UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q








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





For
The Quarterly Period Ended March 31, 2008





Commission
File No. 001-31354

















LaPolla
Industries, Inc.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
            13-3545304(State
      of Incorporation)
            (I.R.S.
      Employer Identification No.)





Intercontinental
      Business Park15402
      Vantage Parkway East, Suite 322Houston,
      Texas
            77032(Address
      of Principal Executive Offices)
            (Zip
      Code)





(281)
219-4700


(Registrant’s
Telephone Number)





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, and (2) has been subject to such filing requirements for
the past 90 days.  YES þ  NO  ̈





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





Large
      Accelerated Filer   ̈
            Accelerated
      Filer   ̈
            Non-Accelerated
      Filer   ̈
            Smaller
      Reporting Company þ





Indicate
by check mark whether the Registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).  YES  ̈  NO þ





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





As of May
2, 2008 there were 59,298,700 shares of Common Stock, par value $.01,
outstanding.










LAPOLLA INDUSTRIES, INC.


FORM
10-Q


FOR
THE QUARTER ENDED MARCH 31, 2008


INDEX





PagePART
      I
            FINANCIAL
      INFORMATIONItem
      1
            Financial Statements
            1Item
      2
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            8Item
      3
            Quantitative and Qualitative Disclosures About Market
      Risk
            10Item
      4
            Controls and Procedures
            11PART
      II
            OTHER
      INFORMATIONItem
      1
            Legal Proceedings
            11Item
      1A
            Risk Factors
            11Item
      2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            11Item
      3
            Defaults Upon Senior Securities
            11Item
      4
            Submission of Matters to a Vote of Security
      Holders
            11Item
      5
            Other Information
            11Item
      6
            Exhibits
            11SIGNATURES
            12INDEX OF EXHIBITS
            13


(i)
 Index


FORWARD
LOOKING STATEMENTS





Statements
made by us in this report and in other reports and statements released by us
that are not historical facts constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, Section 21 of the
Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are necessarily estimates reflecting
the best judgment of senior management and express our opinions about trends and
factors which may impact future operating results. You can identify these and
other forward-looking statements by the use of words such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intends,” “potential,” “continue,” or the negative of such terms,
or other comparable terminology. Such statements rely on a number of assumptions
concerning future events, many of which are outside of our control, and involve
risks and uncertainties that could cause actual results to differ materially
from opinions and expectations. Any such forward-looking statements, whether
made in this report or elsewhere, should be considered in context with the
various disclosures made by us about our businesses including, without
limitation, the risk factors discussed below. Although we believe our
expectations are based on reasonable assumptions, judgments, and estimates,
forward-looking statements involve known and unknown risks, uncertainties,
contingencies, and other factors that could cause our or our industry's actual
results, level of activity, performance or achievement to differ materially from
those discussed in or implied by any forward-looking statements made by or on
the Company and could cause our financial condition, results of operations, or
cash flows to be materially adversely affected. Except as required under the
federal securities laws and the rules and regulations of the
U.S. Securities and Exchange Commission (the “SEC”), we do not have any
intention or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events, changes in assumptions,
or otherwise.





PART
I — FINANCIAL INFORMATION





As used
in this report, "LaPolla” and the "Company" or "Us" or "We" or “Our” refer to
the LaPolla Industries, Inc., unless the context otherwise requires. Our
Internet website address is www.lapollaindustries.com.
We make our periodic and current reports, together with amendments to these
reports, available on our website, free of charge, as soon as reasonably
practicable after such material is electronically filed with, or furnished to,
the SEC. The information on our Internet website is not incorporated by
reference in this Quarterly Report on Form 10-Q.





Item 1.  Financial Statements.





LAPOLLA
INDUSTRIES, INC.


INDEX
TO FINANCIAL STATEMENTS AND


FINANCIAL
STATEMENT SCHEDULES





CONDENSED
      CONSOLIDATED BALANCE SHEETSMarch
      31, 2008 (Unaudited) and December 31, 2007
            2CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)Three
      Months Ended March 31, 2008 and 2007
            3CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)Three
      Months Ended March 31, 2008 and 2007
            4NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
            5





All
schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instructions or are not
applicable, and therefore have been omitted.


