LATITUDE 360, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - LATITUDE 360, INC.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - LATITUDE 360, INC.	v410335_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - LATITUDE 360, INC.	v410335_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - LATITUDE 360, INC.	v410335_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

☐	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 000-55259

Latitude 360, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		20-5587756
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6022 San Jose Blvd.

Jacksonville, FL 32217

(972) 771-4205

(Address including zip code, and telephone number, including area code, of principal executive offices)

Not applicable

(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 ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐

Non-Accelerated Filer	☐	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 ☒

As of May 7, 2015, 131,447,510 shares of the common stock of the registrant were outstanding.

TABLE OF CONTENTS

		Page
	PART I — FINANCIAL INFORMATION	3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statement of Operations	4
	Statement of Changes in Stockholders' (Deficit)	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34
	PART II — OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 6.	Exhibits	35
SIGNATURES		36

PART I

Item 1. Consolidated Financial Statements

LATITUDE 360, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2015			2014

ASSETS
Current assets:
Cash	$	140,532		$	99,329
Accounts receivable		33,465			100,788
Franchise fee receivable from related party		410,960			187,215
Other receivables		53,669			32,669
Due from related parties		116,808			108,592
Inventories		257,024			312,277
Prepaid expenses		71,531			-
Total current assets		1,083,989			840,870

Property and equipment, net		43,777,586			44,712,350
Idle Property		2,010,083			2,010,083
Other assets		395,938			392,462
		46,183,607			47,114,895

Total assets	$	47,267,596		$	47,955,765


LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable	$	5,797,424		$	7,966,213
Accounts payable - Construction related		6,540,543			5,055,041
Accrued expenses		6,179,586			4,409,541
Accrued compensation - related party		1,600,000			1,600,000
Due to related parties		460,381			388,990
Obligations under capital lease		317,302			317,302
Deferred rent		19,700			19,700
Deferred revenue		100,498
Interest payable		3,977,722			3,579,302
Derivative Liabilities		1,183,203			588,420
Short-term notes payable		23,332,246			25,859,970
Total current liabilities		49,508,605			49,784,479

Deferred rent		206,850			206,850
Obligations under capital lease		20,722,751			20,789,276
		20,929,601			20,996,126

Total liabilities		70,438,206			70,780,605

Stockholders' equity:
Preferred stock, 20,000,000 shares authorized;
Preferred stock Series A $1,000 par value, 25,000 shares designated,		-			-
No shares issued and outstanding at March 31, 2015 and December 31, 2014		-			-

Preferred stock Series AA $1,000 par value, 25,000 shares designated,		-			-
No shares issued and outstanding at December 31 2015 and 2014		-			-
Common stock, $.001 par value; 500,000,000 shares authorized,
131,392,795 shares issued and outstanding as of December 31, 2014
and 127,151,243 shares issued and outstanding as of December 31, 2014		131,393			127,151
Additional paid-in capital		152,627,953			143,860,917
Retained earnings		(175,929,956	)		(166,812,908	)
Total stockholders' equity		(23,170,610	)		(22,824,840	)

Total liabilities and stockholders' equity	$	47,267,596		$	47,955,765

The accompanying notes are an integral part of these financial statements

LATITUDE 360, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

	Quarter ended			Quarter ended
	March 31,			March 31,
	2015			2014

Net Sales	$	5,641,106		$	5,043,140

Cost and Expenses:
Cost of Sales		1,069,165			993,508
Labor		2,419,451			1,965,198
Occupancy and related costs		648,958			765,540
Professional fees		868,728			470,210
Depreciation and Amortization		1,076,226			999,913
Selling, general and administrative expenses		3,065,034			2,755,032

Total costs and expenses		9,147,562			7,949,401

Loss from operations		(3,506,456	)		(2,906,261	)

Other (income)/expense
Interest expense		1,736,128			3,970,044
Loss on modification of debt		4,273,062			-
Change in fair value of derivative liability		9,940			-
Loss from fixed assets sold		-			357
Franchise Fee		(410,960	)		-

Net loss from continued operations		(9,114,626	)		(6,876,662	)

Discontinued Operations
Loss from discontinued operations		2,422			62,753

Net Loss	$	(9,117,048	)	$	(6,939,415	)


Basic and diluted loss per share
Continued operations	$	(0.07	)	$	(0.09	)
Discontinued operations		0.00			0.00
	$	(0.07	)	$	(0.09	)


Weighted average shares outstanding		129,787,806			72,928,991

The accompanying notes are an integral part of these financial statements

LATITUDE 360, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND FOR THE YEAR ENDED DECEMBER 31, 2014

																			Additional						Other
	Series A Preferred Stock						Series AA Preferred Stock						Common Stock						Paid-in			Accumulated			Comprehensive
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Deficit			Gain (Loss)

Balance, December 31, 2013		12,457		$	12,457,517			-			-			70,727,409		$	70,727		$	75,327,534		$	(115,861,062	)		-	$	(28,005,284	)

Shares issued in connection with the issuance of convertible debt		-			-			-			-			7,726,071			7,726			6,051,511			-			-		6,059,237
Shares issued in connection with the issuance of short term cash advances		-			-			-			-			621,399			621			559,694			-			-		560,315
Shares issued in connection with the issuance of loan to Latitude Global		-			-			-			-			82,459			82			173,082			-			-		173,164
Shares issued in exchange for vendor debt cancellation		69			69,000			69			69,050			49,684			50			44,750			-			-		182,850
Shares issued in exchange for cancellation of debt		12,140			12,139,490			6,676			6,676,142			8,152,433			8,152			18,061,982			-			-		36,885,766
Conversion of preferred stock and accrued dividends into common stock		(24,666	)		(24,666,007	)		(6,745	)		(6,745,192	)		39,465,179			39,466			34,041,475			-			-		2,669,742
Shares issued for consulting services		-			-			-			-			514,208			515			516,335			-			-		516,850
Shares issued to employees		-			-			-			-			186,315			186			159,814			-			-		160,000
Employee rights offering		-			-			-			-			-			-			(145,894	)		-			-		(145,894	)
Finance costs recognized on stock warrant grants		-			-			-			-			-			-			1,309,254			-			-		1,309,254
Compensation recognized on stock warrant grants		-			-			-			-			-			-			919,312			-			-		919,312
Compensation recognized on stock option grants		-			-			-			-			-			-			6,561,396			-			-		6,561,396
Common shares cancelled		-			-			-			-			(373,914	)		(374	)		374			-			-		-
Discounts issue on convertible debt		-			-			-			-			-			-			280,298			-			-		280,298
Accrued Preferred Stock dividends																							(649,467	)				(649,467	)
Net loss for period		-			-			-			-			-			-			-			(50,302,379	)				(50,302,379	)


Balance, December 31, 2014		-			-			-			-			127,151,243			127,151			143,860,917			(166,812,908	)		-		(22,824,840	)

Shares issued in connection with the issuance of convertible debt																												-
Shares issued in connection with the issuance of short term cash advances																												-
Shares issued in connection with the issuance of loan to Latitude Global																												-
Shares issued in exchange for vendor debt cancellation														20,000			20			19,980								20,000
Shares issued in exchange for cancellation of debt														4,221,552			4,222			8,555,179								8,559,401
Common shares cancelled																												-
Discounts issue on convertible debt																				191,877								191,877
Accrued Preferred Stock dividends																							-					-
Net loss for period																							(9,117,048	)				(9,117,048	)

Balance, March 31, 2015		-		$	-			-		$	-			131,392,795		$	131,393		$	152,627,953		$	(175,929,956	)		-	$	(23,170,610	)

The accompanying notes are an integral part of these financial statements

LATITUDE 360, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Quarter ended			Quarter ended
	March 31,			March 31,
	2015			2014
Cash Flows from Operating Activities
Net loss	$	(9,117,048	)	$	(6,939,415	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Operating activities of discontinued operations		2,422			62,753
Net loss from operations		(9,114,626	)		(6,876,662	)
Depreciation and amortization expense		1,076,226			999,913
Amortization on discount of convertible debt		171,665			968,396
Stock based compensation		20,000			61,049
Interest expense		1,863,669			-
Loss on modification of debt		4,273,062			-
Loss on disposition of assets		-			357
Change in fair value of derivative liability		9,940			-
(Increase) decrease in assets:
(Increase) decrease in accounts and other receivables		67,323			(784	)
(Increase) decrease in inventories		55,253			34,278
(Increase) decrease in prepaid expenses		(71,531	)		4,558
(Increase) in other assets		(248,221	)		(1,334,439	)
Increase (decrease) in liabilities:
Increase in accounts payable		(685,708	)		(1,341,172	)
Increase in accrued expenses		1,870,543			39,522
Increase in interest payable		(1,337,708	)		344,225
Interest payable on obligations under capital leases					(275,999	)
(Decrease) increase in deferred rent		-			211,451

Net cash provided by (used in) operating activities		(2,050,113	)		(7,165,307	)

Cash Flows from Investing Activities
Proceeds from sale of asset		-			-
Purchase of property and equipment		(141,462	)		1,004,389

Net cash used in investing activities		(141,462	)		1,004,389

Cash Flows from financing activities
Restricted cash reclassification		-			318,646
Proceeds from construction loans		-			-
Proceeds from issuance of convertible and other debt		3,042,250			7,448,101
Principal reduction in convertible and other debt		(806,121	)		(463,928	)
Repayment of dividends payable		-			606
Proceeds from related party advances		63,175
Principal reduction in obligations under capital leases		(66,525	)		-

Net cash provided by financing activities		2,232,779			7,303,425

Net (decrease) increase in cash		41,203			138,118

Beginning balance - cash		99,329			170,950

Ending balance - cash	$	140,532		$	309,068
Supplemental Information:


Interest expense paid	$	13,005		$	20,590
Income taxes paid	$	-
Non-cash investing and financing activities:


Common shares issued in conversion of debt	$	4,178,798		$	2,875,590
Preferred shares issued in conversion of debt	$	-		$	2,459,982

The accompanying notes are an integral part of these financial statements

Latitude 360, Inc.

