----

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**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, 2006**

**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 Park**         |   |                        |
|-----------------------------------------------------------|--------|-----------------------------|
| **15402                Vantage Parkway East, Suite 322**  |   |                        |
| **Houston,                Texas**                         |   | **77032**                   |
| *(Address                of Principal Executive Offices)* |   | *(Zip                Code)* |

**(281)      219-4700**

*(Registrant’s      Telephone Number)*

----

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**LAPOLLA      INDUSTRIES, INC.**

**FORM      10-Q**

**FOR      THE QUARTER ENDED MARCH 31, 2006**

**INDEX**

|                                 |                      |                                                                                                                          | **Page** |
|--------------------------------------|---------------------------|-------------------------------------------------------------------------------------------------------------------------------|----------|
|                                 |                      |                                                                                                                          |     |
| **PART                I**            |                      | **FINANCIAL                INFORMATION**                                                                                      |     |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                1** | **Financial                Statements**                                                                                       | **3**    |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                2** | **Management’s                Discussion and Analysis of Financial Condition                and Results of Operations** | **10**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                3** | **Quantitative                and Qualitative Disclosures About Market                Risk**                                  | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                4** | **Controls                and Procedures**                                                                                    | **12**   |
|                                 |                      |                                                                                                                          |     |
| **PART                II**           |                      | **OTHER                INFORMATION**                                                                                          |     |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                1** | **Legal                Proceedings**                                                                                          | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                2** | **Unregistered                Sales of Equity Securities and Use of                Proceeds**                                 | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                3** | **Defaults                Upon Senior Securities**                                                                            | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                4** | **Submission                of Matters to a Vote of Security                Holders**                                         | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                5** | **Other                Information**                                                                                          | **12**   |
|                                 |                      |                                                                                                                          |     |
|                                 | **Item                6** | **Exhibits**                                                                                                                  | **12**   |
|                                 |                      |
| **SIGNATURES**                       | **13**                    |
|                                 |                      |
| **INDEX                OF EXHIBITS** | **14**                    |

----

*Index*

**PART      I — FINANCIAL INFORMATION**

**Item      1. Financial Statements.**

**LAPOLLA      INDUSTRIES, INC.**

**INDEX      TO FINANCIAL STATEMENTS AND**

**FINANCIAL      STATEMENT SCHEDULES**

| **CONDENSED                CONSOLIDATED BALANCE SHEETS**                                           |                                                                |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|
|                                                                                               |                                                                |   |
|                                                                                               | **March                31, 2006 (Unaudited) and December 31, 2005** | **4** |
|                                                                                               |                                                                |   |
| **CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**                     |                                                                |
|                                                                                               |                                                                |   |
|                                                                                               | **Three                Months Ended March 31, 2006 and 2005**       | **5** |
|                                                                                               |                                                                |   |
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**                     |                                                                |
|                                                                                               |                                                                |   |
|                                                                                               | **Three                Months Ended March 31, 2006 and 2005**       | **6** |
|                                                                                               |                                                                |   |
| **NOTES                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                (UNAUDITED)** | **7**                                                               |

