**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)


**x QUARTERLY
      REPORT
      UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the Quarterly Period Ended September 30, 2006**





**o TRANSITION
      REPORT
      UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the Transition Period from _________ to _________**





**Commission
      file number: 333-100979**





**LAPIS
      TECHNOLOGIES, INC.**


(Name
      of
      Small Business Issuer in Its Charter)





**Delaware**
            
            **27-0016420**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer
              Identification
                No.)





19
      W.
      34 th Street,
      Suite 1008


New
      York,
      New York 10001


(Address
      of Principal Executive Offices)





(212)
      937-3580


(Registrant’s
      telephone number, including area code)





(Former
      name, former address and former fiscal year, if changed since last
      report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.




Yes x
            No o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o
                  No x




As
      of
      November 9, 2006, the Company had 6,483,000 shares of its par value $0.001
      common stock issued and outstanding.





Transitional
      Small Business Disclosure Format (check one):


Yes o
              No x


**LAPIS
      TECHNOLOGIES, INC.**





Quarterly
      Report on Form 10-QSB for the


Quarterly
      Period Ending September 30, 2006





Table
      of
      Contents





PART
      I.
      FINANCIAL INFORMATION





Item
                1.
            Financial
                StatementsConsolidated
                Balance Sheets:September
                30, 2006 (Unaudited)
            3Consolidated
                Statements of Operations:Three
                and Nine Months Ended September 30, 2006 and 2005
                (Unaudited)
            4Consolidated
                Statements of Cash Flows:Nine
                Months Ended September 30, 2006 and 2005 (Unaudited)
            5Notes
                to Unaudited Consolidated Financial Statements:September
                40, 2006
            6Item
                2.
            Management
                Discussion and Analysis
            9Item
                3.
            Controls
                and Procedures
            13PART
                II. OTHER INFORMATION
            14Item
                1.
            Legal
                Proceedings
            14Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            14Item
                3.
            Defaults
                Upon Senior Securities
            14Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            14Item
                5.
            Other
                Information
            14Item
                6.
            Exhibits
            14Signatures
            15








2





**PART
      I - FINANCIAL INFORMATION**





**Item
      1.** **Financial Statements**




**CONSOLIDATED
                  BALANCE SHEET****(In
                  Thousands, Except Share Amounts)****ASSETS**
  September
                  30,2006Current
                  Assets:Cash
                  and cash equivalents
              
              $
              109Accounts
                  receivable
              
              
              3,193Inventories
              
              
              2,731Prepaid
                  expenses and other current assets
              
              
              569Due
                  from affilliates
              
              
              44Total
                  current assets
              
              
              6,646Property
                  and equipment, net
              
              
              308Deferred
                  income taxes
              
              
              17$
              6,971**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Bank
                  line of credit
              
              $
              1,180Short
                  term bank loans
              
              
              1,957Current
                  portion of term loans
              
              
              179Accounts
                  payable and accrued expenses
              
              
              2,034Due
                  to stockholder
              
              
              10Income
                  taxes payable
              
              
              -Total
                  current liabilities
              
              
              5,360Term
                  loans, net of current portion
              
              
              445Severance
                  payable
              
              
              62Total
                  liabilities
              
              
              5,867Commitments
                  and contingenciesMinority
                  interest
              
              
              282Stockholders'
                  Equity:Preferred
                  stock; $.001 par value, 5,000,000 shares authorized, none issued
              
              
              -Common
                  stock; $.001 par value, 100,000,000 shares authorized, 5,483,000shares
                  issued and outstanding
              
              
              6Additional
                  paid-in capital
              
              
              78Accumulated
                  other comprehensive loss
              
              
              (53
              )Retained
                  Earnings
              
              
              791Total
                  stockholders' equity
              
              
              822$
              6,971




The
        accompanying notes are an integral part of these financial statements.
  3
  **LAPIS
                    TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF INCOME****(In
                    Thousands, Except Earnings Per Share and Share Amounts)**
  Nine
                      Months Ended
                  
