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# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C.
20549

# Form 20-F/A(Amendment No. 3)

# (Mark One)

|o | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

# OR

|x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

# FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2007

# OR

|o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

# OR

|o | SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

# Commission file
number: 000-27572

LUMENIS LTD.(Exact name of Registrant as specified in its charter)

Not Applicable(Translation of Registrants name into English)

Israel(Jurisdiction of
incorporation or organization)

P.O. Box 240,
Yokneam 20692, Israel(Address of principal
executive offices)

William Weisel, General
CounselTelephone number: 011 972 4 959 9356; E-mail address: bill.weisel@lumenis.com;Facsimile number: 011 972 4 959 9355Lumenis Ltd., P.O. Box
240, Yokneam 20692, Israel(Name, Telephone,
E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act. None

Securities registered
or to be registered pursuant to Section 12(g) of the Act. Ordinary Shares, Par
Value NIS 0.1(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate
the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report:

177,239,738
Ordinary Shares, NIS 0.1 par value, including 35,527 treasury shares, at
December 31, 2007.



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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.

Yes o No x

If
this report is an annual or transitional report, indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

Yes o No x

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (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 large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated filer  o       Non-accelerated filer x

Indicate
by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:

|          |                                                       |        
|--------- | ----------------------------------------------------- | -------
|
|
|
|
|US GAAP x | International Financial Reporting Standards as issued | Other o
|          | by the International Accounting Standards Board o     |        

If
"Other" has been checked in response to the previous question, indicate by check mark
which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

If
this is an annual report, 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

2

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EXPLANATORY NOTE

This
Amendment No. 3 to the Annual Report on Form 20-F ("Amendment No. 3") is being filed by
Lumenis Ltd. (the "Registrant") for the sole purpose of addressing the following items in
the Registrant's Annual Report on Form 20-F for the year ended December 31, 2007 filed
with the Securities and Exchange Commission on June 25, 2008 (the "Annual Report") and to
file the exhibits relating thereto:

| |  | To
clarify the Registrant's disclosure in Item 15T of the Annual Report and provide a
                  definitive statement disclosing management's conclusion on the
effectiveness of the                   Registrant's internal control over financial
reporting as of December 31, 2007.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
provide the full text of Items 8, 15T and 18 (each, as amended).
| | - | -------------------------------------------------------------------

| |  | To
provide new certifications under Rule 13a-14(a) or 15d-14(a) of the principal executive
                  officer and principal financial officer of the Registrant.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

This
Amendment No. 3 consists of: a cover page; this explanatory note; Items 8, 15T, 18
(including a complete set of the Registrant's audited financial statements) and 19 (each,
as amended); the signature page; a complete set of the Registrant's audited financial
statements; the index to exhibits and the accompanying exhibits, including the required
new certifications of the principal executive officer and principal financial officer of
the Registrant.

Other
than as expressly set forth herein, this Amendment No. 3 does not, and does not purport
to, amend or restate any other information contained in the Annual Report nor does this
Amendment No. 3 reflect any events that have occurred after the Annual Report was filed.

|ITEM 8. |  | FINANCIAL INFORMATION
|------- |  | ---------------------

Item
8 - Financial Information of the Annual Report is replaced in its entirety with the
following text:

|A. | Consolidated
Statements and Other Financial Information
|-- | -------------------------------------------------------

The
consolidated financial statements and other financial information required by Regulation
S-X, including the Reports of the Independent Registered Public Accounting Firms in
connection with the consolidated financial statements, are included in this Amendment No.
3 beginning on page F-1.

Export Sales

The
following table presents total export sales for each of the fiscal years indicated (in
thousands of U.S. dollars):

|                               | 2007 | 2006 | 2005
|------------------------------ | ---- | ---- | ----
|
|
|
|
|Total Export Sales*            |      |      | $   
|as a percentage of Total Sales |      |      |     

* Export sales, as presented, are
defined as sales to customers located outside of Israel.

3

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# Legal Proceedings

We
are a party to various legal proceedings incident to our business. Except as noted below,
there are no legal proceedings pending or threatened against us that we believe are likely
to have a material adverse effect on our consolidated financial position.

Civil Proceedings By SEC

In
February 2002, we received a request from the SEC to voluntarily provide certain documents
and information for a period commencing January 1, 1998. The request primarily
related to our relationships with distributors, and also asked for amplification of our
explanation of certain previously disclosed charges and write-downs. In May 2002, the SEC
issued a formal order of investigation on these matters, including as to whether, in
connection therewith, we, in prior periods, may have overstated revenues and related
income and failed to maintain proper books and records and a proper system of internal
controls. On February 18, 2004, the law firm of Debevoise & Plimpton LLP
rendered a report on behalf of our audit committee that concluded that our revenue
recognition was inappropriate with respect to certain transactions during the fiscal years
ended December 31, 2001, December 31, 2002 and December 31, 2003. On
April 26, 2006, the SEC brought a civil proceeding against us, Sagi Genger, our
former Chief Operating Officer, and Kevin Morano, our former Chief Financial Officer and
Senior Vice President for Marketing and Business Development, both of whom are no longer
employed by us. Mr. S. Genger is the son of Arie Genger, one of our former
directors and former Vice Chairman of the Board. The civil proceeding sought, among other
things, an injunction against us, alleging violations of the antifraud and other
provisions of the U.S. federal securities laws in connection with inappropriately
recognizing revenue in our 2001, 2002 and 2003 financial statements. Concurrently with
filing the civil action, on April 26, 2006, the SEC approved a settlement with us and
Mr. S. Genger.

As
part of that settlement, we entered into a consent order with the SEC, without admitting
or denying the allegations, pursuant to which we consented to the entry of a permanent
civil injunction against future violations of the antifraud, reporting, books and records
and internal control provisions of the federal securities laws and related SEC rules. The
consent order also disqualifies us from benefiting from the protection of the safe harbor
provisions under the Private Securities Litigation Reform Act of 1995 with respect to
forward-looking statements we make during the three-year period following our entry into
the consent order.

As
part of that settlement, Mr. S. Genger consented, without admitting or denying
the allegations, to the entry of (i) a permanent civil injunction against future
violations of the antifraud, reporting, books and records and internal control provisions
of the federal securities laws and related SEC rules, (ii) an order to pay a civil
monetary penalty of $75,000 and (iii) an order prohibiting him from serving as an
officer or director of a publicly traded company for five years. We did not pay
Mr. S. Gengers penalty or reimburse him for it.

In
addition, as part of the settlement, the SEC revoked the registration of our shares
registered under Section 12 of the Exchange Act. As a result of the deregistration,
our shares were not able to be quoted or publicly traded in the United States on a
national securities exchange or elsewhere, until we re-registered our shares with the SEC.
We have since reregistered our shares under Section 12 of the Exchange Act and our
ordinary shares are eligible once again for quoting or trading in the United States.
However, our ordinary shares remain unquoted and no trading has commenced on a national
securities exchange and we are not aware of any other trading in our shares. We cannot
assure you that our shares will be approved for quotation or trading on any securities
exchange or that trading will recommence. As part of the settlement, we must also continue
to cooperate with the SECs prosecution of its claims against Mr. Morano, who is
contesting the allegations against him.

Under
the terms of their indemnification agreements, Mr. Morano and Mr. S. Genger
may be entitled to indemnification to the fullest extent permitted by law, including
advance of expenses up to the higher of (i) $250 million or (ii) 50% of the
market value of the outstanding ordinary shares prior to the occurrence giving rise to the
indemnifiable event. See Exculpation, Insurance and Indemnification of Directors and
Officers in Item 6.C above.

See
also 2006 Recapitalization  Private Placement of Ordinary Shares
and Warrants to the Investors in Item 4.A above, under the captions
Shares Adjustments Related to Litigation Outcome and Warrants, for
a discussion of additional shares we are required to issue to certain shareholders and the
reduction of the exercise price for certain warrants as a result of the losses,
indemnities, liabilities and expenses associated with this investigation and related
litigation exceeding, or not otherwise covered by, our insurance coverage.

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Securities Class Action
Complaints

On
June 17, 2003, the U.S. District Court for the Southern District of New York
consolidated nine purported class action complaints filed against us and several former
officers and directors during 2002, and appointed lead plaintiffs counsel and lead
counsel. (In re Lumenis, Ltd. SecuritiesLitigation, 02 Civ. 1989
(S.D.N.Y.)(DAB)) On August 29, 2003, lead counsel filed a consolidated amended class
action complaint (CAC), which expanded the alleged class period to cover a
period from October 2, 2000 to May 16, 2002, made new substantive allegations of
alleged securities fraud, and added our then-Vice Chairman of the Board, Arie Genger, as
an additional defendant solely on a controlling person theory of liability. (The CAC
continued to name our then-Chairman of the Board, Jacob Frenkel, and former officers Yacha
Sutton, Sagi Genger and Asif Adil as defendants.) The principal claims in the CAC may be
summarized as follows: (a) our financial statements, and the related press releases
announcing or pre-announcing such results, from the third quarter of fiscal year 2000 to
the first quarter of fiscal year 2002, overstated revenues for the applicable quarter due
to alleged violations of GAAP. (The focus of the alleged improper revenue recognition is
on sales to distributors that plaintiffs characterize as channel stuffing);
and (b) our 2001 acquisition of the business of the Coherent Medical Group (CMG) was
for the fraudulent purpose of taking very large one-time charges and write-downs claimed
to be associated with the acquisition, but which were really intended to write down
receivables or other assets that should have been written-off or down earlier, and we
fraudulently overstated the progress or success of the ongoing efforts to integrate CMG
with our business, and the benefits or synergies to be achieved by that combination. In
addition to these basic claims, the CAC asserted additional claims based on several other
alleged violations of financial reporting requirements, including (i) the alleged
failure to disclose all anticipated write downs and charges in a Form 8-K/A pro forma
balance sheet filed in July 2001 presenting the effect of our combination with CMG as if
it had occurred as of March 31, 2001; (ii) the alleged misclassification of
$9 million in assets as inventory instead of finished goods used in operations on the
balance sheet for the year ending December 31, 2001; and (iii) the failure to
make adequate disclosures in our Form 10-K report for the year ending
December 31, 2001 about an $8.2 million related party sale agreement during the
last quarter between us and our UK affiliate, Aculight, which transaction allegedly lacked
economic substance.

On
November 19, 2003, all defendants except Mr. Adil moved to dismiss the CAC on
grounds, among others, of failure to state a claim on which relief can be granted, failure
to plead fraud with particularity, and, in material part, statute of limitations. By
separate counsel, Mr. Adil moved to dismiss on grounds of insufficient service of
process.

On
March 4, 2005, while the motions to dismiss the CAC remained pending, the lead
plaintiffs sought leave to amend the CAC and to pursue discovery. On March 17, 2005,
the Court denied the request to conduct discovery but stated that plaintiffs were
authorized to amend their complaint. On June 10, 2005, lead plaintiffs filed their
Second Amended Consolidated Class Action Complaint (SAC). The SAC asserts the
same claims, allegations, and Class Period as alleged in the CAC and names the same
defendants. New allegations are made, however, as to (i) sales of our stock made by
certain defendants during the first half of 2001; (ii) the purported knowledge of
various confidential witnesses allegedly interviewed by plaintiffs counsel; and
(iii) certain post-class period events, such as our public statements about the
then-pending SEC investigation, the investigation by our audit committee, the replacement
of Mr. Sutton as Chief Executive Officer, the elimination of
Mr. S. Gengers position, the delisting of our ordinary shares by NASDAQ,
and the announcement that we anticipated restating our revenues and earnings for 2001,
2002, and 2003. All defendants, including Mr. Adil by his separate counsel, moved to
dismiss the SAC for, inter alia, failure to state a claim upon which relief can be
granted, failure to plead fraud with particularity, and the statute of limitations. The
motions were fully briefed and submitted to the Court on October 31, 2005. Those
motions have not yet been decided.

On
April 3, 2008, following lengthy mediator-assisted negotiations between the parties
that began in March 2007, approval of our audit committee, board of directors and
shareholders pursuant to the Companies Law, and agreements with our primary and two excess
layer directors and officers liability insurers (the D&O Insurers), we
entered into a Stipulation of Settlement with lead plaintiffs counsel pursuant to
which this class action litigation will be settled and dismissed with prejudice against us
and the other defendants, subject to Court approval. On May 7, 2008, the Court issued
an Order Preliminarily Approving Settlement and Providing Notice, which
preliminarily approved the Stipulation for Settlement. Pursuant to the proposed
settlement, an amount of $20,100,000 was paid into a Settlement Fund, and of such amount
we directly contributed $2,736,000 toward the settlement, and the D&O Insurers
collectively contributed the remaining $17,364,000. Furthermore, as part of the agreement
for the proposed settlement, and subject thereto, we will agree to forgive our primary
D&O Insurer approximately $1,645,000, that it would otherwise owe us in reimbursement
of defense fees we have advanced.

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The
Stipulation of Settlement that was preliminarily approved by the Court provides for the
filing of a third amended and consolidated class action complaint (TAC) naming
the same defendants as are named in the SAC and incorporating additional allegations and
claims based on those alleged in the SEC civil action referred to above. The TAC amends
and enlarges the class definition to include persons who purchased our shares at any time
between October 2, 2000 and March 7, 2006 (the Settlement Class
Period). We and the other defendants will not be required to respond to the TAC,
unless and until the Court fails to give final approval to the settlement or it is
otherwise terminated, and we and the individual defendants retain all of our defenses with
respect to the TAC. The purchasers of our shares during the Settlement Class Period will
constitute the Settlement Class. Excluded from the Settlement Class are the following: all
defendants; the members of individual defendants immediate families; all individuals
who are either current officers and/or directors, or who served as officers and directors
of Lumenis or its subsidiaries at any time during the Settlement Class Period; any person,
firm, trust, corporation, or entity in which any defendant has a controlling interest or
any entity that is related to or affiliated with any defendant; and the legal
representatives, agents, affiliates, heirs, successors and assigns of any such excluded
persons.

The
Stipulation of Settlement provides for the suit to proceed as a class action on behalf of
the Settlement Class, and the parties have jointly requested the Court to enter an order
certifying the Settlement Class for purposes of this settlement only, and providing that
such class certification order will become null and void if the settlement is not approved
or the Stipulation of Settlement is otherwise terminated pursuant to its terms. By this
means, we would retain the right to oppose any future application to the Court by lead
counsel for certification as a class action in the event the proposed settlement is not
completed.

In
its order, as amended, among other things, the Court also (i) approved a form and
method of giving notice to the members of the Settlement Class; (ii) set
August 25, 2008 as the date for a fairness hearing on the proposed settlement, at or
following which the Court will decide whether to grant final approval of the settlement;
(iii) set a date (21 days before the hearing date) for members of the Settlement
Class to opt-out of the Settlement Class if they do not wish to be bound by the
settlement; and (iv) set a date (45 days after the conclusion of the settlement
hearing) by which proofs of claim must be submitted by members of the Settlement Class who
do not opt-out of the Settlement Class and who wish to participate in the Settlement Fund.
We cannot assure you that the proposed settlement will receive final Court approval. The
Stipulation of Settlement includes a confidential annex giving Lumenis the right to
terminate the Stipulation of Settlement in its entirety if the total purchases of our
shares by members of the Settlement Class who opt-out of the Settlement Class exceed
specific thresholds.

If
the settlement is not finally approved by the Court, does not survive appeal, or is
otherwise terminated as provided by the Stipulation of Settlement: (i) the Settlement
Fund, inclusive of earned interest (less any amounts paid or incurred but not yet paid for
notice; claims administration; fees and/or expenses of the claims administrator and escrow
agent related to the administration or notice of the settlement; and/or for taxes), will
be returned to the persons that deposited those amounts, as instructed by Lumeniss
counsel; and (ii) the Stipulation of Settlement will have no further force or effect,
and the fact and the terms of the proposed settlement will not be admissible for any
purpose in any trial or proceeding. We cannot assure you that the settlement will be
finalized and implemented.

Under
the terms of their indemnification agreements, Prof. Jacob Frenkel, Mr. Sutton,
Mr. S. Genger and Mr. A. Genger may be entitled to indemnification to
the fullest extent permitted by law, including advance of expenses up to the higher of
(i) $250 million or (ii) 50% of the market value of the outstanding
ordinary shares prior to the occurrence of the indemnifiable event. In addition, in
connection with the settlement of a prior lawsuit brought by Mr. Adil, we have agreed
to indemnify Mr. Adil to the extent he is not afforded insurance coverage for this
class action litigation by our directors and officers liability insurance policies. See
Exculpation, Insurance and Indemnification of Directors and Officers in
Item 6.C above.

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Even
though we believe that we have meritorious defenses with respect to the allegations and
claims in this class action litigation, due to the uncertainty and expense of continued
litigation, we believe that the Stipulation of Settlement is in the best interests of the
Company. In the event the settlement is for any reason not finally approved, we intend to
vigorously defend against the claims asserted by the lead plaintiffs.