1
 Index


LAPOLLA
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31, 2008
            
            
            December 31, 2007Assets
            
            (Unaudited)Current
      Assets:Cash
            
            $
            56,473
            
            
            $
            339,855Trade
      Receivables, Net
            
            
            4,604,833
            
            
            
            3,350,154Inventories
            
            
            3,177,609
            
            
            
            2,698,097Prepaid
      Expenses and Other Current Assets
            
            
            375,272
            
            
            
            532,233Total
      Current Assets
            
            
            8,214,187
            
            
            
            6,920,339Property,
      Plant and Equipment, Net
            
            
            2,575,394
            
            
            
            2,626,068Other
      Assets:Goodwill
            
            
            1,951,000
            
            
            
            1,951,000Other
      Intangible Assets
            
            
            136,548
            
            
            
            142,318Deposits
      and Other Non-Current Assets
            
            
            286,083
            
            
            
            226,320Total
      Other Assets
            
            
            2,373,631
            
            
            
            2,319,638Total
      Assets
            
            $
            13,163,212
            
            
            $
            11,866,045Liabilities
      and Stockholders' EquityCurrent
      Liabilities:Accounts
      Payable
            
            $
            3,950,977
            
            
            $
            2,422,625Accrued
      Expenses and Other Current Liabilities
            
            
            1,245,663
            
            
            
            1,266,533Loan
      Payable – Related Party
            
            
            1,054,077
            
            
            
            —Revolving
      Credit Note
            
            
            4,888,814
            
            
            
            —Current
      Portion of Convertible Term Note
            
            
            639,643
            
            
            
            589,761Current
      Portion of Long-Term Debt
            
            
            84,244
            
            
            
            84,939Total
      Current Liabilities
            
            
            11,863,418
            
            
            
            4,363,858Other
      Liabilities:Revolving
      Credit Note
            
            
            —
            
            
            
            4,879,152Non-Current
      Portion of Convertible Term Note
            
            
            559,968
            
            
            
            775,185Non
      Current Portion of Long-Term Debt
            
            
            86,373
            
            
            
            107,255Non
      Current Portion of Liabilities from Discontinued
Operations
            
            
            —
            
            
            
            848Total
      Other Liabilities
            
            
            646,341
            
            
            
            5,762,440Total
      Liabilities
            
            
            12,509,759
            
            
            
            10,126,298Stockholders'
      Equity:Preferred
      Stock, $1.00 Par Value; 2,000,000 Shares Authorized, of which
      Designations:Series
      A Convertible, 750,000 Shares Authorized; 62,500 Issued and Outstanding
      (Less Offering Costs of $7,465) and $62,500 aggregate liquidation
      preference at March 31, 2008 and December 31, 2007,
      respectively
            
            
            55,035
            
            
            
            55,035Series
      D, 25,000 Shares Authorized;  8,176 Issued and Outstanding and
      $8,176,000 aggregate liquidation preference at March 31, 2008 and December
      31, 2007, respectively
            
            
            8,176
            
            
            
            8,176Common
      Stock, $.01 Par Value; 70,000,000 Shares Authorized; 59,125,700and
      53,586,251 Issued and Outstanding at March 31, 2008 and December 31, 2007,
      respectively
            
            
            591,257
            
            
            
            591,257Additional
      Paid-In Capital
            
            
            73,633,748
            
            
            
            73,600,876Accumulated
      (Deficit)
            
            
            (73,634,764
            )
            
            
            (72,515,597
            )Total
      Stockholders' Equity
            
            
            653,453
            
            
            
            1,739,747Total
      Liabilities and Stockholders' Equity
            
            $
            13,163,212
            
            
            $
            11,866,045





The
Accompanying Notes are an Integral Part of the Financial
Statements


2
 Index


LAPOLLA
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





March 31,
      2008
            
            
            March 31,
      2007Sales
            
            $
            8,173,243
            
            
            $
            7,269,322Cost
      of Sales
            
            
            6,666,677
            
            
            
            6,086,874Gross
      Profit
            
            
            1,506,566
            
            
            
            1,182,448Operating
      Expenses:Selling,
      General and Administrative
            
            
            2,144,445
            
            
            
            1,987,503Professional
      Fees
            
            
            216,782
            
            
            
            32,619Depreciation
      and Amortization
            
            
            45,484
            
            
            
            65,694Consulting
      Fees
            
            
            12,335
            
            
            
            25,580Interest
      Expense
            
            
            203,457
            
            
            
            80,171Interest
      Expense – Related Party
            
            
            4,077
            
            
            
            —Other
      (Income) Expense
            
            
            —
            
            
            
            514Total
      Operating Expenses
            
            
            2,626,580
            
            
            
            2,192,081Net
      (Loss)
            
            
            (1,120,014
            )
            
            $
            (1,009,633
            )Plus:  Dividends
      on Preferred Stock
            
            
            203,283
            
            
            
            201,710Net
      (Loss) Available to Common Stockholders
            
            
            (1,323,297
            )
            
            
            (1,211,343
            )Net
      Income (Loss) Per Share-Basic and Diluted
            
            $
            (0.019
            )
            
            $
            (0.019
            )Weighted
      Average Shares Outstanding
            
            
            59,125,700
            
            
            
            53,584,903





The
Accompanying Notes are an Integral Part of the Financial
Statements


3
 Index


LAPOLLA
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





March 31, 2008
            
            
            March 31,
      2007Cash
      Flows From Operating ActivitiesNet
      Loss
            
            $
            (1,120,014
            )
            