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                                                                                                                                                                                                          |   | **March                  31,** |        | **December                  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-------------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                          |   | **2006**                       | ** **  | **2005**                          |   |
|                                                                                                                                                                                                                                                                                                                          |   | **(Unaudited)**                |        |                              |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                    |   |                           |        |                              |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |
| Current                  Assets:                                                                                                                                                                                                                                                                                              |   |                           |        |                              |   |
| Cash                                                                                                                                                                                                                                                                                                                          |   | $                              | 198,283     |                              | $      | 400,621 |   |
| Trade                  Receivables, Net                                                                                                                                                                                                                                                                                       |   |                           | 4,103,700   |                              |   | 4,209,931 |   |
| Inventories                                                                                                                                                                                                                                                                                                                   |   |                           | 2,197,067   |                              |   | 1,393,603 |   |
| Prepaid                  Expenses and Other Current Assets                                                                                                                                                                                                                                                                    |   |                           | 418,400     |                              |   | 295,557 |   |
| Deferred                  Income Taxes, Net                                                                                                                                                                                                                                                                                   |   |                           | 1,273,532   |                              |   | 1,140,172 |   |
| Total                  Current Assets                                                                                                                                                                                                                                                                                         |   |                           | 8,190,982   |                              |   | 7,439,884 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Property,                  Plant and Equipment, Net                                                                                                                                                                                                                                                                           |   |                           | 998,972     |                              |   | 907,574 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Other                  Assets:                                                                                                                                                                                                                                                                                                |   |                           |        |                              |   |   |   |
| Goodwill                                                                                                                                                                                                                                                                                                                      |   |                           | 1,951,000   |                              |   | 1,951,000 |   |
| Other                  Intangible Assets, Net                                                                                                                                                                                                                                                                                 |   |                           | 182,706     |                              |   | 188,476 |   |
| Deposits                  and Other Non-Current Assets                                                                                                                                                                                                                                                                        |   |                           | 302,382     |                              |   | 148,107 |   |
| Total                  Other Assets                                                                                                                                                                                                                                                                                           |   |                           | 2,436,088   |                              |   | 2,287,583 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Total                  Assets                                                                                                                                                                                                                                                                                                 |   | $                              | 11,626,042  |                              | $      | 10,635,041 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                               |   |                           |        |                              |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Current                  Liabilities:                                                                                                                                                                                                                                                                                         |   |                           |        |                              |   |   |   |
| Accounts                  Payable                                                                                                                                                                                                                                                                                             |   | $                              | 4,731,221   |                              | $      | 4,074,946 |   |
| Accrued                  Expenses and Other Current Liabilities                                                                                                                                                                                                                                                               |   |                           | 597,692     |                              |   | 1,019,071 |   |
| Line                  of Credit                                                                                                                                                                                                                                                                                               |   |                           | —     |                              |   | 21,816 |   |
| Loans                  Payable - Related Party                                                                                                                                                                                                                                                                                |   |                           | 220,000     |                              |   | 3,000,000 |   |
| Current                  Portion of Note Payable - Other                                                                                                                                                                                                                                                                      |   |                           | 625,000     |                              |   | 1,693,211 |   |
| Current                  Portion of Long-Term Debt                                                                                                                                                                                                                                                                            |   |                           | 110,837     |                              |   | 78,543 |   |
| Current                  Portion of Liabilities from Discontinued Operations                                                                                                                                                                                                                                                  |   |                           | 499,918     |                              |   | 699,345 |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                                                                    |   |                           | 6,784,668   |                              |   | 10,586,932 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Other                  Liabilities                                                                                                                                                                                                                                                                                            |   |                           |        |                              |   |   |   |
| Note                  Payable - Related Party                                                                                                                                                                                                                                                                                 |   |                           | 3,000,000   |                              |   | — |   |
| Non                  Current Portion of Note Payable - Other                                                                                                                                                                                                                                                                  |   |                           | 1,618,212   |                              |   | — |   |
| Non                  Current Portion of Long-Term Debt                                                                                                                                                                                                                                                                        |   |                           | 158,679     |                              |   | 218,417 |   |
| Non                  Current Portion of Liabilities from Discontinued                  Operations                                                                                                                                                                                                                             |   |                           | 45,000      |                              |   | 140,641 |   |
| Reserve                  for Litigation                                                                                                                                                                                                                                                                                       |   |                           | 13,500      |                              |   | 175,378 |   |
| Total                  Other Liabilities                                                                                                                                                                                                                                                                                      |   |                           | 4,835,391   |                              |   | 534,436 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Total                  Liabilities                                                                                                                                                                                                                                                                                            |   |                           | 11,620,059  |                              |   | 11,121,368 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Stockholders’                  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) at March                  31, 2006 and December 31, 2005; $62,500 aggregate liquidation preference                  at March 31,                  2006 and December 31, 2005 |   |                           | 55,035      |                              |   | 55,035 |   |
| Common                  Stock, $.01 Par Value; 65,000,000 Shares Authorized; 53,210,251                  Issued and                  Outstanding at March 31, 2006 and December 31, 2005,                  respectively                                                                                                       |   |                           | 532,103     |                              |   | 532,103 |   |
| Additional                  Paid-In Capital                                                                                                                                                                                                                                                                                   |   |                           | 61,759,416  |                              |   | 61,594,114 |   |
| Accumulated                  Deficit                                                                                                                                                                                                                                                                                          |   |                           | (62,340,571 | )                                 |   | (62,667,579 | ) |
| Total                  Stockholders’ Equity                                                                                                                                                                                                                                                                             |   |                           | 5,983       |                              |   | (486,327 | ) |
|                                                                                                                                                                                                                                                                                                                          |   |                           |        |                              |   |   |   |
| Total                  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                                             |   | $                              | 11,626,042  |                              | $      | 10,635,041 |   |