In
addition to the above class action litigation, seventeen purchasers of our shares between
September 2001 and February 2002, originally filed a complaint in the Northern District of
Illinois in February 2003, which was transferred to the Southern District of New York,
where it has been assigned as a related case to the judge who is presiding over the
above-described consolidated class action cases. (Aqua Fund, L.P., et al. v. Lumenis
Ltd., et al., 04 Civ. 2239 (S.D.N.Y.)(DAB).) The amended complaint alleges that we and
two former officers, Mr. Sutton and Mr. S. Genger, made material
misrepresentations and/or omissions about our financial results and projections of future
earnings, due, among other reasons, to the alleged improper recognition of revenue, and
that defendants also overstated the benefits and the success of our acquisition of CMG. In
May 2004, all defendants moved to dismiss the complaint for failure to state a claim and
failure to allege fraud with particularity, and for failure to effect service of process
on Mr. Sutton and Mr. S. Genger. The motion has been fully briefed.

Unless
they opt out of the Settlement Class that has been certified in In re Lumenis, Ltd.
Securities Litigation, the plaintiffs in the Aqua Fund action discussed above
will be eligible to participate as class members in that settlement. We are unable to
predict whether any or all of the Aqua Fundplaintiffs will opt out of the
Settlement Class. To the extent that plaintiffs in the Aqua Fundaction choose to
opt out of the Settlement Class, such plaintiffs will have the right to continue to pursue
their individual claims against us (which as of this date remain subject to our pending
motion to dismiss). To the extent that such plaintiffs fail to opt out of the Settlement
Class, and the settlement is finally approved by the Court, we intend to request the Court
to dismiss the claims of such plaintiffs as barred by the final judgment that would be
issued in connection with such final approval of such settlement.

See
also 2006 Recapitalization  Private Placement of Ordinary Shares
and Warrants to the Investors in Item 4.A above, under the captions
Shares Adjustments Related to Litigation Outcome and Warrants, for
a discussion of additional shares to be issued to certain shareholders and the reduction
in the exercise price of the certain warrant to take account of losses, indemnities,
liabilities and expenses exceeding, or not otherwise covered by, our insurance coverage in
connection with certain litigation, including the securities class action.

Litigation with Diodem,
LLC

On
March 27, 2003 Diodem, LLC filed a complaint in the United States District Court for
the Central District of California against us, among other defendants, alleging
infringement of four U.S. patents (Patent Nos. 5,267,856; 5,304,167; 5,422,899; and
6,122,300) then owned by Diodem in the field of dental laser technology. On May 5,
2003, Diodem filed its First Amended Complaint containing substantially similar
allegations against us, American Medical Technologies, Inc., Biolase Technologies, Inc.,
OpusDent Inc., and HoyaConBio. The complaint sought injunctive relief and unspecified
damages. We filed our answer and counterclaim on July 8, 2003, generally denying all
of the allegations and asserting numerous affirmative defenses.

On
December 20, 2004, Diodem and co-defendant Biolase entered into a settlement
agreement. On June 21, 2007, we along with the remaining parties to the lawsuit
entered into a Settlement Agreement and a Patent License Agreement that contain
confidential terms, releases of claims and the dismissal of the action. On July 26,
2007, the dismissal of the action was filed by the court.

Purported Texas Class
Action Lawsuit

On
September 20, 1999, Dr. Richard Urso filed a purported class action lawsuit
against ESC Medical Systems Inc. (the predecessor of Lumenis, Inc.) and a leasing company
in Harris County, Texas, alleging a variety of causes of action. He eventually withdrew
that case and re-filed another purported class action in Harris County Texas on
May 3, 2001 along with approximately forty-eight physicians and medical clinics.
Plaintiffs claimed breach of contract, breach of express and implied warranties, fraud,
misrepresentation, conversion, product liability, and violation of the Texas Deceptive
Trade Practices Act and Texas Securities Act. Plaintiffs eventually amended their
complaint to dismiss the class action and securities allegations and to add several new
plaintiffs. On October 9, 2003 the Court dismissed the cases of the non-Texas
plaintiffs based on forum non conveniens. The Courts order allowed any
non-Texas plaintiff to re-file their claims in their home state within one year of the
courts order. Plaintiffs appealed the order and the dismissal was affirmed.

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The
claims of the Texas plaintiffs were all resolved either by withdrawal of the claims or
settlement. We offered to continue tolling the claims of those non-Texas plaintiffs who
would agree to produce documents and to make themselves available for examination under
oath. Six plaintiffs initially agreed to this procedure. Five of those claims have since
been resolved by settlement. A total of 14 physicians or customers did not agree to the
initial tolling agreement and filed a total of six separate lawsuits. Eight of these
plaintiffs either dismissed their claims voluntarily or have settled with us. Six
plaintiffs dismissed their lawsuit in exchange for our agreement to sign a tolling
agreement that largely parallels the provisions of the Tolling Agreement mentioned above.
These six plaintiffs settled their claims in October 2007 and the settlement funded in
December 2007. A total of 33 Urso plaintiffs failed to either agree to the tolling
agreement or to file new lawsuits.

In
summary, there currently are no active lawsuits involving former Urso plaintiffs, although
there is one former Urso plaintiff who signed a tolling agreement that requires him to
produce documents and make himself available for examination under oath. He has made
himself available for examination and has produced some, but not all of the promised
records. He has not contacted us for several years.

Lawsuit by Theodore
Steliotes

On
April 7, 2006 Theodore Steliotes filed a lawsuit in the Court of Common Pleas of
Washington County, Pennsylvania against Coherent, Inc. regarding the sale of equipment by
Coherent, Inc. to the plaintiff. The plaintiff is seeking damages in excess of
$ 1.0 million for various causes of action including fraud, negligent
misrepresentation, negligence, breach of warranty and breach of contract. As part of the
2001 acquisition of the medical division of Coherent, Inc., we have undertaken to defend
and indemnify Coherent against such claims. We moved to dismiss all of plaintiffs
claims and the court granted our motion in part dismissing the fraud, negligent
misrepresentation and negligence claims. The only remaining claims are for breach of
contract and breach of warranty. We have taken plaintiffs deposition and continue to
vigorously defend this claim.

Lawsuit by Gerald Coursley

On
April 24, 2008, Dr. Gerald Coursley filed a complaint against Lumenis Inc. in
the Superior Court of Santa Clara, California for breach of written contract and for
breach of implied covenant of good faith and fair dealing with respect to a Settlement
Agreement (the Agreement) executed by the parties in 2004 arising out of
Dr. Coursleys dissatisfaction with his VascuLight that he purchased in 1999.
Dr. Coursley asserts we breached the Agreement by failing to deliver parts and
training to which he was entitled under the Agreement. He alleges damages in excess of
$1 million. We are vigorously defending this lawsuit.

Alleged Patent
Infringement Lawsuit by CardioFocus, Inc.

On
July 20, 2006 CardioFocus, Inc. filed a lawsuit in the United States District Court
for the District of Massachusetts against us. The case alleged that we willfully infringed
three United States patents. We filed an Answer and Counterclaims on January 2, 2007,
and CardioFocus, Inc. replied to the Counterclaims on January 19, 2007. We asked the
Court to bifurcate for trial and separate discovery regarding the issues of patent
ownership, license and whether we have a release from liability. As part of that request,
we asked the Court to stay discovery and trial of all other claims. On April 5, 2007,
the Court granted our motion. On December 19, 2007 the parties entered into a
Settlement Agreement that contains confidential terms, releases of claims and the
dismissal of the action. On February 4, 2008, the stipulation for dismissal of the
action was filed by the court.

8

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Alleged Patent
Infringement Lawsuit by Dr. William P. Young

On
July 23, 2003, Dr. William P. Young, a veterinarian, filed a patent infringement
lawsuit against Lumenis, Inc. in the United States District Court for the Southern
District of Ohio claiming that we were inducing veterinarians to infringe his Unites
States Patent Number 6,502,579. In November 2005, the court held claims 1-5 of the patent
invalid as a matter of law. Claim 6 remained at issue. We filed several motions to have
the remainder of the case dismissed. On March 28, 2006, the court granted two of our
motions for summary judgment. The court dismissed Youngs claim of induced
infringement for the only remaining patent claim, claim 6, and held the patent
unenforceable due to inequitable conduct during the re-examination of the patent. Young
appealed the invalidity and unenforceability decisions but not the non-infringement
holding. A hearing was held on February 9, 2007, and a decision was rendered by the
US Court of Appeals for the Federal Circuit on June 27, 2007 wherein the court
reversed the District Courts decisions regarding the judgment of invalidity and the
grant of summary judgment of patent unenforceability. On December 21, 2007 the
parties entered into a Settlement Agreement that contains confidential terms, releases of
claims and the dismissal of the action. On January 10, 2008, the stipulation for
dismissal of the action with prejudice was filed with the court.

Litigation with GSI Group

In
March 2007, we, GSI Group Limited and GSI Group, Inc. agreed to a settlement resolving
litigation regarding the sale of certain assets of Spectron Cosmetics Limited, a
subsidiary of ours, to GSI Limited. Under the terms of the agreement we paid GSI
$2.75 million in full and final settlement of the litigation and other claims
threatened by GSI.

Lawsuits against Alma
Lasers

On
June 28, 2007, we filed a lawsuit for patent infringement against Alma Lasers Ltd.
and Alma Lasers, Inc. in the U.S. District Court for the Northern District of Illinois
claiming that Almas light-based cosmetic treatment systems, including the Harmony
platform, infringe seven of our U.S. patents. We also allege that Almas activities
constitute willful infringement of these patents. In this lawsuit, we are seeking an
injunction against further infringement as well as monetary damages.

On
March 26, 2008, we filed a complaint in the Tel Aviv District Court in Israel against
Alma Lasers Ltd and its four founders, Ziv Karni, Yoav Avni, Nadav Bayer, and Ivgeni
Kodritzki, all former employees of Lumenis, claiming misappropriation of our trade secrets
and technology and for the use of such technology in Almas primary Harmony products,
which are sold worldwide. We have requested relief from the court in the form of an
injunction against the use of such core technology by Alma in its products and for
monetary damages in the amount of 200 million shekels based on the profits earned by
Alma and its founders from the utilization of our technology. We also requested from and
obtained leave of the U.S. District Court where the infringement action referred to above
was filed to file an amended complaint to include a cause of action for misappropriation
of trade secrets against Alma Lasers, Inc.. The complaints allege that certain core
components of Almas Harmony products are virtually identical to Lumenis components
that were developed around the time the Alma founders departed from Lumenis and that the
designs and technology related to such components were misappropriated by one or more of
Almas founders and utilized in the development and manufacture of Almas
Harmony products. The claim further alleges that Alma has earned significant revenues from
the sales of Harmony products, profits that were unjustly earned as a result of the use of
Lumenis technology, and that Almas founders were recently paid substantial amounts
by TA Associates as part of an investment agreement in Alma, profits that resulted from
value created by Lumenis technology.

Administrative Subpoena
from U.S. Department of Commerce

In
or about March 2006, we received an Administrative Subpoena from the Office of Export
Enforcement, Bureau of Industry and Security, U.S. Department of Commerce. The
subpoena sought documents concerning the export of U.S. origin commodities, directly
or indirectly, to the United Arab Emirates or the Islamic Republic of Iran. The
U.S. Government could have assessed a penalty against our U.S. subsidiary,
Lumenis, Inc., because of certain unlicensed exports or reexports to Iran of devices and
associated spare parts and accessories originating with Lumenis, Inc. Exports from the
United States to Iran are subject to two separate sets of regulations, one administered by
the U.S. Department of Commerce and the other administered by the
U.S. Department of the Treasury. We cooperated fully with the
U.S. Governments investigation that was administered by the Commerce
Department, and in October 2006, we submitted a full report of the matter to the Commerce
Department. Upon reviewing the report, the Commerce Department provided verbal
notification to our outside counsel that it was closing its investigation and was not
recommending the imposition of any penalty. In March 2007, we submitted a full report to
the Treasury Department where the matter is now under review. The Commerce
Departments determination not to take further action does not preclude the Treasury
Department from making its own determination that a penalty should be imposed.

9

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Assessment from the
Israel Tax Authority, or ITA

In
or about October 2005, we received a notice from the ITA assessing income taxes for the
fiscal years ended December 31, 2000 and 2001 in the amount of
NIS 273 million (approximately $81 million based on the June 23, 2008
exchange rate), including interest and penalties. The assessment is primarily based on an
attempt by the ITA to disallow the exemption available for our approved enterprise under
the Israeli Law for the Encouragement of Capital Investments, 5719-1959, which would then
subject our income to the full statutory income tax rate in those years, by claiming that
the audited statutory financial statements submitted for those years are incomplete. In
addition, the ITA assessed tax on an alleged deemed dividend to a wholly-owned subsidiary
out of tax exempt earnings under our approved enterprise program for the same period. We
have filed an appeal notice with the District Court in Haifa, Israel against the ITA
assessment. The trial on this matter is scheduled for September 2008. We believe that the
entire assessment is in error and that no tax is due, and we intend to vigorously defend
our position in the Israeli courts and under applicable tax treaties. We believe that we
should prevail in this dispute, but cannot assure you, however, that we will prevail.

Lawsuit by the
Manufacturers Association of Israel

On
February 26, 2008, the Manufacturers Association of Israel, or MAI, filed a lawsuit
in the Tel-Aviv Regional Labor Court in Israel, against us, claiming NIS 450,000
(approximately $133,000 based on the June 23, 2008 exchange rate) plus interest and
linkage to the Israeli Consumer Price Index, for payment of dues for the years 2003
through 2008, even though we are not a member of the MAI. We plan to vigorously defend
this lawsuit.

Miscellaneous Lawsuits

We
are also a defendant in various product liability lawsuits in which our products are
alleged to have caused personal injury to certain individuals who underwent treatments
using our products and to certain claims alleging that we are in breach of contract with
certain customers. We are also parties to various employment claims in some of the regions
in which we operate. We are defending ourselves vigorously, maintain insurance against the
product liability claims and believe that these claims individually or in the aggregate
are not likely to have a material adverse impact on our business, financial condition or
operating results.

# Dividend Policy

We
have never paid a cash dividend on our ordinary shares and do not anticipate that we will
pay any cash dividend on our ordinary shares in the foreseeable future.

We
intend to retain our earnings to finance the development of our business. Any future
dividend policy will be determined by our board of directors based upon conditions then
existing, including our earnings, financial condition, tax position and capital
requirements as well as such economic and other conditions as the board may deem relevant.
Pursuant to our articles of association, dividends may be declared by the board. Dividends
must be paid out of our profits and other surplus funds, as defined in the Companies Law,
as of the end of the most recent year or as accrued over a period of the most recent two
years, whichever is higher, provided that there is no reasonable concern that a payment of
a dividend will prevent us from satisfying our existing and foreseeable obligations as
they become due. In addition, because we have received certain benefits under the Israeli
law relating to approved enterprises, our payment of dividends may be subject
to certain Israeli taxes to which we would not otherwise be subject. Furthermore, pursuant
to the terms of financing agreements, we are restricted from paying dividends to our
shareholders. In the event that we declare cash dividends, we may pay those dividends in
shekels.

Dividends
paid out of income derived from an approved enterprise under Israeli law are subject to a
15% withholding tax. Approved enterprises may receive exemption from Israeli tax for up to
10 years. See Approved Enterprise in Item 5.A above. Should dividends be paid
out of income earned by us from an approved enterprise during the tax exempt period, such
income will be subject to tax at the rate of up to 25%.

10

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|B. | Significant
Changes
|-- | -------------------

No
significant change, other than as otherwise described in this annual report, has occurred
in our operations since the date of our consolidated financial statements included in this
annual report.

|ITEM 15T. |  | CONTROLS AND PROCEDURES
|--------- |  | -----------------------

Item
15T  Controls and Procedures of the Annual Report is replaced in its entirety with
the following text:

# (a) Disclosure Controls
and Procedures

We
carried out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of December 31, 2007, the end of the period
covered by this report. Our management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving
their objectives and our management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this evaluation,
and for the reasons set forth in section (b) of this Item 15T, our chief
executive officer and chief financial officer concluded that our disclosure controls and
procedures were not effective as of December 31, 2007, to provide reasonable
assurance that the information required to be disclosed by us in filings and submissions
under the Exchange Act, is recorded, processed, summarized, and reported within the time
periods specified by the SECs rules and forms, and that material information related
to us and our consolidated subsidiaries is accumulated and communicated to management,
including the chief executive officer and chief financial officer, as appropriate to allow
timely decisions about required disclosure.

# (b) Managements
Annual Report on Internal Control over Financial Reporting

Management
is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act). Internal
control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the companys financial statements.

Internal
control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial
statements for external purposes. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.

