Item 1.

Financial Statements

Talon Real Estate Holdings Corp.

Minneapolis, Minnesota

FINANCIAL STATEMENTS

TABLE OF CONTENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

3

TALON REAL ESTATE HOLDING CORP.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

4

TALON REAL ESTATE HOLDING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to consolidated financial statements.

5

TALON REAL ESTATE HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to consolidated financial statements.

6

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Organization

We were incorporated as Guide Holdings, Inc. (“Guide”) in the State of Utah on November 1, 2007, for the sole purpose of becoming the holding company of Guidebook, which converted from a Utah limited liability company to a Utah corporation on November 1, 2007.  Guidebook was organized in the State of Utah as a limited liability company on June 16, 2003.  Guide focused on providing “do-it-yourself” instructional manuals for residential electrical, plumbing, and remodeling applications.

On June 7, 2013, we entered into a series of transactions (collectively, the “Formation Transactions”) that changed our business organization. On June 7, 2013, we changed our name to Talon Real Estate Holding Corp. (“TREHC”) and issued 13,540,190 shares of our common stock for the contributions from the holders of a 49% interest in 5130 Industrial Street, LLC (“5130 LLC”) and all the interest in Talon Real Estate, LLC (“Talon RE”) which holds a purchase agreement to acquire the remaining 51% interest in 5130 LLC, for 2,820,810 shares. 5130 LLC was incorporated in the state of Delaware on November 23, 2005 to purchase real estate. Talon RE was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties and preparing the Formation Transactions.  On June 3, 2013, we entered into a limited partnership agreement of Talon OP, L.P. (“Talon OP”), which we refer to as our Operating Partnership. On June 7, 2013 we contributed our interest in 5130 LLC and Talon RE into Talon OP for equivalent general partnership units as part of the Formation Transactions. 5130 LLC owns an industrial complex consisting of approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area.  We acquired such interest in this entity in June 2013 from certain parties, including the MG Kaminski Revocable Trust (“The Kaminski Trust”), the beneficiaries of which are the children of MG Kaminski, our Chief Executive Officer.  The Kaminski Trust owns the remaining 51% interest in the industrial complex.  Talon RE, a wholly owned subsidiary of our Operating Partnership, entered into a contribution agreement to acquire the remaining interest in the entity from The Kaminski Trust, subject to receiving consent to the transfer from the entity’s lender.  On June 7, 2013, we entered into a stock purchase agreement pursuant to which our company divested ourselves of our historic “do-it-yourself” instruction manual business by selling all the outstanding shares of The Guidebook Company, Inc., a Utah Corporation and wholly owned subsidiary primarily engaged in such business (“Guidebook”).  Guide had 1,600,032 shares of common stock issued and outstanding prior to the Formation Transactions. These shares, along with the shares issued in the Formation Transactions on June 7, 2013, represent the shares issued and outstanding immediately after formation of Talon Real Estate Holding Corp with a combined total of 15,140,222 shares.

Basis of Presentation

TREHC (the “Company”) has prepared the foregoing unaudited financial statements in accordance with U.S. generally accepted accounting principals (“GAAP”), and the requirements of the SEC with respect to interim reporting. As permitted under these rules, certain footnotes and other financial information required by GAAP for complete financial statements have been condensed or omitted. The interim consolidated financial statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results.

7

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (continued)

We are the sole general partner of the Operating Partnership, and, as such, we generally have the exclusive power to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners.  Guidebook, which was sold in connection with the Formation Transactions, will cease to be included in our financial statements. The contributions that constitute the Formation Transactions are being accounted for as a reverse acquisition and recapitalization, and Talon OP is considered to be the accounting acquirer. Therefore, the historical presentation of our financial statements for periods prior to the Formation Transactions will be that of Talon Real Estate Holding Corp. and its subsidiaries on a consolidated basis including the Operating Partnership with its subsidiaries.  Historical presentation of shareholders’ equity of TREHC was restated for common stock issued in the Formation Transactions and retained earnings of TREHC, formerly Guide, in periods prior to the formation were eliminated.