Notes to Consolidated Financial Statements

1. NATURE OF BUSINESS

Lat 360, Inc., formerly known as Kingdom Koncrete, Inc., (the “Company”) operates a ‘carry and go’ concrete business. The Company is located in Rockwall, Texas and was incorporated on August 22, 2006 under the laws of the State of Nevada.

On August 22, 2006, Kingdom Koncrete, Inc. (“Koncrete Nevada”), a private holding company established under the laws of Nevada, was formed in order to acquire 100% of the outstanding common stock of Kingdom Texas. On June 30, 2006, Koncrete Nevada issued 5,000,000 shares of common stock in exchange for a 100% equity interest in Kingdom Texas. As a result of the share exchange, Kingdom Texas became the wholly owned subsidiary of Koncrete Nevada. As a result, the shareholders of Kingdom Texas owned a majority of the voting stock of Koncrete Nevada. The transaction was regarded as a reverse merger whereby Kingdom Texas was considered to be the accounting acquirer as its shareholders retained control of Koncrete Nevada after the exchange, although Koncrete Nevada is the legal parent company. The share exchange was treated as a recapitalization of Koncrete Nevada. As such, Kingdom Texas (and its historical financial statements) is the continuing entity for financial reporting purposes. The financial statements have been prepared as if Koncrete Nevada had always been the reporting company and, on the share exchange date, changed its name and reorganized its capital stock.

On May 30, 2014 the Company completed its acquisition of Latitude 360, Inc., a Florida corporation (“L360”), pursuant to the Agreement and Plan of Merger (as amended, the “Merger Agreement”) dated April 8, 2014, among the Company, Latitude Global Acquisition Corp., a Florida corporation and a wholly-owned subsidiary of the Company (the “Merger Sub”), and L360. Pursuant to the Merger Agreement, on May 30, 2014, Merger Sub merged with and into L360, and L360 became a wholly-owned subsidiary of the Company (the “Merger”). The Company changed its name to Latitude 360, Inc. on January 28, 2014.

At the effective date of the Merger, the Company had 5,721,900 shares outstanding and issued an aggregate of 114,070,828 shares of the Company’s common stock (the “Merger Shares”) to the shareholders of L360 as consideration for the 68,278,434 common shares of L360. The Merger Shares represent approximately 98.9% of the total number of outstanding shares of the Company’s common stock. The transaction was regarded as a reverse merger whereby L360 is considered to be the accounting acquirer and is the continuing entity for financial reporting purposes. The accompanying financial statements have been restated to reflect the recapitalization retroactively to all periods presented.

L360 opened its first venue in 2011 located in Jacksonville, Florida (Jax). In 2012 opened two venues located in Indianapolis, Indiana (Indy), and Pittsburgh, Pennsylvania (Pitt). Each venue consists of a full-service restaurant and bar, dine-in bowling lanes, dine-in luxury screening room, and a dine-in live performance theatre. L360 commenced constructing Lat 42’s venue located in Chicago, Illinois, in 2012. The Company decided to abandon the Chicago location in 2013. The Company is accounting for Lat 42’s activity as a discontinued operation pursuant to Accounting Standards Codification (“ASC”) Topic 250-20, “Discontinued Operations”. In 2014 L360 commenced constructing venues located in Albany, NY, Minneapolis, MN and South Boston, MA. These venues are expected to open during 2015. These venues were still under construction as of March 31, 2015.

On December 16, 2014, the Company filed an amendment to its Articles of Incorporation increasing the number of authorized preferred shares to 20,000,000 and increasing the number of authorized common stock shares to 500,000,000.

2. MANAGEMENT’S PLANS REGARDING FUTURE OPERATIONS AND LIQUIDITY

The Company has incurred significant losses from operations during the three months ended March 31, 2015 and the year ended December 31, 2014, and on a consolidated basis has an accumulated deficit of $175,929,956 and $166,812,908 for the years then ended. The Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon obtaining additional financing and generating positive cash flows from its operations. Management’s plans include the procurement of additional funds through debt and equity instruments and the increase in operating cash flows from revenues generated as part of various new venues located in Albany, NY, Minneapolis, MN and South Boston, MA expected to begin operation in 2015. There are no assurances Management will be able to raise capital on terms acceptable to the Company or cash flow generated from its venues will be sufficient to meets its current operating costs and required debt service. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm its financial condition and operating results.

Subsequent to the balance sheet date and through May 7, 2015, the Company received cash funding of approximately $1,374,000 through the issuance of short term and long term notes. As of May 7, 2015, the Company has approximately $18 million in notes payable which are due periodically through calendar year 2015, 2016 and 2017.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Reorganization, and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Latitude 360 and its wholly owned subsidiaries including:

Latitude 360 Jacksonville, LLC (“Jax”) - formed in Florida on January 2, 2009,

Latitude 360 Indianapolis, LLC (“Indy”) - formed in Florida on December 14, 2010

Latitude 360 Pittsburgh, LLC (“Pitt”) - formed in Florida on February 2, 2011

Latitude 42 Group LLC (“Lat 42”) - formed in Florida on December 30, 2011

Latitude 360 Albany, LLC (“Albany”) – formed in Delaware on December 20, 2013

Latitude 360 Kingston, LLC (“Kingston”) – formed in Delaware on June 6, 2014

Latitude 360 Global – formed in Cayman Islands on June 20, 2014

Latitude 360 Atlantic City, LLC (“Atlantic City”) – formed in Delaware on December 20, 2013

Latitude 360 Brooklyn, LLC (“Brooklyn”) – formed in Delaware on December 20, 2013 (currently inactive)

Latitude 360 Minneapolis, LLC (“Minneapolis”) – formed in Delaware on March 6, 2014

Latitude 360 Boston, LLC (“Boston”) – formed in Delaware on March 6, 2014 (currently inactive)

All significant intercompany accounts and transactions have been eliminated.

Business Segment

The Company operates two business segments which are comprised of the Company’s concrete business and its restaurant and entertainment business.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

Accounts and Other Receivables

Trade receivables include amounts due from credit card sales and from customers on past held group events, less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.

Other receivables include amounts due from landlords for retainage related to venues’ constructions.

Inventories

Inventories primarily consist of food, beverages and game redemption items. Inventories are accounted for at lower of cost or market using the average cost method. Spoilage is expensed as incurred.

Property and Equipment

Property and equipment is recorded at cost and is depreciated over the assets’ estimated useful lives using the straight-line method. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the term of the related lease. The estimated lives for equipment, furniture and fixtures, and computers range from three to ten years. The estimated life for leasehold improvements is twenty years. The cost of repairs and maintenance are expensed when incurred, while expenditures for major betterments and additions are capitalized. Gains and or losses are recognized on disposals or sales.

Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There were no impairment losses recognized in 2015 or 2014.

Revenue Recognition

Revenues from the operation of the facilities are recognized when sales occur. The revenue from electronic gift cards is deferred when purchased by the customer and revenue is recognized when the gift cards are redeemed. The revenue from electronic gift cards deferred as of March 31, 2015 and December 31, 2014 was $162,931 and $250,621, respectively, and is included in accrued expenses.

During the latter part of 2014 the Company implemented a customer loyalty program in which customers earn coupons and points based on registration in the program, payment of a monthly fee and purchases within the venues. Points earned are to be exchanged for certain services. Points earned do not expire. The Company records a portion of the retail value of the loyalty program as a discount from gross sales and the remainder is recorded as deferred revenue. A liability, for points earned but unused, are recorded as accrued expenses with the offset as a prepaid expense in the consolidated financial statements. The accrued liability related to the loyalty program was $69,503 as of March 31, 2015. Costs associated with the coupons are classified as a discount of the gross sales in the period in which the coupon is redeemed.

On November 21, 2014 Latitude Global 360, Inc., (Master Franchisee) registered in the Cayman Islands, entered into an “International Global Development Franchise Agreement” with Latitude 360, Inc. (Master Franchisor). The Master Franchisor provided the Master Franchisee the exclusive brand rights and franchise rights to expand, develop and/or sub-franchise Latitude 360 in any and all counties and territories outside the United States. The Master Franchisor is also entitled by way of this agreement to develop and operate in any country or territory outside the United States, either directly or indirectly, through franchising/sub franchising the outlet.

The term of the agreement is for twenty (20) years and gives the Master Franchisee the option of renewing the agreement for an additional consecutive term of twenty (20) years.

Certain provisions within the agreement requires the Master Franchisee to “fit-out” the Outlet, at their own cost, in accordance with the mandatory Outlet outfitting guidelines provided to the Master Franchisee by the Master Franchisor.

The Master Franchisor, at no cost to the Master Franchisee is responsible for, at a minimum, training, reasonable on-site pre-opening and opening supervision and assistance, reasonable continuing advisory assistance in the operation, operating manuals, make available research data related to merchandising, marketing and advertising, and shall conduct inspections to maintain high standards of quality appearance and service.

The Master Franchisee is obligated to pay the Master Franchisor a territory fee in the amount of $5,000,000, which is payable no later than three (3) years from the effective date of November 21, 2014, in the amount of $1,666,667 per year, payable by the end of each year for the three (3) years, unless otherwise mutually agreed upon in writing between the Master Franchisee and Master Franchisor.

For the three month period ended March 31, 2015, Latitude 360, Inc., per the agreement, recorded franchise revenue of $410,960 with an offsetting receivable entry of $410,960.

Convertible Debentures

The Company accounts for the equity instruments issued in connection with convertible debt pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” Proceeds received from the issuance of debt with equity are allocated between the components issued based upon their relative fair values. The amounts allocated to equity are accounted for as paid-in capital with an offset allocated to discounts of convertible debt. The Company amortizes the discount to interest expense, over the life of the respective debt using the effective interest method. The Company recognizes gain or loss on extinguishments and modifications of convertible debentures that create a substantial change in terms of the modified or converted debt.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized over the term of the debt using the effective interest method, or expensed upon conversion or extinguishment when applicable. Costs are capitalized for amounts incurred in connection with proposed financings. In the event the financing related to the capitalized cost is not successful, the costs are immediately expensed.