Management
assessed the effectiveness of our internal control over financial reporting as of
December 31, 2007. In making this assessment, management utilized alternative
evaluation approaches based on the framework published by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control
 Integrated Framework as well as guidance set forth in releases of the
Securities and Exchange Commission. Based on the assessment and evaluation performed
through the date of filing of this annual report, as described in detail below, management
has identified a number of material weaknesses and significant deficiencies in our
internal control over financial reporting. Accordingly, management has concluded that our
internal control over financial reporting was not effective as of December 31, 2007.

11

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The
evaluation procedures that we utilized to assess the effectiveness of our internal control
over financial reporting consisted primarily of the documentation of major processes and
an analysis of key control gaps within such major processes, as designed, at those
entities deemed to be material. We based our evaluation on detailed inquiry, observation
and walkthroughs, as opposed to formal testing of control effectiveness, which we had
originally intended to utilize. With respect to most processes that were included in our
assessment, we were unable to perform all of the formal procedures testing the
effectiveness of controls designed to be in place within such processes by the time this
annual report was filed. However, we were able to complete our assessment utilizing the
alternative evaluation procedures described above. We utilized these alternative
evaluation procedures because our management concluded that, due to the implementation
during the second half of 2007 of a new company-wide ERP system (SAP) that encompassed a
significant portion of our transaction processing and related controls relevant to
financial reporting, its assessment and evaluation of the effectiveness of our internal
control over financial reporting should not be performed for most key processes until the
new ERP system was implemented and stable. As a result, a significant portion of
our assessment of our internal control over financial reporting did not commence until
November 2007 and continued through the  original  date of filing of this annual
report, as opposed to such assessment having been performed  closer to the balance sheet date. It is possible that had we performed our
assessment closer to the balance sheet date we may
have found other control deficiencies. Furthermore, had we been able to perform formal
testing of control effectiveness as we had originally intended as part of
managements assessment of controls over financial reporting, it is possible that we
may have found control weaknesses or deficiencies in addition to those indicated in this
annual report. Nevertheless, management performed sufficient procedures under applicable
rules to complete its assessment of the effectiveness of internal control over financial
reporting as of December 31, 2007.

The
following is a summary of material weaknesses in internal control over financial reporting
that were identified during the course of the above review:

| |  | Computer
system access controls, change management and use of multiple systems.  As
indicated above, in the second half of 2007 we implemented a new ERP system through which
financial and operational transactions are processed and recorded. Management decided to
expedite the implementation of the new system in order to gain the benefits expected from
it, including improvements in our internal controls, as quickly as possible. As a result,
a number of controls related to access rights and change management were not fully
designed and implemented as of December 31, 2007. Specifically, we noted instances
in which system users had access rights beyond the scope of those necessary to perform
their specific job responsibilities or in which access rights were defined in a manner
that created a situation of improper segregation of duties. It was further noted that we
did not have adequate procedures in place for appropriate management review and approval
of system access rights as of December 31, 2007. In addition, as a result of the
expedited manner in which the system was implemented, the testing of various transaction
processing and reports was not as comprehensive or robust as necessary before the
transition to the new system. Other change management policies and procedures were not
formalized and implemented as expected as of December 31, 2007. Finally, as a result
of our multi-phase, multi-year approach for fully transitioning to our new ERP system,
certain functions and processes remain on our previous ERP system as of year end 2007 and
as of the date of filing this annual report. During this transition period, interfaces
between the two systems are needed to maintain a seamless and consistent flow of
information related to affected processes, particularly in the areas of inventory and
service call billing. We noted that in some circumstances these interfaces were either
not operating as expected or had not yet been implemented as of December 31, 2007.
As a result, we are dependent on significant manual reconciliation of data between the
two ERP systems to ensure consistency of such data.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Subsidiaries
with insufficient number of professionally qualified accounting personnel.  In
certain of our subsidiaries where there is an insufficient number of professionally
qualified accounting personnel, review and approval of certain transactions is either not
performed or is not documented properly. In some of these locations it was noted that
there was an insufficient level of proper segregation of duties that, by definition,
creates an exposure to fraudulent transactions being recorded. We have instituted various
compensating controls via review procedures performed at the parent company with the
intention of mitigating these deficiencies to some extent.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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Continuing Remediation
Efforts to Address Deficiencies Described Above.

Our
remediation efforts have been ongoing and will continue over the next year. While we
continue to improve policies and procedures in all areas with weaknesses or deficiencies,
we are endeavoring to complete remediation of the following specific items in 2008.

| |  | System
Related Controls:
| | - | ------------------------

| | In
the quarter ended March 31, 2008, we performed an extensive analysis of system
access authorization rights with the primary objectives of:
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | identifying
all access roles defined in a manner that may provide a user with authorization that
conflicts with proper segregation of duties.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | identifying
all users who have been granted access rights that create conflicts with proper
segregation of duties.
| | - | ------------------------------------------------------------------------------------------------------------------

| | Based
on this data, we intend to redefine system access roles and re-assign system access
authorizations in a manner that minimizes access rights that could lead to improper
segregation of duties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, we are developing and intend to implement formal procedures requiring periodic
sign-off by managers of all system user access rights.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | Since
December 31, 2007, procedures have been partially implemented with respect to change
management for hardware and software changes. We intend to fully implement additional
procedures in this area during 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Financial
Personnel:
| | - | --------------------

| | In
December 2007, our current chief financial officer joined Lumenis. He is still in the
process of assessing the finance organization throughout the Company and expects to
implement changes as deemed appropriate to improve the quality and structure of our
finance department. Such changes will have among their objectives the allocation of an
appropriate number of qualified accounting personnel in our various locations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
managements report shall not be incorporated by reference into any of our
registration statements, or deemed to be filed for the purposes of section 18 of the
Exchange Act, or otherwise subject to liabilities of that section.

Attestation Report of the
Registered Public Accounting Firm

This
annual report does not include an attestation report of our registered public accounting
firm assessing our internal control over financial reporting. Our managements report
was not subject to attestation by our independent registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only managements
report in this annual report.

# (c) Changes in Internal
Control over Financial Reporting

In
the registration statement on Form 20-F filed by us on May 1, 2007, we disclosed in Item
3.D Risk Factors that our external auditors had advised us of the following
material weaknesses in our internal controls as of the date of their report (April 30,
2007) in the following specific areas:

| |  | our
controls over intercompany shipments between warehouses;
| | - | ------------------------------------------------------------

13

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| |  | our
reconciliation of intercompany balances;
| | - | --------------------------------------------

| |  | our
lack of adequate accounting systems; and
| | - | --------------------------------------------

| |  | our
lack of sufficient internal resources in the accounting department.
| | - | -----------------------------------------------------------------------

As
indicated above, we implemented a new ERP system (SAP) globally during 2007. This new
system has already addressed many control deficiencies that existed in our previous ERP
system including to a significant degree the first three of those noted above. As our
employees continue to familiarize themselves with and use the new system, we expect that
the system will continue to yield many additional enhancements to our controls over
financial reporting.

With
respect to our lack of sufficient internal resources in the accounting department, we have
made some improvements in this regard in 2007. Specifically, we hired a Vice President for
Finance for the Americas, a previously unfilled position, and added additional
professionally certified personnel in Israel and the U.S. Additional changes will be
considered by our new chief financial officer taking into consideration improvements in
controls achieved as a result of our new ERP system.

|ITEM 18. |  | FINANCIAL STATEMENTS
|-------- |  | --------------------

Item 18
 Financial Statements of the Annual Report is replaced in its entirety with the
following text:

The
consolidated financial statements and the related notes required by this item are included
in this Amendment No. 3, as follows:

|Index to Consolidated Financial Statements                                                 | Page       
|------------------------------------------------------------------------------------------ | -----------
|
|
|
|
|Reports of Independent Auditors and Independent Public Accountants                         | F-2 and F-3
|Consolidated Balance Sheets at December 31, 2007 and 2006                                  | F-4        
|Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005 | F-5        
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005 | F-6        
|Consolidated Statements of Changes in Shareholders' Equity (Capital Deficiency)           
|for the Years Ended December 31, 2007, 2006 and 2005                                       | F-7        
|Notes to Consolidated Financial Statements                                                 | F-8 to F-31

|ITEM 19. |  | EXHIBITS
|-------- |  | --------

The
exhibits to this Amendment No. 3 are listed below.

|Exhibit |  | Description
|------- |  | -----------

|1.1 |  | Memorandum
of Association, as amended July 26, 2001 (English translation) *B (3.1)
|--- |  | ----------------------------------------------------------------------------------

|1.2 |  | Articles
of Association, as amended and restated December 26, 2007 **
|--- |  | ---------------------------------------------------------------------

|4.(b)1 |  | Lease
Agreement dated March 18, 1998 between Skan Group Yokneam Ltd. and Lumenis (English
               Translation) with respect to the Yokneam, Israel facility *A (10.31)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)2 |  | Lease
Agreement dated September 5, 2006 between Aspen Real Estate Ltd. and Lumenis with respect
to                the Yokneam, Israel facility *G (4.8)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)3 |  | Lease
dated as of July 19, 2006 between Lumenis, Inc. and HDP Associates, LLC. with respect to
the                Santa Clara, California facility *G (4.10)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)4 |  | Lease
Agreement dated as of April 25, 2006 between Lumenis and Century East Business Center,
L.L.C.                with respect to the Salt Lake City facility *G (4.18)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)5 |  | Lease
Agreement dated as of September 27, 2006 between Lumenis and Ascend Realty Investments
LLC with                respect to the Salt Lake City facility *G (4.19)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

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|Exhibit |  | Description
|------- |  | -----------

|4.(b)6 |  | Construction
and Lease Agreement dated January 8, 2008 between Industrial Buildings Corporation Ltd.
               and Lumenis (English Translation) with respect to new Yokneam, Israel
facility **
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)7 |  | Letter
Agreement with Bank Hapoalim B.M dated June 17, 2003 *D (10.5)
|------ |  | ---------------------------------------------------------------------

|4.(b)8 |  | Stock
Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Ltd. *D
(10.6)
|------ |  | -----------------------------------------------------------------------------------------------------

|4.(b)9 |  | Stock
Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Holdings
Inc.                *D (10.7)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------

|4.(b)10 |  | Cash
Fee-Ltd. Stock Letter, dated as of November 19, 2003, between Lumenis Ltd. and Bank
Hapoalim                B.M. *E (10.3)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------

|4.(b)11 |  | Asset
Purchase Agreement, dated as of January 1, 2005, by and between Lumenis Inc. and Eclipse
               Medical, Ltd. and others. (A portion of this exhibit has been omitted and
filed separately with the                SEC. Confidential treatment has been requested
with respect to the omitted portion.) *F (10.1)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)12 |  | Purchase
Agreement dated as of September 30, 2006 among Lumenis, Ofer Hi-Tech Investments, Ltd.,
LM                Partners L.P. and LM (GP) L.P.*G (4.20)
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)13 |  | Restructuring
Agreement dated as of September 29, 2006 between Lumenis and Bank Hapoalim B.M.*G
               (4.21)
|------- |  | ---------------------------------------------------------------------------------------------------------------------

|4.(b)14 |  | Amendment
No. 1 to Restructuring Agreement dated as of December 5, 2006 between Lumenis and Bank
               Hapoalim B.M. *G (4.22)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|4.(b)15 |  | Amendment
No. 2 to Restructuring Agreement dated June 25, 2008 between Lumenis and Bank Hapoalim
B.M.                **
|------- |  | -----------------------------------------------------------------------------------------------------------------------

|4.(b)16 |  | Registration
Rights Agreement dated as of December 5, 2006 among Lumenis, Ofer Hi-Tech Investments,
               Ltd., LM Partners L.P. and Bank Hapoalim B.M. *G (4.23)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)17 |  | Warrant
No. 2 dated December 5, 2006 to purchase 11,658,273 ordinary shares issued to Ofer
Hi-Tech                Investments Ltd. on or before June 5, 2007 *G (4.24)
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)18 |  | Warrant
No. 4 dated December 5, 2006 to purchase 7,083,333 ordinary shares issued to Ofer Hi-Tech
               Investments Ltd. on or before December 5, 2011 *G (4.25)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)19 |  | Warrant
No. 5 dated December 5, 2006 to purchase 8,000,000 ordinary shares issued to Bank
Hapoalim                B.M. on or before November 19, 2011 *G (4.26)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)20 |  | Warrant
No. 6 dated December 5, 2006 to purchase 1,411,300 ordinary shares issued to Bank
Hapoalim                B.M. on or before November 19, 2011 *G (4.27)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)21 |  | Warrant
No. 7 dated December 5, 2006 to purchase 11,560,343 ordinary shares issued to LM Partners
               L.P. on or before June 5, 2007 *G (4.28)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)22 |  | Warrant
No. 8 dated December 5, 2006 to purchase 10,639,875 ordinary shares issued to LM Partners
               L.P. on or before December 5, 2011 *G (4.29)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(c)1 |  | 1999
Share Option Plan, as amended April 30, 2003 *I (4.1)
|------ |  | ----------------------------------------------------------

|4.(c)2 |  | 2000
Share Option Plan, as amended September 30, 2006 *I (4.2)
|------ |  | --------------------------------------------------------------

|4.(c)3 |  | Israel
2003 Share Option Plan, as amended May 27, 2003 *C (Exhibit A)
|------ |  | ---------------------------------------------------------------------

|4.(c)4 |  | 2007
Share Incentive Plan, as amended September 23, 2007 *H (99.1, Appendix A)
|------ |  | ------------------------------------------------------------------------------

|4.(c)5 |  | Form
of pre-2006 recapitalization Indemnification Agreement *B (10.7)
|------ |  | ---------------------------------------------------------------------

|4.(c)6 |  | Form
of post-2006 recapitalization Indemnification Agreement *G (4.6)
|------ |  | ---------------------------------------------------------------------

|4.(c)7 |  | Lumenis
Business Conduct Policy **
|------ |  | ----------------------------------

|4.(c)8 |  | Lumenis
Code of Business Ethics for Financial Officers **
|------ |  | ---------------------------------------------------------

|8 |  | List
of Subsidiaries **
|- |  | -----------------------

|12.1 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.3 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (**)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.4 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (**)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.5 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (***)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.6 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (***)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

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|Exhibit |  | Description
|------- |  | -----------

|12.7 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ***
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.8 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ***
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13 |  | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
               1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 |  | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
               1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
***
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15.6 |  | Consent
of Ziv Haft, a BDO member firm, independent registered public accounting firm ***
|---- |  | -----------------------------------------------------------------------------------------

|15.7 |  | Consent
of Blick Rothenberg, independent registered public accounting firm for Lumenis (UK)
Limited ***
|---- |  | -------------------------------------------------------------------------------------------------------

Note:
Parenthetical references following the Exhibit Number of a document relate to the exhibit
number under which such exhibit was initially filed.

|*A | Incorporated
by reference to said document filed as an exhibit to Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, File #000-27572, filed on March 30,
2000.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*B | Incorporated
by reference to said document filed as an Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, File #000-27572, filed on April 1,
2002.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*C | Incorporated
by reference to said document as an Exhibit to the Registrants Definitive Proxy
Statement for its 2003 Annual Meeting of Shareholders filed under cover of Schedule 14A
on April 30, 2003, File #000-27572.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*D | Incorporated
by reference to said document filed as an Exhibit to Quarterly Report on Form 10-Q
for the Quarterly Period ended June 30, 2003, File #000-27572, filed on August 19,
2003.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*E | Incorporated
by reference to said document filed as an Exhibit to Quarterly Report on Form 10-Q
for the Quarterly Period ended September 30, 2003, File #000-27572, filed on November 19,
2003.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*F | Incorporated
by reference to said document filed as an Exhibit to Current Report on Form 8-K,
File #000-27572, filed on January 20, 2005.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------

|*G | Incorporated
by reference to said document filed as an exhibit to Registration Statement on Form 20-F,
File #0-27572, filed on May 1, 2007.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------

|*H | Incorporated
by reference to said document filed as an Exhibit to Current Report on Form 6-K,
File #000-27572, furnished on November 21, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------

|*I | Incorporated
by reference to said document filed as an exhibit to a Post-Effective Amendment to a
Registration Statement on Form S-8, File #333-14860, filed on April 2, 2008.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|** | Filed
with the Form 20-F on June 25, 2008.
|-- | ------------------------------------------

|(**) | Filed
with Amendment No. 1 to the Form 20-F on June 26, 2008.
|---- | -------------------------------------------------------------

|(***) | Filed
with Amendment No. 2 to the Form 20-F on January 20, 2009.
|----- | ----------------------------------------------------------------

|*** | Filed
with this Amendment No. 3 to the Form 20-F.
|--- | -------------------------------------------------

# THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE REGISTRANT

The
Registrants consolidated financial statements and related notes included on pages
F-1 through F-31 of the Annual Report are replaced in their entirety by pages F-1 through
F-31, below, of this Amendment No. 3.

