10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

For The Quarterly Period Ended March 31, 2007

Commission File No. 001-31354

LaPolla Industries, Inc.
(Exact name of Registrant as Specified in its Charter)
Delaware (State of Incorporation)		13-3545304 (I.R.S. Employer Identification No.)
Intercontinental Business Park 15402 Vantage Parkway East, Suite 322 Houston, Texas (Address of Principal Executive Offices)		77032 (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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 4, 2007 there were 53,580,257 shares of Common Stock, par value $.01, outstanding.

ITEMS AMENDED HEREBY

As used in this amended report, “LaPolla” and the “Company” or “Us” or “We” or “Our” refer to LaPolla Industries, Inc., a Delaware corporation, unless the context otherwise requires.

As previously reported on our Form 8-K dated July 10, 2007, as amended, Section 4 – Matters Related to Accountants and Financial Statements, Item 4.01 – Changes in Registrant’s Certifying Accountant, Paragraphs (a) and (b), the Company dismissed its former independent accountant, Baum & Company, PA (“Baum”), and engaged a new independent accountant, Hein & Associates LLP (“Hein”), on July 12, 2007. As part of the new engagement, Hein reviewed the Company’s unaudited interim financial information for the three and six months ended June 30, 2007 and made certain recommendations to the Company regarding the accounting treatment and disclosure of certain matters.  We are amending this report to:

1.      Reclassification of Other Current Assets to Trade Receivables, Net– Classify credit insurance receivables as a Trade Receivables for the quarter ended March 31, 2007. The Company reclassified the amount of claims filed under its credit insurance policies as Other Current Assets whenever it was determined that those trade receivables covered under its credit insurance policy were uncollectible on the face of the condensed consolidated balance sheet when these amounts should have maintained their classification as Trade Receivables. The aggregate financial data originally presented was not affected by the reclassification.

2.      Reclassification of Prepaid Expenses to Other Non-Current Assets– Classify the fees charged to the Company in connection with the Credit Facility entered into with ComVest Capital LLC (“ComVest”) on February 21, 2007 as an Other Non-Current Asset for the quarter ended March 31, 2007. The Company recorded the transaction fees related to the Credit Facility as a Prepaid Expense on the face of the condensed consolidated balance sheet when the amount should have been classified as an Other Non-Current Asset. The aggregate financial data originally presented was not affected by the reclassification.

3.      Restatement of Deferred Income Tax Asset and Income Tax Benefit-Deferred - Fully reserve the carrying value of our deferred income tax asset for continuing operations for the quarters ended March 31, 2007 and 2006 and year ended December 31, 2006. The Company believed that an appropriate set of circumstances existed based on various management assumptions and projections in the fourth quarter and year ended December 31, 2005 that would make a certain portion of its eligible cumulative losses from continuing operations recoverable for income tax purposes and established a deferred income tax asset for an amount equal to the amount it deemed more likely than not would be realized during 2006. The carrying amount of the deferred income tax asset was evaluated on a quarterly basis and adjusted in light of changing circumstances for each of the four quarters and year ended December 31, 2006 and the first quarter of 2007. Baum concurred with the Company’s accounting treatment. Notwithstanding the foregoing, the Company reevaluated its recognition of a portion of its deferred income tax asset from continuing operations and is reversing the amounts previously recognized until such time that the Company exceeds break-even or marginal cumulative profitability. The Company has increased the valuation allowance related to its deferred income tax asset to fully reserve the carrying value of its deferred income tax asset and restated its results for each of the four quarters and year ended December 31, 2006 and the fourth quarter and year ended December 31, 2005 to reflect the adjustments. The aggregate financial data originally presented was affected by the restatement.

4.      Reclassification of Revolving Credit Note– Classify the Revolving Credit Note liability as an Other Liability on the face of the condensed consolidated balance sheets for the quarter ended March 31, 2007. The Company classified the Revolving Credit Note liability (originally reflected as “Line of Credit”) as a Current Liability on the condensed consolidated balance sheets when it should have been classified as an Other Liability based on its February 28, 2009 maturity date.  The aggregate financial data originally presented was not affected by the reclassification.

5.      Restatement of Convertible Term Note and Revolving Credit Note Liabilities and Interest Expense– Account for the fair value of warrants as additional paid-in capital and reduce the carrying values of the convertible term note and revolving credit note for the quarter ended March 31, 2007 by such amount. The Company did not account for the fair value of the warrants issued in connection with the Credit Facility entered into with ComVest. The fair value of the warrants was allocated between the convertible term note and revolving credit note based upon their relative values at the grant date and is being amortized over the life of the notes using the effective interest method. The aggregate financial data originally presented was affected by the restatement.

6.      Disclosure of Accounting for Registration Payment Arrangements– Disclose the registration payment arrangement entered into between the Company and ComVest in accordance with FASB Staff Position No. EITF 00-19-2. The Company entered into a Registration Rights Agreement contemporaneously with the establishment of a Credit Facility with ComVest on February 21, 2007, which agreement contains certain provisions that may require the Company to pay ComVest certain fees upon the happening of certain events.  Although the Company has determined that no liability is probable at this time under the agreement, the Company is required to fully disclose certain aspects of the agreement in case certain events occur which require the Company to record a liability under the agreement.

The Company has fully updated all affected portions of this amended report, including the condensed consolidated financial statements and related notes and MD&A, to reflect the restatements, reclassification, and disclosure described above. In addition, certain scrivener’s errors and captions in the condensed consolidated financial statements and related notes and disclosures have been updated throughout this amended report to make the presentation more informative and transparent.

(i)

LAPOLLA INDUSTRIES, INC.

FORM 10-Q/A

FOR THE QUARTER ENDED MARCH 31, 2007

INDEX

			Page
PART I		FINANCIAL INFORMATION
	Item 1	Financial Statements	2
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	14
	Item 4	Controls and Procedures	14
PART II		OTHER INFORMATION
	Item 1	Legal Proceedings	15
	Item 1A	Risk Factors	15
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3	Defaults Upon Senior Securities	16
	Item 4	Submission of Matters to a Vote of Security Holders	16
	Item 5	Other Information	16
	Item 6	Exhibits	16
SIGNATURES			17
INDEX OF EXHIBITS			18

1

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, 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 Securities and Exchange Commission. The information on our Internet website is not incorporated by reference in this Quarterly Report on Form 10-Q/A.