                  Three
                      Months EndedSeptember
                      30,
                  
                  September
                      30,2006
                  
                  2005
                  
                  2006
                  
                  2005Sales
                  
                  $
                  5,028
                  
                  $
                  4,571
                  
                  $
                  1,401
                  
                  
                  1,040Cost
                      of sales
                  
                  
                  3,596
                  
                  
                  2,906
                  
                  
                  1,162
                  
                  
                  813Gross
                      profit
                  
                  
                  1,432
                  
                  
                  1,665
                  
                  
                  239
                  
                  
                  227Operating
                      expenses:Research
                      and development expenses
                  
                  
                  232
                  
                  
                  203
                  
                  
                  118
                  
                  
                  89Selling
                      expenses
                  
                  
                  73
                  
                  
                  67
                  
                  
                  8
                  
                  
                  38General
                      and administrative
                  
                  
                  905
                  
                  
                  914
                  
                  
                  342
                  
                  
                  231Total
                      operating expenses
                  
                  
                  1,210
                  
                  
                  1,184
                  
                  
                  468
                  
                  
                  358Income
                      from operations
                  
                  
                  222
                  
                  
                  481
                  
                  
                  (229
                  )
                  
                  (131
                  )Other
                      income (expense):Other
                      income
                  
                  
                  6
                  
                  
                  -
                  
                  
                  (3
                  )
                  
                  -Interest
                      expense, net
                  
                  
                  (267
                  )
                  
                  (182
                  )
                  
                  (92
                  )
                  
                  (63
                  )Income
                      before provision for income taxes and minority interest
                  
                  
                  (39
                  )
                  
                  299
                  
                  
                  (324
                  )
                  
                  (194
                  )Provision
                      for income taxes
                  
                  
                  136
                  
                  
                  66
                  
                  
                  53
                  
                  
                  (1
                  )Minority
                      interest
                  
                  
                  24
                  
                  
                  (55
                  )
                  
                  52
                  
                  
                  110Net
                      income
                  
                  
                  (151
                  )
                  
                  178
                  
                  
                  (325
                  )
                  
                  (83
                  )Other
                      comprehensive (loss) income, net of taxesForeign
                      translation (loss) gain
                  
                  
                  21
                  
                  
                  (72
                  )
                  
                  (38
                  )
                  
                  -Comprehensive
                      (loss) income
                  
                  $
                  (130
                  )
                  $
                  106
                  
                  $
                  (363
                  )
                  $
                  (83
                  )Basic
                      net loss per share
                  
                  $
                  (0.02
                  )
                  $
                  0.03
                  
                  $
                  (0.05
                  )
                  $
                  (0.02
                  )Basic
                      weighted average common shares outstanding
                  
                  
                  6,483,000
                  
                  
                  5,706,443
                  
                  
                  6,483,000
                  
                  
                  5,483,000




The accompanying notes are an integral part of these financial
      statements.




4




**LAPIS
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(In
                  Thousands)**
  Nine
                  Months EndedSeptember
                  30,2006
              
              2005Cash
                  flows from operating activities:Net
                  income
              
              $
              (151
              )
              $
              178Adjustments
                  to reconcile net income to net cashprovided
                  by (used in) operating activities:Depreciation
                  and amortization
              
              
              69
              
              
              120Minority
                  interest
              
              
              (10
              )
              
              23Gain
                  on sale of property and equipment
              
              
              (10
              )
              
              -Forgiveness
                  of indebtedness
              
              
              -
              
              
              (115
              )Deferred
                  income tax
              
              
              (1
              )
              
              2Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              519
              
              
              (321
              )Inventories
              
              
              (296
              )
              
              (191
              )Prepaid
                  expenses and other current assets
              
              
              (193
              )
              
              (293
              )Accounts
                  payable and accrued expenses
              
              
              (333
              )
              