            $
            (1,009,633
            )Adjustments
      to Reconcile Net (Loss) to Net Cash (Used in) Operating
      Activities:Depreciation
      and Amortization
            
            
            98,627
            
            
            
            95,229Provision
      for Losses on Accounts Receivable
            
            
            —
            
            
            
            (127,454
            )Amortization
      of Discount on Convertible Term and Revolving Credit Notes
            
            
            44,327
            
            
            
            16,649Share
      Based Compensation Expense
            
            
            232,272
            
            
            
            265,370Changes
      in Assets and Liabilities:Trade
      Receivables
            
            
            (1,254,679
            )
            
            
            (354,833
            )Inventories
            
            
            (479,512
            )
            
            
            (395,399
            )Prepaid
      Expenses and Other Current Assets
            
            
            156,960
            
            
            
            48,793Deposits
      and Other Non Current Assets
            
            
            (59,763
            )
            
            
            (163,987
            )Accounts
      Payable
            
            
            1,528,352
            
            
            
            436,083Accrued
      Expenses and Other Current Liabilities
            
            
            (16,177
            )
            
            
            (297,923
            )Other
      Liabilities
            
            
            (196,711
            )
            
            
            (435
            )Net
      Operating Activities of Discontinued Operations
            
            
            —
            
            
            
            (7,891
            )Net
      Cash (Used in) Operating Activities
            
            
            (1,064,622
            )
            
            
            (1,495,431
            )Cash
      Flows From Investing ActivitiesAdditions
      to Property, Plant and Equipment
            
            
            (42,184
            )
            
            
            (883,811
            )Net
      Cash (Used in) Investing Activities
            
            $
            (42,184
            )
            
            $
            (883,811
            )Cash
      Flows From Financing ActivitiesProceeds
      from Revolving Credit Note
            
            
            —
            
            
            
            1,500,000Proceeds
      from Convertible Term Note
            
            
            —
            
            
            
            2,000,000Principal
      Repayments to Convertible Term Note
            
            
            (200,000
            )
            
            
            —Proceeds
      from Line of Credit
            
            
            —
            
            
            
            1,398,000Payments
      to Line of Credit
            
            
            —
            
            
            
            (2,405,120
            )Proceeds
      from Loans Payable – Related Party
            
            
            1,050,000
            
            
            
            617,000Payments
      to Loans Payable – Related Party
            
            
            —
            
            
            
            (617,000
            )Payments
      to Note Payable – Other
            
            
            —
            
            
            
            (10,002
            )Principal
      Repayments on Long Term Debt
            
            
            (21,576
            )
            
            
            (52,595
            )Payment
      of Preferred Stock Dividends
            
            
            (5,000
            )
            
            
            —Net
      Financing Activities of Discontinued Operations
            
            
            —
            
            
            
            (326,129
            )Net
      Cash Provided by Financing Activities
            
            
            823,424
            
            
            
            2,104,154Net
      (Decrease) In Cash
            
            $
            (283,382
            )
            
            $
            (275,088
            )Cash
      at Beginning of Period
            
            
            339,855
            
            
            
            382,116Cash
      at End of Period
            
            $
            56,473
            
            
            $
            107,028Supplemental
      Disclosure of Cash Flow Information:Cash
      Payments for Income Taxes
            
            $
            -0-
            
            
            $
            -0-Cash
      Payments for Interest
            
            $
            194,569
            
            
            
            63,520Supplemental
      Schedule of Non Cash Investing and Financing Activities:Common
      Stock Issued for Director Fees
            
            $
            —
            
            
            $
            6,840


4
 Index


LAPOLLA
INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
1.  Basis of Presentation.





The
consolidated financial statements included herein are unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted pursuant to the rules and regulations of the SEC. In
the opinion of the management, the accompanying statements reflect adjustments
necessary to present fairly the financial position, results of operations and
cash flows for those periods indicated, and contain adequate disclosure to make
the information presented not misleading. Adjustments included herein are of a
normal, recurring nature unless otherwise disclosed in the Notes to the
consolidated financial statements. The consolidated financial statements
included herein should be read in conjunction with the financial statements and
Notes thereto included in LaPolla’s latest annual report on Form 10-K, including
any amendments thereto, in order to fully understand the basis of presentation.
Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year. Certain amounts in the prior years have
been reclassified to conform to the 2008 unaudited consolidated financial
statement presentation. Reference is made to Management’s Discussion and
Analysis of Financial Condition and Results of Operations on page 8. Risk
factors that could impact results are discussed in Part II – Other Information,
Item 1A – Risk Factors
on page 11. Refer also to the Company’s 2007 Annual Report on Form 10-K,
including any amendments thereto, for a description of major accounting
policies. There have been no material changes to these accounting policies
during the quarter ended March 31, 2008.





Note
2.  Dependence on Few Suppliers.