For additional information, please refer to our audited financial statements and the accompanying notes for the years ended December 31, 2012 and 2011 for 5130 Industrial Street, LLC, included in our Form 8-K dated June 7, 2013, which was the only entity existing in those periods.

NOTE 2 - INVESTMENT IN REAL ESTATE PROPERTIES AND ENTITIES

The Company owns and operates the following real estate properties through its subsidiary, 5130 LLC:

5130 Industrial Street, Maple Plain, MN

1350 Budd Ave, Maple Plain, MN

The properties are primarily leased to tenants for mixed commercial and industrial usage.  The properties have a combined 171,639 net rentable square feet.  As of September 30, 2013, the Company has tenants occupying approximately 66% of the rentable space.  The remaining 34% of rentable space recently became available in the third quarter of 2013 and is being marketed for lease.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-lived assets, valuation and impairment analysis of property and other long-lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.

8

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.  In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary.  The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership.  Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC.  All significant intercompany balances have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers short-term investments with original maturities of 90 days or less to be cash equivalents. The Company believes it is not exposed to any significant credit risk on cash equivalents.

Restricted Escrows and Reserves

The Company is required to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions. The balances in the escrow accounts were $238,725 and $153,976 as of September 30, 2013 and December 31, 2012, respectively.

Rents Receivable

Rents receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for doubtful accounts of $5,000 as of September 30, 2013 and December 31, 2012.

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable.  When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses.  An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

9

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Leasing Costs and Tenant Allowance

Deferred leasing costs include leasing commissions that are capitalized and are being amortized by the straight-line method over the term of the lease. All direct and indirect costs, including estimated internal costs, associated with the leasing of real estate investments owned by the Company are capitalized and amortized over the term of the related lease. The Company includes lease incentive costs, which are payments made on behalf of a tenant to sign a lease, in deferred leasing costs and amortizes them on a straight-line basis over the respective lease terms as a reduction of rental revenue. Unamortized costs are charged to expense upon the early termination of the lease.

In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis. The Company had accumulated amortization of $0 and $38,794 as of September 30, 2013 and December 31, 2012, respectively. The Company had amortization expense of $6,521 and $2,948 for the nine months ended September 30, 2013 and 2012, respectively.

Deferred Financing Costs

Costs incurred in connection with obtaining financing are capitalized and are being amortized to amortization expense on a straight-line basis over the financing term. The Company had accumulated amortization of $84,865 and $77,646 as of September 30, 2013, and December 31, 2012, respectively. The Company had amortization expense of $7,219 and $10,128 for the nine months ending September 30, 2013 and 2012, respectively.

Real Estate Property and Fixed Assets

Investment in real estate and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values.

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and improvements, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

10

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Repair and maintenance costs are expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

Impairment of Long-Lived Assets

Long-lived assets, such as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the nine months ended September 30, 2013 or 2012.

Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carryforwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority.  The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2009. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

Stock-based Compensation

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant.  The Company has recognized $41,998 of compensation expense for the nine months ended September 30, 2013.  No stock-based compensation was granted in 2012.

The Company has also issued common stock in exchange for goods or services of non-employees.  These shares are are either fully vested at date of grant or vest over a certain period during which services are provided.  The Company expenses the fair market value of the services over the period in which they are received.

11

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company received professional services in exchange for membership units that were valued at $50,000 during the nine months ended September 30, 2013. These membership units were contributed to the Company in exchange for shares of common stock as part of the Formation Transactions.  No stock-based compensation was granted in 2012.

Noncontrolling Interest

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest. Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Net Income (Loss) or Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.

The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented:

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.  The historical financials of Talon Real Estate Holding Corp. consisting solely of the surviving operations of 5130 LLC were restated for the recapitalization of TREHC per the Formation Transactions, as amended, completed on June 7, 2013.