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

|                                                                                                         |   | **Three                Months Ended March 31,** |       |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                         |   | **2006**                                        |       | **2005** |   |
|                                                                                                         |   |                                            |       |   |   |
| Sales                                                                                                        |   | $                                               | 6,042,115  |   | $ | 2,457,653 |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Cost                of Sales                                                                                 |   |                                            | 4,791,817  |   |   | 2,204,993 |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Gross                Profit                                                                                  |   |                                            | 1,250,297  |   |   | 252,660 |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Operating                Expenses:                                                                           |   |                                            |       |   |   |   |   |
| Selling,                General and Administrative                                                           |   |                                            | 1,159,473  |   |   | 1,089,502 |   |
| Professional                Fees                                                                             |   |                                            | 69,478     |   |   | 266,495 |   |
| Depreciation                and Amortization                                                                 |   |                                            | 41,221     |   |   | 22,559 |   |
| Consulting                Fees                                                                               |   |                                            | 21,002     |   |   | 61,382 |   |
| Interest                Expense                                                                              |   |                                            | 15,173     |   |   | 17,840 |   |
| Interest                Expense - Related Party                                                              |   |                                            | 45,370     |   |   | 38,650 |   |
| Total                Operating Expenses                                                                      |   |                                            | 1,351,718  |   |   | 1,496,428 |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Operating                (Loss) Before Income Taxes                                                          |   |                                            | (101,420   | ) |   | (1,243,768 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Income                Tax Benefit-Deferred                                                                   |   |                                            | 133,360    |   |   | — |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Operating                Income (Loss)                                                                       |   |                                            | 31,940     |   |   | (1,243,768 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Income                (Loss) From Discontinued Operations, Net of Income Tax                Benefit-Deferred |   |                                            | 295,069    |   |   | (327,105 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Net                Income (Loss)                                                                             |   | $                                               | 327,008    |   | $ | (1,570,873 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Net                Income (Loss) Per Share - Basic                                                           |   |                                            |       |   |   |   |   |
| Continuing                Operations                                                                         |   | $                                               | 0.001      |   | $ | (0.025 | ) |
| Discontinued                Operations                                                                       |   |                                            | 0.005      |   |   | (0.006 | ) |
| Total                                                                                                        |   | $                                               | 0.006      |   | $ | (0.031 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Weighted                Average Shares Outstanding                                                           |   |                                            | 53,210,251 |   |   | 49,792,164 |   |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Net                Income (Loss) Per Share - Diluted:                                                        |   |                                            |       |   |   |   |   |
| Continuing                Operations                                                                         |   | $                                               | 0.001      |   | $ | (0.025 | ) |
| Discontinued                Operations                                                                       |   |                                            | 0.005      |   |   | (0.006 | ) |
| Total                                                                                                        |   | $                                               | 0.006      |   | $ | (0.031 | ) |
|                                                                                                         |   |                                            |       |   |   |   |   |
| Weighted                Average Shares Outstanding                                                           |   |                                            | 54,193,001 |   |   | 50,570,002 |   |