16

---

---

# SIGNATURES

The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign this
Amendment No. 3 to the Annual Report filed on its behalf.

| |  | LUMENIS LTD.By: /s/ Dov Ofer
Dov OferChief Executive Officer
| |  | --------------------------------------------------------------------------

Date: May 8, 2009

17

---

---

LUMENIS LTD

Index of Consolidated Financial Statements

|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|                                                           |  | Page      
|                                                           |  |           
|                                                           |  |           
|Report of Independent Registered Public Accounting Firm    |  | F-2       
|Report of Independent Registered Public Accounting Firm    |  | F-3       
|Consolidated Balance Sheets                                |  | F-4       
|Consolidated Statements of Operations                      |  | F-5       
|Consolidated Statements of Cash Flows                      |  | F-6       
|Consolidated Statements of Changes in Shareholders Equity |  | F-7       
|Notes to the Consolidated Financial Statements             |  | F-8  F-31

F-1

---

---

|                                          |                                           
|----------------------------------------- | ------------------------------------------
|
|
|
|
|                                          | Head Office: Amot Bituach House Building B
|46-48 Menachem Begin Road, Tel-Aviv 66184
|Tel: +972 3 638 6868 Fax: +972 3 639 4320
|E-mail: zivhaft@bdo.co.il www.bdo.co.il  

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRMTO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OFLUMENIS LTD.

We have audited the consolidated
balance sheets of Lumenis Ltd. and its subsidiaries (the Company) as of
December 31, 2007 and 2006 and the consolidated statements of operations, changes in
shareholders equity and cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We did not audit the balance sheets
and profit and loss accounts of a subsidiary, whose consolidated assets constitute
approximately 3.43% and 3.94% of total consolidated assets as of December 31, 2007
and 2006, respectively, and whose consolidated revenues constitute approximately 11.19%,
8.40% and 6.29% of total consolidated revenues for the years ended December 31, 2007,
2006 and 2005, respectively. The balance sheets and profit and loss accounts of that
subsidiary were audited by another auditor, whose reports have been furnished to us, and
our opinion, insofar as it relates to the amounts included in respect of that subsidiary
is based solely on the reports of the other auditor.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting.

Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, based on our audits
and the reports of another auditor, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Company as of
December 31, 2007 and 2006, and the related consolidated results of operations and
cash flows for each of the three years in the period ended December 31, 2007, in
conformity with generally accepted accounting principles as applied in the United States
of America.

| |                                    
| | -----------------------------------
|
|
|
|
| | /s/ Ziv Haft                       
| | Ziv Haft                           
| | Certified Public Accountants (Isr.)
| | A BDO member firm                  

Tel-Aviv, IsraelJune
25, 2008

|                                            |                                               
|------------------------------------------- | ----------------------------------------------
|
|
|
|
|Haifa Tel: 04-8680600, Fax: 04-8620866      | Kiryat Shmona Tel: 04-6951389, Fax: 04-6950004
|Jerusalem: Tel: o2-6546200, Fax: 02-6526633 | Beer Sheva Tel: 08-654432, Fax: 08 6270008    

F - 2

---

---

| |                      
| | ---------------------
|
|
|
|
| | BICK ROTHENBERG      
| | Chartered Accountants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
LUMENIS (UK) LIMITED

We have audited the balance  sheets
of Lumenis (UK) Limited (the  "Company")  as of  31 December  2007 and 2006 and the
profit and loss  account for each of the years in the  three-year  period  ended  31
December 2007 ("the financial  statements").  These financial  statements are the
 responsibility  of the Company's management.  Our  responsibility  is to  express an
opinion  on these  financial  statements  based on our audits.

We conducted  our audits in
 accordance  with the  standards of the Public  Company  Accounting  Oversight Board
(United  States).  Those standards  require that we plan and perform the audit to obtain
 reasonable assurance  about whether the financial  statements are free of material
 misstatement.  The company is not required  to have,  nor were we  engaged to  perform,
 an audit of its  internal  control  over  financial reporting.

Our audits included  consideration
of internal  control over financial  reporting as a basis for designing audit  procedures
 that are  appropriate  in the  circumstances,  but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting.
 Accordingly,  we express no such opinion.  An audit also  includes  examining,  on a
test basis,  evidence  supporting  the amounts and  disclosures  in the  financial
 statements,  assessing  the  accounting  principles  used and significant  estimates
 made  by  management,  as well  as  evaluating  the  overall  financial  statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  based on our
audits,  the financial  statements present fairly, in all material respects, the
 financial  position of the Company as of  31 December  2007 and 2006,  and the profit
for each of the three years in the period ended  31 December  2007,  in  conformity  with
 generally  accepted  accounting principles as applied in the United States of America.

/s/ Blick RothenbergBlick Rothenberg
Chartered Accountants & Registered Auditors
12 York Gate
London
NW1 4QS
United Kingdom

25 June, 2008

F - 3

---

---

LUMENIS LTD.

CONSOLIDATED
BALANCE SHEETS

|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | -------- | --------------------- | - | -------- | -
|                                                                                                                                                                               |  | December
  31,
  2007   |          | December
  31,
  2006 |  
|                                                                                                                                                                               |  |                         |          |                       |  
|                                                                                                                                                                               |  | (U.S. $
  in thousands) |         
|                                                                                                                                                                               |  |                         |         
|CURRENT ASSETS                                                                                                                                                                 |  |                         |          |                       |   |          |  
|Cash and cash equivalents                                                                                                                                                      |  | $                       | 58,423   |                       | $ | 79,630   |  
|Trade receivables, net                                                                                                                                                         |  |                         | 51,447   |                       |   | 41,176   |  
|Prepaid expenses and other receivables                                                                                                                                         |  |                         | 18,118   |                       |   | 15,111   |  
|Inventories                                                                                                                                                                    |  |                         | 51,318   |                       |   | 48,384   |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL CURRENT ASSETS                                                                                                                                                           |  |                         | 179,306  |                       |   | 184,301  |  
|FINISHED GOODS USED IN OPERATIONS, NET                                                                                                                                         |  |                         | 3,554    |                       |   | 5,736    |  
|FIXED ASSETS, NET                                                                                                                                                              |  |                         | 7,922    |                       |   | 4,946    |  
|GOODWILL                                                                                                                                                                       |  |                         | 72,451   |                       |   | 72,352   |  
|OTHER PURCHASED INTANGIBLE ASSETS, NET                                                                                                                                         |  |                         | 1,609    |                       |   | 3,102    |  
|OTHER ASSETS, NET                                                                                                                                                              |  |                         | 2,721    |                       |   | 3,320    |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL ASSETS                                                                                                                                                                   |  | $                       | 267,563  |                       | $ | 273,757  |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|CURRENT LIABILITIES                                                                                                                                                            |  |                         |          |                       |   |          |  
|Payments under restructured debt                                                                                                                                               |  | $                       | 46,955   |                       | $ | 8,970    |  
|Trade payables                                                                                                                                                                 |  |                         | 26,167   |                       |   | 31,869   |  
|Other accounts payables and accrued
  expenses                                                                                                                                 |  |                         | 47,841   |                       |   | 48,112   |  
|Deferred revenue and customer advances                                                                                                                                         |  |                         | 29,981   |                       |   | 23,120   |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                      |  |                         | 150,944  |                       |   | 112,071  |  
|LONG-TERM LIABILITIES                                                                                                                                                          |  |                         |          |                       |   |          |  
|Long term debt                                                                                                                                                                 |  |                         | 103,290  |                       |   | 149,794  |  
|Accrued severance pay, net                                                                                                                                                     |  |                         | 3,164    |                       |   | 3,048    |  
|Other long-term liabilities                                                                                                                                                    |  |                         | 8,887    |                       |   | 6,900    |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL LIABILITIES                                                                                                                                                              |  |                         | 266,285  |                       |   | 271,813  |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                  |  |                         |         |                       |   |         |  
|SHAREHOLDERS EQUITY (CAPITAL DEFICIENCY)                                                                                                                                      |  |                         |          |                       |   |          |  
|Ordinary shares of NIS .10 par value;
  December 31, 2007 and 2006: authorized 700 million and 700 million; issued
  and outstanding 177,239,738 and 154,021,122, respectively |  |                         | 4,155    |                       |   | 3,579    |  
|Additional paid-in capital                                                                                                                                                     |  |                         | 518,769  |                       |   | 492,920  |  
|Accumulated other comprehensive income                                                                                                                                         |  |                         | 14,561   |                       |   | 13,534   |  
|Accumulated deficit                                                                                                                                                            |  |                         | (536,105 | )                     |   | (507,987 | )
|Treasury shares, at cost (35,527 shares at
  December 31, 2007 and 2006)                                                                                                       |  |                         | (102     | )                     |   | (102     | )
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL SHAREHOLDERS EQUITY (CAPITAL
  DEFICIENCY)                                                                                                                              |  |                         | 1,278    |                       |   | 1,944    |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                     |  | $                       | 267,563  |                       | $ | 273,757  |  
|                                                                                                                                                                               |  |                         |          |                       |   |          |  

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

F-4

---

---

LUMENIS LTD.

CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                               |  | For the
  Year Ended December 31,              |        
|                                                                                                               |  |                                                |        
|                                                                                                               |  | 2007                                           |         | 2006 |   | 2005    |  
|                                                                                                               |  |                                                |         |      |   |         |  
|                                                                                                               |  | (U.S. $
  in thousands, except per share data) |        
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|NET REVENUES                                                                                                   |  | $                                              | 267,829 |      | $ | 264,378 |   | $ | 285,438 |  
|COST OF REVENUES                                                                                               |  |                                                | 153,168 |      |   | 150,946 |   |   | 150,133 |  
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|Gross profit                                                                                                   |  |                                                | 114,661 |      |   | 113,432 |   |   | 135,305 |  
|OPERATING EXPENSES                                                                                             |  |                                                |         |      |   |         |   |   |         |  
|Research and development expenses                                                                              |  |                                                | 16,465  |      |   | 15,414  |   |   | 16,452  |  
|Selling and marketing expenses                                                                                 |  |                                                | 73,205  |      |   | 71,912  |   |   | 72,457  |  
|General and administrative expenses                                                                            |  |                                                | 53,379  |      |   | 51,997  |   |   | 34,675  |  
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|Total operating expenses                                                                                       |  |                                                | 143,049 |      |   | 139,323 |   |   | 123,584 |  
|Operating (loss) income                                                                                        |  |                                                | (28,388 | )    |   | (25,891 | ) |   | 11,721  |  
|Financial (income) expenses, net                                                                               |  |                                                | (3,851  | )    |   | 20,770  |   |   | 20,633  |  
|Other expense (income), net                                                                                    |  |                                                | 68      |      |   | 457     |   |   | (340    | )
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|Loss before taxes on income                                                                                    |  |                                                | (24,605 | )    |   | (47,118 | ) |   | (8,572  | )
|Taxes on income                                                                                                |  |                                                | 3,513   |      |   | 3,200   |   |   | 2,659   |  
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|NET LOSS                                                                                                       |  | $                                              | (28,118 | )    | $ | (50,318 | ) | $ | (11,231 | )
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|Basic and Diluted net loss per share                                                                           |  | $                                              | (0.16   | )    | $ | (1.10   | ) | $ | (0.30   | )
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  
|WEIGHTED AVERAGE NUMBER OF SHARES USED IN
  COMPUTING BASIC AND DILUTED LOSS PER ORDINARY SHARE (in thousands) |  |                                                | 170,927 |      |   | 45,637  |   |   | 37,323  |  
|                                                                                                               |  |                                                |         |      |   |         |   |   |         |  

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

F-5

---

---

LUMENIS LTD.

CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                       |  | For the
  Year Ended December 31, |        
|                                                                                                       |  |                                   |        
|                                                                                                       |  | 2007                              |         | 2006 |   | 2005    |  
|                                                                                                       |  |                                   |         |      |   |         |  
|                                                                                                       |  | (US $
  in thousands)             |        
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  |  |                                   |         |      |   |         |   |   |         |  
|Loss                                                                                                   |  | $                                 | (28,118 | )    | $ | (50,318 | ) | $ | (11,231 | )
|Adjustments to reconcile loss to net:                                                                  |  |                                   |         |      |   |         |   |   |         |  
|Cash used in operating activities:                                                                     |  |                                   |         |      |   |         |   |   |         |  
|Depreciation and amortization                                                                          |  |                                   | 6,517   |      |   | 7,624   |   |   | 11,276  |  
|Deferred income taxes, net                                                                             |  |                                   | 1,790   |      |   | 194     |   |   | 145     |  
|Compensation related to employees stock
  option plan                                                  |  |                                   | 1,530   |      |   | 1,441   |   |   | 1,239   |  
|Options granted to bank and revaluation of
  previously issued options                                 |  |                                   | -       |      |   | 910     |   |   | -       |  
|Interest payments on bank debt in
  accordance with SFAS 15 Accounting for Trouble Debt Restructurings |  |                                   | (8,519  | )    |   | -       |   |   | -       |  
|Loss (gain) from sale or disposal of fixed
  assets and long term investment                           |  |                                   | 68      |      |   | 314     |   |   | (390    | )
|Trading marketable securities  net                                                                    |  |                                   | -       |      |   | -       |   |   | 198     |  
|Amortization of long term bank fees                                                                    |  |                                   | -       |      |   | 5,364   |   |   | 5,700   |  
|Change in fair value of financial
  derivatives                                                        |  |                                   | -       |      |   | (5,256  | ) |   | 715     |  
|Liability for employee rights upon
  retirement                                                        |  |                                   | 254     |      |   | (128    | ) |   | 74      |  
|Changes in operating assets and
  liabilities:                                                         |  |                                   |         |      |   |         |   |   |         |  
|Decrease (increase) in accounts receivable:                                                            |  |                                   |         |      |   |         |   |   |         |  
|Trade                                                                                                  |  |                                   | (10,522 | )    |   | 17,368  |   |   | 6,893   |  
|Other                                                                                                  |  |                                   | (4,112  | )    |   | (2,070  | ) |   | (442    | )
|Increase (decrease) in accounts payable and
  accruals:                                                |  |                                   |         |      |   |         |   |   |         |  
|Trade                                                                                                  |  |                                   | (5,961  | )    |   | 1,159   |   |   | (348    | )
|Other (including non-current portion)                                                                  |  |                                   | 6,687   |      |   | (9,940  | ) |   | (12,275 | )
|Decrease (Increase) in finished goods used
  in operations                                             |  |                                   | 1,323   |      |   | (116    | ) |   | (4,468  | )
|Decrease (Increase) in inventories                                                                     |  |                                   | (1,991  | )    |   | (4,676  | ) |   | 1,201   |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|Net cash used in operating activities                                                                  |  |                                   | (41,054 | )    |   | (38,130 | ) |   | (1,713  | )
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                  |  |                                   |         |      |   |         |   |   |         |  
|Purchase of fixed assets                                                                               |  |                                   | (5,818  | )    |   | (1,673  | ) |   | (2,888  | )
|Proceeds from sale of fixed assets                                                                     |  |                                   | 24      |      |   | 2,478   |   |   | 1,524   |  
|Amounts carried to other long term assets                                                              |  |                                   | 434     |      |   | (166    | ) |   | 72      |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|Net cash provided by (used in) investing activities                                                    |  |                                   | (5,360  | )    |   | 639     |   |   | (1,292  | )
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |  |                                   |         |      |   |         |   |   |         |  
|Issuance of share capital  net of issuance
  costs                                                    |  |                                   | 24,895  |      |   | 118,483 |   |   | -       |  
|Short-term credit from bank  net                                                                      |  |                                   | -       |      |   | -       |   |   | 4,982   |  
|Financing of building improvements provided
  by landlord                                              |  |                                   | 697     |      |   | -       |   |   | -       |  
|Proceeds from exercise of options                                                                      |  |                                   | -       |      |   | -       |   |   | 3       |  
|Repayments of long-term loans from bank                                                                |  |                                   | -       |      |   | (14,902 | ) |   | (4,150  | )
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|Net cash provided by financing activities                                                              |  |                                   | 25,592  |      |   | 103,581 |   |   | 835     |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|TRANSLATION DIFFERENCES ON CASH BALANCES OF
  CONSOLIDATED SUBSIDIARIES                                |  |                                   | (385    | )    |   | 389     |   |   | (1,035  | )
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                   |  |                                   | (21,207 | )    |   | 66,479  |   |   | (3,205  | )
|BALANCE OF CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                            |  |                                   | 79,630  |      |   | 13,151  |   |   | 16,356  |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|BALANCE OF CASH AND CASH EQUIVALENTS AT END
  OF YEAR                                                  |  | $                                 | 58,423  |      | $ | 79,630  |   | $ | 13,151  |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:                                                    |  |                                   |         |      |   |         |   |   |         |  
|Cash paid during the year for interest                                                                 |  | $                                 | 8,519   |      | $ | 14,019  |   | $ | 12,397  |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  
|Cash paid during the year for income taxes                                                             |  | $                                 | 1,795   |      | $ | 1,640   |   | $ | 2,582   |  
|                                                                                                       |  |                                   |         |      |   |         |   |   |         |  

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

F-6

---

---

LUMENIS LTD.

CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(CAPITAL DEFICIENCY)

|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|----------------------------------------------------------------------------- |  | --------------------- | ----------- | ------ | ---------- | ----------------- | -- | --------------------- | ------- | ---------------------- | - | ----------------- | - | ----- | ------ | - | - | ---- | - | - | ------- | -
|                                                                              |  | Ordinary Shares       |             |        |            |                   |    |                       |         | AccumulatedOther       |   |                   |   |       |        |   |  
|                                                                              |  |                       |             |        | Additional |                   |    |                       |         |                        |   |                   |   |       |        |  
|                                                                              |  | Number
  of Shares    |             | Amount |            | Paid-In
  Capital |    | Accumulated
  Deficit |         | Comprehensive
  Income |   | Treasury
  Shares |   | Total |       
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |       
|                                                                              |  | (U.S. $ in thousands) |            
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|BALANCE  DECEMBER 31, 2004                                                   |  |                       | 37,338,882  |        |            | 814               |    |                       | 373,609 |                        |   | (446,438          | ) |       | 13,233 |   |   | (102 | ) |   | (58,884 | )
|CHANGES DURING 2005:                                                          |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Loss for the year                                                             |  |                       |             |        |            |                   |    |                       |         |                        |   | (11,231           | ) |       |        |   |   |      |   |   | (11,231 | )
|Other comprehensive income:                                                   |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Translation differences of non-dollar financial statements of
  subsidiaries  |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       | (3,208 | ) |   |      |   |   | (3,208  | )
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Total comprehensive loss                                                      |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   | (14,439 | )
|Employee stock options exercised and paid                                     |  |                       | 1,583       |        |            |                   | ** |                       | 3       |                        |   |                   |   |       |        |   |   |      |   |   | 3       |  
|Compensation related to employees stock option Plan                           |  |                       |             |        |            |                   |    |                       | 1,239   |                        |   |                   |   |       |        |   |   |      |   |   | 1,239   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|BALANCE  DECEMBER 31, 2005                                                   |  |                       | 37,340,465  |        |            | 814               |    |                       | 374,851 |                        |   | (457,669          | ) |       | 10,025 |   |   | (102 | ) |   | (72,081 | )
|CHANGES DURING 2006:                                                          |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Loss for the year                                                             |  |                       |             |        |            |                   |    |                       |         |                        |   | (50,318           | ) |       |        |   |   |      |   |   | (50,318 | )
|Other comprehensive income:                                                   |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Translation differences of non-dollar financial statements of
  subsidiaries  |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       | 3,509  |   |   |      |   |   | 3,509   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Total comprehensive loss                                                      |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   | (46,809 | )
|Issuance of shares and warrants*                                              |  |                       | 116,680,657 |        |            | 2,765             |    |                       | 115,718 |                        |   |                   |   |       |        |   |   |      |   |   | 118,483 |  
|Options granted to Bank and revaluation of Issued options (see also
  Note 2) |  |                       |             |        |            |                   |    |                       | 910     |                        |   |                   |   |       |        |   |   |      |   |   | 910     |  
|Compensation related to employees stock option Plan                           |  |                       |             |        |            |                   |    |                       | 1,441   |                        |   |                   |   |       |        |   |   |      |   |   | 1,441   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|BALANCE  DECEMBER 31, 2006                                                   |  |                       | 154,021,122 |        |            | 3,579             |    |                       | 492,920 |                        |   | (507,987          | ) |       | 13,534 |   |   | (102 | ) |   | 1,944   |  
|CHANGES DURING 2007:                                                          |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Loss for the year                                                             |  |                       |             |        |            |                   |    |                       |         |                        |   | (28,118           | ) |       |        |   |   |      |   |   | (28,118 | )
|Other comprehensive income:                                                   |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Translation differences of non-dollar financial statements of
  subsidiaries  |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       | 1,027  |   |   |      |   |   | 1,027   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|Total comprehensive loss                                                      |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   | (27,091 | )
|Issuance of shares and warrants*                                              |  |                       | 23,218,616  |        |            | 576               |    |                       | 24,319  |                        |   |                   |   |       |        |   |   |      |   |   | 24,895  |  
|Compensation related to employees stock option Plan                           |  |                       |             |        |            |                   |    |                       | 1,530   |                        |   |                   |   |       |        |   |   |      |   |   | 1,530   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  
|BALANCE  DECEMBER 31, 2007                                                   |  |                       | 177,239,738 |        | $          | 4,155             |    | $                     | 518,769 |                        | $ | (536,105          | ) | $     | 14,561 |   | $ | (102 | ) | $ | 1,278   |  
|                                                                              |  |                       |             |        |            |                   |    |                       |         |                        |   |                   |   |       |        |   |   |      |   |   |         |  

|   |                                                 
|-- | ------------------------------------------------
|  
|  
|*  | Net of share
  issuance costs.                  
|   |                                                 
|** | Represents
  an amount of less than $1 thousand.

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

F-7

---

---

LUMENIS LTD.

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  DESCRIPTION OF BUSINESS

Lumenis
Ltd. together with its subsidiaries (the Company) is an Israeli company
engaged in research and development, manufacture, marketing and servicing of
laser, light- and radiofrequency- based systems for aesthetic, ophthalmic,
surgical, dental and veterinary applications. The Company offers a broad range
of laser and intense pulsed light (IPL) systems that are used in a variety of
applications, including photo rejuvenation, hair removal, non-invasive treatment
of vascular lesions and pigmented lesions, acne, ear, nose and throat (ENT),
gynecology, urinary lithotripsy, benign prostatic hyperplasia, open angle
glaucoma, secondary cataracts, age-related macular degeneration, refractive eye
correction, neurosurgery, dental and veterinary procedures. The Companys
products use proprietary technology and accordingly the Company holds numerous
patents and licenses.

NOTE 2  RECAPITALIZATION

On
December 5, 2006, the Company completed a recapitalization (Recap) of its
existing debt and equity structure. The Recap involved a cash investment from a
private equity consortium and restructuring of the existing bank debt (see Note
11  Bank Debt for additional details). LM Partners LP and Ofer Hi-Tech Investments
Ltd. (Investors) made a private placement of $120,000,000 in cash to acquire
111,919,418 shares of Lumenis, representing a 75% stake in the Company (the
Transaction).

In
addition, as part of the Transaction, the Investors received Additional
Warrants to purchase 27,979,855 of the Companys shares at an aggregate
exercise price of $30,000,000, or $1.0722 per share, expiring June 5, 2007.
Immediately after the closing of the purchase agreement and on June 4, 2007 the
Investors (including certain assignees of Ofer Hi-Tech Investments Ltd.)
exercised all these Additional Warrants. Consequently, there are no remaining
Additional Warrants outstanding.

As
a result of the exercise of the Additional Warrants, the Investors stake in
the Company increased to 79%.

Further,
as part of the Recap, the Investors received Closing Warrants to purchase
17,000,000 of the Companys shares at an exercise price of $1.1794 per share
(subject to adjustment as a result of issuance of additional shares as
described below), expiring December 5, 2011. The exercise of the Additional
Warrants immediately after the closing and on June 4, 2007, resulted in an
adjustment to the number of shares purchasable under the Closing Warrants
such that the total number of shares purchasable under the Closing Warrants
increased to 21,250,000 shares.

The
Investors were also granted certain registration rights. The Company examined
the application of Emerging Issues Task Force (EITF) Issue 00-19, Accounting
for Derivative Financial Instruments Indexed to, and potentially settled in, a
Companys Own Stock and EITF Issue D-98, Classification and Measurement of
Redeemable Securities, and classified the instruments granted as equity
instruments.

In
addition, after the Recap, new options were granted to then current directors
of Lumenis as well as to the newly appointed directors of the Company. These
options carry a $1.0722 strike price and expire after seven to eight years. See
Note 16.

The
amount of shares purchased by the Investors and their assignees, including
shares issued under the Additional Warrants, are subject to adjustment for all
losses, indemnities, liabilities and expenses exceeding, or not otherwise
covered by, the Companys insurance coverage, in connection with the recently
concluded investigation by the United States Securities and Exchange Commission
(the SEC), the previously disclosed class action lawsuits and certain other
matters relating, in whole or in part, to matters occurring prior to the
closing of the Recap. Adjustment for this purpose will be made by the issuance
to the Investors and their assignees for no additional consideration of
additional ordinary shares, as well as an adjustment to the exercise price
under the Closing Warrants issued to them.

NOTE 3  FINANCIAL STATEMENT PRESENTATION
& SIGNIFICANT ACCOUNTING POLICIES

a. U.S. GAAP

The
financial statements have been prepared in conformity with generally accepted
accounting principles in the United States of America (US GAAP)

F-8

---

---

b. Principles of consolidation

The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Inter-company balances and transactions have been eliminated.

c. Functional currency and foreign currency
transaction gains andlosses

The
currency of the primary economic environment in which the operations of the
Company are conducted is the U.S. dollar (dollar); thus, the dollar is the functional
currency of Lumenis Ltd and certain subsidiaries.

Lumenis
Ltd and certain subsidiaries transactions and balances denominated in dollars
are presented at their original amounts. Non-dollar transactions and balances
have been remeasured to dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation. All
transaction gains and losses from remeasurement of monetary balance sheet items
denominated in non-dollar currencies are reflected in the statements of
operations as financial income or expenses, as appropriate.

For
those subsidiaries whose functional currency has been determined to be their
local or other currency, assets and liabilities are translated at year-end
exchange rates and statement of operations items are translated at average
exchange rates prevailing during the year. Such translation adjustments are
recorded as a separate component of accumulated other comprehensive income in
shareholders equity.

d. Use of estimates

The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

e. Cash and cash equivalents

Cash
equivalents are defined as short-term, highly-liquid investments with original
maturities of 90 days or less.

f. Trade receivables and Allowance for Doubtful
Accounts

The
Companys trade accounts receivable are primarily from sales to end users and
distributors, which reflect a broad domestic and international customer base.
Credit limits are generally established through a process of reviewing the
financial history and stability of each customer. In general, the Company
obtains credit rating reports and/or financial statements of customers when
determining or modifying their credit limits and in some cases, the Company
obtains third party insurance.

In
recent years, the Company has not experienced significant credit losses related
to receivables from individual customers or groups of customers in any
particular industry or geographic area. The Companys policy is to maintain
allowances for estimated losses resulting from the inability or refusal of its
customers to make required payments. Provisions are made for amounts considered
to be uncollectible either as a result of estimated returns, historical
collection patterns or specific circumstances. This policy involves management
judgment and estimates in establishing the allowances. Accordingly, the
Companys trade accounts receivable balances do not represent a substantial
concentration of credit risk at December 31, 2007.

g. Inventories

Inventories
are stated at the lower of cost or market and include raw materials, work in
process and finished goods. Cost is determined as follows:

| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Raw Materials,
  Work in Progress (WIP) and Packaging Materials  Cost is determined on a
  standard cost basis utilizing weighted average of historical purchases, which
  approximates actual cost.
| |                                                                                                                                                                                                      
| | Finished products:Material
  and Purchased Products  Cost is determined on a standard cost basis
  utilizing weighted average of historical purchases, which approximates actual
  cost.            
| |                                                                                                                                                                                                      
| | Labor and Overhead
   Cost is determined on a standard cost basis utilizing the average cost over
  the production period, which approximates actual cost.                                          

F-9

---

---

Inventory
provisions, based on management estimates, are provided to cover risks arising
from slow-moving items, technological obsolescence, excess inventories and
discontinued products and are updated periodically.

h. Finished goods used in operations

Finished
products located at customer sites in respect of support for warranty
obligations or finished products used for promotional purposes are separately
classified as finished goods used in operations and are generally depreciated
over a period of three years.

i. Fixed assets

Fixed
assets are presented at cost, net of accumulated depreciation. Annual
depreciation is calculated based on the straight-line method over the shorter
of the estimated useful lives of the related assets or terms of the related
leases. In general, the following useful lives are used in determining
depreciation:

|                         |  |                                        
|------------------------ |  | ---------------------------------------
|                         |  | Years                                  
|                         |  |                                        
|                         |  |                                        
|Leasehold
  Improvements |  | Shorter of
  lease or life of the asset
|Machinery
  & Equipment  |  | 5 - 10 years                           
|Computer
  Equipment     |  | 3 years                                
|Internal-use
  Software  |  | 3 years                                
|Furniture
  and Fixtures |  | 5 - 10 years                           
|Motor
  Vehicles         |  | 5 years                                

j. Goodwill and other intangible assets

Goodwill
and other intangible assets, net of accumulated amortization, are reported in
other assets. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), goodwill represents the excess of the cost of an
acquisition over the fair value of net assets acquired. Goodwill is reviewed
for impairment utilizing a two-step process. The first step of the impairment
test requires us to identify the reporting units, and compare the fair value of
each of these reporting units to the respective carrying value. The fair value
of the reporting units is determined based on various analyses, including
discounted cash flow projections. If the carrying value is less than the fair
value, no impairment exists and the second step does not need to be completed.
If the carrying value is higher than the fair value, there is an indication
that impairment may exist and a second step must be performed to compute the
amount of the impairment. SFAS 142 requires goodwill to be tested for
impairment annually at the same time every year, and when an event occurs or
circumstances change such that it is reasonably possible that impairment may
exist. The Company performs its annual impairment tests in the fourth quarter.
No impairment was noted as a result of the Companys evaluation of goodwill
performed during 2007, 2006 and 2005.

Intangible
assets are amortized by the straight-line method over their estimated useful
lives, principally between four and nine years. Intangible assets are reviewed
for impairment in accordance with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS 144), whenever events such as product
discontinuance, plant closures, product dispositions or other changes in
circumstances indicate that the carrying amount may not be recoverable. When
such events occur, the Company compares the carrying amount of the assets to
undiscounted expected future cash flows. If this comparison indicates that
there is impairment, the amount of the impairment is calculated using discounted
expected future cash flows. The discount rate applied to these cash flows is
based on the Companys weighted average cost of capital, which represents the
blended after-tax costs of debt and equity. Any impairment loss is recognized
in the statement of operations. There were no impairment charges during the
years ended December 31, 2007, 2006 and 2005.

The
Companys long-lived assets are reviewed for impairment in accordance with SFAS
144 whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of an asset to be
held and used is measured by a comparison of the carrying amount of the asset
to the future undiscounted cash flows expected to be generated by the asset. If
such asset is considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the asset exceeds its
fair value. During 2007, 2006 and 2005, no impairments were recorded.

F-10

---

---

k. Revenue recognition

The
Company records revenues in accordance with SEC Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition in Financials Statements (SAB 104),
which requires that the following four criteria be met in order to recognize
revenue:

1)
Persuasive evidence of an agreement exists;

2)
Delivery has occurred or services have been rendered;

3)
The selling price is fixed or determinable; and,

4)
Collectibility is reasonably assured.

The
timing of revenue recognition amongst the various products and customers is
dependent upon satisfaction of these criteria and generally varies from
shipment to delivery to the customer depending on the individual transaction.
Revenues from service contracts are recognized on a straight-line basis over
the life of the related service contracts.

The
Companys products sold through agreements with distributors are generally
non-exchangeable, non-refundable, non-returnable and without any rights of
price protection or stock rotation. Accordingly, the Company generally
considers distributors as end-users.

The
Company, in general, does not grant rights of return. However, returns are
granted from time to time for business reasons. The Company maintains a
provision for returns in accordance with SFAS No. 48, Revenue Recognition When
Right of Return Exists, which is estimated based primarily on historical
experience as well as management judgment and is recorded through a reduction
of revenue.

Deferred
revenue includes the fair value of unearned amounts of service contracts and
other elements of revenue where the criteria for revenue recognition have not
been met. Where revenue from product sales to end-users includes multiple elements
within a single contract and it is determined that multiple units of accounting
exist, the Companys accounting policy complies with the revenue determination
requirements set forth in EITF 00-21, relating to the separation of multiple
deliverables into individual accounting units with determinable fair values.
These elements are recognized as revenue when the respective earnings process
has been completed.