Item 1. Financial Statements.

LAPOLLA INDUSTRIES, INC.

INDEX TO FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULES

CONDENSED CONSOLIDATED BALANCE SHEETS
	March 31, 2007 (Unaudited) and December 31, 2006	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended March 31, 2007 and 2006	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Three Months Ended March 31, 2007 and 2006	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6

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

2

LAPOLLA INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2007			December 31, 2006
	(Unaudited)			Restated (2)
	Restated (1)
ASSETS
Current Assets:
Cash	$	107,028		$	382,116
Trade Receivables, Net		4,077,717			3,595,431
Inventories		3,277,635			2,882,236
Prepaid Expenses and Other Current Assets		488,461			537,253
Deferred Income Taxes, Net		—			—
Total Current Assets		7,950,841			7,397,036
Property, Plant and Equipment, Net		2,283,989			1,489,639
Other Assets:
Goodwill		1,951,000			1,951,000
Other Intangible Assets, Net		159,626			165,396
Deposits and Other Non-Current Assets		313,223			149,237
Total Other Assets		2,423,850			2,265,633
Total Assets	$	12,658,681		$	11,152,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	$	5,505,561		$	5,069,478
Accrued Expenses and Other Current Liabilities		929,771			1,091,947
Line of Credit		—			1,007,120
Current Portion of Convertible Term Note		343,178			—
Current Portion of Long-Term Debt		110,808			97,589
Current Portion of Liabilities from Discontinued Operations		—			232,479
Total Current Liabilities		6,889,317			7,498,613
Other Liabilities
Revolving Credit Note		1,376,511			—
Non Current Portion of Convertible Term Note		1,162,867			—
Non Current Portion of Long-Term Debt		192,636			202,923
Non Current Portion of Liabilities from Discontinued Operations		2,108			103,650
Total Other Liabilities		2,734,122			306,573
Total Liabilities		9,623,439			7,805,186
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 at March 31, 2007 and December 31, 2006; $62,500 aggregate liquidation preference at March 31, 2007 and December 31, 2006		55,035			55,035
Series D, 25,000 Shares Authorized; 8,176 Issued and Outstanding at March 31, 2007 and December 31, 2006; $8,176,000 aggregate liquidation preference at March 31, 2007 and December 31, 2006		8,176			8,176
Common Stock, $.01 Par Value; 65,000,000 Shares Authorized; 53,586,251 and 53,574,251 Issued and Outstanding at March 31, 2007 and December 31, 2006, respectively		535,863			535,743
Additional Paid-In Capital		70,898,793			70,201,151
Accumulated Deficit		(67,577,978	)		(67,452,983
Total Stockholders’ Equity		3,035,241			3,347,122
Total Liabilities and Stockholders’ Equity	$	12,658,681		$	11,152,308

⁽¹⁾See (A), (B), (C), (D), and (E) appearing on Consolidated Statement of Operations.

⁽²⁾See (C) appearing on Consolidated Statement of Operations.

See accompanying notes to condensed consolidated financial statements.

3

LAPOLLA INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2007			2006
	Restated (A)(B)(C)(D)(E)			Restated (C)
Sales	$	7,269,322		$	5,999,935
Cost of Sales		6,086,874			5,163,187
Gross Profit		1,182,448			836,748
Operating Expenses:
Selling, General and Administrative		1,987,503			1,159,473
Professional Fees		32,619			69,478
Depreciation and Amortization		65,694			41,221
Consulting Fees		25,580			21,003
Interest Expense		80,171			15,173
Interest Expense - Related Party		—			45,370
Other (Income) Expense		514			—
Total Operating Expenses		2,192,081			1,351,718
Operating (Loss) Before Income Taxes		(1,009,633	)		(514,970	)
Income Tax (Expense) Benefit-Deferred		—			—
Operating (Loss)		(1,009,633	)		(514,970	)
Income (Loss) From Discontinued Operations, Net of Income Tax Benefit-Deferred		—			295,069
Net (Loss)	$	(1,009,633	)	$	(219,901	)
Plus: Dividends on Preferred Stock		(201,710	)		—
Net (Loss) Available to Common Stockholders		(1,211,343	)	$	(219,901	)
Net Income (Loss) Per Share - Basic and Diluted
Continuing Operations	$	(0.019	)	$	(0.009	)
Discontinued Operations		—			0.005
Total	$	(0.019	)	$	(0.004	)
Weighted Average Shares Outstanding		53,584,903			53,210,251

(A)           Reclassification of Prepaid Expenses to Trade Receivables– The Company reclassified the credit insurance receivables originally included in the Other Current Assets line item on the Condensed Consolidated Balance Sheet and included this amount in the Trade Receivables, Net line item for the quarter ended March 31, 2007. Prepaid Expenses and Other Current Assets decreased $78,269 and Trade Receivables, Net increased $78,269. See also Note 12, paragraph (A).

(B)           Reclassification of Prepaid Expenses to Other Non-Current Assets– The Company reclassified the fees charged in connection with the Credit Facility established with ComVest originally included in the Prepaid Expenses line item on the Condensed Consolidated Balance Sheet and included this amount in the Other Non-Current Assets line item for the quarter ended March 31, 2007. Prepaid Expenses and Other Current Assets decreased $163,987 and Deposits and Other Non-Current Assets increased $163,987. See also Note 12, paragraph (B).

(C)           Restatement of Deferred Income Tax Asset and Income Tax Benefit-Deferred– The Company fully reserved the carrying value of its deferred income tax asset for continuing operations for the quarters ended March 31, 2007 and 2006 and year ended December 31, 2006. Deferred Income Taxes, Net, Total Current Assets, and Total Assets each decreased $867,989 and $938,548 for the quarter ended March 31, 2007 and year ended December 31, 2006, respectively; and Income Tax (Expense) Benefit increased $70,559 and $7,263 and Operating (Loss) and Net (Loss) each decreased $70,559 and $7,263 for the quarters ended March 31, 2007 and 2006, respectively. See Note 12, paragraph (C) for illustrative requirement.