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

|                                                                                                                                               |   | **Three                Months Ended March 31,** |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|----------|
|                                                                                                                                               |   | **2006**                                        |     | **2005** |   |
| *Cash                Flows From Operating Activities*                                                                                              |   |                                            |     |   |   |
| Net                Income (Loss)                                                                                                                   |   |                                            |     |   |   |
| Continuing                Operations                                                                                                               |   | $                                               | 31,940   |   | $ | (1,243,769 | ) |
| Discontinued                Operations                                                                                                             |   |                                            | 295,069  |   |   | (327,105 | ) |
| Adjustments                to Reconcile Net Income (Loss) to Net Cash Provided by (Used in)                by                Operating Activities: |   |                                            |     |   |   |   |   |
| Depreciation                and Amortization                                                                                                       |   |                                            | 64,987   |   |   | 28,358 |   |
| Provision                for Losses on Trade Receivables                                                                                           |   |                                            | 36,257   |   |   | — |   |
| Deferred                Income Taxes                                                                                                               |   |                                            | (133,360 | ) |   | — |   |
| Share                Based Compensation Expense                                                                                                    |   |                                            | 165,302  |   |   | 2,000 |   |
| Changes                in Assets and Liabilities, Net of Effects of Purchase of Business                Entity:                                    |   |                                            |     |   |   |   |   |
| Trade                Receivables                                                                                                                   |   |                                            | 69,973   |   |   | (434,206 | ) |
| Inventories                                                                                                                                        |   |                                            | (803,464 | ) |   | (49,163 | ) |
| Prepaid                Expenses and Other Current Assets                                                                                           |   |                                            | (122,844 | ) |   | (81,832 | ) |
| Deposits                and Other Non Current Assets                                                                                               |   |                                            | (154,276 | ) |   | 5,168 |   |
| Accounts                Payable                                                                                                                    |   |                                            | 656,277  |   |   | 718,366 |   |
| Accrued                Expenses and Other Current Liabilities                                                                                      |   |                                            | (419,436 | ) |   | 124,757 |   |
| Other                Liabilities                                                                                                                   |   |                                            | (162,290 | ) |   | — |   |
| Net                Operating Activities of Discontinued Operations                                                                                 |   |                                            | —  |   |   | 215,040 |   |
| Net                Cash Provided by (Used in) Operating Activities                                                                                 |   |                                            | (770,933 | ) |   | (1,042,386) | ) |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| *Cash                Flows From Investing Activities*                                                                                              |   |                                            |     |   |   |  |   |
| Additions                to Property, Plant and Equipment                                                                                          |   | $                                               | (150,615 | ) | $ | (45,610 | ) |
| Payment                for Purchase of Business Entity, Net of Cash Acquired                                                                       |   |                                            | —  |   |   | (1,931,825 | ) |
| Net                Cash Provided by (Used in) Investing Activities                                                                                 |   |                                            | (150,615 | ) |   | (1,977,435 | ) |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| *Cash                Flows From Financing Activities*                                                                                              |   |                                            |     |   |   |   |   |
| Proceeds                from the Issuance of Stock                                                                                                 |   | $                                               | —  |   | $ | — |   |
| Proceeds                from Line of Credit                                                                                                        |   |                                            | (21,816  | ) |   | 1,039 |   |
| Payments                on Line of Credit                                                                                                          |   |                                            | —  |   |   | (61,973 | ) |
| Proceeds                from Loans Payable - Related Party                                                                                         |   |                                            | 220,000  |   |   | — |   |
| Proceeds                from Note Payable - Other                                                                                                  |   |                                            | 550,000  |   |   | (9,079 | ) |
| Proceeds                from Note Payable - Related Party                                                                                          |   |                                            | —  |   |   | 3,187,500 |   |
| Principal                Repayments on Long Term Debt                                                                                              |   |                                            | (28,975  | ) |   | (9,663 | ) |
| Net                Cash Provided by (Used in) Financing Activities                                                                                 |   |                                            | 719,209  |   |   | 3,116,903 |   |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| *Net                Increase In Cash*                                                                                                              |   | $                                               | (202,339 | ) | $ | 97,082 |   |
| *Cash                at Beginning of Period*                                                                                                       |   |                                            | 400,621  |   |   | 24,465 |   |
| *Cash                at End of Period*                                                                                                             |   | $                                               | 198,283  |   | $ | 121,547 |   |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| *Supplemental                Disclosure of Cash Flow Information:*                                                                                 |   |                                            |     |   |   |   |   |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| Cash                Payments for Income Taxes                                                                                                      |   | $                                               | —  |   | $ | — |   |
| Cash                Payments for Interest                                                                                                          |   | $                                               | 30,610   |   | $ | 17,841 |   |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| *Supplemental                Schedule of Non Cash Investing and Financing                Activities*                                               |   |                                            |     |   |   |   |   |
|                                                                                                                                               |   |                                            |     |   |   |   |   |
| Common                Stock issued as Other Compensation pursuant to Employment                Agreements                                          |   | $                                               | —  |   | $ | 2,000 |   |
| Common                Stock issued in connection with Purchase of Business                Entity                                                   |   |                                            | —  |   |   | 22 |   |
| Common                Stock issued upon Cancellation of Indebtedness                                                                               |   | $                                               | —  |   | $ | 6,000,000 |   |