Derivative Financial Instruments

In the case of non-conventional convertible debt, the Company bifurcates its embedded derivative instruments and records them under the provisions of ASC Topic 815-15 “Embedded Derivatives.” The Company’s derivative financial instruments consist of embedded derivatives related to non-conventional convertible notes (see Note 6). The embedded derivative includes the conversion feature of the notes. The accounting treatment of derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the respective agreement and at fair value as of each subsequent balance sheet date. Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.

Issuances Involving Non-cash Consideration

All issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services and property. The non-cash consideration paid pertains to additional consideration issued in the issuance of convertible debt, payment on accrued interest, employee compensation and consulting services.

Stock Based Compensation

The Company accounts for stock-based compensation under ASC Topic 505-50. This standard defines a fair-value-based method of accounting for stock-based compensation. In accordance with ASC Topic 505-50, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. During the three months ended March 31, 2015 the Company had stock based compensation totaling $4,420,603 of which $20,000 was recognized as consulting through the issuance of 20,000 common shares, $127,541 was recognized as interest expense on the issuance of 62,754 common shares, and $4,273,062 was recognized as loss on modification of debt through the issuance of 4,158,798 common shares in connection with the cancellation of debt totaling $4,084,627, During the three months ended March 31, 2014, , the Company recognized stock-based compensation totaling approximately $2,400,542, of which $1,189,865 was recognized as interest expense on the issuance of 1,251,997 common shares in connection with the issuance and extension of short term loans, $7,000 was recognized for consulting services on the issuance of 7,763 shares of common stock, $20,000 was recognized as employee compensation on the issuance of 31,052 common shares, $1,149,628 was recognized as interest expense on the granting of 1,313,991 common stock warrants, and $34,049 was recognized as consulting expense on the granting of 38,915 common stock warrants

Loss per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, “Earnings per Share.” Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share have not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect.

Potential common shares as of March 31, 2015 that have been excluded from the computation of diluted net loss per share amounted to 54,836,846 shares and include 37,563,808 warrants, 6,579,455 options and $13,784,563 of debt and accrued interest convertible into 10,693,583 shares of the Company’s common stock. Of the 54,836,846 potential common shares at March 31, 2015, 50,875,082 were vested. Potential common shares as of March 31, 2014 that have been excluded from the computation of diluted net loss per share amounted to 49,205,030 shares and include 31,248,628 warrants, 834,327 options and $23,970,905 of debt and accrued interest convertible into 17,122,075 shares of the Company’s common stock. Of the 49,282,859 potential common shares at March 31, 2014, 49,282,859 were vested.

Advertising Costs

Advertising costs are expensed as incurred. Sponsorship costs are capitalized and amortized to expense over the sponsorship periods. Advertising costs for the three month periods ended March 31, 2015 and 2014 were approximately $52,428 and $95,725 respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) and its components are required to be classified by their nature in the financial statements, and display the accumulated balance of other comprehensive income separately from members’ capital and non-controlling interest in the accompanying balance sheets. There are no other components of comprehensive income (loss) other than the Company’s net loss for the periods presented.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash.

The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”). Interest bearing accounts are insured up to $250,000 and non-interest bearing accounts have no limitation. From time to time, the Company may have cash in financial institutions in excess of federally insured limits. As of March 31, 2015 and December 31, 2014, the Company did not have cash in excess of FDIC limits.

During the year ended December 31, 2014, one supplier represented approximately 12% of the Company’s purchases.

Operating Leases

The Company accounts for rent expense for its operating leases on the straight-line basis in accordance with ASC Topic 840, “Leases”. The Company leases land and buildings that have terms expiring between 10 and 20 years. The term of the leases do not include unexercised option periods. One premise has renewal clauses of up to 15 years, exercisable at the option of the Company. The Company does not have enough history to include renewal options in its deferred rent calculation.

Most lease agreements contain one or more of the following: tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. The Company includes scheduled rent escalation clauses for the purpose of recognizing straight-line rent. Certain of these leases require the payment of contingent rentals based on a percentage of gross revenues, as defined, and certain other rent escalation clauses are based on the Consumer Price Index.

4. INVENTORIES

Inventories at March 31, 2015 and December 31, 2014 consist of the following:

	March 31,		December 31,
	2015		2014
Produce, meats and other food products	$	100,290	$	118,486
Liquor and beverages		99,902		130,542
Redemption toys and others		56,832		63,249
Total	$	257,024	$	312,277

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2015 and December 31, 2014:

	March 31,			December 31,			Estimated useful Lives
	2015			2014
Audio/Visual	$	6,140,365		$	6,100,488		10
Computers & Software		1,102,693			1,098,918		3
Equipment		3,443,340			3,444,015		5-10
Furniture		1,180,980			1,180,305		10
Gaming Equipment		5,760,308			5,750,347		5
Vehicle		121,737			115,850		5
Leasehold improvements		19,134,317			18,452,353		20
Property held under capital leases		20,506,577			21,106,578		5-20
		57,390,317			57,248,854
Less accumulated depreciation		(11,602,648	)		(10,526,421	)
		45,787,669			46,722,433
Less - Idle Equipment		(2,010,083	)		(2,010,083	)
Property and Equipment, net	$	43,777,586		$	44,712,350

Depreciation and amortization expense for the period ended March 31, 2015 and 2014 amount to $1,076,226 and $999,913, respectively.

6. NOTES AND LOANS PAYABLES

Convertible Debt

2015

As of March 31, 2015, the Company issued convertible notes totaling $1,262,250 for cash consideration of $1,262,250. The notes bear interest from 8% to 12% per annum and have maturities ranging from six months to twenty four months. Outstanding principal is convertible into shares of the Company’s common stock at conversion rates of $1.40 per share and $3.00 per share. No principal repayments have been made in 2015.

As of March 31, 2015, non-convertible debt and accrued interest totaling $4,158,798 was converted into a total of 4,158,798 shares of common stock. Due to changes in conversion terms, the Company recognized a loss on these conversions totaling $4,273,062. The Company initially valued derivative liabilities associated with these notes at $584,842. The fair value of the derivative liabilities at March 31, 2015 totaled $1,183,202. The decrease in the fair value of the derivative liabilities of $9,940 was charged to operations.

2014

During 2014, the Company issued convertible notes totaling $20,398,154 for cash consideration of $16,350,244. The remaining $4,047,910 of the notes was issued to certain lenders to replace short-term obligations and debt issued on the conversion of trade payables. Most of the notes bear interest at 12% per annum and have maturities ranging from one month to sixteen months. The other notes bear interest at annual rates ranging from 18% per annum to 8% per annum. Of these notes, a total of $2,793,797 was issued at 18%, $11,122,749 was issued at 12%, 6,511,858 was issued at 10% and $178,750 was issued at 8%. The remaining $209,000 was issued under two notes that are described in the third paragraph. Outstanding principal is convertible into shares of the Company’s common stock at conversion rates of $1.40 per share and $3.00 per share. Principal repayments totaled $313,947 in 2014. During 2014, convertible debt and accrued interest totaling $18,070,134 was converted into a total of 8,152,433 shares of common stock, $12,139,490 of convertible debt was converted into 12,140 shares of Preferred Series A shares and $6,676,142 of convertible debt was converted into 6,676 shares of Series AA preferred shares. Due to changes in conversion terms, the Company recognized a loss on these conversions totaling $6,164,155.

In connection with the issuance of the above indicated convertible debt, the Company issued 6,998,120 shares of its common stock and also issued warrants to purchase 170,442 shares of the company’s common stock exercisable at a price of at $1.75 per share and expire five years from the date of grant. The warrants were valued at $149,129 using the Black Scholes Option Model with a risk-free interest rate of ranging from 1.50% to 1.66%, volatility of 200% , trading price of $1.40 per share and a conversion price of $1.75 per share, The convertible notes were recorded net of discounts that include the relative fair value of the additional stock issuances and the warrants, all totaling $3,964,467. Discounts along with loan fees are being amortized to interest expense over the respective term of the related note. Amortization of the discounts for the year ended December 31, 2014 totaled $4,840,304.

In September 2014 and December 2014, the Company issued two convertible promissory notes totaling $209,000. The Company incurred loan fees and costs totaling $17,000 in connection with these loans. Under the terms of these notes, the note holder has the right to convert any portion or all of the principal and accrued interest then outstanding into shares of the Company’s common stock. The conversion price for the $107,000 note is equal to 50% of the lowest trading price during the 20 trading days prior to conversion. The conversion price for the $102,000 note is equal to 50% of the lowest trading price during the 25 trading days prior to conversion. As these notes are convertible into a variable number of the Company’s common stock, the Company accounted for the notes under ASC Topic 815-15 “Embedded Derivatives.” The derivative component of the obligation are initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts along with loan fees are being amortized to interest expense over the respective term of the related note. In determining the indicated values of these notes, the Company used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05% to 0.12%, volatility ranging from 89.78% of 103.49%, trading prices ranging from $1.30 per share to $1.60 per share and a conversion prices ranging from $0.54 per share to $0.78 per share. Amortization of discounts and loans fees for 2014 totaled $71,483, which was charged to interest expense. The Company initially valued the derivative liabilities associated with these notes at $59,282. The fair value of the derivative liabilities at December 31, 2014 totaled $588,420.

