on an upward trajectory and in recent months have actually reversed direction. The inability for the economy to reach escape speed from the prior recession reflecting the fragile underpinnings of the economy, combined with the impact of the Healthcare Legislation has resulted in an extensive reduction in occupancy rates and related rental rates across residential, commercial and medical office properties. In certain cases the Company has addressed these challenges to date through various tenant incentives which resulted in the Company’s current market rents and related occupancy rates.

The Company has invested in medical office buildings, an asset class that has been facing challenges, partially attributable to the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 (together, the “Healthcare Legislation”). If the conditions triggered by the healthcare legislation continue, our portfolio may experience lower occupancy and effective rents, which would result in a corresponding decrease in net income, funds from operations and cash flows. The Company successfully increased its lease commitments to $15.7 million at September 30, 2014 compared to $15.5 million at December 31, 2013, is mainly attributable to signing new long term leases and migrating existing tenants to long term leases. However, the Company continues to face a competitive leasing environment which may adversely impact its ability to grow its lease commitments.

LIMITED PARTNERSHIP INVESTMENT

The Company has maintained an interest in the Grove, which originally represented a 20% limited partnership interest in the Grove. The Grove owns a 3,700+ acre citrus grove located in Palm Beach County, Florida (the "Grove Property"), which is the subject of a plan for mixed use development. Based on four subsequent capital raises through 2009, each of which the Company chose not to participate in, the Company’s share was diluted to approximately 9.99% as of December 31, 2010, and has since been diluted to 9.32%. On March 18, 2011, the Grove’s lender, Prudential Industrial Properties, LLC ("Prudential"), commenced a foreclosure action against the Grove by filing a complaint in the Circuit Court of Palm Beach County to foreclose upon the Grove property, alleging that the Grove defaulted on its loan from Prudential and that the Grove was indebted to Prudential in the amount of over $37 million in principal and over $8 million in interest and fees. On September 19, 2013, the Grove was sold, the foreclosure lawsuit was dismissed and Grove’s debt to Prudential was repaid. The investment is held in a taxable REIT subsidiary of the Company with $0 value and the Company has a $1,315,000 deferred tax liability related to the Grove, which represents taxable losses not yet recorded pursuant to the equity method of accounting. Gyrodyne did not receive any distribution in connection with the sale. Under the agreement with the purchaser, Grove may receive certain additional payments if certain development benchmarks are achieved by the purchaser. Gyrodyne cannot predict whether these benchmarks will be achieved or as to the timing or amount of any further distributions by Grove. Gyrodyne may be required to recognize gain in 2014 and its deferred tax liability of $1,315,000.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

	Payment due by period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt obligations (Global Dividend note and Global note for semi-annual June 15^th interest payment)	$	16,447,427		-	$	16,447,427		-		-
Operating lease obligations	$	10,999	$	2,933	$	5,866	$	2,200		-
Total	$	16,458,426	$	2,933	$	16,453,293	$	2,200		-

Non-GAAP Supplemental Financial Measure: Funds from Operations (“FFO”)

The Company calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of National Association of Real Estate Investment Trusts (“NAREIT”). The White Paper defines FFO as Net Income or loss calculated in accordance with GAAP, excluding extraordinary items , as defined by GAAP, and gains and losses attributable to the sale of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. NAREIT clarified its computation of FFO to exclude impairment charges on depreciable real estate owned directly or indirectly.

We believe that FFO is a useful supplemental measure of our operating performance. The exclusion of gains and losses on the sale of real estate allows investors and analysts to identify the operating results of the assets that reflect the core of our activity and assists in comparing the results of that activity across reporting periods. Additionally, FFO is the recognized industry standard for reporting the operations of a REIT. As a result, providing FFO facilitates comparison of operating performance with other REITs.