NOTE 4 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events for matters that require recognition or disclosure in the Company’s financial statements through the date these financial statements were issued.

12

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 4 – SUBSEQUENT EVENTS (continued)

On November 13, 2013, we amended a contribution agreement related to our Formation Transactions dated June 7, 2013 to correct the number of shares issued.  At the time of the Formation Transactions, 10,830,000 shares of common stock were issued to the contributors under that agreement, rather than the 13,650,810 shares of common stock previously reported as part of our outstanding shares.  Because the amended contribution agreement was part of the Formation Transactions completed on June 7, 2013, the previously reported effect of the recapitalization of equity on prior periods was revised to reflect a total of 15,140,222 outstanding as of December 31, 2012 rather than the previously reported amount of 17,961,032 shares.  The impact of the amendment to correct the number of shares issued at the time of our formation was not material to our previously reported earnings per share for the three and six month periods ended June 30, 2013.

NOTE 5 - NOTES PAYABLE

The Company holds two mortgages that are secured by the underlying real estate and mature on April 8, 2017.

Notes payable consist of the following:

Aggregate future minimum principal maturities required on notes payable for years ending December 31 are as follows:

The Company is required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain capital expenditures.

NOTE 6 - TENANT LEASES

The Company leases various commercial and industrial space to tenants over terms ranging from one to ten years. Some of the leases have renewal options for additional terms. The leases expire at various dates from May 2014 to February 2016. The leases provide for base monthly rentals and reimbursements for real estate taxes and common area maintenance.

13

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 6 - TENANT LEASES (continued)

At September 30, 2013, the Company has the following future minimum rentals on non-cancellable leases:

NOTE 7 - TRANSACTIONS WITH RELATED PARTIES

The Company engages in services with related parties due to common ownership, which are described below.

The Company had a management agreement with Kasa Real Estate LLC, a related party, which terminated at the end of May 2013. The management fees were $8,433 and $25,667 for the nine months ended September 30, 2013 and 2012, respectively. In 2012, the company also had an administrative and maintenance agreement with this company with fees totaling $25,678 for the nine months ended September 30, 2012.

The Company has a general services and maintenance agreement with Outside Services & Storage LLC, a related party, which terminated at the end of May 2013.  The total cost of these services was $20,912 and $26,076 for the nine months ended September 30, 2013 and 2012, respectively.  The Company also had a lease agreement with Outside Services & Storage LLC, which ended on July 31, 2013.  This agreement allowed Outside Services & Storage LLC to occupy 17,841 square feet of the industrial building located at 5130 Industrial Street and 24,000 square feet at 1350 Budd Ave at below market rental rates.  The Company received lease payments of $0 and $39,700 from this related party for the nine months ended September 30, 2013 and 2012, respectively. Related party revenue is recognized when received.

NOTE 8 - CONCENTRATIONS

The Company has two tenants that rent approximately 50% of the total rentable space for the nine months ended September 30, 2013 and 2012, respectively. The largest tenant rents approximately 35% of the rentable space.  The Company had one tenant who accounted for 88% of the total outstanding rents receivable balance as of September 30, 2013 and 100% as of December 31, 2012.

14

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 9 - RESTRICTED ESCROWS AND RESERVES

According to the terms of the Company's notes payable agreements (Note 5), the Company is required to make monthly and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissions. The balances in these restricted escrows and reserve accounts are as follows:

NOTE 10 - COMMITMENTS AND CONTINGENCIES

On June 7, 2013, prior to the Formation Transactions, Talon RE, entered into a contribution agreement with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC’s lender.

The Company entered into a property lease agreement relating to rental of office space. This non-cancellable lease has a remaining term of 8 months. The lease is subject to periodic adjustments for operating expenses. The future minimum rental payments under non-cancellable operating leases as of September 30, 2013 are $27,178.