In May 2014, three promissory notes totaling $71,298 issued on October 1, 2013, January 1, 2014 and February 28, 2014, all due to a third party, were sold by the Noteholder and the Company agreed to amend and restate the terms of each note. Under the new terms of each note, the note is convertible into the Company’s common stock with an initial conversion price of $0.50 per share. The conversion price is adjusted for any additional common shares or common share equivalents issued by the Company since the note’s restated issuance date. so that at the time of conversion, the new note holder will receive a number of shares equaling the same percentage of shares outstanding on the date of conversion as he would have receive if the note was converted on the date the note was amended. Due to the variable pricing of the conversion feature the three notes, the Company accounted for the notes under ASC Topic 815-15 “Embedded Derivatives.” The derivative component of these obligations are initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are being amortized to interest expense over the respective term of the related note. In determining the indicated values of these notes, the Company used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05% to..08%, volatility ranging from 104,57% of 263.339%, trading prices ranging from $1.39 per share to $1.40 per share and a conversion prices ranging from $0.01783 per share to $1.88 per share. Amortization of discounts for 2014 totaled $71,298, which was charged to interest expense. The Company recognized a change in the fair value of the derivative liabilities during 2014, which was charged to operations totaling $9,659,548. Of the $71,298 balance due, $67,689 was converted into 3,796,153 shares of the Company’s common stock. The Company recorded a net loss totaling $1,419,225 and extinguished $9,356,572 of the derivative liabilities on these conversions.

The balance of convertible notes at March 31, 2015 and December 31, 2014 is as follows:

	March 31,			December 31,
	2015			2014
Principal balance	$	16,368,640		$	17,360,340
Accrued interest		3,977,722			3,579,302
		20,346,362			20,939,642
Less discounts		(1,274,164	)		(335,708	)
		19,072,198			20,603,934

Other Debt

Short term advances provided by private, non-institutional third parties with no specific interest or repayment terms. These notes are used for short term working capital needs and are intended to be repaid within one year. The Company is delinquent on certain payments due on these obligations.		239,662			301,162

Short term advances provided by officer and directors with no specific interest or repayment terms. These notes are used for short term working capital needs and are intended to be repaid within one year. The Company is delinquent on certain payments due on these obligations.		1,631,700			1,880,200

Secured note used for equipment acquisition and accrues interests at 9% per annum. The Company is delinquent on payments due on these obligations		450,702			518,527

Secured note used for equipment acquisition and accrues interests at 10.5% per annum. The Company is delinquent on certain payments due on these obligations		3,031,346			3,331,344

Secured note used for construction and accrues interests at 18% per annum. The Company is delinquent on certain payments due on these obligations		2,884,540			2,804,105

Total		27,310,148			29,439,272
Accrued Interest		(3,977,722	)		(3,579,302	)
Total Short Term Notes Payables	$	23,332,246		$	25,859,970

On August 3, 2012 the Company entered into financing arrangements with Fifth Third Bank, one for Latitude 42 Group LLC (Chicago) in the amount of $1,984,000 and the other with Latitude 360 Indianapolis in the amount of $2,428,590. The Company defaulted in its payment and its obligations under both agreements, and as such, entered into a Forbearance agreement on January 1, 2014 which expired on June 1, 2014. As part of the Forbearance agreement and its extensions (amendments), the Company was required to make certain principal and interest payments. Principal payments related to the Forbearance agreement dated January 1, 2014, totaled $500,000 plus interest. On June 1, 2014, a second forbearance agreement was entered into with Fifth Third Bank of which expired July 1, 2014, with an option to extend to August 1, 2014. As a condition of the extension to August 1, 2014 the Company was required to pay $75,000 in principal. Additionally, a curtailment payment of $200,000 was required which did not occur. In lieu of the payment, $320,240 the Company had placed in an escrow account was applied towards the outstanding principal balances by Fifth Third Bank. On July 1, 2014 the Company entered into an amendment of the second Forbearance agreement dated June I, 2014 which extended the expiration date to September 2, 2014, with an option to extend to October 2, 2014. At this point the company paid $75,000 which occurred during July and August of 2014. As a condition of the extension to October 2, 2014, the Company was required to pay an additional $75,000 in principal plus interest which occurred on October 15, 2014. On November 2, 2014, the Company extended the Forbearance agreement to December 2, 2014. As a condition of this extension, the Company was required to pay $50,000 as a curtailment payment which occurred on November 12, 2014. On December 23, 2014 the Company paid another $50,000 in principal plus interest. During the period January 1, 2014 through December 31, 2014, the Company paid $1,020,239 in principal and $455,337 in interest. As of December 31, 2014, the outstanding principal balances are $2,113,217 on the Latitude 360 Indianapolis note and $1,218,217 on the Latitude 42 Group LLC, note.

On February 6, 2015, February 10, 2015 and March 25, 2015 the Company made the following payments $50,000, $110,002 and $150,000, respectively in principal and interests. During the period January 1, 2015 through March 31, 2015, the Company paid $295,702 in principal and $14,300 in interest compared to $500,000 in principal and $18,447 in interest in the same period ended March 31, 2014.

7. OBLIGATIONS UNDER CAPITAL LEASES

In February 2012, the Company purchased two buildings that house venues located in Jacksonville, Florida and Indianapolis, Indiana, for a total cost of $9,200,035. Simultaneous with the purchases, the Company entered into a sales/leaseback of the two buildings with an unrelated third party. Under the of the terms of the agreement relating to the sales/leaseback, the Company received a total of $21,000,000, of which $9,200,035 was used to fund the purchase of the two buildings, $811,398 was used to pay commissions, legal fees, and other costs associated with the transaction; $7,250,000 was placed in reserve to fund the construction of the two venues, $1,525,716 was used to pay vendors, and $2,212,851 was received in cash and used as working capital.

The Company accounted for lease of these two properties as capital leases. The initial terms of each lease is 20 years, with options to extend the lease for four successive terms of five years each. In addition the Company leases copiers and other office equipment that are accounted for as capital leases. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. Depreciation of assets under capital leases is included in depreciation expense for 2014 and 2013.

The Company defaulted in its payments under these lease obligations, and as such, entered into a forbearance agreement on December 5, 2014 with the landlord. The Company agreed to make monthly payments totaling $200,000 beginning on December 31, 2014. The Company is current with its payments under the Forbearance agreement. The Company tested the payment restructuring under the forbearance agreement pursuant to ACS Topic 470-50 “Modification and Extinguishments” and determined that under the new payment structure, a debt extinguishment had occurred. The Company recognized a gain on the extinguishment in 2014 totaling $3,067,566.

Following is a summary of property held under capital leases:	March 31,			December 31,
	2015			2014
Buildings	$	18,836,180		$	18,836,180
Equipment		81,218			81,218
		18,917,398			18,917,398
Less accumulated depreciation		(2,516,107	)		(2,278,625	)
	$	16,401,291		$	16,638,773

Depreciation on assets under capital leases charged to expense for the three months ended March 31, 2015 and 2014 was $237,482 and $237,483 respectively.

Minimum future lease payments under the capital lease at March 31, 2015 for each of the next five years and in the aggregate are as follows:

2015	$	1,800,000
2016		2,400,000
2017		2,440,701
2018		2,440,701
2019		2,440,701
Thereafter		33,563,712
Total	$	45,085,815
Less accrued interest		(24,036,762	)
Present value of net minimum	$	21,049,053

8. TAX MATTERS

Income Tax -

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.

In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in determining this assessment. From the Company’s evaluation, it has concluded that based on the weight of available evidence, the Company is more likely to not realize the benefit of the deferred tax assets. Accordingly, the Company established a full valuation allowance for the deferred tax assets that will not be realized.

The Company is subject to examination in all jurisdictions in which it operates. The Company files returns from a federal and state perspective. The Company is no longer subject to federal or state examination by authorities before 2011. The Company is not currently involved in any income tax examinations.

The Company did not have any unrecognized tax benefits as a result of tax positions taken during the current periods. No interest or penalties have been recorded as a result of tax uncertainties.

As of March 31, 2015 the company had federal and state net operating carry forwards of approximately $68 million, which will expire in various years through 2024.

The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:

	March 31,			December 31,
	2015			2014
Current Expense - Benefit
Federal	$	-		$	-
State		-			-
Total current expense - (benefit)	$	-		$	-
Deferred Benefit
Federal	$	-		$	-
State		-			-
Total deferred benefit	$	-		$	-

U.S. statutory rate		34	%		34	%
Less valuation allowance		-34	%		-34	%
Effective tax rate		0	%		0	%

The deferred income tax balances at March 31, 2015 and December 31, 2014 are comprised of the following:

	March 31,			December 31,
	2015			2014

Net operating loss carryforwards	$	25,823,000		$	24,286,000
Stock based compensation		1,029,000			7,186,000
	$	26,652,000		$	31,472,000
Less valuation allowance		(26,652,000	)		(31,472,000	)
	$	-		$	-

The valuation allowance for deferred tax assets decreased during the period ended March 31, 2015 by $4,820,000 and increased by $10,744,000 during 2014.

9. RELATED PARTY TRANSACTIONS

Under the terms of a development and consulting agreement between the Brownstone Group (“Brownstone”) and the Company, the Company is required to pay management and development fees to Brownstone. The amount of fees charged to operations for the period ended March 31, 2105 and 2014 totaled $114,789 and $701,875, respectively. Brownstone is wholly owned by the Company’s Chairman and CEO. In addition, since the Company’s inception, Chairman and CEO and various entities owned by him have made advances to the Company and directly made payments on the Company’s behalf. The amounts advances and direct costs paid are non-interest bearing, unsecured and due on demand. The balances owed the Chairman and CEO and related entities, including accrued compensation, management and development fees at March 31, 2015 totaled $6,265,300 and December 31, 2014 totaled $6,257,300.

On July 5, 2014, Latitude 360, Inc. (Company) entered into an Independent Contractor agreement with 360 Builders, LLC (Contractor), whereas the Contractor, performs budgeting, bidding out-subcontractors and project supervision on Latitude 360, Inc. projects. The day to day control of the work will be solely with the Contractor. The Contractor is not considered to be an employee of the Company for any purpose and the Contractor is not entitled to any benefits the Company provides its employees. The term of the agreement is for 24 months and both the Contractor and Company can terminate the agreement upon written notice of 30 days to the other party.

