**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 JUNE 30,
                2006o
            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                THE
                EXCHANGE ACT
              
              FOR THE TRANSITION PERIOD FROM __________ TO
                __________
              
              COMMISSION FILE NUMBER
                ________________





**LAPIS
      TECHNOLOGIES, INC.**


(Name
      of
      small business issuer in its charter)





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




**19
      W. 34th Street, Suite 1008, New York, NY 10001**


(Address
      of principal executive offices)





Issuer’s
      telephone Number: **(212)
      937-3580**





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





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: As of August 10, 2006, the issuer
      had 6,483,000 outstanding shares of Common Stock.





Transitional
      Small Business Disclosure Format (check one): Yes o No
      x









**TABLE
      OF CONTENTS**







**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.  Financial
                Statements
            2Item
                2.  Management’s
                Discussion and Analysis or Plan of Operation
            7Item
                3.  Controls and
                Procedures
            10**PART
                II - OTHER INFORMATION**Item
                1.  Legal
                Proceedings
            10Item
                2.  Unregistered
                Sales of Equity Securities and Use of Proceeds
            10Item
                3.  Defaults Upon
                Senior Securities
            11Item
                4.  Submission of
                Matters to a Vote of Security Holders
            11Item
                5.  Other
                Information
            11Item
                6.  Exhibits
            11**SIGNATURES**
            12







**PART
      I - FINANCIAL INFORMATION**





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





**LAPIS
                TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEET****(In
                Thousands, Except Share Amounts)****ASSETS**June
                30,2006Current
                Assets:Cash
                and cash equivalents
            
            $
            2Accounts
                receivable
            
            
            3,413Inventories
            
            
            2,648Prepaid
                expenses and other current assets
            
            
            613Total
                current assets
            
            
            6,676Property
                and equipment, net
            
            
            313Deferred
                income taxes
            
            
            16$
            7,005**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Bank
                line of credit
            
            $
            1,023Short
                term bank loans
            
            
            1,751Current
                portion of term loans
            
            
            292Accounts
                payable and accrued expenses
            
            
            704Due
                to stockholder
            
            
            9Due
                to affilliates
            
            
            1,004Income
                taxes payable
            
            
            -Total
                current liabilities
            
            
            4,783Term
                loans, net of current portion
            
            
            681Severance
                payable
            
            
            60


Total
                liabilities
            
            
            5,524Commitments
                and contingenciesMinority
                interest
            
            
            359Stockholders'
                Equity:Preferred
                stock; $.001 par value, 5,000,000 shares authorized, none issued
            
            
            -Common
                stock; $.001 par value, 100,000,000 shares authorized, 6,483,000shares
                issued and outstanding
            
            
            6Additional
                paid-in capital
            
            
            78Accumulated
                other comprehensive loss
            
            
            (78
            )Retained
                Earnings
            
            
            1,116Total
                stockholders' equity
            
            
            1,122$
            7,005




2





**LAPIS
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF INCOME****(In
                  Thousands, Except Earnings Per Share and Share Amounts)**Six
                  Months Ended
              
              Three
                  Months EndedJune
                  30,
              
              June
                  30,2006
              
              2005
              
              2006
              
              2005Sales
              
              $
              3,627
              
              $
              3,531
              
              $
              1,633
              
              
              1,866Cost
                  of sales
              
              
              2,434
              
              
              2,093
              
              
              1,040
              
              
              886Gross
                  profit
              
              
              1,193
              
              
              1,438
              
              
              593
              
              
              980Operating
                  expenses:Research
                  and development expenses
              
              
              114
              
              
              114
              
              
              44
              
              
              80Selling
                  expenses
              
              
              65
              
              
              29
              
              
              38
              
              
              6General
                  and administrative
              
              
              563
              
              
              683
              
              
              284
              
              
              399Total
                  operating expenses
              
              
              742
              
              
              826
              
              
              366
              
              
              485Income
                  from operations
              
              
              451
              
              
              612
              
              
              227
              
              
              495Other
                  income (expense):Other
                  income
              
              
              9
              
              
              -
              
              
              9
              
              
              -Interest
                  expense, net
              
              
              (175
              )
              
              (119
              )
              
              (88
              )
              
              (58
              )Income
                  before provision for income taxes and minority interest
              
              
              285
              
              
              493
              
              
              148
              
              
              437Provision
                  for income taxes
              
              
              83
              
              
              67
              
              
              27
              
              
              11Minority
                  interest
              
              
              (28
              )
              
              (165
              )
              