The Company is not subject to any material litigation nor to management’s knowledge is any material litigation currently threatened against the Company other than routine litigation, claims and administrative proceedings arising in the ordinary course of business. Management believes that such routine litigation, claims and administrative proceedings will not have a material adverse impact on the Company’s financial position or results of operations.

NOTE 11  INCOME TAXES

Deferred income tax assets and liabilities are determined based upon differences between the 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.  The Company does not expect to pay any federal or state income tax for 2013 because it projects losses to exceed operating income in 2013.  Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.  As of September 30, 2013, the Company maintains a full valuation allowance for all deferred tax assets.  Based on these requirements no provision or benefit for income taxes has been recorded for deferred taxes.  There were no recorded unrecognized tax benefits at the end of the reporting period.

15

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 12  RESTRICTED STOCK

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan.  The 2013 Equity Incentive Plan (“the Plan”) allows up to 1,500,000 shares to be issued and granted to employees, non-employee directors, and consultants. These employee awards vest monthly over 36 months provided the recipient remains an employee or consultant of the Company.  The Non-Employee Director Compensation Plan allows 60,000 shares of restricted common stock to be granted upon election to the board and is included in the Plan. These stock grants vest one-third of the shares on the date of grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as of the vesting date.  As of September 30, 2013, the Company granted 120,000 shares to employees and 180,000 shares to Directors under the Plan.

The following table sets forth a summary of restricted stock for the nine months ended September 30, 2013:

As of September 30, 2013, there was $138,002 of total unrecognized compensation expense related to the outstanding restricted stock which is expected to be recognized over a weighted average period of 13 months.  The Company recognized $41,997 of stock-based compensation expense for the nine months ended September 30, 2013.  The Company granted 75,000 shares to employees on June 7, 2013 that were subsequently rescinded before any shares vested and are included in the forfeited amount in the table above.  The Company used 0% for both the discount factor and forfeiture rate for determining the fair value of restricted stock.  The Company has limited history to determine forfeiture trends and the Company considers the discount rate to be immaterial.

NOTE 13  LIQUIDITY

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. In the short-term, we have incurred significant expenses related to our formation activities, becoming a public corporation, and preparation for our acquisition strategy creating a cash shortfall from operations in 2013.

16

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013 and for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

NOTE 13  LIQUIDITY (continued)

Our short-term liquidity requirements consist primarily of funds needed to pay for operating expenses and other expenditures directly associated with our properties and to pursue our strategy of near-term growth through acquisition of properties as well as general and administrative expenses operating as a public company.

As of September 30, 2013, we had unrestricted cash of $79,178.  We expect that the income generated from current operations alone will not be sufficient to fund our expected operations and continuing opportunities. There are no present plans for material capital expenditures to improve, renovate or develop our current properties.  Although we plan to aggressively pursue acquisitions to grow our business, we are not a party to any agreement to purchase any additional properties (other than the remaining 51% interest in 5130 LLC) and there is no assurance that we will be able to acquire additional properties in the future or obtain the necessary financing to acquire such properties.

Since our available cash and cash flows from operations may not provide us with adequate liquidity for the foreseeable future, we expect to undertake future debt or equity financings this year.  On August 20, 2013, we sold 222,000 shares of common stock in a private placement resulting in gross proceeds of approximately $277,500. A substantial portion of these proceeds were used to satisfy current general operating expenses.

In the future, we may use a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured.  We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, and other costs.  Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities.  Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management.  There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.

17

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in our Current Report on Form 8-K dated June 7, 2013.  Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Overview

We are a real estate investment company focused on investing in office, industrial and retail properties located in significant metropolitan areas in the central and southwestern United States. We currently own a 49% interest in an entity that owns an industrial complex consisting of approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area. We have entered into a contribution agreement to acquire the remaining interest in this entity, subject to receiving consent to the transfer from the entity’s lender. As of September 30, 2013, the property owned by this entity was 66% leased. The remaining 34% of rentable space recently became available in the third quarter of 2013 and is being marketed for lease.