              (142
              )Income
                  tax payable
              
              
              -
              
              
              53Customer
                  deposits
              
              
              -
              
              
              74Severance
                  payable
              
              
              4
              
              
              -Net
                  cash provided by (used in) operating activities
              
              
              (402
              )
              
              (612
              )Cash
                  flows from investing activities:Proceeds
                  from the sale of property & equipment
              
              
              68
              
              
              -Purchase
                  of property and equipment
              
              
              (123
              )
              
              (42
              )Increase
                  in due from stockholder
              
              
              4
              
              
              348(Increase)
                  decrease in due from affiliates
              
              
              36
              
              
              1Net
                  cash used in investing activities
              
              
              (15
              )
              
              307Cash
                  flows from financing activities:Increase
                  in bank line of credit, net
              
              
              (129
              )
              
              575Proceeds
                  from long term debt
              
              
              3,365
              
              
              2,306Repayment
                  of long-term debt
              
              
              (2,791
              )
              
              (2,522
              )Net
                  cash (used in) provided by financing activities
              
              
              445
              
              
              359Effects
                  of exchange rates on cash
              
              
              4
              
              
              (72
              )Increase
                  (decrease) in cash
              
              
              31
              
              
              (18
              )Cash,
                  beginning of period
              
              
              78
              
              
              124Cash,
                  end of period
              
              $
              109
              
              $
              106Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              266
              
              $
              182Income
                  taxes
              
              $
              90
              
              $
              59Supplemental
                  information on non-cash activities:Purchase
                  of additional interest in subsidiary for stock
              
              $
              -
              
              $
              1,050


The accompanying notes are an integral part of these financial
      statements.


5




LAPIS
        TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 (In
        Thousands, Except Per Share Amounts)
 SEPTEMBER
        30, 2006
 
 
 NOTE
        1 -
        DESCRIPTION OF BUSINESS
 
 Lapis
        Technologies, Inc. (the “Company”) was incorporated in the State of Delaware on
        January 31, 2002. The Company was originally named Enertec Electronics, Inc.
        and
        on April 23, 2002 changed its name to Opal Technologies, Inc. which changed
        its
        name to Lapis Technologies, Inc. on October 3, 2002. The Company’s operations
        are conducted through its wholly-owned Israeli Subsidiary, Enertec Electronics
        Ltd. (“Enertec”) and its majority owned Israeli subsidiary Enertec Systems 2001
        LTD (“Systems”). Enertec is engaged in the manufacturing, distribution and
        marketing of electronic components and products relating to power supplies,
        converters and related power conversion products, automatic test equipment,
        simulators and various military and airborne systems, within the State of
        Israel.
 
 NOTE
        2 -
        BASIS OF PRESENTATION AND CONSOLIDATION
 
 The
        accompanying unaudited consolidated financial statements and related footnotes
        have been prepared in accordance with accounting principles generally accepted
        in the United States of America for interim financial statements and pursuant
        to
        the rules and regulations of the Securities and Exchange Commission for Form
        10-QSB. Accordingly, they do not include all of the information and footnotes
        required by accounting principles generally accepted in the United States
        of
        America for complete financial statements. In the opinion of management,
        all
        adjustments (consisting of normal recurring accruals) considered necessary
        for a
        fair presentation have been included. For further information read the financial
        statements and footnotes thereto included in the Company's Annual Report
        to be
        filed in accordance with the rules and regulations of the Securities and
        Exchange Commission on Form 10-KSB for the year ended December 31, 2005.
        The
        results of operations for the nine months ended September 30, 2006 are not
        necessarily indicative of the operating results that may be expected for
        the
        year ending December 31, 2006.
 
 The
        accompanying financial statements include the accounts of the Company and
        their
        ownership interest in its subsidiaries. All significant intercompany balances
        and transactions have been eliminated in consolidation.
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Stock
        based compensation
 
 The
        Company has adopted Statement of Financial Accounting Statement (“SFAS”) No.
        148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS
        148”). SFAS 148 amends SFAS No. 123 “Accounting for Stock-Based Compensation”
(“SFAS 123”), and provides alternative methods of transition for a voluntary
        change to the fair value based method of accounting for stock-based employee
        compensation. The Company has adopted the fair value method of accounting
        as
        discussed in SFAS 123 as of January 1, 2003. Accordingly, stock options,
        when
        issued, will be recorded in accordance with the terms of that
        document.
 