Historical cost accounting under GAAP measures implies that real estate asset values diminish over time. Since real estate assets have historically risen or fallen with market conditions, many investors and analysts consider presentation of operating results utilizing a historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe reporting FFO along with the required GAAP presentation provides a more complete measurement of our performance relative to our competitors. However, our FFO includes a material cost for condemnation litigation which other REITs may not incur. Condemnation is not an extraordinary item as defined by GAAP; therefore such costs were included in the computation of FFO. We disclose separately under Item 6 of the Form 10-K (Selected Financial Data) and in the Statement of Operations, our condemnation costs to enable the investors and analysts to compute the impact of condemnation on FFO.

FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the capital expenditures and capitalized leasing costs necessary to maintain the operating performance of our properties. Such capital expenditures are significant economic costs and can materially impact results of operations and net cash flow provided or used between reporting periods.

Noncash adjustments to arrive at FFO included depreciation and amortization, impairment costs and the tax benefit under Section 1033 of the Internal Revenue Code. The tax benefit is from the rollover of the advance payment from condemnation of 245 acres. Under the definition of FFO, gain or loss from property transactions are excluded from FFO. There were no other NAREIT defined FFO adjustments contained in the operating results.

We also present Company adjusted FFO (“AFFO”), which adjusts FFO for certain items which we believe are non-recurring and not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate funds from operations in a similar fashion, AFFO may not be comparable to similarly titled measures as reported by others. FFO and AFFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. The adjustments to FFO include condemnation costs in years where no income was recognized due to the contingency of the event, early debt prepayment penalties, fees and related costs inclusive of any write-off of loan origination fees, fees / costs related to the pursuit of strategic alternatives, restructuring fees which were not incurred in the comparative periods, 2008 through 2013, as well as distributions triggered under the Company’s Incentive Compensation Plan.

The following table provides the reconciliation of net income to FFO and AFFO for the periods ended September 30, 2014 and 2013, respectively:

	Nine Months Ended September 30,						Three Months Ended September 30,
	2014			2013			2014			2013
Net (loss) income	$	(2,227,483	)	$	47,380,476		$	(405,557	)	$	48,707,990
Depreciation and amortization
From continuing operations		249,660			264,321			82,042			91,058
From discontinued operations		314,935			449,234			-			151,827
Total Depreciation and amortization		564,595			713,555			82,042			242,885
Amortization of capitalized leasing costs		70,061			54,201			24,570			18,252
Impairment Charges		200,000			2,100,000			-			2,100,000
Condemnation costs		-			2,360			-			-
Tax (benefit) related to condemnation		-			(58,182,122	)		-			(58,182,122	)
Funds from Operations (“FFO”)	$	(1,392,827	)	$	(7,931,530	)	$	(298,945	)	$	(7,112,995	)
Company adjustments to FFO
Compensation and related costs to employees and former employees under the Incentive Compensation Plan triggered by the Special dividend		-			2,246,662			-			2,246,662
Director Fees under the Incentive Compensation Plan triggered by the Special dividend		-			2,850,199			-			2,850,199
Restructuring costs		-			64,237			-			-
Costs to pursue strategic alternatives		1,246,096			2,803,021			373,555			2,151,392
Debt prepayment penalties and related costs		-			253,515			-			-
Dividend Note Interest		542,570			-			206,224			-
Amortization of Dividend Note costs		6,500			-			2,581			-
Company adjusted Funds from Operations (“AFFO”)	$	402,339		$	286,104		$	283,415			135,258
Per share amounts – basic and diluted
Net (loss) income	$	(1.50	)	$	31.96		$	(0.27	)	$	32.85
FFO	$	(0.94	)	$	(5.35	)	$	(0.20	)	$	(4.80	)
AFFO	$	0.27		$	0.19		$	0.19		$	.09

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company places its temporary cash investments with high credit quality financial institutions. Certain financial instruments could potentially subject the Company to concentrations of credit risk, such as cash equivalents and longer-term investments. The Company maintains bank account balances, which exceed FDIC insurance limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash. Management does not believe significant credit risk exists at September 30, 2014. As of September 30, 2014, the Company’s investment is in conforming agency fixed rate mortgage pass through securities (“mortgage-backed securities”), having either AA or AAA ratings, the principal of which is fully guaranteed by agencies of the U.S. Government.