During the three months ended March 31, 2015, 360 Builders, LLC, company owned by Brownstone, billed to Latitude 360,Inc for services rendered $83,039. As of March 31, 2015 a total of $56,267 has been paid to 360 Builders, LLC. The outstanding liability registered in the balance sheet amounts to $52,733 as of March 31, 2015. The outstanding liability balance as of December 31, 2014 was $25,960.

10. FAIR VALUE

The Company’s financial instruments at March 31, 2015 and December 31, 2014 consist principally of notes payable and convertible debentures. Notes payable and convertible debentures are financial liabilities with carrying values that approximate fair value. The Company determines the fair value of notes payable and convertible debentures based on the effective yields of similar obligations.

The Company believes all of the financial instruments’ recorded values approximate fair market value because of their nature and respective durations.

The Company complies with the provisions of ASC No. 820-10 (“ASC 820-10”), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, which are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as follows:

March 31, 2015:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Liabilities
Convertible debentures	$	-	$	19,082,064	$	-	$	19,082,064
Note payable	$	-	$	8,237,951	$	-	$	8,237,951
Derivative Liability	$	-	$	1,183,203	$	-	$	1,183,203

December 31, 2014:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Liabilities
Convertible debentures	$	-	$	21,982,925	$	-	$	21,982,925
Note payable	$	-	$	8,316,811	$	-	$	8,316,811
Derivative Liability	$	-	$	588,420	$	-	$	588,420

11. COMMITMENTS AND CONTINGENCIES

Operating leases

The Company is leasing land and a building under an operating lease that has an initial term of 10 years. The term of the lease is considered its initial obligation period, which does not include unexercised option periods. The lease has three renewal options of five years each, exercisable at the option of the Company. The lease includes rent escalation clauses based on fixed rate terms. The Company is also required to pay the landlord its allocated share of common area expenses. The Company has the option to purchase the property depending on the year in which the option is exercises at a purchase price ranging from $7,300,000 to $8,300,000.

On March 18, 2014 the Company made a good faith non-refundable deposit of $200,000 for the purpose of purchasing the property. The deposit was to be applied towards the purchase price of the asset if the purchase of the property closed by June 30, 2014. Since the purchase did not occur by June 30, 2014, the Company forfeited the deposit and the deposit was written off as an expense in calendar year 2014.

Minimum future lease payments under operating leases at March 31, 2015 for the next five years and in the aggregate are as follows:

2015	$	692,730
2016		423,550
2017		650,100
2018		650,100
2019		650,100
Thereafter		975,150
Total	$	4,041,730

Rent expense for the three month periods ended March 31, 2015 and 2014 was $362,626 and $498,143 respectively.

Litigation

In the ordinary course of conducting its business, the Company is exposed to litigation risks from time to time that can have significant adverse effects upon our financial and operating condition, which in turn could have a material adverse effect on our ability to continue as a going concern.

At any given time there may be numerous civil actions initiated against the Company and/or its subsidiaries. Currently there are five civil actions pending against the Company’s subsidiary in which, in each case, the plaintiff(s) seek damages in excess of $500,000. With respect to most of these actions, the parties are either engaged in settlement discussions or have already executed a settlement agreement. If the parties do not succeed in settling this matter, then the Company is intent on defending the action.

On December 12, 2012, The Estate of Jerome H. Denner commenced an action entitled Larry Grossinger, Personal Representative of the Estate of Jerome H. Denner v. The Brownstone Group, LLC and Latitude 30 Group, LLC in Duval County Circuit Court, Florida. The lawsuit alleges that Brownstone and our subsidiary, Latitude 30 Group, LLC (“Latitude 30”), on June 25, 2010, executed a promissory note in the principal amount of $879,807 and that the note was not paid on the maturity date of December 31, 2010. The suit seeks money damages in the amount of $879,807 plus interest and attorneys’ fees. Latitude 30 intends to vigorously defend the action on the ground that most of plaintiff’s funds were provided by plaintiff’s attorney in fact to an escrow agent who converted the monies and failed to make restitution to the plaintiff. The SEC has brought a lawsuit against the parties responsible for the conversion of escrow funds for similar allegations, and we expect to receive a restitution check in the amount of approximately $155,000 in the next 90 days from the SEC, which would partially offset the amount of this claim. Latitude 30 has repaid the plaintiff all of the funds the escrow agent disbursed to Latitude 30, and Latitude 30 asserts that it is not liable to repay the other funds that were converted by the escrow agent in the approximate amount of $775,000. In March 2015, the Court granted the plaintiff’s motion for summary judgment in this matter. We have filed a motion for reconsideration and, if such motion is not granted, intend to appeal the summary judgment decision. There can be no assurance given that Latitude 30 will prevail in this litigation and in the event that Brownstone and Latitude 30 are ultimately found liable in such litigation it would have a material adverse effect on the financial condition of the Company. In addition, there can be no assurance that if such event should occur, that Latitude 30 will be able to look to Brownstone to contribute a pro rata amount to the payment of any judgment.

On October 10, 2014 a complaint was filed by Craig Phillips, a former employee seeking $150,000 in severance and 2,412,574 shares of stock. The Company denies that any sums are due to Mr. Phillips as a result of his voluntary termination of his employment. The Company intends to vigorously defend this action. On November 6, 2014 the Company filed a counterclaim against Mr. Phillips arising from his employment with the Company for breach of his employment agreement, declaratory relief, breach of fiduciary duty, defamation, breach of confidentiality agreement, and other claims. Latitude’s position is that are no outstanding paychecks from the company, and no stock is due under the terms of the restrictive stock agreement. There are presently no claims from the Department of Labor against Latitude.

On October 17, 2014, we received a demand for arbitration from Summit Trading Ltd. (“Summit”) arising from a consulting agreement between the Company and Summit. Summit is seeking 3,344,988 shares of our common stock of the Company. We do not believe that any sum is due to Summit and intend to vigorously defend the action.

Nevertheless, if one or more of the pending lawsuits, or any lawsuits in the future, are adjudicated in a manner adverse to the Company and/or its subsidiary’s interests, or if a settlement of any lawsuit requires the Company to pay a significant amount, the result could have an adverse impact on the Company’s overall financial position. The Company will continue to vigorously defend any such litigation.

12. STOCKHOLDER’S EQUITY

Series A Preferred Shares

The Company is authorized to issue 20,000,000 shares preferred stock. On March 16, 2011, the Company designated 25,000 shares of Preferred Stock as Series A Preferred Stock, with a par value of $1,000 per share.

The holders of Series A Preferred Stock will not have any voting rights unless and until the Series A Preferred Stock is converted into Common Stock, except as otherwise required by law.

The holders of the Series A Preferred Stock shall be entitled to receive dividends per share of Series A Preferred Stock at a rate of 10% of Stated Value per share annually Dividends will begin to accrue on the date of issuance of the Series A Preferred Stock, except as otherwise agreed to in writing between the Company and the shareholder. The dividends shall be payable on the Voluntary Conversion Date or the Mandatory Conversion Date as defined in the Certificate of Designation as the case may be, in cash or Common Stock at the option of the Company. The number of shares of Common Stock to be received shall be determined by dividing the amount of accrued dividends by the conversion price of $1.40 per share. The Conversion price is adjusted for stock splits, recapitalizations and other events as defined in the Certificate of Designation.

The Series A Preferred Stock of any holder shall be redeemable, in whole or in part, at the option of the Company by resolution of its Board of Directors, from time to time and at any time. The corporation may redeem any individual holder’s shares of Series A Preferred Stock and such redemption shall not be required to be pro rata with any other holders of the series A Preferred stock. The redemption price shall equal the Stated Value of each share of Series A Preferred Stock so redeemed, plus any accrued and unpaid dividends on such share(s) being redeemed.

In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Company, the holders of the series A Preferred Stock shall be entitled to receive, before the holders of any of the Common Stock or other classes of Preferred Stock of the Corporation ranking junior thereto, out of the remaining net assets of the Company, the Stated Value of the Series A Preferred Stock plus any accrued but unpaid dividends. After such payment shall have been made in full to the holders of the outstanding Series A Preferred Stock, or funds or assets necessary for such payment shall have been set aside in trust for the account of the holders of the outstanding Series A Preferred Stock, so as to be and continue to be available therefor, the holders of the outstanding series A Preferred Stock shall be entitled to no further participation in such distribution of the assets of the company.

In the event that, after payment or provision for payment of the debts and other liabilities of the Corporation and preferences or other rights granted to the holders of any senior Preferred Stock, the remaining net assets of the Corporation are not sufficient to pay the liquidator preference of the holders of the Series A Preferred Stock, then no such distribution shall be made on account of any shares of any other class or series of capital stock of the Corporation ranking on a parity with the shares of the series A Preferred stock upon such liquidation, unless proportionate distributive amounts shall be paid on account of each share of the Series A Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares, including other shares of Series A Preferred stock, are respectively entitled upon such liquidation.

2015 Issuances

There were no Series A Preferred Shares issued for the three months ended March 31, 2015.

2014 Issuances

During the three months ended March 31, 2014 the Company issued 2,460 shares of Preferred Series A Stock, of which 119 were issued in cancellation of $119,350 due to private investors, and 2,341 were issued in cancellation of $2,343,366 of convertible debt.

Series AA Preferred Shares

The Company is authorized to issue 20,000,000 shares preferred stock. On May 9, 2014, the Company designated 25,000 shares as Series AA Preferred Stock.

The holders of Series AA Preferred Stock will not have any voting rights unless and until the Series A Preferred Stock is converted into Common Stock, except as otherwise required by law.

The Series AA Preferred Stock of any holder shall be redeemable, in whole or in part, at the option of the Company by resolution of its Board of Directors, from time to time and at any time. The corporation may redeem any individual holder’s shares of Series AA Preferred Stock and such redemption shall not be required to be pro rata with any other holders of the series A Preferred stock. The redemption price shall equal the Stated Value of each share of Series AA Preferred Stock so redeemed, plus any accrued and unpaid dividends on such share(s) being redeemed.