              (10
              )
              
              (215
              )Net
                  income
              
              
              174
              
              
              261
              
              
              111
              
              
              211Other
                  comprehensive (loss) income, net of taxesForeign
                  translation (loss) gain
              
              
              59
              
              
              (72
              )
              
              75
              
              
              (61
              )Comprehensive
                  (loss) income
              
              $
              233
              
              $
              189
              
              $
              186
              
              $
              150Basic
                  net loss per share
              
              $
              0.03
              
              $
              0.05
              
              $
              0.02
              
              $
              0.04Basic
                  weighted average common shares outstanding
              
              
              6,483,000
              
              
              5,483,000
              
              
              6,483,000
              
              
              5,483,000




3




**LAPIS
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(In
                  Thousands)**Six
                  Months EndedJune
                  30,2006
              
              2005Cash
                  flows from operating activities:Net
                  income
              
              $
              174
              
              $
              261Adjustments
                  to reconcile net income to net cashprovided
                  by (used in) operating activities:Depreciation
                  and amortization
              
              
              39
              
              
              91Minority
                  interest
              
              
              37
              
              
              129Gain
                  on sale of property and equipment
              
              
              (9
              )
              
              -Deferred
                  income tax
              
              
              -
              
              
              1Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              299
              
              
              (336
              )Inventories
              
              
              (213
              )
              
              11Prepaid
                  expenses and other current assets
              
              
              (237
              )
              
              (261
              )Accounts
                  payable and accrued expenses
              
              
              (613
              )
              
              (210
              )Income
                  tax payable
              
              
              -
              
              
              54Customer
                  deposits
              
              
              -
              
              
              71Severance
                  payable
              
              
              2
              
              
              -Net
                  cash provided by (used in) operating activities
              
              
              (521
              )
              
              (189
              )Cash
                  flows from investing activities:Proceeds
                  from the sale of property & equipment
              
              
              70
              
              
              -Purchase
                  of property and equipment
              
              
              (101
              )
              
              (42
              )Increase
                  in due from stockholder
              
              
              3
              
              
              348(Increase)
                  decrease in due from affiliates
              
              
              34
              
              
              1Net
                  cash used in investing activities
              
              
              6
              
              
              307Cash
                  flows from financing activities:Increase
                  in bank line of credit, net
              
              
              (286
              )
              
              223Proceeds
                  from long term debt
              
              
              2,338
              
              
              1,881Repayment
                  of long-term debt
              
              
              (1,655
              )
              
              (2,002
              )Net
                  cash (used in) provided by financing activities
              
              
              397
              
              
              102
 Effects
                  of exchange rates on cash
              
              
              42
              
              
              (72
              )Increase
                  (decrease) in cash
              
              
              (76
              )
              
              148Cash,
                  beginning of period
              
              
              78
              
              
              124Cash,
                  end of period
              
              $
              2
              
              $
              272Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              175,000
              
              $
              -Income
                  taxes
              
              $
              80,000
              
              $
              -
  4




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(In
      Thousands, Except Per Share Amounts)


JUNE
      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 six months ended June 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.




5




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(In
      Thousands, Except Per Share Amounts)


JUNE
      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.








NOTE
      4 -
      PROVISION FOR INCOME TAXES -





The
      income tax expense for the six months ended June 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.





6




**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





This
      Report contains forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
      1934. These statements relate to future events or our future financial
      performance. In some cases, you can identify forward-looking statements by
      terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
      "believe," "estimate," "predict," "potential" or "continue," the negative of
      such terms, or other comparable terminology. These statements are only
      predictions. Actual events or results may differ materially from those in the
      forward-looking statements as a result of various important factors. Although
      we
      believe that the expectations reflected in the forward-looking statements are
      reasonable, such should not be regarded as a representation by Lapis
      Technologies, Inc., or any other person, that such forward-looking statements
      will be achieved. The business and operations of Lapis Technologies, Inc. and
      its subsidiaries are subject to substantial risks, which increase the
      uncertainty inherent in the forward-looking statements contained in this Report.
      Because these forward-looking statements involve risks and uncertainties, there
      are important factors that could cause actual results to differ materially
      from
      those expressed or implied by these forward-looking statements, including our
      plans, objectives, expectations and intentions and other factors discussed
      under
      "Risk Factors," included in our Registration Statement on Form 10-SB filed
      with
      the Securities and Exchange Commission on March 26, 2004.





The
      following discussion and analysis should be read in conjunction with the
      Consolidated Financial Statements and related notes included elsewhere in this
      Report.