(D)           Reclassification of Revolving Credit Note– The Company renamed the Line of Credit line item Revolving Credit Note and reclassified the Revolving Credit Note liability originally included in the Current Liability section of the Condensed Consolidated Balance Sheet and included this amount in the Other Liabilities section for the quarter ended March 31, 2007.  Total Current Liabilities decreased $1,500,000 and Total Other Liabilities increased $1,500,000. See also Note 12, paragraph (D).

(E)           Restatement of Convertible Term Note and Revolving Credit Note Liabilities and Interest Expense– The Company, after the restatement in (C) and reclassification in (D) above, accounted for the fair value of warrants as additional paid-in capital, reduced the carrying values of the convertible term note and revolving credit note by the fair value of the warrants, and recorded interest expense for the quarter ended March 31, 2007. Current Portion of Convertible Term Note, Total Current Liabilities, Non-Current Portion of Convertible Term Note, Revolving Credit Note, Total Other Liabilities, and Total Liabilities decreased $123,489, $123,489, $123,489, $370,466, $493,955, and $617,445; and Interest Expense, Total Operating Expenses, Operating (Loss), and Net (Loss) each increased $16,649; for the quarter ended March 31, 2007, respectively. See Note 12, paragraph (E) for illustrative requirement.

See accompanying notes to condensed consolidated financial statements

4

LAPOLLA INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2007			2006
	Restated (1)			Restated (2)
Cash Flows From Operating Activities
Net Income (Loss)
Continuing Operations	$	(1,009,633	)	$	(514,970	)
Discontinued Operations		—			295,069
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) by Operating Activities:
Depreciation and Amortization		95,229			64,987
Provision for Losses on Trade Receivables		(127,454	)		36,257
Amortization of Discount on Convertible Term and Revolving Credit Notes		16,649			—
Deferred Income Taxes		—			—
Share Based Compensation Expense		265,370			165,302
Changes in Assets and Liabilities, Net of Effects of Purchase of Business Entity:
Trade Receivables		(354,833	)		69,973
Inventories		(395,399	)		(803,464	)
Prepaid Expenses and Other Current Assets		48,793			(115,215	)
Deposits and Other Non Current Assets		(163,987	)		1,449
Accounts Payable		436,083			656,277
Accrued Expenses and Other Current Liabilities		(297,923	)		(169,240	)
Other Liabilities		(435	)		(162,290	)
Net Operating Activities of Discontinued Operations		(7,892	)		—
Net Cash Provided by (Used in) Operating Activities		(1,495,431	)		(770,933	)
Cash Flows From Investing Activities
Additions to Property, Plant and Equipment	$	(883,811	)	$	(150,615	)
Payment for Purchase of Business Entity, Net of Cash Acquired		—			—
Net Cash Provided by (Used in) Investing Activities		(883,811	)		(150,615	)
Cash Flows From Financing Activities
Proceeds from Revolving Credit Note		1,500,000			—
Payments on Revolving Credit Note		—			—
Proceeds from Line of Credit		1,398,000			(21,816	)
Payments on Line of Credit		(2,405,120	)		—
Proceeds from Loans Payable – Related Party		617,000			220,000
Payments on Loans Payable – Related Party		(617,000	)		—
Proceeds from Convertible Term Note		2,000,000			—
Proceeds from Note Payable – Other		—			550,000
Payments on Note Payable – Other		(10,002	)		—
Principal Repayments on Long Term Debt		(52,595	)		(28,975	)
Net Financing Activities of Discontinued Operations		(326,129	)		—
Net Cash Provided by (Used in) Financing Activities		2,104,154			719,209
Net Increase In Cash	$	(275,088	)	$	(202,339	)
Cash at Beginning of Period		382,116			400,622
Cash at End of Period	$	107,028		$	198,283
Supplemental Disclosure of Cash Flow Information:
Cash Payments for Income Taxes	$	—		$	—
Cash Payments for Interest	$	63,520		$	30,610
Supplemental Schedule of Non Cash Investing and Financing Activities
Common Stock issued for Director Fees	$	6,840		$	—

⁽¹⁾See (A), (B), (C), (D), and (E) appearing on Consolidated Statement of Operations.

⁽²⁾See (C) appearing on Consolidated Statement of Operations.

See accompanying notes to condensed consolidated financial statements.

5

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 pursuant to the rules and regulations of the Securities and Exchange Commission. 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 2007 unaudited consolidated financial statement presentation. Reference is made to Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 11. Risk factors that could impact results are discussed in Part II - Other Information, Item 1A - Risk Factors on page 14. Refer also to the Company’s 2006 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, 2007.  Certain amounts in prior periods have been reclassified to conform to the March 31, 2007 unaudited condensed consolidated financial statement presentation.  Refer to Note 12 - Reclassifications, Restatements, and Corrections to Previously Issued Financial Statements.

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, 2007 and 2006, raw materials and finished goods purchased from the Company’s three largest suppliers accounted for approximately 33% and 58% of purchases, respectively.

Note 3. Trade Receivables.

The following is a summary of trade receivables at:

	March 31, 2007			December 31, 2006
Trade Receivables	$	4,174,569		$	3,819,737
Less: Allowance for Doubtful Accounts		(96,852	)		(224,306	)
Trade Receivables, Net	$	4,077,717		$	3,595,431

Note 4. Inventories.

The following is a summary of inventories at:

	March 31, 2007		December 31, 2006
Raw Materials	$	807,507	$	866,859
Finished Goods		2,470,128		2,015,377
Total	$	3,277,635	$	2,882,236

Note 5. Deferred Income Taxes.

The following is a summary of deferred income taxes at:

Deferred Tax Assets:	March 31, 2007			December 31, 2006
Net Operating Loss Carry-Forwards	$	34,201,478		$	33,173,277
Temporary Differences:
Nondeductible Accruals		(1,306,953	)		(1,175,878	)
Net Operating Loss Carry-Forward after Temporary Differences		32,894,525			31,997,399
Statutory Tax Rate		34	%		34	%
Total Deferred Tax Assets		11,184,139			10,879,116
Valuation Allowance for Deferred Tax Assets		(11,184,139	)		(10,885,429	)
Net Deferred Taxes	$	—		$	—

See also Note 6 for a summary of deferred income taxes for discontinued operations.