The Company believes there have been no significant changes in market risk from that disclosed in the Company's Report on Form 10-K for the twelve months ended December 31, 2013.

Item 4. Controls and Procedures.

The Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014. Based upon that evaluation, the Company’s CEO and CFO concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information is accumulated and communicated to the Company’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure. It should be noted that design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions regardless of how remote.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the Company’s last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Putative Class Action Lawsuit

On July 3, 2014, a purported stockholder of the Company filed a putative class action lawsuit against the Company and members of its board of directors (the "Individual Defendants"), and against GSD and Gyrodyne, LLC (collectively, the "Defendants"), in the Supreme Court of the State of New York, County of Suffolk (the "Court"), captioned Cashstream Fund, on Behalf of Itself and All Others Similarly Situated v. Paul L. Lamb, et al., Index No. 065134/2014 (the "Action"). The plaintiff in the Action alleges that (i) the Individual Defendants breached their fiduciary duties or aided and abetted the breach of those duties in connection with the Merger and (ii) the Company and the Individual Defendants breached their fiduciary duties by failing to disclose material information in the Joint Proxy Statement/Prospectus. The plaintiff in the Action seeks, among other things, injunctive relief enjoining the Merger, requiring corrective disclosures in the Joint Proxy Statement/Prospectus, compensatory and/or rescissory damages, and interest, attorney’s fees, expert fees and other costs. On July 17, 2014, the Court signed an Order to Show Cause submitted by the plaintiff setting a return date of August 5, 2014 on plaintiff's motion for an order (a) preliminarily enjoining consummation of the Merger and (b) granting expedited discovery. The plaintiff subsequently withdrew its motion without prejudice and the Court scheduled a preliminary conference in the case for October 20, 2014, which has been adjourned until March 3, 2015. The Defendants believe the lawsuit is without merit.

Gyrodyne Company of America, Inc. v. The State of New York

In July 2012, the Company received $167,530,657 from the State of New York (the "State") in payment of the judgments in the Company’s favor in the Company's condemnation litigation with the State, which consisted of $98,685,000 in additional damages (the "2012 proceeds"), $1,474,941 for the Company’s costs, disbursements and expenses, and $67,370,716 in interest. Subsequent to receiving the payment the Company was notified by the State of a $29,000 overpayment, which the Company returned, due to an error in the interest calculation by the State of New York.

The $167,530,657 million payment concluded the Company’s case commenced in 2006 for just compensation for the 245.5 acres of its Flowerfield property in St. James and Stony Brook, New York (the "Property") taken by the State. The State had paid the Company $26,315,000 for the Property in March 2006, which the Company elected, under New York’s eminent domain law, to treat as an advance payment while it pursued its claim for just compensation. The Court of Claims ruled in the Company’s favor in June 2010 when it awarded the Company $125,000,000, thereby requiring the State to pay an additional $98,685,000 plus statutory interest of nine percent from the date of taking on November 2, 2005 to the date of payment. That Judgment, as well as a related Judgment for costs, disbursements and expenses, was affirmed by the Appellate Division of the Supreme Court of the State of New York for the Second Judicial Department and subsequently by the New York State Court of Appeals.

The Company recorded income of $167,425,729 including interest through June 30, 2012 in the quarter then ended and recorded the balance of the interest earned through July 3, 2012 of $104,928 in the financial statements for the third quarter ended September 30, 2012. Following notification from the State, the Company returned $29,000 due to an error in the original interest calculation and remittance which was prepared by New York State.

In addition to the foregoing, in the normal course of business, the Company is a party to various legal proceedings. After reviewing all actions and proceedings pending against or involving the Company, management considers that any loss resulting from such proceedings individually or in the aggregate will not be material to the Company’s financial condition or results of operations.