We plan to aggressively pursue additional properties for our portfolio. We initially plan to target properties between 10,000 and 500,000 square feet located in the area bounded by Minnesota and Texas to the north and south, and by Illinois and Colorado to the east and west, although we will consider properties outside this target area if we identify attractive opportunities. We believe these markets are currently underserved in financing and market options for which we can provide advantageous solutions.

We plan to invest in both core income-producing properties requiring relatively small improvements or enhancements and value-added properties that will require more significant investments of capital or management attention (including, but not limited to, leasing vacant space or extending expiring leases) that we expect to provide current income as well as the increased potential for higher long-term value to our company. Our long-term plan is to invest in value-added properties while maintaining a significant part of our portfolio in core properties. Our investment allocation between these two types of properties may significantly fluctuate in the short term as we seek the best opportunities.

Formation Transactions

On June 7, 2013, we entered into:

·

a subscription agreement with Talon OP, L.P., a Minnesota limited partnership (“Talon OP”), pursuant to which our company acquired 1,600,032 general partnership interests of Talon OP in exchange for $1.00,

·

a contribution agreement with the holders of a 49% interest in 5130 Industrial Street, LLC (“5130 LLC”), the owner of an industrial complex consisting of approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area, pursuant to which our company acquired such interest in exchange for an aggregate of 2,710,190 shares of our common stock,

·

a contribution agreement, with the members of Talon Real Estate, LLC, a Minnesota limited liability company (“Talon RE”), which holds a purchase agreement to acquire the controlling interest in 5130 LLC, pursuant to which our company acquired all of the interests of Talon RE in exchange for an aggregate of 10,830,000 shares of our common stock,

·

a contribution agreement with Talon OP pursuant to which our company contributed all our interests in 5130 LLC to Talon OP in exchange for 2,710,190 general partnership interests of Talon OP, and

·

a contribution agreement with Talon OP pursuant to which our company contributed all our interests in Talon RE to Talon OP in exchange for 10,830,000 general partnership interests of Talon OP (collectively, the “Formation Transactions”).

On June 7, 2013, prior to the Formation Transactions, Talon RE, entered into a contribution agreement, with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC’s lender.

18

On June 7, 2013, prior to the Formation Transactions, Matthew G. Kaminski (“MG Kaminski”), entered into a subscription agreement with Talon OP pursuant to which MG Kaminski acquired one limited partnership interest of Talon OP in exchange for $0.01.

Following the Formation Transactions, our company is the sole general partner of Talon OP, which holds substantially all our assets and through which we conduct our operations. The contributions that constitute the Formation Transactions are being accounted for as a reverse acquisition and recapitalization, and Talon OP is considered to be the accounting acquirer.

Talon OP Limited Partnership Agreement

On June 3, 2013, we entered into that certain limited partnership agreement of Talon OP, which we refer to as our Operating Partnership. We are the sole general partner of the Operating Partnership, and, as such, we generally have the exclusive power to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners, which are described more fully our Current Report on Form 8-K dated June 7, 2013. A description of the limited partnership agreement is provided therein under “Description of the Partnership Agreement of Our Operating Partnership.”  This description of the limited partnership agreement does not purport to be complete and is qualified in its entirety by reference to the limited partnership agreement, which is attached as Exhibit 10.9 to our Current Report on Form 8-K dated June 7, 2013.

Critical Accounting Policies and Estimates

Our discussion and analysis of the historical financial condition and results of our operations are based upon our financial statements which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP.

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of our significant accounting policies in the notes to the consolidated financial statements of our company elsewhere in this report. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. We evaluate these estimates on an ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of the date hereof. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies.

Investments in Real Estate and Fixed Assets

Investments in real estate and fixed assets are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values. We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market economic conditions.