In
accordance with EITF 00-10, reimbursed shipping and handling costs for product
sales are included in revenue with the related expense included in cost of
revenues.

l. Research and development costs

Costs
related to research, design and development of products are charged to research
and development expense as incurred. The types of costs included in research
and development expenditures include salaries, contractor fees, building costs,
utilities, clinical evaluation, and material costs. Any amounts received or
receivable from the Government of Israel, through the Office of the Chief
Scientist (OCS) for participation in certain research and development are
offset against the Companys research and development costs. No amounts were
recorded as an offset against research and development expenses for the years
ended December 31, 2007, 2006 and 2005, respectively.

m. Accrued warranty costs

Lumenis
generally warrants the majority of its products against defects and bugs for up
to one-year with certain products carrying a warranty for a more extended
period. The warranty period begins upon shipment, installation or delivery
depending upon the specifics of the transaction. The Company records a
liability for accrued warranty costs at the time of sale of the unit, which
represents the remaining warranty on products sold based on historical warranty
costs and managements estimates. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary.

n. Advertising Expenses

Advertising
expenses are charged against income in the period in which the expenses are
incurred. Advertising expenses for the years ended December 31, 2007, 2006 and
2005 were approximately $0.9 million, $1.3 million and $1.7 million,
respectively.

o. Accounting for income taxes

The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes (SFAS 109). This statement prescribes the use of the
liability method whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
Company provides a valuation allowance if necessary, to reduce deferred tax
assets to their estimated realizable value.

F-11

---

---

In
2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which supplements SFAS 109. FIN 48
requires that tax benefits recognized in the financial statements must be at
least more likely than not of being sustained based on technical merits in the
event such benefits recognized are challenged by relevant government tax
authorities or courts. The amount of benefits recorded is the largest benefit
that is more likely than not to be sustained upon such challenge. Significant
judgement is required in making these determinations.

p. Severance Pay

The
liability for severance pay for the Israeli companies is calculated pursuant to
Israels Severance Pay Law, based on the most recent salary of the employees
multiplied by the number of years of employment as of the balance sheet date
for all employees in Israel. Employees are entitled to one months salary for
each year of employment or a portion thereof. The Companys liability for all
of its Israelis employees is fully provided by monthly deposits with severance
pay funds, insurance policies and by an accrual. The value of these deposits is
recorded as an asset in the Companys balance sheet.

The
deposited funds include profits accumulated up to the balance sheet date. The
deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to Israels Severance Pay Law or labor agreements.

Severance
pay expenses for the Company including subsidiaries for the years ended
December 31, 2005, 2006 and 2007, were approximately $1,777 thousands, $2,468
thousands, and $2,365 thousands, respectively.

The
Company has a 401(K) defined contribution plan covering certain employees in
the U.S. All eligible employees may elect to contribute up to 25 %, but
generally not greater than $15,500 per year, (for certain employees over 50
years of age the maximum contribution is $20,500 per year) of their annual
compensation to the plan through salary deferrals, subject to IRS limits. The
Company matches 25 % of employee contributions up to the plan limit of $1,000
per annum. In the year 2007, 2006 and 2005, the Company recorded an expense for
matching contributions in the amount of $219 thousands, $226 thousands, and
$210 thousands, respectively.

q. Losses per share

Basic
and diluted losses per share are presented in accordance with SFAS No. 128,
Earnings per share (SFAS 128), for all the years presented. Outstanding
share options, and warrants have been excluded from the calculation of the
diluted loss per share because all such securities are antidilutive for all the
years presented.

As
described in Note 2 above, the amount of shares purchased by the Investors and
their assignees, including shares issued under the Additional Warrants, are
subject to adjustment in accordance with terms of the Transaction agreement.
While no additional shares were actually issued during 2007 as a result of
these terms, expenses were paid or incurred after the date of the Recap that
entitled the Investors to additional ordinary shares. Therefore, in accordance
with SFAS No. 128, Earnings Per Share, the Company has treated the shares to
which the Investors are entitled under the terms of the Transaction agreement
as contingently issuable shares for which all necessary conditions have been
satisfied and has included such shares in its calculation of the weighted
average number of shares outstanding in 2007 used in determining basic earnings
per share. The number of such contingently issuable shares included in the 2007
weighted average number of shares used to calculate losses per share was
3,546,827.

r. Employee and Director stock-based compensation

Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
2004), (SFAS 123R), Share-Based Payment, and SAB No. 107 (SAB 107), which
was issued in March 2005 by the SEC. SFAS 123R addresses the accounting for
share-based payment transactions in which the Company obtains employee services
in exchange for equity instruments of the Company. SFAS 123R requires that
employee equity awards be accounted for using the grant-date fair value method.
SAB 107 provides supplemental implementation guidance on SFAS 123R, including
guidance on valuation methods, classification of compensation expense, income
statement effects, disclosures and other issues.

SFAS
123R supersedes the Companys previous accounting for its employee stock option
plans.

Options
granted until December 31, 2002  using the intrinsic-value-based method of
accounting prescribed under Accounting Principles Board Opinion No. 25 (APB
25) and related interpretations. The Company also followed the disclosure
requirements of SFAS No. 123, Accounting for Stock-based Compensation (SFAS
123), as amended by SFAS No. 148, Accounting for Stock-based Compensation 
Transition and Disclosure, for companies electing to apply APB 25.

F-12

---

---

Options
granted from January 1, 2003 and on  using the fair value method in accordance
with SFAS 123, as amended by SFAS No. 148.

The
Company elected to adopt the modified prospective transition method permitted
by SFAS 123R. Under such transition method, SFAS 123R been implemented as from
January 1, 2006, with no restatement of prior periods to reflect the fair value
method of expensing share-based compensation. The cumulative effect of initially
adopting SFAS 123R was not material to the Companys consolidated financial
statements.

The
Company has expensed compensation costs, net of estimated forfeitures, applying
the straight-line vesting method, based on the grant-date fair value estimated
in accordance with the original provisions of SFAS 123. Results for prior
periods have not been restated as explained above. For the years ended December
31, 2007 and 2006, the Company recorded stock-based compensation costs of
$1,530 thousands and $1,441 thousands respectively and does not expect any
material tax effect due to the existence of tax loss carryovers.

The
total unrecognized compensation cost before tax on employee and director stock
options amounted to $4.9 million and $2.4 million, at December 31, 2007 and
2006 respectively, and is expected to be recognized over a weighted average
period of approximately 2.1 years.

For
options granted until December 31, 2002, share-based employee compensation cost
for the year ended December 31, 2005 was determined using the intrinsic value
method. The following table provides pro forma financial information as if
Share-based employee compensation cost had been computed under SFAS 123:

|                                                                                                                                      |  |      |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | -
|(U.S. $ in thousands)                                                                                                                 |  | 2005 |        
|                                                                                                                                      |  |      |        
|                                                                                                                                      |  |      |         |  
|Net loss, as reported                                                                                                                 |  | $    | (11,231 | )
|Add: compensation related to employee stock
  option plans, included in consolidated statements of income net of related
  tax effect |  |      |         | *
|Deduct: amortization of deferred
  compensation, at fair value, net of related tax effect                                             |  |      | (309    | )
|                                                                                                                                      |  |      |         |  
|Pro-forma net loss                                                                                                                    |  | $    | (11,540 | )
|                                                                                                                                      |  |      |         |  
|Loss per share:                                                                                                                       |  |      |         |  
|Basic and Diluted  as reported                                                                                                       |  | $    | (0.30   | )
|                                                                                                                                      |  |      |         |  
|Basic and Diluted  pro forma                                                                                                         |  | $    | (0.31   | )
|                                                                                                                                      |  |      |         |  

|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
| 
| 
|* | In 2005, no
  compensation expenses were recorded in respect of the options granted until
  December 31, 2002.

The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model based on the following weighted-average
assumptions: volatility  100%; risk interest
rate  3.8%; dividend yield  0%; and expected life  3 years.

s. Reclassification

Certain
amounts in prior years financial statements have been reclassified to conform
with the current years presentation.

t. Concentration of credit risk

Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents, short-term bank
deposits, and trade receivables.

The
majority of the Companys cash and cash equivalents and short-term bank
deposits are invested with a major Israeli bank. Management believes that the
financial institutions that hold the Companys investments are financially
sound and accordingly, minimal credit risk exists with respect to these
investments.

The trade
receivables of the Company and its subsidiaries are derived from sales to
customers located primarily in the Americas, EMEA and the Far East including
Japan. The Company and its subsidiaries perform ongoing credit evaluations of
its customers and may obtain letters of credit and bank guarantees for certain
receivables. In addition, the Company insures certain of its receivables with a
credit insurance company. An allowance for doubtful accounts is provided with
respect to specific debts that the Company has determined to be doubtful of
collection and a general provision on the remaining balance based on historical
experience and management judgment.

F-13

---

---

NOTE 4  RECENT ACCOUNTING PRONOUNCEMENTS

In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements (SFAS 157). SFAS 157defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
The provisions of SFAS 157 are effective for the Company beginning January 1,
2008. The FASB issued a FASB Staff Position (FSP) to defer the effective date
of SFAS 157 for one year for all non-financial assets and non-financial
liabilities, except for those items that are recognized or disclosed at fair
value in the financial statements on a recurring basis. The Company is
evaluating the impact that adoption of this pronouncement will have on its
consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits
entities to choose to measure many financial assets and financial liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. As applicable to the Company,
SFAS 159 will be effective as of the year beginning January 1, 2008. The
Company is evaluating the potential impact of adoption of SFAS 159 on its
consolidated financial statements.

In
June 2007, the FASB ratified EITF Issue 07-03, Accounting for Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities
(EITF 07-03). EITF 07-03 provides guidance on capitalization of
non-refundable advance payments for goods and services to be used in future
research and development activities until such goods have been delivered or the
related services have been performed. This pronouncement will be effective for
the Company beginning January 1, 2008. The Company does not expect the adoption
of this pronouncement to have a material impact on its consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any
noncontrolling interest in the acquire. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008. Earlier adoption is prohibited. At present, the Company does
not expect the adoption of this pronouncement to have a material impact on its
consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 (SFAS 160).
SFAS 160 establishes accounting and reporting standards pertaining to ownership
interests in subsidiaries held by parties other than the parent, the amount of
net income attributable to the parent and to the noncontrolling interest,
changes in a parents ownership interest, and the valuation of any retained
noncontrolling equity investment when a subsidiary is deconsolidated. SFAS 160
also establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008. At present, the Company does not expect the adoption of this
pronouncement to have a material impact on its consolidated financial
statements.

In
December 2007, the SEC issued SAB No. 110 (SAB 110) relating to the use of a
simplified method in developing an estimate of the expected term of plain
vanilla share options. SAB No. 107 previously allowed the use of the
simplified method until December 31, 2007. SAB 110 allows, under certain
circumstances, to continue to accept the use of the simplified method beyond
December 31, 2007. The Company does not expect the adoption of this
pronouncement to have a material impact on its consolidated financial
statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial position, financial performance, and cash
flows. SFAS 161 also improves transparency about the location and amounts of
derivative instruments in an entitys financial statements; how derivative
instruments and related hedged items are accounted for under SFAS No. 133; and
how derivative instruments and related hedged items affect its financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company has not yet assessed the impact of this new standard on
its consolidated financial statements.

F-14

---

---

NOTE 5 
TRADE RECEIVABLES, NET

|                                    |  |                       |        |      |   |        |  
|----------------------------------- |  | --------------------- | ------ | ---- | - | ------ | -
|                                    |  | December 31,          |       
|                                    |  |                       |       
|                                    |  | 2007                  |        | 2006 |  
|                                    |  |                       |        |      |  
|                                    |  | (US $
  in thousands) |       
|                                    |  |                       |        |      |   |        |  
|Trade receivables                   |  | $                     | 54,795 |      | $ | 43,234 |  
|Allowance for uncollectible amounts |  |                       | (3,348 | )    |   | (2,058 | )
|                                    |  |                       |        |      |   |        |  
|Trade Receivables, net              |  | $                     | 51,447 |      | $ | 41,176 |  
|                                    |  |                       |        |      |   |        |  

NOTE 6 
PREPAID EXPENSES AND OTHER RECEIVABLES

|                                             |  |                       |        |      |   |        | 
|-------------------------------------------- |  | --------------------- | ------ | ---- | - | ------ | 
|                                             |  | December 31,          |       
|                                             |  |                       |       
|                                             |  | 2007                  |        | 2006 |  
|                                             |  |                       |        |      |  
|                                             |  | (US $
  in thousands) |       
|                                             |  |                       |        |      |   |        | 
|Income/Corporate Taxes                       |  | $                     | 5,920  |      | $ | 6,773  | 
|VAT and consumption tax                      |  |                       | 3,623  |      |   | 3,261  | 
|Advances to suppliers                        |  |                       | 2,090  |      |   | 354    | 
|Prepaid insurance                            |  |                       | 1,810  |      |   | 917    | 
|Deposits and restricted cash                 |  |                       | 1,607  |      |   | 417    | 
|Prepaid inventory                            |  |                       | 729    |      |   | 148    | 
|Other                                        |  |                       | 2,339  |      |   | 3,241  | 
|                                             |  |                       |        |      |   |        | 
|Total prepaid expenses and other receivables |  | $                     | 18,118 |      | $ | 15,111 | 
|                                             |  |                       |        |      |   |        | 

NOTE 7 
INVENTORIES

|                  |  |                       |        |      |   |        | 
|----------------- |  | --------------------- | ------ | ---- | - | ------ | 
|                  |  | December 31,          |       
|                  |  |                       |       
|                  |  | 2007                  |        | 2006 |  
|                  |  |                       |        |      |  
|                  |  | (US $
  in thousands) |       
|                  |  |                       |        |      |   |        | 
|Raw material      |  | $                     | 15,352 |      | $ | 12,590 | 
|Work in process   |  |                       | 2,284  |      |   | 1,411  | 
|Finished goods    |  |                       | 33,682 |      |   | 34,383 | 
|                  |  |                       |        |      |   |        | 
|Total inventories |  | $                     | 51,318 |      | $ | 48,384 | 
|                  |  |                       |        |      |   |        | 

NOTE 8 
FINISHED GOODS USED IN OPERATIONS, NET

|                                      |  |                       |         |      |   |        |  
|------------------------------------- |  | --------------------- | ------- | ---- | - | ------ | -
|                                      |  | December 31,          |        
|                                      |  |                       |        
|                                      |  | 2007                  |         | 2006 |  
|                                      |  |                       |         |      |  
|                                      |  | (US $
  in thousands) |        
|                                      |  |                       |         |      |   |        |  
|Finished goods used in operations     |  | $                     | 15,043  |      | $ | 14,926 |  
|Accumulated depreciation              |  |                       | (11,489 | )    |   | (9,190 | )
|                                      |  |                       |         |      |   |        |  
|Net finished goods used in operations |  | $                     | 3,554   |      | $ | 5,736  |  
|                                      |  |                       |         |      |   |        |  

NOTE 9 
FIXED ASSETS, NET

|                                |  |                       |         |      |   |         |  
|------------------------------- |  | --------------------- | ------- | ---- | - | ------- | -
|                                |  | December 31,          |        
|                                |  |                       |        
|                                |  | 2007                  |         | 2006 |  
|                                |  |                       |         |      |  
|                                |  | (US $
  in thousands) |        
|                                |  |                       |         |      |   |         |  
|Leasehold Improvements          |  | $                     | 4,538   |      | $ | 3,688   |  
|Machinery and Equipment         |  |                       | 12,042  |      |   | 11,392  |  
|Computer Equipment              |  |                       | 5,681   |      |   | 5,187   |  
|Internal-use software           |  |                       | 8,301   |      |   | 7,163   |  
|Furniture and Fixtures          |  |                       | 4,056   |      |   | 3,404   |  
|Motor Vehicles                  |  |                       | 147     |      |   | 112     |  
|                                |  |                       |         |      |   |         |  
|                                |  |                       | 34,765  |      |   | 30,946  |  
|                                |  |                       |         |      |   |         |  
|Less  accumulated depreciation |  |                       | (26,843 | )    |   | (26,000 | )
|                                |  |                       |         |      |   |         |  
|                                |  | $                     | 7,922   |      | $ | 4,946   |  
|                                |  |                       |         |      |   |         |  

Depreciation
expense was $2,719 thousands, $2,892 thousands, and
$3,440 thousands in the years ended December 31, 2007, 2006 and 2005,
respectively.