 Use
        of
        Estimates
 
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and the disclosure of contingent assets and liabilities
        at the date of the financial statements and revenues and expenses during
        the
        reporting period. Actual results could differ from those estimates.
 
 6
 
 LAPIS
        TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 (In
        Thousands, Except Per Share Amounts)
 SEPTEMBER
        30, 2006
 
  NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
 Recent
        Accounting Pronouncements
  In
        December 2004, FASB issued Statement No. 123 (revised 2004), “Share-Based
        Payment” (SFAS 123 (revised 2004), effective for public entities that file as
        small business issuers as of the beginning of the first interim or annual
        reporting period that begins after December 15, 2005. This Statement is a
        revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation,”
and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
and its related implementation guidance. SFAS 123 (revised 2004) eliminates
        the
        alternative to use Opinion No. 25’s intrinsic value method of accounting that
        was provided in Statement 123 as originally issued. Under Opinion 25, issuing
        stock options to employees generally resulted in recognition of no compensation
        cost. This Statement requires entities to recognize the cost of employee
        services received in exchange for awards of equity instruments based on the
        grant-date fair value of those awards (with limited exceptions). Recognition
        of
        that compensation cost helps users of financial statements to better understand
        the economic transactions affecting an entity and to make better resource
        allocation decisions. The Company is required to adopt Statement 123 (revised
        2004) as of January 1, 2006, and does not expect this statement to have a
        material effect on its results of operations.
 
 In
        May
        2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a
        Replacement of APB Opinion No. 20 (Accounting Changes) and FASB No. 3 (Reporting
        Accounting Changes in Interim Financial Statements),” that changes requirements
        for the accounting for and reporting of a change in accounting principle.
        This
        Statement requires retrospective application to prior periods’ financial
        statements of changes in accounting principle unless it is impracticable
        to
        determine either the period-specific effects or the cumulative effect of
        the
        change. When it is impracticable to determine the period-specific effects
        of an
        accounting change on one or more individual prior periods presented, this
        Statement requires that the new accounting principle be applied to the balances
        of assets
 and
        liabilities as of the beginning of the earliest period for which retrospective
        application is practicable and that a corresponding adjustment be made to
        the
        opening balance of retained earnings (or other appropriate components of
        equity
        or net assets in the statement of financial position) for that period rather
        than being reported in an income statement. When it is impracticable to
        determine the cumulative effect of applying a change in accounting principle
        to
        all prior periods, this Statement requires that the new accounting principle
        be
        applied as if it were adopted prospectively from the earliest date practicable.
 
 Statement
        154 is effective for accounting changes and error corrections made in fiscal
        years beginning after December 15, 2005 (calendar year 2006). Early adoption
        is
        permitted.
  7
  LAPIS
        TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 (In
        Thousands, Except Per Share Amounts)
 SEPTEMBER
        30, 2006
   NOTE
        4 -
        PROVISION FOR INCOME TAXES -
  The
        income tax expense for the nine months ended September 30, 2006 is based
        upon
        the income tax laws of Israel. Israeli tax law does not allow a parent company
        to offset its’ income with losses from any of its’ subsidiaries.
  
 8


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS** **OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**





The
      following discussion contains forward-looking statements that are subject to
      significant risks and uncertainties about us, our current and planned projects,
      our current and proposed marketing and sales, and our projected results of
      operations. There are several important factors that could cause actual results
      to differ materially from historical results and percentages and results
      anticipated by the forward-looking statements. The Company has sought to
      identify the most significant risks to its business, but cannot predict whether
      or to what extent any of such risks may be realized nor can there be any
      assurance that the Company has identified all possible risks that might arise.
      Investors should carefully consider all of such risks before making an
      investment decision with respect to the Company's stock. The following
      discussion and analysis should be read in conjunction with the financial
      statements of the Company and notes thereto. This discussion should not be
      construed to imply that the results discussed herein will necessarily continue
      into the future, or that any conclusion reached herein will necessarily be
      indicative of actual operating results in the future. Such discussion represents
      only the best present assessment from our Management.