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

| **Note                1.** | **Basis                of Presentation.** |
|----------------------------|-------------------------------------------|

| **Note                2.** | **Dependence                on Few Suppliers.** |
|----------------------------|-------------------------------------------------|

| **Note                3.** | **Trade                Receivables.** |
|----------------------------|---------------------------------------|

|                                                 |   | **March                31, 2006** |      | **December                31, 2005** |   |
|------------------------------------------------------|--------|-----------------------------------|-----------|--------------------------------------|--------|
| Trade                Receivables                     |   | $                                 | 4,206,549 |                                 | $      | 4,276,522 |   |
| Less:                Allowance for Doubtful Accounts |   |                              | (102,849  | )                                    |   | (66,591 | ) |
| Trade                Receivables, Net                |   | $                                 | 4,103,700 |                                 | $      | 4,209,931 |   |

| **Note                4.** | **Inventories.** |
|----------------------------|------------------|

|                          |   | **March                31, 2006** |      | **December                31, 2005** |   |
|-------------------------------|--------|-----------------------------------|-----------|--------------------------------------|--------|
| Raw                Materials  |   | $                                 | 938,309   |                                 | $      | 591,398 |   |
| Finished                Goods |   |                              | 1,258,758 |                                 |   | 802,205 |   |
| Total                         |   | $                                 | 2,197,067 |                                 | $      | 1,393,603 |   |

**Note      5.**
**Deferred      Income Taxes.**

| *Deferred                Tax Assets:*                                       |   | **March                31, 2006** |       | **December                31, 2005** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|------------|--------------------------------------|--------|
| Net                Operating Loss Carry-Forwards                            |   | $                                 | 29,334,012 |                                 | $      | 29,232,642 |   |
| Temporary                Differences:                                       |   |                              |       |                                 |   |   |   |
| Nondeductible                Accruals                                       |   |                              | (555,350   | )                                    |   | (390,048 | ) |
| Net                Operating Loss Carry-Forward after Temporary Differences |   |                              | 28,778,662 |                                 |   | 28,842,594 |   |
| Statutory                Tax Rate                                           |   |                              | 34         | %                                    |   | 34 | % |
| Total                Deferred Tax Assets                                    |   |                              | 9,784,745  |                                 |   | 9,806,482 |   |
| Valuation                Allowance for Deferred Tax Assets                  |   |                              | (8,511,213 | )                                    |   | (8,666,310 | ) |
| Net                Deferred Taxes                                           |   | $                                 | 1,273,532  |                                 | $      | 1,140,172 |   |

***See      also***

| **Note                6.** | **Discontinued                Operations.** |
|----------------------------|---------------------------------------------|

| *Liabilities*                         |   | **March                31, 2006** |    | **December                31, 2005** |   |
|---------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|
| Accounts                Payable       |   | $                                 | — |                                 | $      | 199,427 |   |
| Line                of Credit         |   |                              | 499,918 |                                 |   | 499,918 |   |
| Reserve                for Litigation |   |                              | 45,000  |                                 |   | 140,641 |   |
| Total                Liabilities      |   | $                                 | 544,918 |                                 | $      | 839,986 |   |

| *Deferred                Tax Assets:*                                       |   | **March                31, 2006** |        | **December                31, 2005** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|-------------|--------------------------------------|--------|
| Net                Operating Loss Carry-Forwards (No Temporary Differences) |   | $                                 | 33,522,405  |                                 | $      | 33,949,445 |   |
| Statutory                Tax Rate                                           |   |                              | 34          | %                                    |   | 34 | % |
| Total                Deferred Tax Assets before Utilization                 |   |                              | 11,397,618  |                                 |   | 11,542,811 |   |
| Income                Tax (Benefit) Utilized                                |   |                              | (44,870     | )                                    |   | — |   |
| Income                Taxes Currently Payable (Refundable)                  |   |                              | 100,323     |                                 |   | 44,870 |   |
| Total                Income Tax (Benefit) to be Utilized                    |   |                              | (100,323    | )                                    |   | (44,870 | ) |
| Total                Deferred Tax Assets after Utilization                  |   |                              | 11,252,424  |                                 |   | 11,497,941 |   |
| Valuation                Allowance for Deferred Tax Assets                  |   |                              | (11,252,424 | )                                    |   | (11,497,941 | ) |
| Net                Deferred Taxes                                           |   | $                                 | —     |                                 | $      | — |   |