F-15

---

---

NOTE 10 
GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

The
Companys Balance Sheet reflects Goodwill and Other Purchased Intangible
Assets, which were obtained as a result of its acquisitions of Coherent Medical
Group (CMG) and HGM in 2001.

a. Goodwill (US $ in
thousands)

|                                                                                        |  |   |        |  
|--------------------------------------------------------------------------------------- |  | - | ------ | -
|Balance as of December 31, 2004                                                         |  | $ | 72,609 |  
|Changes during 2005:                                                                    |  |   |        |  
|Differences from translation of foreign currency
  financial statements of subsidiaries |  |   | (236   | )
|                                                                                        |  |   |        |  
|Balance as of December 31, 2005                                                         |  |   | 72,373 |  
|Changes during 2006:                                                                    |  |   |        |  
|Differences from translation of foreign currency
  financial statements of subsidiaries |  |   | (21    | )
|                                                                                        |  |   |        |  
|Balance as of December 31, 2006                                                         |  | $ | 72,352 |  
|                                                                                        |  |   |        |  
|Changes during 2007:                                                                    |  |   |        |  
|Differences from
  translation of foreign currency financial statements of subsidiaries |  |   | 99     |  
|                                                                                        |  |   |        |  
|Balance as of
  December 31, 2007                                                       |  | $ | 72,451 |  
|                                                                                        |  |   |        |  

b. Other purchased Intangible
Assets

Other purchased Intangible assets consisted of the
following:

|                        |  |                                        |        |                                                 |   |                                            |  |      |        |      |   |        |  |   |       |  |   |       | 
|----------------------- |  | -------------------------------------- | ------ | ----------------------------------------------- | - | ------------------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ----- |  | - | ----- | 
|                        |  | Original
  Amount
  As of December 31, |        | Accumulated
  Amortization
  As of December 31, |   | Unamortized
  Balance
  As of December 31, | 
|                        |  |                                        |        |                                                 |   |                                            | 
|                        |  | 2007                                   |        | 2006                                            |   | 2007                                       |  | 2006 |        | 2007 |   | 2006   | 
|                        |  |                                        |        |                                                 |   |                                            |  |      |        |      |   |        | 
|                        |  | (US $
  in thousands)                  |        | (US $
  in thousands)                           |   | (US $
  in thousands)                      | 
|                        |  |                                        |        |                                                 |   |                                            |  |      |        |      |   |        |  |   |       |  |   |       | 
|Purchased Technology    |  | $                                      | 29,229 |                                                 | $ | 29,229                                     |  | $    | 27,645 |      | $ | 26,228 |  | $ | 1,584 |  | $ | 3,001 | 
|Product name            |  |                                        | 880    |                                                 |   | 880                                        |  |      | 855    |      |   | 828    |  |   | 25    |  |   | 52    | 
|Covenant not to compete |  |                                        | 878    |                                                 |   | 878                                        |  |      | 878    |      |   | 829    |  |   | 0     |  |   | 49    | 
|                        |  |                                        |        |                                                 |   |                                            |  |      |        |      |   |        |  |   |       |  |   |       | 
|                        |  | $                                      | 30,987 |                                                 | $ | 30,987                                     |  | $    | 29,378 |      | $ | 27,885 |  | $ | 1,609 |  | $ | 3,102 | 
|                        |  |                                        |        |                                                 |   |                                            |  |      |        |      |   |        |  |   |       |  |   |       | 

Aggregate
amortization expense for the years ended December 31, 2007, 2006 and 2005
was $1,493 thousands, $2,879 thousands and $3,643 thousands,
respectively.

Estimated
amortization expense for the years subsequent to December 31, 2007 is as
follows:

|                          |  |                    
|------------------------- |  | -------------------
|Year Ended
  December 31: |  | (US $ in thousands)
|                          |  |                    
|                          |  |                    
|2008                      |  | 953                
|2009                      |  | 520                
|2010                      |  | 136                

NOTE 11 
BANK DEBT

All
amounts in thousands, except per share data

|                                                                                      |  |                       |         |                       |   |         | 
|------------------------------------------------------------------------------------- |  | --------------------- | ------- | --------------------- | - | ------- | 
|                                                                                      |  | December
  31,
  2007 |         | December
  31,
  2006 |  
|                                                                                      |  |                       |         |                       |  
|                                                                                      |  |                       |         |                       |   |         | 
|Liabilities
  under restructured bank debt:                                           |  |                       |         |                       |   |         | 
|Current
  Liabilities:                                                                |  |                       |         |                       |   |         | 
|a) Short term payments under restructured bank debt                                   |  | $                     | 46,955  |                       | $ | 8,970   | 
|                                                                                      |  |                       |         |                       |   |         | 
|Long Term Liabilities:                                                                |  |                       |         |                       |   |         | 
|b) Future cash payments under restructured bank debt                                  |  |                       | 96,774  |                       |   | 145,424 | 
|c) Gain from debt restructure not recognized under
  FAS 15 due to contingent payment |  |                       | 6,516   |                       |   | 4,370   | 
|                                                                                      |  |                       |         |                       |   |         | 
|                                                                                      |  |                       | 103,290 |                       |   | 149,794 | 
|                                                                                      |  |                       |         |                       |   |         | 
|Total
  liabilities under restructured bank debt (a+b+c)*                             |  | $                     | 150,245 |                       | $ | 158,764 | 
|                                                                                      |  |                       |         |                       |   |         | 
|Total cash
  payments under restructured debt agreement (a+b)                         |  | $                     | 143,729 |                       | $ | 154,394 | 
|                                                                                      |  |                       |         |                       |   |         | 

*Amounts exclude $25 million of principal that is
expected to be forgiven as part of the restructuring of the bank debt, upon
future loan repayments. See below in this Note under the caption
Recapitalization.

F-16

---

---

Total
future cash payments under restructured bank loan as of December 31, 2007
is as follows:

|                |  |   |         | 
|--------------- |  | - | ------- | 
|Current portion |  | $ | 46,955  | 
|2009            |  |   | 10,227  | 
|2010            |  |   | 24,830  | 
|2011            |  |   | 23,557  | 
|2012            |  |   | 22,283  | 
|2013            |  |   | 15,877  | 
|                |  |   |         | 
|Total           |  | $ | 143,729 | 
|                |  |   |         | 

Prior to Recapitalization

Prior
to the recapitalization event more fully described in Note 2, the Company
had two terms loans and a revolving credit facility with a bank. The first term
loan was a $100 million loan, which originated in April 2001 (2001 Loan)
and carried an interest rate of LIBOR plus 1.75% immediately prior to the
restructuring. The second term loan was a $70.7 million loan, which
originated in March 2002 (2002 Loan) and carried an interest rate of LIBOR
plus 7.055% immediately prior to the restructuring. The revolving credit
facility originated in April 2001 (Revolving Credit Facility) and carried an
interest rate of LIBOR plus 2.75% on the first $35 million of the
outstanding balance and LIBOR plus 3.00% on the remaining outstanding balance.
These loans were secured by substantially all of the assets of the Company.

As
part of the original issuance of these agreements and in consideration for
subsequent amendments, the Company paid certain fees, entered into certain
contingent fee arrangements and issued options to the bank. These debt issuance
costs and the fair value of options granted as part of the Companys debt
agreements are amortized over the term of the related debt by the effective
interest rate method and were recorded as a discount against the related debt
instrument. The contingent fee arrangements, which call for the payment of cash
fees if the Companys stock reaches certain price targets, are recorded as a
liability in the accompanying balance sheets based on the fair value of that
liability at the respective balance sheet date.

Recapitalization

As
more fully described in Note 2, the Company completed a recapitalization
through an equity investment with a consortium of investors and restructuring
of its existing credit facilities with its lender on December 5, 2006. Prior
to the debt restructuring, the Company was in default on its existing credit
facility. As part of the restructuring, the bank agreed to allow for a non-cash
reduction in the overall principal outstanding, collapse the previous term
loans and revolving credit facility into a single term loan, cancel certain fee
arrangements, reduce the interest rate on the credit facility and waive all
default rights under the previous credit facility. In consideration for the
restructuring, the bank received additional options in the Company, received an
extension of the exercise period of the options previously granted to the bank
and retained one fee arrangement from the prior credit facility.

As
part of the restructuring, the bank combined the 2001 Loan, 2002 Loan and
Revolving Credit Facility into a single term loan (Restructured Loan),
expiring in September 2013. The Restructured Loan calls for the forgiveness of
$50.0 million of the outstanding principal balance over a 24 month
period, with the first reduction of $25.0 million occurring on
December 5, 2006. The remaining $25.0 million forgiveness of
principal will occur in $12.5 million increments on June 5, 2008 and
December 5, 2008 and is non-interest bearing. The interest rate on the
Restructured Loan is the three month LIBOR rate plus 1.5% and is adjusted
quarterly. As part of the restructuring, the bank agreed to retroactively apply
the spread of 1.5% over LIBOR back to April 1, 2006 for the 2001 Loan, the
2002 Loan and the Revolving Credit Facility. The Company also made its first
scheduled principal payment of $40.0 million on December 5, 2006.

In
2003 and prior, the bank had been given 9,235,300 options to purchase common
stock of the Company as consideration of prior amendments to the 2001 Loan and
the 2002 Loan. Of the options held by the bank, 7,824,000 options had a price
of $1.97 per share and expire in November 2013. The remaining 1,411,300
options had a price of $1.17 per share and expired in February 2008. As
part of the restructuring, the expiration date of the 1,411,300 options was
extended to December 5, 2011. Additionally, the 7,824,000 options were
re-priced to $1.17 per share. As part of the debt restructuring, the bank
was also granted 176,300 new options to purchase the Companys shares for
$1.17 per share, expiring in November 2013.

The
restructuring also cancelled existing agreements that called for the Company to
pay fees of $3.0 million and $5.0 million to the bank if the
Companys share price reached $5 and $6 per share, respectively. The bank
did retain a previous agreement that called for the Company to pay
$7.5 million if the Companys stock price reaches $7 per share. These
fees for Bank Hapoalim were accounted for as an embedded derivative in accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and
recorded at fair value until the time of the restructuring. Changes in the
derivative during the years 2006 and 2005 were $(5,256) thousand and
$715 thousand respectively. The derivative was presented in the other long
term liabilities section of the balance sheet until the restructuring.
Subsequent to the restructure, the cash fee agreement retained by the bank for
$7.5 million is no longer treated as a derivative and is not reflected as
a liability on the Companys balance sheet in accordance with
SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings (SFAS 15).

F-17

---

---

The
Company has considered the restructured credit facility under the criteria of
EITF Issue 02-4 and has accounted for the restructured credit facility as
a troubled debt restructuring in accordance with SFAS 15, which requires
that the gross future cash flows of principal and interest be reflected in the
balance sheet. Future cash flows related to interest payments as of
December 31, 2006 were determined based on a rate of 6.85%, which was the
three month LIBOR rate on the date of the debt restructuring plus 1.5%. Future
cash flows related to interest payments as of December 31, 2007 were
determined based on a rate of 4.70%, which was the three month LIBOR rate on
December 31, 2007 plus 1.5%. As indicated in the table at the beginning of
this note, the restructuring of the debt resulted in a gain of $6,516 thousands
and $4,370 thousands in 2007 and 2006 respectively. However, these gains
were not recognized or recorded as a result of the fact that the restructuring
included retention by the bank of a contingent fee of $7.5 million (as
discussed above). In accordance with SFAS 15, as a result of the Company
having a contingent liability in excess of the gain associated with the
restructure, the gain was not recorded in 2007 or 2006. Furthermore, in
accordance with SFAS 15, changes in the fair market value of this
contingent liability did not result in any gain or loss being recorded as the
fair value of the contingent liability was less than the unrecognized gain from
the restructure.

The
Companys bank debt agreement covenants are described in Note 14 below.

See
Note 20 below, which describes subsequent events concerning the Companys
Bank Debt Agreements.

NOTE 12 
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

|                                                |  |                       |        |      |   |        | 
|----------------------------------------------- |  | --------------------- | ------ | ---- | - | ------ | 
|                                                |  | December 31,          |       
|                                                |  |                       |       
|                                                |  | 2007                  |        | 2006 |  
|                                                |  |                       |        |      |  
|                                                |  | (US $
  in thousands) |       
|                                                |  |                       |        |      |   |        | 
|Compensation related                            |  | $                     | 12,302 |      | $ | 12,123 | 
|Accrued Income taxes                            |  |                       | 7,205  |      |   | 9,451  | 
|Accrued legal costs                             |  |                       | 6,338  |      |   | 5,032  | 
|Accrued warranty                                |  |                       | 5,540  |      |   | 5,079  | 
|Accrued VAT, sales and consumption taxes        |  |                       | 1,034  |      |   | 1,042  | 
|Accrued audit, accounting and tax services fees |  |                       | 2,237  |      |   | 780    | 
|Accrued commissions (external)                  |  |                       | 1,533  |      |   | 2,149  | 
|Accrued Other                                   |  |                       | 11,652 |      |   | 12,456 | 
|                                                |  |                       |        |      |   |        | 
|                                                |  | $                     | 47,841 |      | $ | 48,112 | 
|                                                |  |                       |        |      |   |        | 

Changes
in accrued warranty costs during the years ended December 31, 2007 and
2006, respectively, are as follows (US $ in thousands):

|                                                   |  |   |        |  
|-------------------------------------------------- |  | - | ------ | -
|Accrued warranty costs as of December 31, 2005     |  | $ | 6,928  |  
|Payments made under warranty during 2006           |  |   | (8,633 | )
|Increase in product warranty provision during 2006 |  |   | 6,784  |  
|                                                   |  |   |        |  
|Accrued warranty costs as of December 31, 2006     |  |   | 5,079  |  
|Payments made under warranty during 2007           |  |   | (9,344 | )
|Increase in product warranty provision during 2007 |  |   | 9,805  |  
|                                                   |  |   |        |  
|Accrued warranty costs as of December 31, 2007     |  | $ | 5,540  |  
|                                                   |  |   |        |  

NOTE 13 
OTHER LONG TERM LIABILITIES

|                                                     |  |                       |       |      |   |       | 
|---------------------------------------------------- |  | --------------------- | ----- | ---- | - | ----- | 
|                                                     |  | December 31,          |      
|                                                     |  |                       |      
|                                                     |  | 2007                  |       | 2006 |  
|                                                     |  |                       |       |      |  
|                                                     |  | (US $
  in thousands) |      
|                                                     |  |                       |       |      |   |       | 
|Deferred tax liability (1)                           |  | $                     | 8,270 |      | $ | 6,900 | 
|Obligations to landlord for Santa Clara facility (2) |  |                       | 591   |      |   | 0     | 
|Other                                                |  |                       | 26    |      |   | 0     | 
|                                                     |  |                       |       |      |   |       | 
|                                                     |  | $                     | 8,887 |      | $ | 6,900 | 
|                                                     |  |                       |       |      |   |       | 

(1) Amount relates to deferred tax liability that has
been established to reflect the tax amortization of goodwill for which no
financial statement amortization has occurred under U.S. GAAP.

(2) Pursuant to an amendment dated January 16, 2007 to
the Companys lease agreement of its Santa Clara, California facilities, the
Company agreed to repay the landlord with interest for certain building
improvements, which were funded by the landlord over the remaining period of
the lease term. The Company has provided the landlord with a letter of credit
to secure payment of such amounts. The long term principal balance due under
this amendment to the lease agreement as of December 31, 2007 was $591
thousands.

F-18

---

---

NOTE 14 
COMMITMENTS AND CONTINGENT LIABILITIES

The
Company leases facilities, vehicles and certain equipment under operating
leases with various expirations through 2019. Lease and rental expenses for the
years 2007, 2006 and 2005, amounted to $7,266 thousands,
$7,134 thousands and $7,234 thousands, respectively. Future minimum
annual lease payments under operating lease agreements are as follows
(US $ in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2008       |  | $ | 6,567  | 
|2009       |  |   | 5,294  | 
|2010       |  |   | 5,347  | 
|2011       |  |   | 4,277  | 
|Thereafter |  |   | 20,120 | 
|           |  |   |        | 
|           |  | $ | 41,605 | 
|           |  |   |        | 

The
Company has entered into an agreement with a real estate developer in Israel
pursuant to which the developer has agreed to purchase land and build a new
campus for its facilities in Israel in return for the Companys agreement to
enter into a ten year lease agreement for specified terms and conditions. The
agreement provides for the delivery of the premises for occupancy by the
Company no later than December 31, 2009. The above schedule of future
minimum lease payments includes annual payments of approximately
$2.2 million per annum from 2010 through 2019. The agreements terms
stipulate that a portion of the lease payments will be based on amounts
invested on internal build-out of the new facilities requested by the Company.
Therefore, the $2.2 million per annum amount includes managements current
estimate of nearly $0.8 million per annum for this variable portion of the
expected future lease payments.

The
Company has outsourced its IT related services for an eight-year period beginning
May 2005 for which it expects to incur payment obligations of approximately
$3.6 million to $4.0 million annually through April 2013.

In addition, as of December 31, 2007, the Company
has outstanding guarantees and letters of credit with various expiration dates
of approximately $2.6 million of which $1.0 million relates to a
single vendor and a majority of the balance is related to facility and car
leases.

Royalty Payments

The
Company is party to various licensing agreements, which require it to pay
royalties on certain product sales at various rates of up to 7.5% of the net
selling price of these products. For the years ended December 31, 2007,
2006 and 2005, the Company incurred royalty expenses in the amount of $3,045 thousands,
$3,024 thousands and $3,350 thousands respectively.

The
Company and some of its Israeli subsidiaries are also obligated to pay to the
Office of the Chief Scientist (OCS) royalties of 3-5% on the sales of
products for which participations were received. The Company incurred royalty
expenses of $344 thousands, $451 thousands and $424 thousands in
2007, 2006 and 2005, respectively. Such amounts are included in the total
royalty expenses described in the preceding paragraph. Royalty-bearing participations
not yet paid were approximately $3.0 million and $3.6 million at
December 31, 2007 and 2006, respectively.