In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Company, the holders of the series AA Preferred Stock shall be entitled to receive, before the holders of any of the Common Stock or other classes of Preferred Stock of the Corporation ranking junior thereto, out of the remaining net assets of the Company, the Stated Value of the Series AA Preferred Stock plus any accrued but unpaid dividends. After such payment shall have been made in full to the holders of the outstanding Series A Preferred Stock, or funds or assets necessary for such payment shall have been set aside in trust for the account of the holders of the outstanding Series AA Preferred Stock, so as to be and continue to be available therefor, the holders of the outstanding Series AA Preferred Stock shall be entitled to no further participation in such distribution of the assets of the company.

In the event that, after payment or provision for payment of the debts and other liabilities of the Corporation and preferences or other rights granted to the holders of any senior Preferred Stock, the remaining net assets of the Corporation are not sufficient to pay the liquidator preference of the holders of the Series A Preferred Stock, then no such distribution shall be made on account of any shares of any other class or series of capital stock of the Corporation ranking on a parity with the shares of the series A Preferred stock upon such liquidation, unless proportionate distributive amounts shall be paid on account of each share of the Series A Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares, including other shares of Series AA Preferred stock, are respectively entitled upon such liquidation.

2015 Issuances

There were no Series AA Preferred Shares issued for the three months ended March 31, 2015.

2014 Issuances

There were no Series AA Preferred Shares issued for the three months ended March 31, 2014.

Common Stock

The Company is authorized to issue 100,000,000 shares of Common Stock, par value $0,001. Each holder of record is entitled to one vote for each share of common stock own. Holders of Common Stock shall be entitled to receive dividends in such amounts as the Board of Directors may determine in its sole discretion. Upon any liquidation dissolution or winding up of the Corporation, after the payment all debts and liabilities of the Company and all preference amounts to which the holders of any issued and outstanding Preferred Stock are entitled to with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

2015 Issuances

During the three months ended March 31, 2015 the Company issued 4,241,552 shares of common stock of which 20,000 shares were issued in the cancellation of $20,000 of debt due to a vendor; the remaining 4,221,552 shares were issued on the conversion of convertible debt and accrued interest totaling $4,158,798. The company recognized a loss on extinguishment of debt of $4,273,062.

2014 Issuances

During the three months ended March 31, 2014, the Company issued 4,300,145 shares of common stock of which 127,315 shares were issued in the cancellation of $94,800 of debt due to various vendors; 621,399 shares were issued as additional consideration on cash advances valued at $560,315, 3,512,616 shares were issued in connection with the issuance and modification of debt valued at $2,216,072; 31.052 shares were issued to an employee valued at $20,000, and issued 7,763 shares for consulting services valued at $7,000. No gain or loss were recognized on the conversion and the modification of debt in the three months ended March 31, 2014.

Common Stock Warrants

2015

For the three months ended March 31, 2015, a total of 4,365,552 warrants were issued and valued at $3,815,184 of which 137,500 warrants were issued in connection with the issuance of convertible debt valued at $135,492; 4,221,552 warrants were issued as consideration for conversion of debt valued at $3,673,345 and 6,500 warrants were issued as consideration for extension of debt valued at $6,346.

The above warrant values were calculated using the Black Scholes model with risk-free interest rates ranging from 1.17% to 1.61%, volatility ranging from 91.3060% to 93.8162%, and share price per share of $1.00.

2014

For the three months ended March 31, 2014, a total of 1,498,444 warrants were issued and valued at $1,311,014 of which 1,313,991 warrants were issued as consideration for cash advances valued at $1,149,628; 38,915 warrants were issued as part consideration on a consulting agreement valued at $34,045, and 145,538 warrants were issued in connection the issuance of convertible debt valued at $127,338.

The above warrant values were calculated using the Black Scholes model with risk-free interest rates ranging from 1.46% to 1.76%, volatility of 200.00%, and share price per share of $1.40.

A summary of outstanding stock warrants is as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding - December 31, 2013		30,469,468	$	1.12
Granted		2,777,953	$	1.12
Exercised		-	$	-
Cancelled		-	$	-
Outstanding - December 31, 2014		33,247,421	$	1.12
Granted		4,365,552	$	1.02
Exercised		-	$	-
Cancelled		-	$	-
Outstanding - March 31, 2015		37,612,973	$	1.12

2012 Equity Incentive Compensation Plan

Effective December 31 2012, the Company formed the 2012 Equity Incentive Compensation Plan. Under the plan, the Company reserved 5,000,000 shares of its common stock that are available for issuance at the discretion of the Plan’s committee members to officers, directors, employees and consultants. Shares issued under the Plan that are subject to forfeiture, expiration, termination, cash settlement or non-issuance are again be available for issuance under the plan subject to certain restriction as indicated in the Plan Agreement. The Plan shall terminate at the earliest of (a) such time as no Shares remain available for issuance under the Plan, (b) termination of this Plan by the Board, or (c) the tenth anniversary of the Effective Date. Awards outstanding upon expiration of the Plan shall remain in effect until they have been exercised or terminated, or have expired.

2015

As of March 31, 2015, the Company granted its Board members a total of 50,000 common stock options under the plan with an exercise price of $1.00 per share which expire ten years after the date of grant. All options granted vested immediately. The 50,000 common stock options were valued at $51,230 using the Black Scholes option model with risk-free interest rate of 2.04%, volatility of 98.2923%, and a share price of $1.14.

2014

During the three months ended March 31, 2014 there were no options granted under this plan.

A summary of outstanding stock options is as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding - December 31, 2013		834,327	$	0.68
Granted		6,201,626	$	1.00
Exercised		-	$	-
Cancelled		-	$	-
Outstanding - December 31, 2014		7,035,953	$	0.96
Granted		50,000	$	0.64
Exercised			$	-
Cancelled			$	-
Outstanding - March 31, 2015		7,085,953	$	0.96

14. DISCONTINUED OPERATION

On February 22, 2012, Latitude 42 Group, LLC signed a lease for a planned 30,000 square foot venue in Warrenville, Illinois. The build out was partially executed and a portion of the operational equipment was purchased. During the second half of 2013, L360 was approached by another operator in the same industry to assume the obligations and takeover this location.

In November 2013, the measurement date, management decided that it was in the Company’s best interest to sell the lease and transfer some of the equipment to the Albany, NY venue, a top 13 U.S. mall, which it felt, was a more strategic location for the L360 concept. The lease termination agreement was executed on February 7, 2014 and the equipment purchased for an approximate of $1.2 million was transferred to the new location in April 2014.

The Company has determined the accounting treatment for Latitude 42 is a discontinued operation and the associated expenses are separately disclosed under Discontinued Operations.

15. SUBSEQUENT EVENTS

Management has evaluated subsequent events through May 7, 2015, which is the date when these financial statements will be issued. The following significant subsequent event took place subsequent to March 31, 2015.

Notes and Loans Payable

Subsequent to the balance sheet date and through May 7, 2015, the Company received cash funding of approximately $1,374,000 through the issuance of short term and long term notes. As of May 7, 2015, the Company has approximately $17 million in notes payable which are due periodically through calendar year 2015, 2016 and 2017.

Additionally, during this period, the Company converted notes payables plus accrued interest totaling $15,000 to 37,500 shares of the Company’s common stock valued at $43,125; 90,000 shares of stock were issued in the cancellation of $90,000 of debt due to various vendors. The conversions resulted in the Company recognizing a loss of $28,125 on the modification of debt.

Item 2.

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

The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements, and related notes included herein. Unless otherwise specified, the meanings of all defined terms in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements.

Nature of Activities, History and Organization:

Latitude 360 (“L360” or the Company), is an independent, full-service entertainment company whose predecessor entity was founded in 2009 to plan, develop, construct and operate state-of-the-art, 40,000 to 70,000 square foot premier entertainment venues while targeting “A” location commercial properties at distressed prices. Each L360 location fuses an exceptional food & beverage experience with multiple entertainment options in an upscale and contemporary designed venue. Entertainment options include; a dine-in luxury movie screening room (Cinegrille), a dine-in live performance theater with a full-size stage (Latitude LIVE), luxury bowling lanes (bowling/full food service to lanes), a sports theater, a main bar with small stage/dance floor (Axis bar), the latest offering in hi-tech electronic video games, and an upscale Nuevo-American casual dining restaurant and sports bar. As of December 31, 2014, the Company had three operational entertainment venues and three under construction and scheduled to open during 2015. The Company also has a “Go and Carry “concrete business as a separate operating subsidiary.

On May 30, 2014 the Company completed its acquisition of Latitude 360, Inc., a Florida corporation (“L360 Florida”), pursuant to the Agreement and Plan of Merger (as amended, the “Merger Agreement”) dated April 8, 2014, among the Company, Latitude Global Acquisition Corp., a Florida corporation and a wholly-owned subsidiary of the Company (the “Merger Sub”), and L360 Florida. Pursuant to the Merger Agreement, on May 30, 2014, Merger Sub merged with and into L360 Florida, and L360 Florida became a wholly-owned subsidiary of the Company (the “Merger”). Copies of the Merger Agreement, Amendment No. 1 to the Merger Agreement and Amendment No. 2 to the Merger Agreement were attached to the Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission on April 9, 2014, May 5, 2014 and May 20, 2014.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger the Company issued (or reserved for issuance) an aggregate of 154,735,504 shares of the Company’s common stock (the “Merger Shares”) to the shareholders of L360 Florida immediately prior to the effective time as consideration for the acquisition. The Merger Shares represent approximately 98.9% of the total number of outstanding shares of the Company’s common stock. Except for certain convertible securities of L360 Florida which did not convert into shares of the Company’s common stock in connection with the Merger (the “L360 Non-Converting Securities”), each outstanding share of preferred stock of L360 Florida, each warrant to purchase L360 Florida common stock, and any other security of L360 Florida exchangeable for or convertible into shares of L360 common stock (the “L360 Convertible Securities”) was exchanged or converted into shares of L360 Florida common stock immediately prior to the consummation of the Merger, such that the shares of L360 common stock issued upon conversion, along with the shares of the Company’s common stock underlying the L360 Non-Converting Securities, represented the right to receive a portion of the Merger Shares. Each L360 Non-Converting Security outstanding at the effective time of the Merger was automatically converted into a like convertible security, or the right to receive a like convertible security, to acquire a portion of the Merger Shares, at an exercise price per share appropriately adjusted so that the aggregate exercise price is the same as it was prior to the effective time of the Merger. The company changed its name to Latitude 360 Inc. on January 28, 2014.