6

LAPOLLA INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED- CONTINUED)

Note 6. Discontinued Operations.

The consolidated financial statements and the related notes reflect the financial position, results of operations and cash flows on an aggregated basis for the Company’s discontinued operations for the periods presented. The following is a summary of the liabilities of discontinued operations at:

Liabilities	March 31, 2007		December 31, 2006
Accrued Expenses and Other Current Liabilities	$	2,108	$	10,000
Line of Credit		—		326,129
Total Liabilities	$	2,108	$	336,129

The following is a summary of discontinued operations deferred income taxes at:

Deferred Tax Assets:	March 31, 2007			December 31, 2006
Net Operating Loss Carry-Forwards (No Temporary Differences)	$	33,189,532		$	33,189,532
Statutory Tax Rate		34	%		34	%
Total Deferred Tax Assets		11,284,441			11,284,441
Valuation Allowance for Deferred Tax Assets		(11,284,441	)		(11,284,441	)
Net Deferred Taxes	$	—		$	—

Future tax benefit for net operating loss carry-forwards are subject to limitations based on the inability of discontinued operations to generate future taxable income.

Note 7. Property, Plant and Equipment.

The following is a summary of property, plant and equipment at:

	March 31, 2007			December 31, 2006
Vehicles	$	487,037		$	487,037
Leasehold Improvements		12,400			12,400
Office Furniture and Equipment		141,334			133,634
Computers and Software		499,794			445,491
Machinery and Equipment		881,885			718,210
Plant Construction in Progress		870,726			212,592
Total Property, Plant and Equipment	$	2,893,176		$	2,009,364
Less: Accumulated Depreciation		(609,185	)		(519,725	)
Total Property, Plant and Equipment, Net	$	2,283,991		$	1,489,639

Note 8. Goodwill and Other Intangible Assets.

The following is a summary of goodwill at:

	March 31, 2007		December 31, 2006
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

7

LAPOLLA INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED- CONTINUED)

Note 8. Goodwill and Other Intangible Assets - continued.

The following is a summary of other intangible assets at:

	March 31, 2007			December 31, 2006
Customer List	$	69,235		$	69,235
Product Formulation		138,471			138,471
Total Other Intangible Assets	$	207,706		$	207,706
Less: Accumulated Amortization		(48,079	)		(42,309	)
Total Other Intangible Assets, Net	$	159,627		$	165,397

Note 9. Revolving Credit Note, Convertible Term Note, Warrants, and Registration Payment Arrangements.

The Company entered into a Revolving Credit and Term Loan Agreement on February 21, 2007 (“Loan Agreement”) under which ComVest agreed to loan the Company up to $3,500,000 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 ComVest three tranches of warrants (“Warrants”) and register the conversion shares under the Convertible Term Note and warrant shares underlying the Warrants (“Registration Rights”). The Company received $2,500,000 at closing, of which $373,181 was allocated to the Revolving Credit Note, $1,492,726 was allocated to the Convertible Term Note, and $634,093 was allocated to the Warrants.

(a)Revolving Credit Note - The Revolving Credit Note bears interest equal to the greater of (a) Prime Rate plus 1%, or 9.5%, and is good until February 28, 2009. At March 31, 2007, the unamortized discount on the Revolving Credit Note was $123,489.

(b)Convertible Term Note - The Convertible Note bears interest at the rate of 10% per annum, principle payments of $66,666.67 commence on September 30, 2007 and end on February 28, 2010, and is convertible optionally by ComVest at any time or mandatorily by LaPolla subject to satisfaction of certain conditions to common stock at the rate of $.80 per share (“Conversion Shares”). The Company retired its line of credit with Wachovia Bank, N.A. at the closing.  The fees charged to the Company relating to the ComVest transaction are being amortized over the term of the Convertible Term Note. At March 31, 2007, the unamortized discount on the Convertible Term Note was $493,955.

(c)Warrants - The Warrants are for the purchase of an aggregate of 1,500,000 shares of LaPolla common stock at a price per share calculated based on the closing stock price over the last 20 days prior to the date of closing, immediately exercisable, and expire February 29, 2012 (“Warrant Shares”). The exercise prices for the Warrants are as follows (a) tranche 1 (110% of average closing price) = $0.68; (b) tranche 2 (125% of average closing price) = $0.77; and (c) tranche 3 (150% of average closing price) = $0.93. The fair value of the Warrants of $634,093 at the time of issuance, which was determined using a lattice-based option-pricing model, was recorded as additional paid-in capital and reduced the carrying value of the Revolving Credit Note and Convertible Term Note (collectively the “Notes”).  The discount on the Notes is being amortized to interest expense over the term of the Notes.  At March 31, 2007, the unamortized discount on the Notes is approximately $617,444. See also Items (b) and (c) above.

(d)Registration Rights– The Registration Rights Agreement entered into on February 21, 2007 requires the Company to file with the SEC not later than 90 days after the date of this agreement, 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 is required to use its best efforts to cause the Registration Statement to be declared effective as promptly as possible after filing it with the SEC but in no event later than 150 days after the date of this agreement. If the Registration Statement is not declared effective within 150 days after the date of this agreement, or shall cease 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 Fork 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. See also (b) and (c) above. The Company determined that no liability is recognizable at March 31, 2007.