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and improvements and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

19

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.  In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary.  The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership.  Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC.  All significant intercompany balances have been eliminated in consolidation.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.  The historical presentation of periods prior to the Formation Transactions of Talon Real Estate Holding Corp. consisting solely of the surviving operations of 5130 LLC were restated for the recapitalization of TREHC per the Formation Transactions, completed on June 7, 2013 and as amended on November 13, 2013.

Noncontrolling Interest

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest.  Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses.  An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

Impairment of Long-Lived Assets

We assess the carrying value of investment property and related intangibles, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with GAAP. Impairment losses are recorded on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.

Income Taxes

We intend to elect to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code and intend to operate as such beginning with our taxable year ending December 31, 2014. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. generally accepted accounting principles, or U.S. GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to shareholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

20

The Company accounts for income taxes under FASB ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon differences between the 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.  Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position.

Accounting Standards Applicable to Emerging Growth Companies

We qualify as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act, or JOBS Act. Section 102(b)(1) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Results of Operations

Financial and operating results for the three and nine months ended September 30, 2013 include significant costs incurred to recapitalize and operate as a public company and costs of new employees and consultants.

We expect our revenues, expense reimbursements and each category of expenses will increase on an absolute basis in the future as we seek to acquire additional properties, assume or refinance indebtedness in connection with the acquisitions and build the infrastructure necessary to grow our business and to operate as a publicly traded company.

Three months ended September 30, 2013 compared to three months ended September 30, 2012

Revenues and Expenses

Rental revenues increased $68,398 or 73.1%, to $161,972 for the three months ended September 30, 2013 compared to $93,574 for the same period of the prior year. The increase in rental revenues is attributable to a one time early lease termination payment.

Expense reimbursements decreased $1,425, or 4.2%, to $32,875 for the three months ended September 30, 2013 compared to $34,300 for the same period of the prior year. The decrease in expense reimbursements is attributable to a reduction in the expense reimbursement paid by a related party.

General and administrative expenses increased $13,937 or 149.1%, to $23,286 for the three months ended September 30, 2013 compared to $9,349 for the same period of the prior year. The increase in general and administrative expenses is attributable to expenses incurred to operate as a publicly held real estate holding corporation.

Salary and compensation expenses increased $144,406 for the three months ended September 30, 2013 compared to $0 for the same period of the prior year. These increased expenses were due to us operating as a publicly held real estate holding corporation. In the previous year, our operations consisted solely of 5130 LLC, and we paid management fees to a related party and did not have any employees or directors.

Professional fees increased $125,525 for the three months ended September 30, 2013 compared to $0 for the same period of the prior year. These increased expenses were primarily due to us operating as a public company rather than as a privately held company in the prior year.

21

Property operating expenses decreased $8,793 or 56.9%, to $6,673 for the three months ended September 30, 2013 compared to $15,466 for the same period of the prior year. The decrease in property operating expenses is attributable to a reduction in the cost of property maintenance.

Real estate taxes and insurance decreased $4,913 or 15.4% to $26,975 for the three months ended September 30, 2013 compared to $31,888 for the same period of the prior year. The decrease is primarily attributable to an over accrual of insurance expense in the first half of 2012.

Interest expense decreased $1,002, or 1.3%, to $74,790 for the three months ended September 30, 2013 compared to $75,792 for the same period of the prior year. The decrease in interest expense is attributable to principal reduction of long-term debt.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Revenues and Expenses

Rental revenues increased $36,260 or 12.1%, to $335,431 for the nine months ended September 30, 2013 compared to $299,171 for the same period of the prior year. The increase in rental revenues is attributable to a one time early lease termination payment.  In 2013 and 2012, rents collected from related parties that represented 24% of the leaseable space were below market rental rates. As of September 30, 2013, management has terminated all related party leases and currently has this space marketed for lease.