The
Company is dependent on a few suppliers for certain of its raw materials and
finished goods.  For the quarters ended March 31, 2008 and 2007, raw
materials and finished goods purchased from the Company’s three largest
suppliers accounted for approximately 43% and 33% of purchases,
respectively.





Note
3.  Trade Receivables.





Trade
receivables are comprised of the following at:





March 31, 2008
            
            
            December 31, 2007Trade
      Receivables
            
            $
            4,783,273
            
            
            $
            3,528,594Less:
      Allowance for Doubtful Accounts
            
            
            (178,440
            )
            
            
            (178,440
            )Trade
      Receivables, Net
            
            $
            4,604,833
            
            
            $
            3,350,154





Note 4.  Inventories.





The
following is a summary of inventories at:





March 31, 2008
            
            
            December 31, 2007Raw
      Materials
            
            $
            1,128,514
            
            
            $
            880,616Finished
      Goods
            
            
            2,049,095
            
            
            
            1,817,481Total
            
            $
            3,177,609
            
            
            $
            2,698,097





Note
6.  Loans Payable – Related Party.





The
Company received advances of $1,050,000 from the Chairman of the Board during
the first quarter of 2008 for cash flow fluctuations and working capital
purposes which were recorded as short term demand loans bearing interest at 6%
per annum. Accrued interest was $4,077 at March 31, 2008.


5
 Index


LAPOLLA
INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED-CONTINUED)





Note
7.  Revolving Credit Note, Convertible Term Note, Warrants, and
Registration Payment Arrangements.





(A)  Revolving Credit and
Term Loan Agreement -The Company entered into a Revolving Credit and
Term Loan Agreement on February 21, 2007 with ComVest Capital LLC, which was
amended on June 12, 2007, under which ComVest agreed to loan up to $5,000,000
under a revolving credit note (“Revolving Credit Note”) and $2,000,000 under a
convertible term note (“Convertible Term Note”), and the Company agreed to issue
four warrants (“Warrants”) to ComVest and register the conversion shares under
the Convertible Term Note and warrant shares underlying the Warrants
(“Registration Rights”).  The Company calculated a fair value for the
Warrants issued in connection with the ComVest agreements, which, at December
31, 2007 was $555,902, of which $120,848 was attributed to the Revolving Credit
Note and $435,054 was attributable to the Convertible Term Note, and recorded as
additional paid-in capital and reduced the carrying value of each respective
note. This discount on the notes is being amortized to interest expense using
the effective interest method over the term of the notes.





(B)  Revolving Credit Note
-The Revolving Credit Note, as amended, bears interest equal to greater
of Prime Rate plus (a) 1%, or 9.5%, for the original $3,500,000, and (b) 1.5%,
or 9.5%, for the additional $1,500,000; and is good until February 28, 2009. The
balance outstanding was $5,000,000 and unamortized discount was $111,186 at
March 31, 2008.





(C)  Convertible Term Note
-The Convertible Term Note, as amended, bears interest at the rate of
10% per annum, principle payments of $66,667 commenced on September 30, 2007 and
end on February 28, 2010, and is convertible optionally by ComVest at any time
or mandatorily by LaPolla upon satisfying certain conditions into common stock
at the rate of $.77 (“Conversion Rate”) per share (“Conversion Shares”). The
balance outstanding was $1,600,000 and unamortized discount was $400,389 at
March 31, 2008.





(D)  Warrants - The
Warrants, as adjusted, are for the purchase of 750,000, 750,000 and 250,000
shares of common stock, immediately exercisable at exercise prices of $.61, $.74
and $.54 per share, respectively, and expire February 29, 2012 (“Warrant
Shares”). The allocable portion of the fair value attributable to the Warrants
is being amortized to interest expense using the effective interest method over
the term of the notes. See also
(A), (B), and (C) above.





(E)  Collateral Agreement– The Company entered into a Collateral Agreement on February 21, 2007
under which the Company granted a security interest to ComVest under the Loan
Agreement for substantially all of its assets.





(F)  Registration
Rights – The Company entered into a Registration Rights Agreement on
February 21, 2007 which required the Company to file with the SEC a shelf
registration (“Registration Statement”) to cover the resale of the Conversion
Shares, Warrant Shares, and additional shares of common stock issuable pursuant
to the anti-dilution provisions of the Convertible Term Note and Warrants
(“Registrable Shares”). The Company filed the required Registration Statement
with the SEC on June 20, 2007, which was declared effective on June 29, 2007. If
the Registration Statement ceases to be available for use by the Holders as
selling stockholders (A) where such unavailability continues for a period in
excess of 5 days beyond certain allowed time periods for circumstances such as
when a distribution would require the public disclosure of material non-public
information concerning any transaction or negotiations involving the Company or
any of its affiliates, the Company proposes to file a Registration Statement for
the offering and sale of securities for its own account in an underwritten
offering, and after the filing of the Company’s annual report on Form 10-K or
other event that requires the filing of a post-effective amendment to any
Registration Statement, or (B) for any other reason such as a stop order, a
material misstatement or omission in such Registration Statement or the
information contained in such Registration Statement having become outdated and
continues to be unavailable for a period in excess of 30 days, then the Company
is required to pay to the Holders, ratably in proportion to the number of
Registrable Shares held by each respective Holder, a cash fee equal to the
product of $1,000 multiplied by the number of calendar days during which any of
the events described above occurs and is continuing up to a maximum of $500,000.
The approximate term of the registration payment arrangement is the period of
time from the effective date of such Registration Statement until such date as
is the earlier of the date on which all of the Registrable Shares covered by the
Registration Statement are sold to the public, or the date on which the
Conversion Shares and the Warrant Shares issued or issuable upon cashless
exercise of the Warrants may be immediately sold without restriction by each
Holder thereof without registration. The Company determined that no liability is
recognizable at March 31, 2008 for registration payment arrangements based on
the fact that the Registration Statement was effective at March 31,
2008.