**Overview**





We
      were
      formed in Delaware on January 31, 2002 under the name Enertec Electronics,
      Inc.
      and have filed two certificates of amendment changing our name to Opal
      Technologies, Inc. and then to Lapis Technologies, Inc. We conduct operations
      in
      Israel through our wholly owned subsidiary, Enertec Electronics Limited
      ("Enertec Electronics"), an Israeli corporation formed on December 31, 1991,
      and
      Enertec Systems 2001 LTD ("Enertec Systems"), an Israeli corporation formed
      on
      August 28, 2001, of which we have a 73% equity interest. Enertec Electronics
      is
      a manufacturer and distributor of electronic components and products relating
      to
      power supplies, converters and related power conversion products, automatic
      test
      equipment (ATE), simulators and various military and airborne systems. Enertec
      Electronics maintains two divisions, the Systems Division and the Electronics
      Division. The Systems Division designs, develops and manufactures test systems
      for electronics manufacturers in accordance with their specifications. The
      Electronics Division markets and distributes the test systems, power supplies
      and other electronic components manufactured by us, and by other manufacturers
      who engage us to distribute their products.





**Liquidity
      and Capital Resources**





Our
      cash
      balance at September 30, 2006 has increased compared to the cash balance at
      September 30, 2005, with cash and cash equivalents of $109,000 as of September
      30, 2006 compared to $106,000 at September 30, 2005. Total current assets at
      September 30, 2006 $6,646,000 as compared to $ 6,088,000 at September 30, 2005.
      The increase in current assets is mainly due to an increase in accounts
      receivable and an increase in inventories.





Our
      accounts receivable at September 30, 2006 was $3,193,000, as compared to
      $2,865,000 at September 30, 2005.





This
      change in accounts receivable is primarily due to higher sales during the first
      nine months of 2006 as compared to the same period in 2005 and the decrease
      in
      USD/shekel exchange rate since the receivables are in shekels .





As
      of
      September 30, 2006 our working capital was $ 1,286,000 as compared to $1,347,000
      at September 30, 2005. The decrease in the working capital is due to a
      larger increase in in accounts payable and total bank debt than the increase
      in
      receivables and inventories as a result for the current quarter operating loss.




9


The
      current portion of our short-term loans at September 30, 2006 totaled $ 179,000
      compared to $143,000 at September 30, 2005. Our total short-term loans amounted
      to $1,957,000 for the nine-month period ended September 30, 2006 as compared
      to
      1,724,000 at September 30, 2005.




As
      of
      September 30, 2006, our total bank debt was $ 3,761,000 as opposed to $3,272,000
      at the end of September 30, 2005. These funds were borrowed as follows:





$
      2,136,000 which includes the current portion of long term debt, as various
      short
      term bank loans due through 2007, $445,000 of long-term debt due through March
      2010 and $1,180,000 borrowed using our bank lines of credit. As
      a
      result, we increased the amount borrowed for the nine months ended September
      30,
      2006 by $489,000 from $3,272,000. The increase in bank debt is mainly due to
      the
      increase in account receivables, decrease in USD/shekel exchange rate since
      the
      loans are in shekels and an increase in inventories.





There
      are
      no other lines of credit available to us to refinance our short-term bank loans.
      Additionally, we currently do not have any other sources of financing available
      to us for refinancing our short-term loans. As of September 30, 2006, we are
      current with all of our bank debt and compliant with all the terms of our bank
      debt.