Expense reimbursements decreased $14,561, or 12.5%, to $101,475 for the nine months ended September 30, 2013 compared to $116,036 for the same period of the prior year. The decrease in expense reimbursements is attributable to a reduction in the expense reimbursement paid by a related party whose lease terminated in July 2013.

General and administrative expenses increased $93,298, or 170.6% to $147,988 for the nine months ended September 30, 2013 compared to $54,690 for the same period of the prior year. The increase in general and administrative expenses is attributable to expenses incurred in forming and operating as a publicly held real estate holding corporation.

Salary and compensation expenses increased $283,851 for the nine months ended September 30, 2013 compared to $0 for the same period of the prior year. These expenses were incurred in the formation and operation of the real estate holding corporation.  In the previous year, our operations consisted solely of 5130 LLC, and we paid management fees to a related party and did not have any employees or directors.

Professional fees increased $496,758 for the nine months ended September 30, 2013 compared to $0 for the same period of the prior year. These expenses were a result of the formation and operation of the real estate holding corporation.

Property operating expenses decreased $15,499 or 25.5%, to $45,166 for the nine months ended September 30, 2013 compared to $60,665 for the same period of the prior year. The decrease in property operating expenses is attributable to a reduction in the cost of property maintenance.

Real estate taxes and insurance decreased $8,925 or 7.7% to $107,308 for the nine months ended September 30, 2013 compared to $116,233 for the same period of the prior year. The decrease is primarily attributable to an over accrual of insurance in the first half of 2012.

Interest expense decreased $3,708, or 1.6%, to $223,541 for the nine months ended September 30, 2013 compared to $227,249 for the same period of the prior year. The decrease in interest expense is attributable to a principal reduction of long-term debt.

Funds from Operations and Non-GAAP Reconciliation

The National Association of Real Estate Investment Trusts, or NAREIT, defines funds from operations, or FFO, as net income (loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties. We intend to calculate FFO in a manner consistent with the NAREIT definition.

22

Management intends to use FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors, and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.

FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

Below is the calculation of FFO and the reconciliation to net income (loss), which we believe is the most comparable GAAP financial measure:

Reconciliation of Non-GAAP Pro Forma Financial Measures

^{___________________________________________}

¹ Depreciation and amortization includes consolidated depreciation and amortization of $84 and $61 for the three months ended September 30, 2013 and 2012, respectively, adjusted downward by $43 and $31 for noncontrolling interest in real estate in 2013 and 2012, respectively, and $7 for amortization of financing costs in 2012, and $1 for depreciation of non-real estate property in 2013.

² Depreciation and amortization includes consolidated depreciation and amortization of $206 and $183 for the nine months ended September 30, 2013 and 2012, respectively, adjusted downward by $105 and $93 for noncontrolling interest in real estate in 2013 and 2012, respectively, and $7 for amortization of financing costs in both 2013 and 2012 and $2 for depreciation of non-real estate property in 2013.

23

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. In the short-term, we have incurred significant expenses related to our formation activities, becoming a public corporation, and preparation for our acquisition strategy creating a cash shortfall from operations in 2013.

Our short-term liquidity requirements consist primarily of funds needed to needed to pay for operating expenses and other expenditures directly associated with our properties and to pursue our strategy of near-term growth through acquisition of properties, including:

·

interest expense and scheduled principal payments on outstanding indebtedness,

·

general and administrative expenses,

·

future distributions expected to be paid to our shareholders and limited partners of the Operating Partnership, and

·

anticipated and unanticipated capital expenditures.

Our long-term liquidity requirements consist primarily of funds to pay for scheduled debt maturities, non-recurring capital expenditures that need to be made periodically and continued expansion of our business through acquisitions. There are no present plans for material capital expenditures to improve, renovate or develop our current properties. Although we plan to aggressively pursue acquisitions to grow our business, we are not a party to any agreement to purchase any additional properties (other than the remaining 51% interest in 5130 LLC) and there is no assurance that we will be able to acquire additional properties in the future or obtain the necessary financing to acquire such properties.