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED-      CONTINUED)**

| **Note                7.** | **Property,                Plant and Equipment.** |
|----------------------------|---------------------------------------------------|

|                                                    |   | **March                31, 2006** |      | **December                31, 2005** |   |
|---------------------------------------------------------|--------|-----------------------------------|-----------|--------------------------------------|--------|
| Vehicles                                                |   | $                                 | 379,676   |                                 | $      | 379,676 |   |
| Leasehold                Improvements                   |   |                              | 14,191    |                                 |   | 14,191 |   |
| Office                Furniture and Equipment           |   |                              | 99,137    |                                 |   | 164,258 |   |
| Computers                and Software                   |   |                              | 397,591   |                                 |   | 312,999 |   |
| Machinery                and Equipment                  |   |                              | 550,257   |                                 |   | 367,478 |   |
| Displays                                                |   |                              | 65,121    |                                 |   | — |   |
| Plant                Construction in Progress           |   |                              | —   |                                 |   | 116,756 |   |
| Total                Property, Plant and Equipment      |   | $                                 | 1,505,973 |                                 | $      | 1,355,358 |   |
| Less:                Accumulated Depreciation           |   |                              | (507,002  | )                                    |   | (447,784 | ) |
| Total                Property, Plant and Equipment, Net |   | $                                 | 998,972   |                                 | $      | 907,574 |   |

| **Note                8.** | **Goodwill                and Other Intangible                Assets.** |
|----------------------------|-------------------------------------------------------------------------|

|      |   | **March                31, 2006** |      | **December                31, 2005** |   |
|-----------|--------|-----------------------------------|-----------|--------------------------------------|--------|
| Coatings  |   | $                                 | 1,049,458 |                                 | $      | 1,049,458 |   |
| Foam      |   |                              | 640,577   |                                 |   | 640,577 |   |
| Paints    |   |                              | 123,092   |                                 |   | 123,092 |   |
| Sealants  |   |                              | 125,507   |                                 |   | 125,507 |   |
| Adhesives |   |                              | 172       |                                 |   | 172 |   |
| Equipment |   |                              | 12,194    |                                 |   | 12,194 |   |
| Totals    |   | $                                 | 1,951,000 |                                 | $      | 1,951,000 |   |

|                                              |   | **March                31, 2006** |    | **December                31, 2005** |   |
|---------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|
| Customer                List                      |   | $                                 | 69,235  |                                 | $      | 69,235 |   |
| Product                Formulation                |   |                              | 138,471 |                                 |   | 138,471 |   |
| Total                Other Intangible Assets      |   | $                                 | 207,706 |                                 | $      | 207,706 |   |
| Less:                Accumulated Amortization     |   |                              | (25,000 | )                                    |   | (19,230 | ) |
| Total                Other Intangible Assets, Net |   | $                                 | 182,706 |                                 | $      | 188,476 |   |

| **Note                9.** | **Loans                Payable - Related Party.** |
|----------------------------|---------------------------------------------------|

***See      also***

| **Note                10.** | **Note                Payable - Other.** |
|-----------------------------|------------------------------------------|

| **Note                11.** | **Note                Payable - Related Party.** |
|-----------------------------|--------------------------------------------------|

----

*Index*

**LAPOLLA      INDUSTRIES, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED-      CONTINUED)**

| **Note                12.** | **Business                Segment Information.** |
|-----------------------------|--------------------------------------------------|

*Unallocated      Amounts*

| **Segments**                                   |   |         |      |     |   |       |   |         |    |          |   |          |   |                         |   |       |   |
|------------------------------------------------|--------|--------------|-----------|----------|--------|------------|--------|--------------|---------|---------------|--------|---------------|--------|------------------------------|--------|------------|--------|
|                                           |   |         |      |     |   |       |   |         |    |          |   |          |   |                         |   |       |   |
| **March                31, 2006**              |   |         |      |     |   |       |   |         |    |          |   |          |   |                         |   |       |   |
|                                           |   | **Coatings** |      | **Foam** |   | **Paints** |   | **Sealants** |    | **Adhesives** |   | **Equipment** |   | **All                Other** |   | **Totals** |   |
| Sales                                          |   | $            | 2,083,735 |     | $      | 3,187,694  |   | $            | 324,662 |          | $      | 228,554       |   | $                            | 4,032  |       | $      | 176,049 |   | $ | 37,389 |   | $ | 6,042,115 |   |
| Depreciation                and Amortization   |   |         | 32,977    |     |   | 6,639      |   |         | 676     |          |   | 476           |   |                         | 8      |       |   | 367 |   |   | 78 |   |   | 41,221 |   |
| Interest                Expense                |   |         | 17,750    |     |   | 27,154     |   |         | 2,766   |          |   | 1,947         |   |                         | 34     |       |   | 1,500 |   |   | 318 |   |   | 51,469 |   |
| Segment                Profit (Loss)           |   |         | 294,115   |     |   | 125,887    |   |         | 43,972  |          |   | 37,390        |   |                         | (520   | )          |   | 30,945 |   |   | 3,756 |   |   | 535,545 |   |
| Segment                Assets(1)               |   |         | 3,734,199 |     |   | 4,747,689  |   |         | 541,395 |          |   | 419,982       |   |                         | 5,367  |       |   | 239,020 |   |   | 48,174 |   |   | 9,735,826 |   |
| Expenditures                for Segment Assets |   | $            | 96,875    |     | $      | 44,629     |   | $            | 4,545   |          | $      | 10,722        |   | $                            | 57     |       | $      | 2,465 |   | $ | 523 |   | $ | 159,816 |   |