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Note 10. 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:

	2007						2006
				Per Share						Per Share
	Amount			Amount			Amount			Amount
Operating (Loss) Before Income Taxes	$	(1,009,633	)	$	(0.019	)	$	(514,970	)	$	(0.009	)
Income Tax (Expense)-Deferred		—			—			—			—
Operating (Loss)	$	(1,009,633	)	$	(0.019	)	$	(514,970	)	$	(0.009	)
Income (Loss) from Discontinued Operations, Net of Income Tax Benefit-Deferred		—			—			295,069			0.005
Net (Loss)	$	(1,009,633	)	$	(0.019	)	$	(219,901	)	$	(0.004	)
Plus: Dividends on Preferred Stock		(201,710	)		(0.003	)		—			—
Net (Loss) Available to Common Stockholders	$	(1,211,343	)	$	(0.022	)	$	(219,901	)	$	(0.004	)
Weighted Average Common Shares Outstanding	53,584,903						53,210,251

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 common stock of the Company would be antidilutive. The common stock that could potentially dilute (loss) per share in the future that were not included in the computation of diluted (loss) per share were (i) 57,447 and 364,000 shares, of nonvested restricted common stock issued to eligible directors but held by the Company pursuant to vesting restrictions under the former Director Compensation Plan, (ii) 73,000 and 169,868 shares upon exercise of vested and exercisable stock options, (iii) 2,000,000 and -0- shares upon conversion of the Convertible Term Note, and (iv) 1,500,000 and -0- shares upon exercise of outstanding warrants, for the three months ended March 31, 2007 and 2006, respectively.

Note 11. Business Segment Information.

The Company is a national manufacturer and distributor with seven segments: Coatings, Foam, Paints, Sealants, Adhesives, Equipment, and All Other. The Company’s segments are organized based on differences in products. The Company primarily manufactures coatings and distributes foam, paints, sealants, adhesives, equipment, and all other products. Production facilities are located in Texas, Florida and Arizona. 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 income before income taxes. A substantial amount of administrative expenses are allocated to the segments. The portion not allocated to the segments represents the unallocated cost of 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 at March 31:

2007
	Coatings			Foam			Paints		Sealants			Adhesives			Equipment			All Other			Totals
Sales	$	2,142,998		$	4,457,440		$	273,038	$	293,688		$	—		$	100,605		$	1,553		$	7,269,322
Depreciation and Amortization		52,555			11,424			700		753			—			258			4			65,694
Interest Expense		23,634			49,160			3,011		3,239			—			1,110			17			80,171
Segment Profit (Loss)		(41,744	)		(532,411	)		21,298		(4,637	)		—			(11,591	)		(21,323	)		(590,408	)
Segment Assets(1)		3,959,117			6,692,674			493,810		524,262			172			148,791			2,109			11,820,935
Expenditures for Segment Assets	$	169,898		$	803,965		$	2,878	$	19,464		$	—		$	1,061		$	16		$	997,282
2006
		Coatings			Foam			Paints		Sealants			Adhesives			Equipment			All Other			Totals
Sales	$	2,061,298		$	3,151,100		$	326,121	$	228,554		$	4,032		$	148,149		$	80,682		$	5,999,936
Depreciation and Amortization		32,977			6,596			683		478			8			310			169			41,221
Interest Expense		17,682			27,031			2,798		1,961			35			1,271			692			51,470
Segment Profit (Loss)		(43,979	)		(131,163	)		31,801		14,822			(692	)		(529	)		1,375			(128,365	)
Segment Assets(1)		3,670,461			4,647,297			537,765		416,120			5,299			200,570			102,590			9,580,102
Expenditures for Segment Assets	$	116,453		$	38,482		$	3,983	$	12,933		$	49		$	1,809		$	985		$	174,694

______________________

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

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Note 11. Business Segment Information - continued.

Segment Profit or Loss

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

	2007			2006
Total Profit or Loss for Reportable Segments	$	(590,408	)	$	(128,365	)
Unallocated Amounts:
Corporate Expenses		(419,225	)		(386,605	)
Income (Loss) Before Income Taxes	$	(1,009,633	)	$	(514,970	)
Assets
		2007			2006
Total Assets for Reportable Segments (1)	$	11,820,935		$	9,580,102
Other Unallocated Amounts (2)		1,705,735			1,882,586
Consolidated Total	$	13,526,670		$	11,462,688

⁽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.

Note 12. Reclassifications, Restatements, and Corrections to Previously Issued Financial Statements.

(A)Reclassification of Prepaid Expenses to Trade Receivables– The Company recorded the amount of claims filed under its credit insurance policies as Other Current Assets whenever it was determined that those trade receivables covered under its credit insurance policy were uncollectible on the face of the condensed consolidated balance sheet when these amounts should have maintained their classification as Trade Receivables. The Company reclassified the credit insurance receivables and included this amount in the Trade Receivables, Net for the quarter ended March 31, 2007. See also Condensed Consolidated Statement of Operations, Item (A), and Items Amended Hereby, paragraph (1) for more information.

(B)Reclassification of Prepaid Expenses to Other Non-Current Assets– The Company recorded the transaction fees related to the Credit Facility as a Prepaid Expense on the face of the condensed consolidated balance sheet when the amount should have been classified as an Other Non-Current Asset. The Company reclassified the fees charged in connection with the Credit Facility established with ComVest originally included in the Prepaid Expenses line item on the Condensed Consolidated Balance Sheet and included this amount in the Other Non-Current Assets line item for the quarter ended March 31, 2007. Prepaid Expenses and Other Current Assets decreased $163,987 and Deposits and Other Non-Current Assets increased $163,987. See also Condensed Consolidated Statement of Operations, Item (B), and Items Amended Hereby, paragraph (2) for more information.

(C)Restatement of Deferred Income Tax Asset and Income Tax Benefit-Deferred– The Company believed that an appropriate set of circumstances existed based on various management assumptions and projections in the fourth quarter and year ended December 31, 2005 that would make a certain portion of its eligible cumulative losses from continuing operations recoverable for income tax purposes and established a deferred income tax asset for an amount equal to the amount it deemed more likely than not would be realized during 2006. The carrying amount of the deferred income tax asset was evaluated on a quarterly basis and adjusted in light of changing circumstances for each of the four quarters and year ended December 31, 2006 and the quarter ended March 31, 2007. Notwithstanding the foregoing, the Company reevaluated its recognition of a portion of its deferred income tax asset from continuing operations and reversing the amounts previously recognized until such time that the Company exceeds break-even or marginal cumulative profitability. The Company has increased the valuation allowance related to its deferred income tax asset to fully reserve the carrying value of its deferred income tax asset and restated its results for the quarters ended March 31, 2007 and 2006 to reflect the adjustments. To illustrate:

	March 31, 2007			March 31, 2006
Net Loss (As Previously Reported)	$	(1,063,543	)	$	(227,164	)
Adjustments		70,559			7,263
As Adjusted and Restated	$	(992,984	)	$	(219,901	)

See also Condensed Consolidated Statement of Operations, Item (C), Items Amended Hereby, paragraph (3), and (G) below, for more information.