**Financing
      Needs**





Although
      we currently do not have any material commitments for capital expenditures,
      we
      expect our capital requirements to increase over the next several years as
      we
      continue to develop and test our suite of products, increase marketing and
      administration infrastructure, and embark on developing in-house business
      capabilities and facilities. Our future liquidity and capital funding
      requirements will depend on numerous factors, including, but not limited to,
      the
      levels and costs of our research and development initiatives, the cost of hiring
      and training additional sales and marketing personnel to promote our products
      and the cost and timing of the expansion of our marketing efforts.





Based
      on
      our current business plan, we anticipate that our existing cash balances and
      cash generated from future sales will be sufficient to permit us to conduct
      our
      operations and to carry out our contemplated business plans for the next twelve
      months. However, management may undertake additional debt or equity financings
      to better enable Lapis to grow and meet its future operating and capital
      requirements. Currently, the only external sources of liquidity are our banks,
      and we may seek additional financing from them or through securities offerings
      to expand our operations, using new capital to develop new products, enhance
      existing products or respond to competitive pressures.





**Results
      of Operations**





**Three
      and Nine Months Ended September 30, 2006 Compared to Three and Nine Months
      Ended
      September 30, 2005**





Revenues
      for the three and nine months ended September 30, 2006 were $1,401,000 and
      $5,028,000 respectively, as compared to $1,040,000 and $4,571,000 for the three
      and nine months ended September 30, 2005, respectively. This represents an
      increase of $361,000, or 34.7% for the quarter ended September 30, 2006 and
      an
      increase of $457,000, or 10%, for the nine months ended September 30, 2006,
      when
      compared to the same periods of 2005.


The
      increase of 10% in revenues for the nine months ended September 2006 versus
      the
      same period for the prior year is mainly a result of :





1.
            First
                prototypes of several new products developed during previous quarters
                started to be delivered to the customers during the third quarter
                of
                2006.The price of a prototype is usually higher than the price of
                a mass
                produced unit, however the cost of the prototype include the high
                costs of
                development and tooling, resulting in a low profit margin.




2.
      The
      revenues for the nine months ended Sept 2006 include a grant of approximately
      $100,000 from the government of Israel to partially cover the cost of salaries
      of the employees who have not been able to work as a consequence of the closure
      during the war in the North of Israel .Our subsidiaries are located in Carmiel
      and Haifa Bay area, which have been under heavy missiles attacks and were closed
      during most of July-Aug 2006.





The
      increase of $361,00 (34.7% ) in revenues for the three-months ended September
      30, 2006 as compared to the same period of 2005 is mainly a result
      of:




1.
            Low
                revenues during the three-months ended Sept 2005 due to our focusing
                during this period on several new projects with long lead times and
                significant design and tooling
                periods.




10




2.
            The
                revenues for the three months ended Sept 2006 include a grant of
                approximately $100,000 from the government to partially cover the
                cost of
                the salaries of the employees who have not been able to work as a
                consequence of the closure during the war in the North of
                Israel.





Gross
      profit totaled approximately $239,000 for the quarter ended September 30, 2006
      and $1,432,000 for the nine months September 30, 2006. For the three and nine
      months ended September 30, 2005, gross profit totaled $227,000 and $1,665,000,
      respectively. Comparing the three-month period ended September 30, 2006 to
      the
      same period of 2005, gross profit increased by approximately $ 12,000, or 5.3
      %.
      For the nine-month period ended September 30, 2006, gross profit decreased
      approximately $233,000, or 14.0 %, compared to the same period of 2005. The
      decrease in gross profits for the nine month period as compared to the same
      period of 2005 is primarily due to decrease in gross profit during the previous
      two quarters in 2006 as a result of the focus during this period on several
      new
      technology projects with higher tooling cost, resulting in lower profit margins.




Gross
      profit as a percentage of sales was 17.1 % for the three-month period ended
      September 30, 2006 as compared to 21.8% for the same period of 2005 and for
      the
      nine-month period ended September 30, 2006, was 28.5% as compared to 36.4%
      for
      the same period of 2005.