Corporate History

L360 is a holding company and is the parent company of three wholly-owned limited liability companies organized in the State of Florida: Latitude 360 Jacksonville, LLC (“Jax”), Latitude 360 Indianapolis, LLC (“Indy”) and Latitude 360 Pittsburgh, LLC (“Pitt”), (collectively, the “LG Subsidiaries”). The predecessor of the Company, Latitude Global Inc. was incorporated in the State of Florida on June 21, 2010. L360 is also the parent of Kingdom Koncrete, Inc. (“Kingdom Koncrete”), the company’s “Go and Carry” concrete business.

The Company’s Business

L360 is an award-winning, full-service upscale casual restaurant/entertainment venue operator. Founded in 2009, L360’s objective is to plan, develop, construct and operate state-of-the-art, 40,000 to 85,000 square foot upscale dining and entertainment venues taking advantage of the downturn in big box commercial property locations and leasing at discounted rates. The L360 target locations are shopping centers and urban markets in “A” cities as well as destination locations. L360 venues fuse an exceptional food and beverage experience with multiple entertainment options in an upscale and contemporary designed venue. The Company also operates its “Go and Carry” concrete subsidiary, Kingdom Koncrete.

Entertainment options (all with an array of dining and beverage service, from casual to upscale) can include:

•

The 360 Grille & Bar – a casual yet contemporary American restaurant.

•

The Lanes – Luxury bowling lanes with leather couches and cutting-edge audio/visual systems on every lane, creating an upscale, lounge-like atmosphere.

•

The Cinegrille – A dine-in movie theater featuring home theater-style seating.

•

Game Room – The latest offering in hi-tech electronic video, redemption games and prizes.

•

Latitude LIVE – A live performance theater with a full-stage, high-end theatrical sound and lighting systems and seating for 170-300+ guests. Features live comedy on Friday and Saturday.

•

HD Sports Theater–A sports theater with multiple HD screens, similar to sports books in Vegas.

•

The AXIS Bar & Stage–A unique bar, dance floor and stage with weekend performances by the hottest DJs and regional bands.

•

Latitude Lit–A luxury cigar lounge with HD screens and patio access.

L360’s unique concept creates what its founders believe to be a one-of-a-kind venue with a first-class menu including hand-crafted and signature items. What in the past may have traditionally been viewed as separate industries and businesses, L360 is combining and operating its locations as one stand-alone, multi-venue facility. The strategy includes co-locating several distinct businesses (dining, movies, bowling, video and redemption gaming, Latitude Live entertainment and sports bars), and others as the imagination and technology further evolves. It is anticipated that the public’s discretionary dining and entertainment spending dollars can be captured by offering a single destination for an entire day and evening. By combining separate businesses in its multi-venue centers, the Company believes the L360 concept will also continue to capture more of the consumer’s leisure time.

Consumer acceptance of these concepts is due to many economic, social and business factors including, in part, a growing social trend of families enjoying more time together (cocooning), time constraints reflecting their busy schedules, as well as the current high cost of fuel. By combining dining with other forms of entertainment, families can increasingly plan and enjoy the convenience of an entire evening’s activities at one multi-functional location without the hassle of driving from venue to venue, while also being socially responsible. The Company has been capitalizing on this growing trend by leveraging its strengths and applying its experience in creating premier multi-venue entertainment complexes located in Jacksonville, FL, Indianapolis, IN and Pittsburgh, PA, respectively. These venues offer upscale casual dining restaurants, luxury sports bars, billiards and electronic gaming rooms, luxury bowling lanes, Latitude Live (Vegas-style Review) and private luxury movie screening rooms that cater to families and the corporate community. L360 strives to offer its patrons, including groups, a wide variety of appealing dining, entertainment and activity choices, at an array of different price points.

Group sales is a key component of L360’s ongoing and future success. L360 has already hosted over 8,600 group events, with hundreds of corporate events held annually. More than 400 different corporate clients, including more than half of the leading corporations that make up the Dow Jones Industrial Average, have used one of L360’s venues for hosting an event. Event sales revenue presently represents approximately 20% of total L360 sales and this percentage is expected to grow over time. Importantly, group sales showcase L360 venues, including its multiple dining and entertainment options.

As a result, attendees often bring family and friends for future visits, thereby creating a ‘ripple effect.’ The ripple effect also works in the other direction as family and friend visits also lead to future corporate or other event bookings at L360 locations, for their own organization or via word of mouth recommendations and endorsements to work colleagues and other friends/ family members.

Each location has a Director of Group Sales focused on proactively reaching out to the local business community. The impressive list of corporate clients includes, Walmart, Apple, Bank of America, DuPont, FedEx, McDonalds, Cisco, Coach, Verizon, Microsoft, American Express, HP, Home Depot, State Farm, the Indianapolis Colts, UPS, Pfizer, and many more.

Management’s goal is to open its first 10 “Latitudes” within the next two to three years in desirable locations, pursuant to its L360 growth strategy. L360 opened its first Latitude location in Jacksonville, Florida in January 2011. L360 opened its second location in November 2012 in Pittsburgh, Pennsylvania. L360’s third venue, which is located in Indianapolis, Indiana in the affluent Keystone Crossing area, opened in January 2013.

Results of Operation: The following table sets forth selected data for Kingdom Koncrete, Inc. and Latitude 360, Inc. (for Q1 2015 and Q1 2014). All information is derived from the accompanying consolidated statements of comprehensive income (loss).

Net Revenues	Kingdom Koncrete, Inc		Latitude 360					Consolidated Q1 2015					Latitude 360 Q1 2014
Food and Beverage Net Revenues	$	-	$	3,514,633		62.7	%	$	3,514,633		62.3	%	$	3,094,926		61.7	%
Amusement, entertainment and other net revenues		35,402		2,091,071		37.3	%		2,126,473		37.7	%		1,921,054		38.3	%
Net Revenues		35,402		5,605,704					5,641,106					5,015,980


Cost of Food & Beverage (as a % of food and beverage net revenues)		-		977,826		27.8	%		977,826		27.8	%		921,772		29.8	%
Cost of Amusement, entertainment and other (as a % of		16,988		74,351		3.6	%		91,339		4.3	%		58,226		3.0	%
Amusement, entertainment and other net revenues)
Total Costs of Products		16,988		1,052,177		18.8	%		1,069,165		19.0	%		979,998		19.5	%

Operating Payroll and Benefits		5,350		2,414,101		43.1	%		2,419,451		42.9	%		1,965,198		39.2	%
Other Store Operating Expenses		427		861,872		15.4	%		862,299		15.3	%		685,354		13.7	%
Stock Based Compensation		-		-		0.0	%		-		0.0	%		54,049		0.4	%
Selling, General and Administrative expenses		3,282		2,199,453		39.2	%		2,202,735		39.0	%		1,989,181		39.7	%
Depreciation and Amortization		-		1,076,226		19.2	%		1,076,226		19.1	%		998,752		19.9	%
Occupancy and Related Costs		382		285,950		5.1	%		286,332		5.1	%		267,397		5.3	%
Rent		3,450		359,176		6.4	%		362,626		6.4	%		498,143		9.9	%
Legal and Professional Fees		-		868,728		15.5	%		868,728		15.4	%		470,210		9.4	%
Total Operating Costs		12,891		8,065,506		143.9	%		8,078,397		143.2	%		6,928,284		137.4	%

Loss From Operations		5,523		(3,511,979	)				(3,506,456	)				(2,892,302	)

Other (income)/expense
Interest expense, net		-		1,736,128		31.0	%		1,736,128		30.8	%		3,970,044		80.5	%
Loss on Modification of Debt		-		4,273,062		76.2	%		4,273,062		75.7	%		-		0.0	%
Change in fair value of derivative liability		-		9,940		3.4	%		9,940		3.4	%		-		0.0	%
Loss from Fixed Assets Sold		-		-		0.0	%		-		0.0	%		357		0.0	%
Franchise Fee		-		(410,960	)	-7.3	%		(410,960	)	-7.3	%		-		0.0	%

Net Loss from Continued Operations		5,523		(9,120,149	)				(9,114,626	)				(6,862,703	)

Discontinued Operations
Loss from discontinued operations		-		2,421		0.0	%		2,422		0.0	%		62,753		1.3	%

Net Loss	$	5,523	$	(9,122,570	)			$	(9,117,048	)			$	(6,925,456	)

The financial statements data for the period ended 12/31/2013 does not include Kingdom Koncrete, Inc. However, for the year ended 12/31/2014 the data includes the reverse merger acquisition balances for the periods from 5/31/14 to 12/31/2014.

Net Revenues – Net revenues increased by $618,691 or 12.3% to $5,634,671 in Q1 2015 as compared to $5,015,980 in Q1 2014.

The increase in net revenues is the result of an increase in Food and Beverage net revenues of $419,707 or 13.6% to $3,514,633 in Q1 2015, as compared to $3,094,926 in Q1 2014, and an increase in Amusement, entertainment and other net revenues of $198,984 or 10.4% to $2,120,038 in Q1 2015, as compared to $1,921,054 in Q1 2014.

The increase in food and beverage net revenues of $419,707 in Q1 2015 as compared to Q1 2014 in food and beverage net revenues is the result of a increase of food and beverage gross sales in Q1 2015 of $457,210 and an increase of discounts of $37,503 in Q1 2015, as compared to Q1 2014, mainly related to various gift certificate and coupon programs.