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Note 12. Reclassifications, Restatements, and Corrections to Previously Issued Financial Statements - continued.

(D)Reclassification of Revolving Credit Note– The Company classified the Revolving Credit Note liability (originally reflected as “Line of Credit”) as a Current Liability on the condensed consolidated balance sheets when it should have been classified as an Other Liability based on its February 28, 2009 maturity date. The Company reclassified the Revolving Credit Note liability originally included in the Current Liability section of the condensed consolidated balance sheet and included this amount in the Other Liabilities section for the quarter ended March 31, 2007. See also Condensed Consolidated Statement of Operations, Item (D), Note 9, and Items Amended Hereby, paragraph (4) for more information.

(E)Restatement of Convertible Term Note and Revolving Credit Note Liabilities and Interest Expense– The Company did not account for the fair value of the warrants issued in connection with the Credit Facility entered into with ComVest. The Company, after the restatement in (C) and reclassification in (D) above, accounted for the fair value of warrants as additional paid-in capital, reduced the carrying values of the convertible term note and revolving credit note by the fair value of the warrants, and recorded interest expense for the quarter ended March 31, 2007. To illustrate:

	March 31, 2007
Net Loss (As Adjusted and Restated Per Footnote (C) Above)	$	(992,984	)
Adjustments		(16,649	)
As Adjusted and Restated	$	(1,009,633	)

 See also Condensed Consolidated Statement of Operations, Item (E), Note 9, and Items Amended Hereby, paragraph (5) for more information.

(F)Disclosure of Accounting for Registration Payment Arrangements– The Company entered into a Registration Rights Agreement contemporaneously with the establishment of a Credit Facility with ComVest on February 21, 2007, which agreement contains certain provisions that may require the Company to pay ComVest certain fees upon the happening of certain events. The Company disclosed the registration payment arrangement as required. See also Note 9, Item (d), and Items Amended Hereby, paragraph (6) for more information.

(G)Restatement of Accrued Expenses and Other Current Liabilities, Cost of Sales, and Sales – The Company restated the accrued expenses and other current liabilities on the Consolidated Balance Sheets and Sales and Cost of Sales on the Consolidated Statements of Operations for the first quarters of 2006. This information was previously disclosed in the Company’s Form10-K for the year ended December 31, 2006 filed originally with the SEC on March 30, 2007, Form 10-K/A for the year ended December 31, 2006 filed with the SEC on August 20, 2007, and Form 10-Q for the quarter ended March 31, 2007 filed with the SEC on August 20, 2007.  See also (C) above.

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

Performance in First Quarter of 2007 compared to First Quarter of 2006

Overview

This financial review presents our operating results for the three months ended March 31, 2007 and 2006, and our financial condition at March 31, 2007. 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 unaudited condensed consolidated financial statements and related notes for the three month period ended March 31, 2007 and our audited consolidated financial statements and related notes for the year ended December 31, 2006.

Overall Results of Operations

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

	2007		2006
Sales	$	7,269,322	$	5,999,935

Our sales increased $1,269,387, or 21%, for the first quarter of 2007 compared to the first quarter of 2006, due to an increase in the number of sales personnel, independent representatives, and distributors selling our various products across all of our segments.

Our gross profit increased $345,700, or 41%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to sales volume growth in our coatings, foam, and sealants segments offset by a decrease in our paints, adhesives, equipment, and all other segments. Gross margin increased 2.32 percentage points, or 16.6%, for the first quarter of 2007 compared to the first quarter of 2006, due to economies of scale from increased purchasing power for the raw materials related to our manufactured and finished goods and improved manufacturing efficiencies.

Our total costs and expenses are comprised of cost of sales, selling, general and administrative expenses, or SG&A, professional fees, depreciation, amortization, consulting fees, interest expense, and other expense. These total costs and expenses increased $1,747,401, or 27%, for the first quarter of 2007 compared to the first quarter of 2006, due to an increase of $923,687 for cost of sales, $828,030 for SG&A, $24,473 for depreciation, $4,577 for consulting fees, $2,979 for interest expense, and $514 for other expenses, offset by a decrease of $36,860 for professional fees.

Cost of sales increased $923,687, or 18%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to an increase in purchases of raw materials for manufactured goods and finished goods, to support our sales volume growth.

SG&A increased $828,030, or 71%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006, due to an increase of $182,467 for payroll and related employee benefits, $75,104 for sales commissions, $28,289 for travel and related services, $30,263 for marketing, promotions and trade shows, $28,825 for insurances, $19,034 for advertising, $100,067 for share based compensation, $25,732 for rents, and $404,430 for corporate office expenses, offset by a decrease of $12,606 for recruiting fees, $11,375 for American Stock Exchange Fees, $5,943 for investor relations, and $36,257 for bad debts.

Professional fees decreased $36,859, or 53%, for the first quarter of 2007 compared to the first quarter of 2006, due to a decrease of $33,047 for legal fees and $3,812 for outside accountants, auditing and auditing related services.

Depreciation and amortization expense increased $24,473, or 59%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006 due to an increase in depreciable property, plant and equipment.

Consulting fees increased $4,577, or 22%, for the first quarter of 2007 compared to the first quarter of 2006 due to an increase in outside professional services for investor relations and insurance.

Interest expense increased $48,350, or 319%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to an increase in the amount of capital being used from our credit instruments required to fund our continuing operations.

Interest expense increased $64,998, or 319%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to an increase in the amount of capital being used from our credit instruments required to fund our continuing operations and amortization of the discount on the Convertible Term Note and Revolving Credit Note.

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Other (income) expense was $514 for the three months ended March 31, 2007. We did not have any other (income) expense for the comparable period in 2006.

We did not have any recognizable expenses for discontinued operations for the first quarter of 2007 compared to income of $295,069 for the first quarter of 2006 from gains related to writes offs of aged accounts payables and a reduction in the reserve for litigation.