The
      decrease in gross profit as a percentage of sales is a result of:





1.
      Introduction of new products during the last quarters and the delivery of first
      prototypes. The
      cost
      of a prototype includes high costs of development and tooling, resulting in
      a
      low profit margin.


2 *.* Strong
      competition in the commercial field, forcing us to offer lower prices by cutting
      the profit  margins.


3.
      The
      revenues for the three months ended Sept 2006 include a grant of approximately
      $100,000 from the government to partially cover the cost of the salaries of
      the
      employees who have not been able to work as a consequence of the closure during
      the war in the North of Israel.




Total
      operating expenses are comprised of selling, general and administrative expenses
      and R&D. For the three months and nine months ended September 30, 2006,
      operating expenses totaled $468,000 and $ 1,210,000, respectively. This was
      an
      increase of $ 110,000 (30.7 %) and $26,000 (2.2%) when compared to the three
      and
      nine-month periods ended September 30, 2005. The increase in operating expenses
      for the nine-month period as compared to the same period of 2005 is attributable
      mainly to the increase in R&D expenses of $29,000.





The
      increase in operating expenses for the three month period as compared to the
      same period of 2005 is attributable mainly to the increase in R&D expenses
      of $29,000 offset by decrease in cost of sales during the three month period
      and
      an increase of about $110,000 in the G&A expenses mainly due to the increase
      in the cost of professional services.





Our
      net
      income was a loss of $325,000 in the three months ended September 30, 2006
      and
      $151,000 in the nine months ended September 30, 2006. This compares to net
      loss
      of $83,000 in the three months ended September 30, 2005 and a net income of
      $178,000 in the nine months ended September 30, 2005.




This
      represents an increase in the net loss by $242,000, or 292 %, comparing the
      three months ended September 30, 2006 to the three months ended September 30,
      2005, and a decrease in net income by $ 329,000, or (185) %, comparing the
      nine
      months ended September 30, 2006 to the nine months ended September 30,
      2005.





The
      decrease in the net income in the three-month period ended September 30, 2006
      was mainly due to an increase of $ 110,000 in operating cost, an increase of
      $29,000 in interest expenses, an increase of 54,000 in provision for tax and
      an
      increase of $58,000 in the minority interest.





For
      the
      nine month period ending September 30th 2006, the decrease in the net income
      is
      mainly due to a decrease of $233,000 in gross profit, an increase of $85,000
      in
      interest expenses, an increase of $26,000 in operating expenses, an increase
      of
      $70,000 in provision for tax, partly offset by a decrease of $79,000 in the
      minority interest.





As
      of
      September 30, 2006, we had 2 customers that accounted for approximately 45%
      of
      the accounts receivable. For the nine months ended September 30, 2006,
      approximately 43% of our sales were to 2 customers.





11


**Research
      and Development Costs**





Research
      and development costs are part of operating expenses. Research and development
      costs for the three and nine months ended September 30, 3006 were $118,000
      and
      $232,000, respectively. Research and development costs for the three and nine
      months ended September 30, 3005 were $89,000 and $203,000, respectively. ****





**Off-Balance
      Sheet Arrangements**





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





**Critical
      Accounting Policies**





*Concentration
      of Credit Risk* -
      Concentrations of credit risk with respect to trade receivables are limited
      to
      customers dispersed primarily across Israel. All trade receivables are
      concentrated in the manufacturing and distribution of electronic components
      segment of the economy; accordingly the Company is exposed to business and
      economic risk. Although the Company does not currently foresee a concentrated
      credit risk associated with these trade receivables, repayment is dependent
      upon
      the financial stability of this segment of the economy.





*Revenue
      Recognition and Customer Deposits* -
      Revenue is recorded as product is shipped, the price has been fixed or
      determined, collectibility is reasonably assured and all material specific
      performance obligations have been completed. The product sold by the Company
      is
      made to the specifications of each customer; sales returns and allowances are
      allowed on a case-by-case basis, are not material to the financial statements
      and are recorded as an adjustment to sales. Cash payments received in advance
      are recorded as customer deposits.