As of September 30, 2013, we had cash of $79,178.  We expect that the income generated from current operations alone will not be sufficient to fund our expected operations and continuing opportunities. Since our available cash and cash flows from operations may not provide us with adequate liquidity for the foreseeable future, we expect to undertake future debt or equity financings this year.  On August 20, 2013, we completed the private placement of 222,000 shares of common stock at a price of $1.25 per share resulting in gross proceeds to us of approximately $277,500.

In the future, we may use a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured.  We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, and other costs.  Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities.  Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management.  There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.

Outstanding Indebtedness

5130 LLC, an entity in which our Operating Partnership owns a 49% interest and that owns an industrial complex, is party to a loan agreement secured by such industrial complex. The loan agreement provides for two term loans, the A loan, with an original balance of $4.45 million, and the B loan, with an original balance of $300,000, with fixed interest rates of 6.049% per annum and 12.75% per annum, respectively, and a current weighted average loan rate of 6.49% on a combined balance of approximately $4.5 million. The loans mature on April 8, 2017 and can be accelerated in certain circumstances, including if there is an event of default under the loan agreement.

Off Balance Sheet Arrangements

At September 30, 2013, we did not have any off-balance sheet arrangements.

24

Inflation

As of September 30, 2013, most of our leases required tenants to reimburse us for a share of our operating expenses. As result, we are able to pass on much of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During the first nine months of 2013, inflation did not have a material impact on our revenues or net income.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business plan, we expect that interest rate risk will be the primary market risk to which we will be exposed. As of September 30, 2013, all of our outstanding debt had a fixed rate.  We therefore do not have any material risk to interest rate fluctuations unless we increase our debt in the future or refinance our existing debt.

We may become exposed to the effects of interest rate changes as a result of floating rate debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to manage overall borrowing.

Foreign Currency Exchange Risk

Our results of operations and cash flows are not materially affected by fluctuations in foreign currency exchange rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2013.

Changes in Internal Control over Financial Reporting

Prior to the acquisition of 5130 LLC, the books and records of 5130 LLC were recorded and maintained on a tax-basis accounting methodology.  In conjunction with the audit of 5130 LLC, material accounting adjustments were proposed and recorded to prepare the financial statements of 5130 LLC for the fiscal years ended December 31, 2012 and 2011 in conformity with GAAP. Our auditors identified a material weakness in the internal controls resulting from these adjustments.  In response, our company hired a Chief Financial Officer in June 2013 and has adopted and implemented GAAP accounting policies and procedures as part of our internal controls system. We have instituted and expect to maintain appropriate and adequate controls for preparing financial statements in accordance with GAAP with oversight by the audit committee of our board of directors.  Other than these changes, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings

We are not currently subject to any material legal proceedings.  From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities.  Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources.  We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

Item 1A.

Risk Factors

There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Current Report on Form 8-K dated June 7, 2013 as filed with the Securities and Exchange Commission on June 7, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth under Item 3.02 of our current report on Form 8-K dated August 20, 2013, filed on August 20, 2013 (File No. 000-53917) is incorporated herein by reference.

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

On November 13, 2013, we amended that certain contribution agreement dated June 7, 2013 to revise Schedule A to the agreement.  The revised schedule reflects that 10,830,000 shares of common stock were issued to the contributors under that agreement, rather than the 13,650,810 shares of common stock previously reflected on Schedule A bringing the total shares of common stock outstanding to 15,140,222 as of June 7, 2013.   A copy of the amendment is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.  In connection with this amendment, we have corrected the number of outstanding shares of our common stock to 15,662,222 shares, which is the number of shares we have had outstanding from August 20, 2013 until the date of filing of this Quarterly Report on Form 10-Q.

Item 6.

Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index immediately following the signatures to this report.

26

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.

27

EXHIBIT INDEX

_________________________

^†Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.

28