| **March                31, 2005**              |   |         |      |     |   |       |   |         |    |          |   |          |   |                         |    |       |   |
|------------------------------------------------|--------|--------------|-----------|----------|--------|------------|--------|--------------|---------|---------------|--------|---------------|--------|------------------------------|---------|------------|--------|
|                                           |   | **Coatings** |      | **Foam** |   | **Paints** |   | **Sealants** |    | **Adhesives** |   | **Equipment** |   | **All                Other** |    | **Totals** |   |
| Sales                                          |   | $            | 909,985   |     | $      | 1,130,759  |   | $            | 172,001 |          | $      | 156,379       |   | $                            | — |       | $      | 24,186 |   | $ | 64,344 |   | $ | 2,457,653 |   |
| Depreciation                and Amortization   |   |         | 18,047    |     |   | 3,296      |   |         | 501     |          |   | 456           |   |                         | — |       |   | 71 |   |   | 188 |   |   | 22,559 |   |
| Interest                Expense                |   |         | 18,055    |     |   | 22,435     |   |         | 3,413   |          |   | 3,103         |   |                         | — |       |   | 480 |   |   | 1,277 |   |   | 48,761 |   |
| Segment                Profit (Loss)           |   |         | (96,798   | )        |   | (283,857   | )      |         | (14,421 | )             |   | (27,316       | )      |                         | — |       |   | 1,070 |   |   | (8,796 | ) |   | (430,117 | ) |
| Segment                Assets(1)               |   |         | 2,487,386 |     |   | 2,427,364  |   |         | 394,883 |          |   | 372,611       |   |                         | 172     |       |   | 50,411 |   |   | 101,674 |   |   | 5,834,501 |   |
| Expenditures                for Segment Assets |   | $            | 28,375    |     | $      | 11,008     |   | $            | 1,675   |          | $      | 3,691         |   | $                            | — |       | $      | 235 |   | $ | 626 |   | $ | 45,610 |   |

| **Profit                or Loss**                           |   |                              |     |                              |   |
|-------------------------------------------------------------|--------|-----------------------------------|----------|-----------------------------------|--------|
|                                                        |   | **March                31, 2006** |     | **March                31, 2005** |   |
| Total                Profit or Loss for Reportable Segments |   | $                                 | 535,545  |                              | $      | (430,117 | ) |
| Unallocated                Amounts:                         |   |                              |     |                              |   |   |   |
| Corporate                Expenses                           |   |                              | 636,966  |                              |   | (813,651 | ) |
| Income                (Loss) Before Income Taxes            |   | $                                 | (101,420 | )                                 | $      | (1,243,768 | ) |

| **Assets**                                             |   |                              |       |                              |   |
|--------------------------------------------------------|--------|-----------------------------------|------------|-----------------------------------|--------|
|                                                   |   | **March                31, 2006** |       | **March                31, 2005** |   |
| Total                Assets for Reportable Segments(1) |   | $                                 | 9,735,826  |                              | $      | 5,834,501 |   |
| Other                Unallocated Amounts(2)            |   |                              | 1,890,215  |                              |   | 250,132 |   |
| Consolidated                Total                      |   | $                                 | 11,626,042 |                              | $      | 6,084,633 |   |

| (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                and                deferred tax assets. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Index*