Revenue
      relating to service is recognized on the straight-line basis over the life
      of
      the agreement, generally one year. For the three and nine months ended September
      30, 2006 revenue relating to service contracts was less than one percent of
      net
      sales.





*Financial
      Instruments* - The
      carrying amounts of financial instruments, including cash and cash equivalents,
      accounts receivable, bank line of credit, short term bank loans and accounts
      payable and accrued expenses approximate fair value at September 30, 2006
      because of the relatively short maturity of the instruments. The fair value
      of
      due from stockholder is not practical to estimate without incurring excessive
      cost and is carried at cost at September 30, 2006. The carrying value of the
      long-term debt approximate fair value at September 30, 2006 based upon debt
      terms available for companies under similar terms.





*Foreign
      Currency Translation* - Lapis
      Technologies, Inc. has one wholly owned subsidiary, Enertec Electronics Limited,
      an Israeli corporation, and one majority owned subsidiary, Enertec Systems
      2001
      Ltd., an Israeli corporation. The assets and liabilities of the foreign
      subsidiaries are translated at current exchange rates and related revenues
      and
      expenses at average exchange rates in effect during the periods reported.
      Resulting translation adjustments, if material, are recorded as a separate
      component of accumulated other comprehensive income or loss.




12


**ITEM
      3. CONTROLS AND PROCEDURES**




*(a)
      Evaluation of disclosure controls and procedures.*




Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
      as
      of September 30, 2006. In designing and evaluating the disclosure controls
      and procedures, management recognizes that any controls and procedures, no
      matter how well designed and operated, can provide only reasonable assurance
      of
      achieving the desired control objectives. In addition, the design of disclosure
      controls and procedures must reflect the fact that there are resource
      constraints and that management is required to apply its judgment in evaluating
      the benefits of possible controls and procedures relative to their costs.




Based
      on our evaluation, our chief executive officer and chief financial officer
      concluded that our disclosure controls and procedures are designed at a
      reasonable assurance level and are effective to provide reasonable assurance
      that information we are required to disclose in reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in Securities and Exchange Commission rules and
      forms, and that such information is accumulated and communicated to our
      management, including our chief executive officer and chief financial officer,
      as appropriate, to allow timely decisions regarding required disclosure.




*(b)
      Changes in internal control over financial reporting.*




We regularly
      review our system of internal control over financial reporting and make changes
      to our processes and systems to improve controls and increase efficiency, while
      ensuring that we maintain an effective internal control environment. Changes
      may
      include such activities as implementing new, more efficient systems,
      consolidating activities, and migrating processes.




There
      were no changes in our internal control over financial reporting that occurred
      during the period covered by this Quarterly Report on Form 10-QSB that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





13


**PART
      II - OTHER INFORMATION**


**Item
      1. Legal Proceedings.**





From
      time
      to time, we may become involved in various lawsuits and legal proceedings which
      arise in the ordinary course of business. However, litigation is subject to
      inherent uncertainties, and an adverse result in these or other matters may
      arise from time to time that may harm our business. We are currently not aware
      of any such legal proceedings or claims that we believe will have, individually
      or in the aggregate, a material adverse affect on our business, financial
      condition or operating results.





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





None.





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





None.




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





None.




**Item
      5. Other Information.**





None.




**Item
      6. Exhibits**





31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended





31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended





32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer)





32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer)





14


**SIGNATURES**





In
      accordance with requirements of the Exchange Act, the registrant caused this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**LAPIS
              TECHNOLOGIES, INC.**Date:
                November 14, 2006
            By:**/s/
                HARRY MUNDHarry
                MundChief
                Executive Officer (Principal Executive Officer), President and Chairman
                of
                the BoardDate:
                November 14, 2006
            By:**/s/
                MIRON MARKOVITZMiron
                MarkovitzChief
                Financial Officer (Principal Financial Officer) Chief Accounting
                Officer
                (Principal Accounting Officer) and
                Director







15