**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 June 30, 2006 has decreased compared to the cash balance at June
      30,
      2005, with cash and cash equivalents of $2,000 as of June 30, 2006 compared
      to
      $272,000 at June 30, 2005. Total current assets at June 30, 2006 were $6,676,000
      as compared to $ 6,053,000 at June 30, 2005. The increase in current assets
      is
      mainly due to an increase in accounts receivable.





Our
      accounts receivable at June 30, 2006 was $3,413,000, as compared to $2,880,000
      at June 30, 2005. This change in accounts receivable is primarily due to several
      orders with payment terms 30 days longer than usual delivered during the first
      six months of 2006 as compared to the same period in 2005.





As
      of
      June 30, 2006 our working capital was $ 1,893,000 as compared to $1,545,000
      at
      June 30, 2005. The increase in the working capital is also due primarily to
      an
      increase in accounts receivable.





The
      current portion of our short-term loans at June 30, 2006 totaled $292,000
      compared to $144,000 at June 30, 2005. Our total short-term loans amounted
      to
      $1,751,000 for the six-month period ended June 30, 2006 as compared to 1,894,000
      at June 30, 2005.




As
      of
      June 30, 2006, our total bank debt was $ 3,747,000 as opposed to $3,129,000
      at
      the end of June 30, 2005. These funds were borrowed as follows:





$
      2,043,000 which includes the current portion of long term debt, as various
      short
      term bank loans due through 2007, $681,000 of long-term debt due through March
      2010 and $1,023,000 borrowed using our bank lines of credit. As a result, we
      increased the amount borrowed for the six months ended June 30, 2006 by **$** 618,000
      from $3,129,000. 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.




7


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 June 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 Six Months Ended June 30, 2006 Compared to Three and Six Months Ended June
      30, 2005**





Revenues
      for the three and six months ended June 30, 2006 were $1,633,000 and $3,627,000
      respectively, as compared to $1,866,000 and $3,531,000 for the three and six
      months ended June 30, 2005, respectively. This represents a decrease of
      $233,000, or 12.4% for the quarter ended June 30, 2006 and an increase of
      $96,000, or 2.7%, for the six months ended June 30, 2006, when compared to
      the
      same periods of 2005. The increase of 2.7% in revenues for the six months ended
      June 2006 versus the same period for the prior year is mainly a result of the
      increase in the revenues for the first quarter of 2006 as compared to the first
      quarter of 2005, partly offset by the decrease in revenues in the 2’nd quarter
      of 2006 as compared to the 2’nd quarter of 2005. The main reason for the
      increase in revenues in the first quarter of 2006 is due to the delivery of
      several orders for new products introduced during 2005. The decrease of
      12.4% **** in
      revenues for the three-months ended June 30, 2006 as compared to the same period
      of 2005 is mainly due to several new projects with long lead times and
      significant design and tooling periods. The delivery of these orders are
      scheduled for the last quarter of 2006 and following first quarter of 2007.





Gross
      profit totaled approximately $593,000 for the quarter ended June 30, 2006 and
      $1,193,000 for the six months June 30, 2006. For the three and six months ended
      June 30, 2005, gross profit totaled $980,000 and $1,438,000, respectively.
      Comparing the three-month period ended June 30, 2006 to the same period of
      2005,
      gross profit decreased by approximately $ 387,000, or 39.5%. For the six-month
      period ended June 30, 2006, gross profit decreased approximately $245,000,
      or
      17.0 %, compared to the same period of 2005. The decrease in gross profits
      is
      primarily due to the focus during the last quarter on several new technology
      projects with higher tooling cost, resulting in lower profit margins. In
      addition, during the second quarter of 2006 we had lower revenues than for
      the
      same period of 2005, due mainly to work in process for the several large orders
      utilizing new technology for delivery during the following quarters.





Gross
      profit as a percentage of sales was 36.3 % for the three-month period ended
      June
      30, 2006 as compared to 52.5% for the same period of 2005 and for the six-month
      period ended June 30, 2006, was 32.9% as compared to 40.7% for the same period
      of 2005.




8




The
      decrease in gross profit as a percentage of sales is a result of lower
      introductory prices and higher tooling costs for the new products introduced
      during the last quarters.