Net loss for the three months ended March 31, 2007 was $1,009,633 compared to $219,901 for the three months ended March 31, 2006 due to an increase in SG&A, depreciation and amortization, consulting fees, interest expense, and other (income) expense, offset by a decrease in professional fees, an increase in sales, cost of sales, and gross profit.

Net loss per share for the first quarter of 2007 was $.019 compared to $0.009 for the first quarter of 2006.

Dividends accrued on our outstanding Series D Preferred Stock were $201,710 for the quarter ended March 31, 2007. We did not have any outstanding Series D Preferred Stock in the comparable period in 2006.

Net loss available to common stockholders and related loss per share for the three months ended March 31, 2007 were $1,211,343 and $0.022. The increase in net loss is attributable to dividends accrued for the outstanding Series D Preferred Stock for the three months ended March 31, 2007. We did not have an increase in net loss available to common stockholders for the comparable period in 2006.

Results of Business Segments

The following is a summary of sales by segment at March 31:

Segments	2007		2006
Coatings	$	2,142,998	$	2,061,298
Foam		4,457,440		3,151,100
Paints		273,038		326,121
Sealants		293,688		228,554
Adhesives		—		4,032
Equipment		100,605		148,149
All Other	$	1,553	$	80,682

Coatings sales increased $81,700, or 4%, for the first quarter of 2007 compared to the first quarter of 2006, due to an increase in our sales force, advertising, marketing, and promotion programs. Segment loss decreased $7,143, or 16.2%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. The decrease in our coatings segment loss for the quarter ended March 31, 2007 was primarily attributable to increased sales volumes, manufacturing efficiencies, economies of scale realized from increased purchasing power for raw materials for manufactured and finished goods, partially offset by increases in expenses related to our growing sales force, trade shows, and promotional expenses.

Foam sales increased $1,306,340, or 42%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006, due to the same reasons enumerated in our coatings segment above. Segment loss increased $391,039, or 298%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. The increase in our foam segment loss for the first quarter of 2007 was primarily attributable to an increase in our foam products being sold through independent distributors at lower margins, partially offset by increased sales volumes of higher margin foam products for insulation markets and lower margin foam products for roofing markets direct to our customers, and increased purchasing power for finished goods.

Paints sales decreased $53,083, or 16%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to a slight decline in market demand. Segment profit decreased $9,878, or 31%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. The decrease in our paints segment profit for the three months ended March 31, 2007 was primarily attributable to decreased sales volumes, partially offset by increased purchasing power for finished goods.

Sealants sales increased $65,134, or 29%, for the first quarter of 2007 compared to the first quarter of 2006, due to the same reasons enumerate in our coatings segment above. Segment profit decreased $18,786, or 127%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. The decrease in our sealants segment profit for the quarter ended March 31, 2007 was primarily attributable to lower sales prices resulting in reduced margin.

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Adhesives sales were -0- for the quarter ended March 31, 2007 compared to $4,032 for the quarter ended March 31, 2006, as a result of a decrease in demand. Segment loss decreased $692 for the first quarter of 2007 compared to the first quarter of 2006. The decrease in our adhesives segment loss for the quarter ended March 31, 2007 was due to a decrease in sales resulting in a reduction in costs of sales.

Equipment sales decreased $47,255, or 32%, for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, due to the same reasons enumerated in our paints segment. Segment loss increased $10,832, or 2,048%, for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. The decrease in our equipment segment loss for the three months ended March 31, 2007 was primarily attributable to decreased sales volumes, partially offset by increased purchasing power for finished goods.

All Other sales decreased $79,129, or 98%, for the first quarter of 2007 compared to the first quarter of 2006, due to a decrease in walk-in customers in our Florida and Arizona locations needing sundry items. Segment loss was $21,319 for the quarter ended March 31, 2007 compared to a segment profit of $1,375 for the quarter ended March 31, 2006. The all other segment loss for the first quarter of 2007 was primarily attributable to decreased sales volumes.

Liquidity and Capital Resources

Net cash used in our operations was $1,495,431 for the first quarter of 2007 compared to $770,933 for the first quarter of 2006. The cash used in operations for the three months ended March 31, 2007 was attributable to our net income for the period, including the effect of adjustments to reconcile net income to cash provided by or used in operating activities and adjusting for non-cash items, offset by increases in inventories, prepaid expenses and other current assets, deposits and other non current assets and accounts payable, and decreases in trade receivables, accrued expenses and other current liabilities, and other liabilities. For the first quarters ended March 31, 2007 and 2006, net cash used in discontinued operations was $7,892 and $-0-, respectively. Although cash from operations and funds available from the ComVest Credit Facility are expected to continue to be sufficient to meet our operating requirements and to fund our capital expenditures, we may seek to raise additional funds through private placements of common and preferred stock to accredited sophisticated investors to further fund our trade receivables growth, an acquisition as part of our strategy for accelerating growth, or to pay down our short and long term debts, depending on market conditions.

Net cash used in investing activities was $883,811 for the three months ended March 31, 2007 compared to $150,615 for the three months ended March 31, 2006. We invested $7,700 in officer furniture and equipment, $54,303 in computers and software, $163,675 in machinery and equipment, and $658,134 towards a new manufacturing plant during the first quarter of 2007.