Items 2 through 5 are not applicable to the Company in the three months ended September 30, 2014.

Item 6. Exhibits.

3.1

Restated Certificate of Incorporation of Gyrodyne Company of America, Inc. (1)

3.2

Amended and Restated Bylaws of Gyrodyne Company of America, Inc. (2)

4.1

Form of Stock Certificate of Gyrodyne Company of America, Inc. (3)

4.2

Rights Agreement, dated as of August 10, 2004, by and between Gyrodyne Company of America, Inc. and Registrar and Transfer Company, as Rights Agent, including as Exhibit B the forms of Rights Certificate and of Election to Purchase. (4)

10.1

Amendment Number 1 dated as of January 31, 2013 to the Engagement Agreement dated as of August 8, 2012 between the Company and Rothschild Inc. (5)

10.2

Indemnification Agreement with Directors. (5)

10.3

Indemnification Agreement with Officers (5)

10.4

Employment Agreement with Frederick C. Braun III dated May 15, 2013. (6)

10.5

Employment Agreement with Gary Fitlin dated May 15, 2013. (6)

10.6

Employment Agreement with Peter Pitsiokos dated May 8, 2014. (7)

10.7

Amendment to Engagement Letter with Rothschild Inc. (8)

10.8

Retention Bonus Plan (9)

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. (10)

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. (10)

32.1

CEO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (10)

32.2

CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (10)

101.INS**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

(1)

Incorporated herein by reference to the Annual Report on Form 10-KSB/A, filed with the Securities and Exchange Commission on September 5, 2001.

(2)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on June 18, 2008.

(3)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 13, 2008.

(4)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on August 13, 2004.

(5)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2013

(6)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on May 17, 2013

(7)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 12, 2014

(8)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on March 18, 2014.

(9)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 8, 2014

(10)

Filed as part of this report.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GYRODYNE COMPANY OF AMERICA, INC.

Date: November 5, 2014	/s/ Frederick C. Braun III
	By Frederick C. Braun III
	President and Chief Executive Officer

Date: November 5, 2014	/s/ Gary Fitlin
	By Gary Fitlin
	Chief Financial Officer and Treasurer

EXHIBIT INDEX

3.1

Restated Certificate of Incorporation of Gyrodyne Company of America, Inc. (1)

3.2

Amended and Restated Bylaws of Gyrodyne Company of America, Inc. (2)

4.1

Form of Stock Certificate of Gyrodyne Company of America, Inc. (3)

4.2

10.1

Amendment Number 1 dated as of January 31, 2013 to the Engagement Agreement dated as of August 8, 2012 between the Company and Rothschild Inc. (5)

10.2

Indemnification Agreement with Directors. (5)

10.3

Indemnification Agreement with Officers (5)

10.4

Employment Agreement with Frederick C. Braun III dated May 15, 2013. (6)

10.5

Employment Agreement with Gary Fitlin dated May 15, 2013. (6)

10.6

Employment Agreement with Peter Pitsiokos dated May 8, 2014. (7)

10.7

Amendment to Engagement Letter with Rothschild Inc. (8)

10.8

Retention Bonus Plan (9)

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. (10)

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. (10)

32.1

CEO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (10)

32.2

CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (10)

101.INS**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

(1)

Incorporated herein by reference to the Annual Report on Form 10-KSB/A, filed with the Securities and Exchange Commission on September 5, 2001.

(2)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on June 18, 2008.

(3)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 13, 2008.

(4)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on August 13, 2004.

(5)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2013

(6)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on May 17, 2013

(7)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 12, 2014

(8)

Incorporated herein by reference to Form 8-K, filed with the Securities and Exchange Commission on March 18, 2014.

(9)

Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 8, 2014

(10)

Filed as part of this report.

GYRODYNE CO OF AMERICA INC - FORM 10-Q - November 5, 2014

Attached files

GYRODYNE CO OF AMERICA INC Reports