6
 Index


LAPOLLA
INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED-CONTINUED)





Note
8.  Net (Loss) Per Common Share – Basic and Diluted.





The
following table reflects the computation of the basic and diluted net loss per
common share at March 31:





2008
            
            
            2007Per
      Share
            
            
            
            
            
            Per
      ShareAmount
            
            
            Amount
            
            
            Amount
            
            
            AmountNet
      (Loss)
            
            $
            (1,120,014
            )
            
            $
            (0.019
            )
            
            $
            (1,009,633
            )
            
            $
            (0.019
            )Plus:  Dividends
      on Preferred Stock
            
            
            (203,283
            )
            
            
            (0.003
            )
            
            
            (201,710
            )
            
            
            (0.004
            )Net
      (Loss) Available to Common Stockholders
            
            $
            (1,323,297
            )
            
            $
            (0.022
            )
            
            $
            (1,211,343
            )
            
            $
            (0.023
            )Weighted
      Average Common Shares Outstanding
            
            
            59,125,700
            
            
            
            
            
            
            
            53,414,914





Basic and
diluted net (loss) per share are the same since (a) the Company has reflected
net losses for all periods presented and (b) the potential issuance of shares of
the Company would be antidilutive. The securities that could potentially dilute
(loss) per share in the future that were not included in the computation of
diluted (loss) per share were (i) -0- and 57,447 shares of nonvested restricted
shares pursuant to the former Director Compensation Plan, (ii) 2,077,922 and
2,500,000 shares issuable upon conversion of the Convertible Term Note, (iii)
1,750,000 and 1,750,000 shares issuable upon exercise of the Warrants, (iv)
556,275 and 73,000 shares issuable upon exercise of vested and exercisable stock
options, and (v) 2,250 and 2,250 shares issuable upon conversion of Series A
Preferred Stock, of common stock for the quarters ended March 31, 2008 and 2007,
respectively.





Note
9.  Business Segment Information.





The
Company is a national manufacturer and supplier operating two segments, Foam and
Coatings, based on manufacturing competencies. The Company consolidated and
restructured its segments at December 31, 2007. Prior periods have been
reclassified to reflect the change. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
The Company allocates resources to segments and evaluates the performance of
segments based upon reported segment sales. Administrative expenses are
allocated to both segments. Unallocated costs reflect certain corporate
expenses, insurance, investor relations, and gains and losses related to the
disposal of corporate assets and are included in Unallocated Amounts. There
are no intersegment sales or transfers.





Reportable
Segments





The
following table includes information about our reportable segments for the three
months ended March 31:





2008
            
            
            2007Foam
            
            
            Coatings
            
            
            Totals
            
            
            Foam
            
            
            Coatings
            
            
            TotalsSales
            
            $
            6,063,420
            
            
            $
            2,109,823
            
            
            $
            8,173,243
            
            
            $
            4,520,975
            
            
            $
            2,748,347
            
            
            $
            7,269,322Cost
      of Sales
            
            
            5,055,124
            
            
            
            1,611,553
            
            
            
            6,666,677
            
            
            
            4,004,527
            
            
            
            2,082,347
            
            
            
            6,086,874Gross
      Profit
            
            
            1,008,296
            
            
            
            498,269
            
            
            
            1,506,566
            
            
            
            516,448
            
            
            
            660,000
            
            
            
            1,182,448Depreciation
      and Amortization
            
            
            30,369
            
            
            
            10,567
            
            
            
            40,936
            
            
            
            11,470
            
            
            
            54,224
            
            
            
            65,694Interest
      Expense
            
            
            115,471
            
            
            
            40,179
            
            
            
            155,650
            
            
            
            49,861
            
            
            
            30,310
            
            
            
            80,171Segment
      Profit (Loss)
            
            
            (313,733
            )
            
            
            38,257
            
            
            
            (275,476
            )
            
            
            (563,844
            )
            
            
            (26,564
            )
            
            
            (590,408
            )Segment
      Assets (1)
            
            
            9,584,194
            
            
            
            3,334,908
            
            
            
            12,919,102
            
            
            
            6,779,214
            
            
            
            5,041,721
            
            
            
            11,820,935Expenditures
      for Segment Assets
            
            $
            42,183
            
            
            $
            —
            
            
            $
            42,183
            
            
            $
            804,834
            
            
            $
            192,448
            
            
            $
            997,282


7
 Index


LAPOLLA
INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED-CONTINUED)





Note
9.  Business Segment Information - continued.