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

**Performance      in First Quarter of 2006 compared to First Quarter of 2005**

*Overview*

**Overall      Results of Operations**

|   |   | **March                31, 2006** |      | **March                31, 2005** |   |
|--------|--------|-----------------------------------|-----------|-----------------------------------|--------|
| Sales  |   | $                                 | 6,042,115 |                              | $      | 2,457,653 |   |

**Results      of Business Segments**

| **Segments**             |   | **March                31, 2006** |      | **March                31, 2005** |   |
|--------------------------|--------|-----------------------------------|-----------|-----------------------------------|--------|
| Coatings                 |   | $                                 | 2,083,735 |                              | $      | 909,985 |   |
| Foam                     |   |                              | 3,187,694 |                              |   | 1,130,759 |   |
| Paints                   |   |                              | 324,662   |                              |   | 172,001 |   |
| Sealants                 |   |                              | 228,554   |                              |   | 156,379 |   |
| Adhesives                |   |                              | 4,032     |                              |   | — |   |
| Equipment                |   |                              | 176,049   |                              |   | 24,186 |   |
| All                Other |   | $                                 | 37,389    |                              | $      | 64,344 |   |

----

*Index*

**Liquidity      and Capital Resources**

**Forward      Looking Statements**

----

*Index*

| **Item                3.** | **Quantitative                and Qualitative Disclosures About Market                Risk.** |
|----------------------------|-----------------------------------------------------------------------------------------------|

| **Item                4.** | **Controls                and Procedures.** |
|----------------------------|---------------------------------------------|

**PART      II — OTHER INFORMATION**

| **Item                1.** | **Legal                Proceedings.** |
|----------------------------|---------------------------------------|

| (a) | ***Joglar                Painting, Inc., Plaintiff v. Urecoats Industries Inc., Urecoats                Manufacturing, Inc (n/k/a RSM Technologies, Inc.), et. al.,                Defendants*** |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | ***Raymond                T. Hyer, Jr. and Sun Coatings, Inc., Plaintiffs v. Urecoats Industries                Inc., et. al,                Defendants*** |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Item                2.** | **Changes                in Securities and Use of                Proceeds.** |
|----------------------------|------------------------------------------------------------------------------|

**Recent      Sales of Unregistered Securities**

| **Item                3.** | **Defaults                Upon Senior Securities.** |
|----------------------------|-----------------------------------------------------|

| **Item                4.** | **Submission                of Matters to a Vote of Security                Holders.** |
|----------------------------|----------------------------------------------------------------------------------------|

| **Item                5.** | **Other                Information.** |
|----------------------------|---------------------------------------|

| **Item                6.** | **Exhibits.** |
|----------------------------|---------------|

***See***

----

*Index*

**SIGNATURES**

|                                                         |   | **LAPOLLA                INDUSTRIES, INC.** |
|--------------------------------------------------------------|--------|---------------------------------------------|
|                                                         |   |                                        |
|                                                         |   |                                        |
| Date:                  May                15, 2006 | By:    | /s/                Michael T. Adams, CEO    |
|                                                         |   | Michael                T. Adams             |
|                                                         |   | CEO                                         |
|                                                         |   |                                        |
|                                                         |   |                                        |
|                                                         |   | **LAPOLLA                INDUSTRIES, INC.** |
|                                                         |   |                                        |
|                                                         |   |                                        |
| Date:                  May                15, 2006 | By:    | /s/                John A. Campbell, CFO    |
|                                                         |   | John                A. Campbell             |
|                                                         |   | CFO                and Treasurer            |

----

*Index*

**INDEX      OF EXHIBITS**

| **Exhibit                  Number** |   | **Description**                                                                                                                                                                                             |
|-------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |   |                                                                                                                                                                                                        |
| 10.1                                |   | Working                  Capital Commitment dated March 20, 2006 by and between Richard                  J. Kurtz                  and the Company.                                                         |
| 10.2                                |   | Promissory                  Note dated February 8, 2006 from the Company to Richard J.                  Kurtz.                                                                                              |
| 10.3                                |   | Promissory                  Note dated June 2, 2005 by and between Wachovia Bank, the Company,                  and                  Richard Kurtz.                                                         |
| 10.4                                |   | Amendment                  dated March 24, 2006 to the Promissory Note dated June 2, 2005                  by and                  between Wachovia Bank, the Company, and Richard Kurtz.                   |
| 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. |

----