Total
      operating expenses are comprised of selling, general and administrative expenses
      and R&D. Historically R&D costs were included in the cost of sales. The
      2005 six month financials have been re-classified accordingly to allow
      comparison. For the three months and six months ended June 30, 2006, operating
      expenses totaled $366,000 and $742,000, respectively. This was a decrease of
      $119,000 (24.5%) and $84,000 (10.2%) when compared to the three and six-month
      periods ended June 30, 2005. The decrease in operating expenses for the
      six-month period as compared to the same period of 2005 is attributable mainly
      to the decrease in G&A expenses of $120,000, partly offset by an increase of
      $36,000 in selling expenses as a result of our efforts to introduce new product
      lines in the marketplace.





The
      G&A expenses decrease is mainly due to the decrease in the cost of
      professional services and the allocation of more resources from G&A to
      selling effort.





Our
      net
      income was $111,000 in the three months ended June 30, 2006 and $174,000 in
      the
      six months ended June 30, 2006. This compares to net income of $211,000 in the
      three months ended June 30, 2005 and $261,000 in the six months ended June
      30,
      2005. The decrease in net income by $100,000, or 47%, comparing the three months
      ended June 30, 2006 to the three months ended June 30, 2005, and the decrease
      in
      net income by $87,000,
      or 33%, comparing the six months ended June 30, 2006 to the six months ended
      June 30, 2005.





The
      decrease in the net income in the three-month period ended June 30, 2006 was
      mainly due to a decrease of $387,000
      in the gross profit and an increase of $30,000 in interest expenses, partly
      offset by a decrease of $119,000 in operating cost and a decrease of $205,000
      in
      the minority interest.





For
      the
      six month period ending June 30, 2006,
      the
      decrease in the net income is mainly due to a decrease of $245,000 in gross
      profit and an increase of $56,000 in interest expenses, partly offset by a
      decrease in operating expenses of $84,000 and a decrease of $137,000 in the
      minority interest.





As
      of
      June 30, 2006, we had 2 customers that accounted for approximately 52.3% of
      the
      accounts receivable. For the six months ended June 30, 2006, approximately
      50.5%
      of our sales were to 2 customers.





**Research
      and Development Costs**





Research
      and development costs are part of operating expenses . Historically R&D
      costs were included in the cost of sales. The 2005 six month financials have
      been re-classified accordingly to allow comparison. Research and development
      costs for the three and six months ended June 30, 2006 were **$** 44,000
      and $114,000, respectively. Research and development costs for the three and
      six
      months ended June 30, 2005 were **$** 80,000
      and $114,000, 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.




9




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 six months ended June
      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 June
      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 June 30, 2006. The carrying value
      of
      the long-term debt approximate fair value at June 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.








**Item
      3.**  **Controls
      and Procedures.**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our Chief Executive Officer and Chief
      Financial Officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is: (1) accumulated and communicated to our management, including
      our Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow
      timely decisions regarding required disclosure; and (2) recorded, processed,
      summarized and reported, within the time periods specified in the Commission's
      rules and forms. There was no change to our internal controls or in other
      factors that could affect these controls during our last fiscal quarter that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.




**PART
      II**





**Item
      1.**  **Legal
      Proceedings.**




In
      our
      10-KSB for the fiscal year ended December 31, 2005, which was filed with the
      Securities and Exchange Commission on March 31, 2006, we reported that On April
      16, 2002, Orckit Communications (the “Plaintiff”) brought an action in the Tel
      Aviv District Court against Gaia Converter, a French company and Alcyon
      Production Systems, also a French company and a subcontractor of Gaia Converter,
      seeking $1,627,966, alleging that the DC converters supplied to it by Gaia
      Converter were defective and caused Orckit to replace the converters at a
      substantial financial expense. Orkit obtained default judgments against Gaia
      Converter, and Alcyon Production Systems. Enertec Electronics was joined in
      the
      action as a local Israeli distributor of the Gaia Converter products. The
      Plaintiff has withdrawn its action against Enertec.







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





Not
      applicable.




10




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





Not
      applicable.





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





Not
      applicable.





**Item
      5.**  **Other
      Information.**





Not
      applicable.




Item
      6.  **Exhibits.**


**Exhibit
                Number**
            **Description**31.1
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.31.2
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.32.1
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code.32.2
            Certification
                by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code.




11


**SIGNATURES**





In
      accordance with the 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: August
              17, 2006
            By:
            /s/ Harry
              MundHarry
                Mund
              Chief
                Executive Officer, President
              and
                Chairman of the Board


Date: August
              17, 2006
            By:
            /s/ Miron
              MarkovitzMiron
                  Markovitz
                Chief
                  Financial Officer, Chief Accounting
                Officer
                  and Director




12