The
following are reconciliations of reportable segment profit or loss, and assets,
to the Company’s consolidated totals at March 31:





Profit
      or Loss
            
            2008
            
            
            2007Total
      Profit or Loss for Reportable Segments
            
            $
            (275,476
            )
            
            $
            (590,408
            )Unallocated
      Amounts:Corporate
      Expenses
            
            
            (844,538
            )
            
            
            (419,225
            )Income
      (Loss) Before Income Taxes
            
            $
            (1,120,014
            )
            
            $
            (1,009,633
            )Assets
            
            2008
            
            
            2007Total
      Assets for Reportable Segments (1)
            
            $
            12,919,102
            
            
            $
            11,820,935Other
      Unallocated Amounts (2)
            
            
            244,110
            
            
            
            1,705,735Consolidated
      Total
            
            $
            13,163,212
            
            
            $
            13,526,670


________________________


(1)      Segment
assets are the total assets used in the operation of each segment.


(2)      Includes
corporate assets which are principally cash and cash equivalents.





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





Overview





This
financial review presents our operating results for the three months ended March
31, 2008 and 2007, and our financial condition at March 31, 2008. Except for the
historical information contained herein, the following discussion contains
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors that may cause our actual results to differ
materially from those expressed or implied by such forward-looking statements.
We discuss some of these risks, uncertainties and other factors throughout this
report and provide a reference to additional risks under the caption “Risk
Factors” in Item 1A of Part II below. In addition, the following review should
be read in connection with the information presented in our consolidated
financial statements and the related notes for the year ended December 31, 2007,
including any amendments thereto.





Performance
for the Three Months Ended March 31, 2008 compared to the Three Months Ended
March 31, 2007





Overall
Results of Operations





Sales





The
following is a summary of sales for the three months ended March
31:





2008
            
            
            2007Sales
            
            $
            8,173,243
            
            
            $
            7,269,322





Our sales
increased $903,921, or 12.4%, for the first quarter of 2008 compared to the
first quarter of 2007, due primarily to an increase in wall foam insulation
sales volume in our Foam segment, partially offset by a decline in sales volumes
as a result of the divestiture of our retail distribution channel in 2007 in our
Coatings segment. Increased market share in the Foam segment is due to gains in
existing foam markets, as well as agressive growth and recognition of value by
consumers and the channels historically in the conventional insulation markets,
such as fiberglass.




Cost
of Sales





Cost of
sales increased $579,803, or 9.5%, for the three months ended March 31, 2008
compared to the three months ended March 31, 2007, due to higher sales volumes
in our Foam segment and higher freight costs in both of our Foam and Coatings
segments.


8
 Index


Gross
Profit





Our gross
profit increased $324,118, or 27.4%, for the quarter ended March 31, 2008
compared to the quarter ended March 31, 2007, due to an increase in sales in our
Foam segment, partially offset by a decrease in sales as a result of the
divestiture of our retail distribution channel in 2007 in our Coatings
segment. Gross margin percentage increased 2.2% for the first quarter of 2008
compared to the first quarter of 2007 due primarily to efficiencies recognized
from our new foam resin plant which started up in the latter part of
2007.  Further improvement in margins is expected as volumes increase
and plant productivity gains are realized.





Operating
Expenses





Our total
operating expenses are comprised of selling, general and administrative
expenses, or SG&A, professional fees, depreciation and amortization,
consulting fees, interest expense, and other (income) expense. These total
operating expenses increased $434,498, or 19.8%, for the first quarter of 2008
compared to the first quarter of 2007, due to an increase of $156,942 for
SG&A, $184,163 for professional fees, and $123,286 for interest expense,
$4,077 for interest expense – related party, offset by a decrease of $20,210 for
depreciation and amortization, $13,246 for consulting fees, and $514 for other
(income) expense.





SG&A
increased $156,942, or 7.9%, for the quarter ended March 31, 2008 compared to
the quarter ended March 31, 2007, due primarily to costs associated with
increased volumes (commissions, travel, advertising, and marketing), as well as
expenses related to new product credentials and approvals. These expenditures
position us for substantial volume increases.  These SG&A expenses
included increases of $24,407 for sales commissions, $9,946 for insurances,
$19,426 for travel and related services, $7,464 for advertising, $22,038 for
marketing and promotions, $39,479 for recruiting fees, $215,990 for research and
development, $33,219 for investor relations, and $10,138 for corporate expenses,
offset by decreases of $162,387 for payroll and related employee benefits,
$33,097 for share based compensation, and $29,679 for rents.