The increase in amusement, entertainment and other net revenues of $198,894 in Q1 2015 as compared to Q1 2014 is the result of an increase in gross sales of $786,348 in Q1 2015 or 38.64% to $2,821,210 as compared to $2,034,862 in Q1 2014 offset by an increase in discounts of $587,364 in Q1 2015 as compared to 2014, primarily related to the new membership and iCare programs that commenced in July 2014 that encourages our guests to spend money in various amusement, entertainment and other revenue streams.

We have recently added several new revenue streams to Latitude 360 through marketing sponsorships, a new gift card program and our membership program.

Additionally we are actively seeking other opportunities internationally, besides the Middle East, to grow our brand abroad, which in turn will increase franchise revenues.

Cost of Products and services – Cost of products increased by $72,179 or 7.4% from $979,998 in Q1 2014 to $1,052,177 in Q1 2015. The increase relates to an increase in the Cost of Food and Beverage of $56,054 or 6.1% to $977,826 in Q1 2015, as compared to $921,772 in Q1 2014. Despite significant increases in the cost of beef, pork and cheese in 2014, the cost of food and beverage as a percentage to food and beverage net sales decreased to 27.8% in Q1 2015 as compared to 29.8% in Q1 2014. The cost of amusement, entertainment and other revenues increased to $16,125 or 27.7% to $74,351 in Q1 2015, as compared to $58,226 in Q1 2014. The cost of amusement, entertainment and other revenue as a percentage to amusement, entertainment and other revenue net sales increased to 3.5% in Q1 2015, as compared to 3.0% in Q1 2014.

Labor - Labor increased by $448,903 or 22.8% to $2,414,101 in Q1 2015 as compared to $1,965,198 in Q1 2014. The increase in operating labor relates mainly due to hiring of additional personnel to manage and execute our new membership program. Management is continuously evaluating all the staffing needs and will make adjustments accordingly if needed.

We have recently implemented an aggressive labor cost cutting program at both the Venue and Corporate levels which will reduce labor costs significantly. Additionally, we are in the process of implementing three (3) major computer systems, which will allow the Company to become more efficient, resulting in additional labor cost reductions.

Rent expense – The rent expense decreased by $138,967 or 27.9% to $359,176 in Q1 2015 compared to $498,143 in Q1 2014. The decrease in rent relates to a decrease in the base rent and common area maintenance expenses related to the Pittsburgh property and accounting adjustments.

Occupancy and related costs – The occupancy and related costs increased by $18,553 or 6.9% to $285,950 in Q1 2015 compared to $267,397 in Q1 2014. The increase was mainly related to an increase in utilities expenses due to increased volume of customers in the venues.

Other operating expenses – Other operating expenses increased by $176,518 or 25.8% from $685,354 in Q1 2014 to $861,872 in Q1 2015. The increase in other operating expenses from Q1 2014 to Q1 2015 resulted from increased entertainment expenses for additional shows and movies offered through our new membership program. Additionally, increases in credit card processor fees were incurred in Q1 2015 as compared to Q1 2014 at the various venues.

Selling, General and Administrative Expenses – Selling, General and Administrative expenses, which primarily consist of administration, travel, sales and marketing increased by $210,272 or 10.6% to $2,199,454 in Q1 2015, as compared to $1,989,181 in Q1 2014. The increase in selling, general and administrative expenses in Q1 2015 as compared to Q1 2014 relates to increases in labor, payroll taxes and commission expenses related to increased group sales, increased local taxes and increased penalties and expenses. These increases in expenses were offset by a decrease in service fees paid to related parties.

Depreciation and Amortization – Depreciation and amortization expense increased by $77,474 or 7.8% to $1,076,226 from $998,752 from Q1 2014.

Interest Expense – Interest expenses decreased by $2,233,916 or 56.3% from $3,970,044 in Q1 2014 to $1,736,128 in Q1 2015. Interest expense decreased as a result of reduced debt conversions throughout the quarter.

Reconciliations of Non-GAAP Financial Measures - Store level EBITDA Margin

The following table reconciles Net Loss to Store Level EBITDA for the three month periods ended 3/31/15 and 3/31/14

	Kingdom Koncrete, Inc.			Latitude 360, Inc.			Consolidated Q1 2015			Consolidated Q1 2014
Net Loss	$	5,523		$	(9,122,571	)	$	(9,117,048	)	$	(6,925,456	)
Franchise Fee		-			(410,960	)		(410,960	)		-
Interest expense, net		-			1,736,128			1,736,128			3,970,044
Loss on Fixed Assets Sold		-			-			-			357
Change in fair value of derivative liability		-			192,426			9,940			-
Depreciation and Amortization		-			1,076,226			1,076,226			998,752
Selling, General and Administrative expenses		3,282			2,199,454			2,202,736			1,989,181
Occupancy and related costs		382			285,950			286,332			267,397
Rent		3,450			359,176			362,626			498,143
Loss on Modification of Debt		-			4,273,062			4,273,062			-
Legal and Professional Fees		-			868,728			868,728			470,210
Stock Based Compensation		-			-			-			54,049
Loss From Discontinued Operations		-			2,421			2,421			62,753
Store Level EBITDA - Non GAAP	$	12,637		$	1,460,040		$	1,290,191		$	1,385,430

Store Level EBITDA Margin - Non GAAP		35.7	%		26.0	%		22.9	%		27.6	%

Food and beverage revenues	$	-		$	3,514,633		$	3,514,633		$	3,094,926
Amusement, entertainment and other revenues		35,402			2,091,071			2,126,473			1,921,054
Net Revenues		35,402			5,605,704			5,641,106			5,015,980
Less: Cost of Food and Beverage		-			(977,826	)		(977,826	)		(921,772	)
Less: Cost of Amusement, entertainment and other revenues		(16,988	)		(74,351	)		(91,339	)		(58,226	)
Less: Operating Payroll and Benefits		(5,350	)		(2,414,101	)		(2,419,451	)		(1,965,198	)
Less: Other operating expenses		(427	)		(861,872	)		(862,299	)		(685,354	)
Store Level EBITDA - Non GAAP	$	12,637		$	1,277,554		$	1,290,191		$	1,385,430

Inflation

We do not believe that inflation has had a material impact on our results of operations. However, there can be no assurance that inflation will not have such an effect in future periods.

Liquidity and Capital Resources

Our total assets were $47.3 million at March 31, 2015, of which approximately $1.0 million were current assets. As of March 31, 2015 we had cash and cash equivalents of approximately $141,000 and a working capital deficit of $48.5 million. During the past two years, we have experienced net losses. We anticipate our operating cash flows to continue to be negative during the construction and development periods for our new venues.

The Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon obtaining additional financing and generating positive cash flows from its operations. Management’s plans include the procurement of additional funds through debt and equity instruments and the increase in operating cash flows from revenues generated as part of various new venues located in Albany, NY, Minneapolis, MN and Kingston, MA expected to begin operation in 2015. We are currently in discussions with several companies in regards to bridge funding, balance sheet funding and equipment financing that will ultimately improve the Company’s liquidity. There are no assurances Management will be able to raise capital on terms acceptable to the Company or cash flow generated from its venues will be sufficient to meets its current operating costs and required debt service. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned development, which could harm its financial condition and operating results.

While we currently operate as a going concern, certain significant factors raise substantial doubt about our ability to continue to operate as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

Use of Estimates

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

Inventories

Inventories primarily consist of food, beverages and game redemption items. Inventories are accounted for at lower of cost or market using the average cost method. Spoilage is expensed as incurred.

Property and Equipment

Long-Lived Assets

Revenue Recognition – Operations and Franchise Revenue

Revenues from the operation of the facilities are recognized when sales occur. The revenue from electronic gift cards is deferred when purchased by the customer and revenue is recognized when the gift cards are redeemed. This amount was not significant as of and for the periods presented.

The Company recognizes franchise fees as revenue and are amortized over the term of the agreement when franchise agreements are signed. Franchise fee revenues related to the franchise agreement noted above for Q1 2015 were $410,960. An offsetting receivable of $410,960 was recorded as well.

Issuances Involving Non-cash Consideration

Stock Based Compensation

The Company accounts for stock-based compensation under ASC Topic 505-50, formerly Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - An amendment to SFAS No. 123.” These standards define a fair-value-based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period

Loss per Share of Common Stock

The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Advertising Costs

Advertising costs are expensed as incurred. Sponsorship costs are capitalized and amortized to expense over the sponsorship periods.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1.

Legal Proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business. [During the quarter ended March 31, 2015, there were no material developments in the legal proceedings described in Item 3 “Legal Proceedings” in our Form 10-K for the year ended December 31, 2014.

Item 1A.

Risk Factors

Refer to the 10-K filed on April 15, 2015.

Item 6.

Exhibits

Exhibit Number	Exhibit

3.1	Articles of Incorporation (1)
3.2	Articles of Merger filed June 2, 2014 (2)
3.3	By-laws (1)
10.1	Employment Agreement between Latitude 360, Inc. and Alan Greenstein (3)
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith
(1)	Incorporated by reference to an exhibit to the Registration Statement on Form SB-1 filed by the registrant on October 25, 2006.
(2)	Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the registrant on June 5, 2014.
(3)	Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the registrant on March 12, 2015.

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.

	LATITUDE 360, INC.


	By:	/s/ Brent Brown
		Brent Brown
		Chief Executive Officer (principal executive officer)

	By:	/s/ Alan Greenstein
		Alan Greenstein
		Chief Financial Officer (principal financial and accounting officer)

Date: May 20, 2015

EXHIBIT INDEX

Exhibit Number	Exhibit

3.1	Articles of Incorporation (1)
3.2	Articles of Merger filed June 2, 2014 (2)
3.3	By-laws (1)
10.1	Employment Agreement between Latitude 360, Inc. and Alan Greenstein (3)
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith
(1)	Incorporated by reference to an exhibit to the Registration Statement on Form SB-1 filed by the registrant on October 25, 2006.
(2)	Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the registrant on June 5, 2014.
(3)	Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the registrant on March 12, 2015.

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