Net cash provided by financing activities was $2,104,154 for the quarter ended March 31, 2007 compared to $719,209 for the quarter ended March 31, 2006. Contemporaneously with the closing of the ComVest Credit Facility on February 21, 2007, we received $2,500,000, plus we borrowed another $1,000,000 against the Line of Credit during the quarter ended March 31, 2007, and used these funds to retire our former lines of credit, repay short term loans received by us from our Chairman of the Board, satisfy certain closing fees and transactional expenses, continue construction of manufacturing plants, and meet our quarterly working capital requirements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We do not issue or invest in financial instruments or their derivatives for trading or speculative purposes and are not subject to material foreign currency exchange risks at this time. Our outstanding debt and related interest expense, as it relates to interest rate exposure, in the United States is currently not material to our operations.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, including our Principal Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls or procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within LaPolla have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We carried out an evaluation, under the supervision and with participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007. Based on the foregoing, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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We carried out an evaluation, under the supervision and with participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007, 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 the period covered by this report, as amended, our disclosure controls and procedures were not as effective as originally contemplated nor did such control operate at a level appropriate to provide reasonable assurance for a certain matter. A material weakness existed which originated when the Company entered into those certain agreements described elsewhere in this report relating to the establishment of a Credit Facility with ComVest on February 21, 2007. The Company was unaware of certain required accounting treatment relating to calculating the fair value of warrants, allocating such value to a variety of agreements issued in connection therewith, and amortizing such discount over the term of the agreements. Once the Company became aware of the particular matter, the Company consulted an outside CPA firm to review the matter in detail. The Company has accounted for the fair value of the warrants in this amended report and believes the material weakness identified above has been corrected. After correcting the material weakness identified above, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures are effective and operating at the requisite reasonable assurance level as of the date of this amended report. There were changes in our internal controls over financial reporting after the end of the first quarter of 2007, namely: (a) the addition of a new CFO with a CPA license on June 11, 2007; and (b) the engagement of a new larger independent registered public accounting firm, Hein & Associates LLP on July 12, 2007. Both of the aforementioned changes, as well as the early adoption of the attestation requirements for the year ended December 31, 2006, were encouraged by the Company’s former independent registered public accounting firm, Baum & Company, P.A., to ensure that our disclosure controls and procedures kept pace with the rapid growth of the Company. 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 amended 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, 2006 are hereby incorporated in their entirety herein by this reference.

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 risk factors presented below update, and should be considered in addition to, the risk factors previously disclosed by us in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

·New Manufacturing Operations-Certain capital expenditures were made by us to establish new manufacturing operations relating to our foam segment, which operations are expected to improve our foam segment gross margins beginning in the second quarter of 2007. Although certain of our foam products will now be manufactured in our own facilities instead of purchased as finished goods and redistributed as we have done in the past and are field and third party tested and credentialed, we may experience technical and other difficulties with the ramp up and roll out of our foam products, which may significantly affect our operating results.

ŸAvailability of Raw Materials-Certain raw materials are critical to our production processes. These include not only titanium dioxide and other resins in our coatings and paints segments, but also polyols and catalysts for our foam segment. The Company has made, and plans to continue to make, supply arrangements to meet the planned operating requirements for the future. However, an inability to obtain these critical raw materials would adversely impact our ability to produce products for these segments.

ŸAvailability of Finished Goods - Certain finished goods are critical to our sales growth. These include polyurethane foam systems in the foam segment. Although the Company has made, and plans to continue to make, supply arrangements to meet planned requirements for the future, we may experience an inability to obtain these polyurethane foams systems like we have in the past based on the establishment of our own foam manufacturing operations which makes us a competitor to certain of our existing finished goods suppliers, which would likely adversely impact our sales growth and operating results.

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

Recent Sales of Unregistered Securities

During the quarterly period ended March 31, 2007, we issued common stock for a certain private transaction, in reliance on Section 4(2) of the Act, as described below:

(a)  On January 11, 2007, due to the death of a non-employee director, we vested 12,000 shares of restricted common stock automatically granted and issued to him pursuant to the former Director Compensation Plan upon his election at the annual meeting of stockholders held on July 12, 2006. We did not consider these shares issued and outstanding due to a vesting provision and non-delivery of the shares pending vesting and as such no value was ascribed to these shares when originally issued. The value ascribed to these vested shares was recorded at $6,840.

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 18.

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SIGNATURES

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

		LAPOLLA INDUSTRIES, INC.
Date:	August 20, 2007	By:	/s/ Douglas J. Kramer
			Name: Douglas J. Kramer
			Title: CEO and President

		LAPOLLA INDUSTRIES, INC.
Date:	August 20, 2007	By:	/s/ Timothy J. Novak
			Name: Timothy J. Novak
			Title: CFO

 

17

INDEX OF EXHIBITS

Exhibit Number	Description
10.1	Revolving Credit and Term Loan Agreement between LaPolla and ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K dated and filed February 23, 2007).
10.2	Convertible Term Note between LaPolla and ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.2 to Form 8-K dated and filed February 23, 2007).
10.3	Revolving Credit Note between LaPolla and ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
10.4	Warrant No. CV-1 To Purchase Shares of Common Stock to ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
10.5	Warrant No. CV-2 To Purchase Shares of Common Stock to ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
10.6	Warrant No. CV-3 To Purchase Shares of Common Stock to ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
99.1	Collateral Agreement between LaPolla and ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
99.2	Registration Rights Agreement between LaPolla and ComVest dated February 21, 2007 (incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed February 23, 2007).
31.1/A	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2/A	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32/A	Certification of Principal Executive Officer and Principal Financial Officer pursuant to § 906 of Sarbanes-Oxley Act of 2002.

18

EX-31.1

Exhibit 31.1/A

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Douglas J. Kramer, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of LaPolla Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:August 20, 2007	LAPOLLA INDUSTRIES, INC.
	By:	/s/  Douglas J. Kramer, CEO
		Douglas J. Kramer
		Principal Executive Officer

EX-31.2

Exhibit 31.2/A

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Timothy J. Novak, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of LaPolla Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:August 20, 2007	LAPOLLA INDUSTRIES, INC.
	By:	/s/  Timothy J. Novak, CFO
		Timothy J. Novak
		Principal Financial Officer

EX-32

Exhibit 32/A

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of LaPolla Industries, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q/A of the Company for the period ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:August 20, 2007

LAPOLLA INDUSTRIES, INC.
By:	/s/  Douglas J. Kramer, CEO
	Douglas J. Kramer
	Principal Executive Officer

A signed original of this written statement required by Section 906 has been provided to LaPolla Industries, Inc. and will be retained by LaPolla Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of LaPolla Industries, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q/A of the Company for the period ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:August 20, 2007

LAPOLLA INDUSTRIES, INC.
By:	/s/  Timothy J. Novak, CFO
	Timothy J. Novak
	Principal Financial Officer

A signed original of this written statement required by Section 906 has been provided to LaPolla Industries, Inc. and will be retained by LaPolla Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.