Professional
fees increased $184,164, or 564.6%, for the first quarter of 2008 compared to
the first quarter of 2007, due to an increase of $91,987 for auditing and
auditing related services and $92,177 for legal fees.





Depreciation
and amortization expense decreased $20,210, or 30.8%, for the three months ended
March 31, 2008 compared to the three months ended March 31, 2007.





Consulting
fees decreased $13,245, or 51.8%, for the first quarter of 2008 compared to the
first quarter of 2007 due to a decrease in outside professional services for
public relations, computer information technology, and insurance, partially
offset by an increase for product testing and credentials.





Interest
expense increased $123,286, or 153.8%, for the three months ended March 31, 2008
compared to the three months ended March 31, 2007, due to an increase in the
interest from the capital utilized related to our ComVest credit instruments,
including amortization of the discount on the Convertible Term Note and
Revolving Credit Note, partially offset by a decrease in the interest on our
long term debt.





Interest
expense – related party was $4,077 for the first quarter of 2008 compared to
$-0- for the first quarter of 2007 due to interest from the capital utilized
related to our financial commitment with our Chairman of the Board.





Other
income was $-0- for the three months ended March 31, 2008 compared to $514 for
the three months ended March 31, 2007 which was from a gain on the sale of
certain assets.





Net
Loss





Net loss
for the three months ended March 31, 2008 was $1,120,014 compared to $1,009,633
for the three months ended March 31, 2007 as an increase in sales was offset by
higher SG&A cost, primarily professional fees and interest expense. Cost
controls have been implemented and our key focuses are sales and margin growth.
Net loss per share for the first quarter of 2008 was $0.019 compared to $0.019
for the first quarter of 2007.





Net loss
available to common stockholders and related loss per share for the three months
ended March 31, 2008 was $1,323,297 and $0.022 compared to $1,211,343 and $0.023
for the three months ended March 31, 2007. The increase in net loss available to
common stockholders and related loss per share are attributable to the net loss
plus an increase in dividends accrued for the outstanding Series D Preferred
Stock. Dividends accrued on our outstanding Series D Preferred Stock were
$203,283 for the quarter ended March 31, 2008 compared to $201,710 for the
quarter ended March 31, 2007.


9
 Index


Results
of Business Segments





The
following is a summary of sales by segment for the three months ended March
31:





Segments
            
            2008
            
            
            2007Foam
            
            $
            6,063,420
            
            
            $
            4,520,975Coatings
            
            
            2,109,823
            
            
            
            2,748,347





Foam
sales increased $1,542,445, or 34.12%, for the quarter ended March 31, 2008
compared to the quarter ended March 31, 2007, due to increased volumes
associated with energy efficient building products amid rising crude oil prices
and attainment of certain third party approvals and credentials on our foam
formulations. Cost of sales increased $1,050,597, or 26.24%, for the three
months ended March 31, 2008 compared to the three months ended March 31, 2007,
due to higher sales volumes. Gross profit increased $486,300, or 93.16%, for the
first quarter of 2008 compared to the first quarter of 2007, due to higher sales
volumes and improved manufacturing efficiencies, partially offset by higher
freight and transportation costs. Segment loss decreased $250,111, or 44.36%,
primarily from increased volumes and margin improvement from manufacturing our
own foam resins.





Coatings
sales decreased $638,524, or 23.23%, with a corresponding decrease in our cost
of sales of $470,793, or $22.61%, and gross profit of $162,182, or 24.56%, for
the three months ended March 31, 2008 compared to the three months ended March
31, 2007, due to a reduction in sales volume primarily resulting from the
divestiture of our retail distribution channel in 2007.  We had a
segment profit of $38,257 compared to a segment loss of $26,564 for the quarter
ended March 31, 2008 compared to the quarter ended March 31, 2007, respectively,
due to improved manufacturing efficiencies, partially offset by higher freight
and transportation costs.





Liquidity
and Capital Resources





Net cash
used in our operations was $1,064,622 for the three months ended March 31, 2008
compared to $1,495,431 for three months ended March 31, 2007. The cash used in
operations for the three months March 31, 2008 was attributable to our net loss
for the period, including the effect of adjustments to reconcile net loss to
cash provided by or used in operating activities and adjusting for non-cash
items, offset by increases in trade receivables, inventories, deposits and other
non current assets, and accounts payable, and decreases in cash, prepaid
expenses and other current assets, accrued expenses and other current
liabilities, other liabilities, and net operating activities of discontinued
operations.  We had a marked improvement in our gross profit in the
first quarter of 2008, resulting in an increase in our operating cash flow,
largely as a result of being able to sell more of our in-house manufactured foam
resins due to the attainment of certain required third party approvals and
credentials necessary to enter certain of our target markets. Although our sales
and operating cash flows are increasing, we may need to seek additional capital
to fund our working capital requirements. To this end, the Chairman of the Board
has committed to fund the Company $2 Million for 2008 and will continue to
provide short term loans for working capital to manage cash flow fluctuations on
an ongoing basis. We will likely seek to raise additional capital through
private placements of debt or common or preferred stock from accredited
sophisticated investors, to fund our aggressive strategic growth plans,
including acquisitions.





Net cash
used in investing activities was $42,184 for the quarter ended March 31, 2008
compared to $883,811 for the quarter ended March 31, 2007. We invested $42,184
towards construction in process for expansion of our Foam Plant in the three
months ended March 31, 2008.





Net cash
provided by financing activities was $823,424 for first quarter of 2008 compared
to $2,104,154 for the first quarter of 2007. We made principal repayments of
$200,000 on our Convertible Term Note and $21,576 on our long term debt,
received proceeds of $1,050,000 from our Chairman of the Board for working
capital, and paid $5,000 for Series D Preferred Stock dividends, in the first
quarter of 2008.





Item 3.  Quantitativeand Qualitative Disclosures About
Market Risk.





We do not
issue or invest in financial instruments or their derivatives for trading or
speculative purposes. Our operations are conducted presently in the United
States, and, as such, we are not subject to foreign currency exchange risks.
Although we have outstanding debt and related interest expense, market risk in
interest rate exposure in the United States is currently not material to our
operations.  However, we are experiencing an increase in international
business and are utilizing letters of credit to mitigate any risk of
collection.


10
 Index


Item 4.  Controlsand Procedures.





Quarterly
Evaluation





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Principal Executive Officer and our Principal
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of March 31, 2008, the end of the quarterly period covered by this
report. Based on the foregoing, our Principal Executive Officer and our
Principal Financial Officer concluded that, as of March 31, 2008, our disclosure
controls and procedures were effective.





Changes
in Internal Controls





There
were changes in our internal controls over financial reporting during the first
quarter of 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. We
previously reported to the SEC that a material weakness existed at December 31,
2007 based on turnover in a number of senior level finance and accounting
positions during 2007 that contributed to significant year end adjustments.
Management, in conjunction with the Audit Committee of the Board of Directors,
hired a new and more experienced CFO, evaluated applicable accounting and
finance processes, and implemented appropriate process improvements during the
first quarter of 2008, to remediate this weakness. There has been no change
in our internal controls over financial reporting that has materially affected,
or is reasonably likely to materially affect, our internal controls over
financial reporting subsequent to the date of this report.





PART
II — OTHER INFORMATION





Item 1.  Legal Proceedings.





The
disclosures set forth under Part I, Item 3, “Legal Proceedings” in our Annual
Report on Form 10-K for the year ended December 31, 2007, including any
amendments thereto, are hereby incorporated in their entirety herein by this
reference.





Various Lawsuits and Claims Arising
in the Ordinary Course of Business





We are
involved in various lawsuits and claims arising in the ordinary course of
business, which are, in our opinion, immaterial both individually and in the
aggregate with respect to our consolidated financial position, liquidity or
results of operations.





Item 1A.  Risk Factors.





The
disclosures set forth under Part I, Item 1A, “Risk Factors” in our Annual Report
on Form 10-K for the year ended December 31, 2007, including any amendments
thereto, are hereby incorporated in their entirety herein by this
reference.





Item 2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





Recent
Sales of Unregistered Securities





None.





Item 3.  Defaults Upon Senior Securities.





None.





Item 4.  Submission of Matters to a Vote of Security
Holders.





None.





Item 5.  Other Information.





None.





Item 6.  Exhibits.





See Index
of Exhibits on Page 13.


11
 Index


SIGNATURES





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





LAPOLLA
      INDUSTRIES, INC.Date:
            May
      19, 2008
            By:
            /s/  Douglas J. Kramer,
      CEOName:
            Douglas
      J. KramerTitle:
            CEO
      and PresidentLAPOLLA
      INDUSTRIES, INC.Date:
            May
      19, 2008
            By:
            /s/  Paul Smiertka,
      CFOName:
            Paul
      SmiertkaTitle:
            CFO
      and Treasurer


12
 Index


INDEX OF EXHIBITS





Exhibit
      Number
            
            Description10.1
            
            Employment
      Agreement dated March 3, 2008 between Paul Smiertka and the Company
      (incorporated by reference to Exhibit 10.1 to Form 8-K dated March 3,
      2008, filed March 4, 2008.10.2
            
            Option
      Agreement dated March 3, 2008 between Paul Smiertka and the Company
      (incorporated by reference to Exhibit 10.2 to Form 8-K dated March 3,
      2008, filed March 4, 2008.31.1
            
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32
            
            Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      § 906 of Sarbanes-Oxley Act of
2002.







13