Legal Contingencies

The
Company is a party to various legal proceedings incident to its business. Based
upon the status of such cases, advice of counsel, managements assessment and
consideration of relevant insurance coverage, management has recorded
provisions for amounts judged to be both quantifiable and probable to be paid.
Except as noted below, there are no legal proceedings pending or threatened
against the Company that management believes are likely to have a material
adverse effect on the Companys consolidated financial position.

F-19

---

---

Civil
Proceedings By SEC

In
February 2002, the Company received a request from the SEC to voluntarily
provide certain documents and information for a period commencing
January 1, 1998. The request primarily related to the Companys
relationships with distributors, and also asked for amplification of the
Companys explanation of certain previously disclosed charges and write-downs.
In May 2002, the SEC issued a formal order of investigation on these matters,
including as to whether, in connection therewith, the Company, in prior
periods, may have overstated revenues and related income and failed to maintain
proper books and records and a proper system of internal controls. On
February 18, 2004, the law firm of Debevoise & Plimpton LLP rendered a
report on behalf of the Companys audit committee that concluded that the
Companys revenue recognition was inappropriate with respect to certain
transactions during the fiscal years ended December 31, 2001,
December 31, 2002 and December 31, 2003. On April 26, 2006, the
SEC brought a civil proceeding against the Company, Sagi Genger, the Companys
former Chief Operating Officer, and Kevin Morano, the Companys former Chief
Financial Officer and Senior Vice President for Marketing and Business
Development, both of whom are no longer employed by the Company.
Mr. S. Genger is the son of Arie Genger, one of the Companys former
directors and former Vice Chairman of the Board. The civil proceeding sought,
among other things, an injunction against the Company, alleging violations of
the antifraud and other provisions of the U.S. federal securities laws in
connection with inappropriately recognizing revenue in the Companys 2001, 2002
and 2003 financial statements. Concurrently with filing the civil action, on
April 26, 2006, the SEC approved a settlement with us and
Mr. S. Genger.

As
part of that settlement, the Company consented, without admitting or denying
the allegations, to the entry of a permanent civil injunction against future
violations of the antifraud, reporting, books and records and internal control
provisions of the federal securities laws and related SEC rules.

As
part of that settlement, Mr. S. Genger consented, without admitting
or denying the allegations, to the entry of (i) a permanent civil
injunction against future violations of the antifraud, reporting, books and
records and internal control provisions of the federal securities laws and
related SEC rules, (ii) an order to pay a civil monetary penalty of
$75,000 and (iii) an order prohibiting him from serving as an officer or
director of a publicly traded company for five years. The Company did not pay
Mr. S. Gengers penalty or reimburse him for it.

In
addition, as part of the settlement, the SEC revoked the registration of the
Companys shares registered under Section 12 of the Exchange Act. As a result
of the deregistration, the shares were not able to be quoted or traded in the
United States until the Company re-registered its shares with the SEC. The
Company has since re-registered its shares under Section 12 of the
Exchange Act and its shares are eligible once again for quoting or trading in
the United States. However, the shares remain unquoted and the Company is not
aware of any trading in its shares. As part of the settlement, the Company must
also continue to cooperate with the SECs prosecution of its claims against
Mr. Morano, who is contesting the allegations against him.

Under
the terms of their indemnification agreements, the Company has agreed to
indemnify Mr. Morano and Mr. S. Genger to the fullest extent
permitted by law, including advancing expenses up to the higher of
(i) $250 million or (ii) 50% of the market value of the
outstanding ordinary shares prior to the occurrence giving rise to the
indemnifiable event.

Securities
Class Action

On
June 17, 2003, the U.S. District Court for the Southern District of
New York consolidated nine purported class action complaints filed against the
Company and several former officers and directors during 2002, and appointed
lead plaintiffs counsel and lead counsel. (In re Lumenis, Ltd. Securities
Litigation, 02 Civ. 1989 (S.D.N.Y.)(DAB)) On
August 29, 2003, lead counsel filed a consolidated amended class action
complaint (CAC), which expanded the alleged class period to cover a period
from October 2, 2000 to May 16, 2002, made new substantive
allegations of alleged securities fraud, and added the Companys then-Vice
Chairman of the Board, Arie Genger, as an additional defendant solely on a
controlling person theory of liability. (The CAC continued to name the
Companys then-Chairman of the Board, Jacob Frenkel, and former officers Yacha
Sutton, Sagi Genger and Asif Adil as defendants.) The principal claims in the
CAC may be summarized as follows: (a) the Companys financial statements,
and the related press releases announcing or pre-announcing such results, from
the third quarter of fiscal year 2000 to the first quarter of fiscal year 2002,
overstated revenues for the applicable quarter due to alleged violations of
GAAP. (The focus of the alleged improper revenue recognition is on sales to
distributors that plaintiffs characterize as channel stuffing); and
(b) the Company 2001 acquisition of the business of the Coherent Medical
Group (CMG) was for the fraudulent purpose of taking very large one-time
charges and write-downs claimed to be associated with the acquisition, but
which were really intended to write down receivables or other assets that
should have been written-off or down earlier, and the Company fraudulently
overstated the progress or success of the ongoing efforts to integrate CMG with
its business, and the benefits or synergies to be achieved by that combination.
In addition to these basic claims, the CAC asserted additional claims based on
several other alleged violations of financial reporting requirements, including
(i) the alleged failure to disclose all anticipated write downs and
charges in a Form 8-K/A pro forma balance sheet filed in July 2001
presenting the effect of the Companys combination with CMG as if it had
occurred as of March 31, 2001; (ii) the alleged misclassification of
$9 million in assets as inventory instead of finished goods used in
operations on the balance sheet for the year ending December 31, 2001; and
(iii) the failure to make adequate disclosures in the Companys Form 10-K
report for the year ending December 31, 2001 about an $8.2 million
related party sale agreement during the last quarter between the Company and
its UK affiliate, Aculight, which transaction allegedly lacked economic
substance.

F-20

---

---

On
November 19, 2003, all defendants except Mr. Adil moved to dismiss
the CAC on grounds, among others, of failure to state a claim on which relief
can be granted, failure to plead fraud with particularity, and, in material
part, statute of limitations. By separate counsel, Mr. Adil moved to
dismiss on grounds of insufficient service of process.

On
March 4, 2005, while the motions to dismiss the CAC remained pending, the
lead plaintiffs sought leave to amend the CAC and to pursue discovery. On
March 17, 2005, the Court denied the request to conduct discovery but
stated that plaintiffs were authorized to amend their complaint. On
June 10, 2005, lead plaintiffs filed their Second Amended Consolidated
Class Action Complaint (SAC). The SAC asserts the same claims, allegations,
and Class Period as alleged in the CAC and names the same defendants. New
allegations are made, however, as to (i) sales of the Companys stock made
by certain defendants during the first half of 2001; (ii) the purported
knowledge of various confidential witnesses allegedly interviewed by
plaintiffs counsel; and (iii) certain post-class period events, such as
the Companys public statements about the then-pending SEC investigation, the
investigation by the Companys audit committee, the replacement of Mr. Sutton
as Chief Executive Officer, the elimination of Mr. S. Gengers
position, the delisting of the Companys ordinary shares by NASDAQ, and the
announcement that the Company anticipated restating its revenues and earnings
for 2001, 2002, and 2003. All defendants, including Mr. Adil by his
separate counsel, moved to dismiss the SAC for, inter alia, failure to state a claim upon which relief can
be granted, failure to plead fraud with particularity, and the statute of
limitations. The motions were fully briefed and submitted to the Court on
October 31, 2005. Those motions have not yet been decided.

On
April 3, 2008, following lengthy mediator-assisted negotiations between
the parties that began in March 2007, approval of the Companys audit committee,
board of directors and shareholders pursuant to the Israeli Companies Law, and
agreements with the Companys primary and two excess layer directors and
officers liability insurers (the D&O Insurers), the Company entered into
a Stipulation of Settlement with lead plaintiffs counsel pursuant to which
this class action litigation will be settled and dismissed with prejudice
against the Company and the other defendants, subject to Court approval. On
May 7, 2008, the Court issued an Order
Preliminarily Approving Settlement and Providing Notice, which
preliminarily approved the Stipulation for Settlement. Pursuant to the proposed
settlement, an amount of $20.1 million was paid into a Settlement Fund,
and of such amount the Company directly contributed $2.736 million toward
the settlement (which has been provided for and recorded as an expense in its
2007 financial statements), and the D&O Insurers collectively contributed
the remaining $17.364 million. Furthermore, as part of the agreement for
the proposed settlement, and subject thereto, the Company will agree to forgive
the primary D&O Insurer approximately $1.645 million, that insurer
would otherwise owe the Company in reimbursement of defense fees advanced by
the Company.

The
Stipulation of Settlement that was preliminarily approved by the Court provides
for the filing of a third amended and consolidated class action complaint
(TAC) naming the same defendants as are named in the SAC and incorporating
additional allegations and claims based on those alleged in the SEC civil
action referred to above. The TAC amends and enlarges the class definition to
include persons who purchased the Companys shares at any time between
October 2, 2000 and March 7, 2006 (the Settlement Class Period).
The Company and the other defendants will not be required to respond to the
TAC, unless and until the Court fails to give final approval to the settlement
or it is otherwise terminated, and the Company and the individual defendants
retain all of their defenses with respect to the TAC. The purchasers of the
Companys shares during the Settlement Class Period will constitute the
Settlement Class, although certain persons are excluded from the Settlement
Class, including all individuals who are either current officers and/or
directors, or who served as officers and directors of the Company or its
subsidiaries at any time during the Settlement Class Period.

In
its order, the Court also approved the giving of notice to the members of the
Settlement Class and set August 28, 2008 as the date for a fairness
hearing on the proposed settlement, at or following which the Court will decide
whether to grant final approval of the settlement. The Stipulation of
Settlement includes a confidential annex giving the Company the right to
terminate the Stipulation of Settlement in its entirety if the total purchases
of the Companys shares by members of the Settlement Class who opt-out of the
Settlement Class exceed specific thresholds.

Under
the terms of their indemnification agreements, the Company has agreed to
indemnify Prof. Jacob Frenkel, Mr. Sutton, Mr. S. Genger and
Mr. A. Genger to the fullest extent permitted by law, including
advancing expenses up to the higher of (i) $250 million or
(ii) 50% of the market value of the outstanding ordinary shares prior to
the occurrence of the indemnifiable event. In addition, in connection with the
settlement of a prior lawsuit brought by Mr. Adil, the Company agreed to
indemnify Mr. Adil to the extent he is not afforded insurance coverage for
this class action litigation by the Companys directors and officers liability
insurance policies.

F-21

---

---

Even
though the Company believes that it has meritorious defenses with respect to
the allegations and claims in this class action litigation, due to the
uncertainty and expense of continued litigation, the Company believes that the
Stipulation of Settlement is in the best interests of the Company. In the event
the settlement is for any reason not finally approved, the Company intends to
vigorously defend against the claims asserted by lead plaintiffs.

In
addition to the above class action litigation, seventeen purchasers of the
Companys shares between September 2001 and February 2002, originally filed a
complaint in the Northern District of Illinois in February 2003, which was
transferred to the Southern District of New York, where it has been assigned as
a related case to the judge who is presiding over the above-described
consolidated class action cases. (Aqua Fund, L.P., et al. v. Lumenis Ltd.,
et al., 04 Civ. 2239 (S.D.N.Y.)(DAB).) The amended
complaint alleges that the Company and two former officers, Mr. Sutton and
Mr. S. Genger, made material misrepresentations and/or omissions
about the Companys financial results and projections of future earnings, due,
among other reasons, to the alleged improper recognition of revenue, and that
defendants also overstated the benefits and the success of the Companys
acquisition of CMG. In May 2004, all defendants moved to dismiss for failure to
state a claim and failure to allege fraud with particularity, and for failure
to effect service of process on Mr. Sutton and Mr. S. Genger.
The motion has been fully briefed.

Unless
they opt out of the Settlement Class that has been certified in In re
Lumenis, Ltd. Securities Litigation, discussed above, the plaintiffs
in the Aqua Fund action will be
eligible to participate as class members in that settlement. The Company is
unable to predict whether any or all of the Aqua Fund plaintiffs will opt out of the
Settlement Class. To the extent that plaintiffs in the Aqua Fund action choose to
opt out of the Settlement Class, such plaintiffs will have the right to
continue to pursue their individual claims against the Company (which as of
this date remain subject to the Companys pending motion to dismiss). To the
extent that such plaintiffs fail to opt out of the Settlement Class, and the
settlement is finally approved by the Court, the Company intends to request the
Court to dismiss the claims of such plaintiffs as barred by the final judgment
that would be issued in connection with such final approval of such settlement.

Lawsuit
by Theodore Steliotes

On
April 7, 2006 Theodore Steliotes filed a lawsuit in the Court of Common
Pleas of Washington County, Pennsylvania against Coherent, Inc. regarding the
sale of equipment by Coherent, Inc. to the plaintiff. The plaintiff is seeking
damages in excess of $ 1.0 million for various causes of action
including fraud, negligent misrepresentation, negligence, breach of warranty
and breach of contract. As part of the Companys 2001 acquisition of the
medical division of Coherent, Inc., the Company undertook to defend and
indemnify Coherent against such claims. The Company moved to dismiss all of
plaintiffs claims and the court granted its motion in part dismissing the
fraud, negligent misrepresentation and negligence claims. The only remaining
claims are for breach of contract and breach of warranty. The Company has taken
plaintiffs deposition and continues to vigorously defend this claim.

Lawsuit
by Gerald Coursley

On
April 24, 2008, Dr. Gerald Coursley filed a complaint against Lumenis
Inc. in the Superior Court of Santa Clara, California for breach of written
contract and for breach of implied covenant of good faith and fair dealing with
respect to a Settlement Agreement (the Agreement) executed by the parties in
2004 arising out of Dr. Coursleys dissatisfaction with his VascuLight
that he purchased in 1999. Dr. Coursley asserts that the Company breached
the Agreement by failing to deliver parts and training to which he was entitled
under the Agreement. He alleges damages in excess of $1 million. The
Company is vigorously defending this lawsuit.

Administrative
Subpoena from U.S. Department of Commerce

In
or about March 2006, the Company received an Administrative Subpoena from the
Office of Export Enforcement, Bureau of Industry and Security,
U.S. Department of Commerce. The subpoena sought documents concerning the
export of U.S. origin commodities, directly or indirectly, to the United
Arab Emirates or the Islamic Republic of Iran. The U.S. Government could
have assessed a penalty against the Companys U.S. subsidiary, Lumenis,
Inc., because of certain unlicensed exports or reexports to Iran of devices and
associated spare parts and accessories originating with Lumenis, Inc. Exports
from the United States to Iran are subject to two separate sets of regulations,
one administered by the U.S. Department of Commerce and the other
administered by the U.S. Department of the Treasury. The Company
cooperated fully with the U.S. Governments investigation that was
administered by the Commerce Department, and in October 2006, the Company
submitted a full report of the matter to the Commerce Department. Upon
reviewing the report, the Commerce Department provided verbal notification to
the Companys outside counsel that it was closing its investigation and was not
recommending the imposition of any penalty. In March 2007, the Company
submitted a full report to the Treasury Department where the matter is now
under review. The Commerce Departments determination not to take further
action does not preclude the Treasury Department from making its own
determination that a penalty should be imposed.

F-22

---

---

Assessment
from the Israel Tax Authority, or ITA

In
or about October 2005, the Company received a notice from the ITA assessing
income taxes for the fiscal years ended December 31, 2000 and 2001 in the
amount of NIS 273 million (approximately $71 million at
December 31, 2007 exchange rates), including interest and penalties. The
assessment is primarily based on an attempt by the ITA to disallow the
exemption available for the Companys approved enterprise, which would then
subject the Companys income to the full statutory income tax rate in those
years, by claiming that the audited statutory financial statements submitted
for those years are incomplete. In addition, the ITA assessed tax on an alleged
deemed dividend from earnings under the Companys approved enterprise program
for the same period. The Company has filed an appeal notice with the District
Court in Haifa, Israel against the ITA assessment. The trial on this matter is
scheduled for June 2008. The Company believes that the entire assessment is in
error and that no tax is due, and it intends to vigorously defend its position
in the Israeli courts and under applicable tax treaties.

Miscellaneous
Lawsuits

The
Company is also a defendant in various product liability lawsuits in which its
products are alleged to have caused personal injury to certain individuals who
underwent treatments using the Companys products and to certain efficacy
claims alleging that the Company is in breach of contract with certain
customers. The Company is also a party to various employment claims in some of
the regions in which it operates. The Company is defending itself vigorously,
maintains insurance against the product liability claims and believes that
these claims individually or in the aggregate are not likely to have a material
adverse impact on its business, financial condition or operating results.

The
Company recorded provisions for legal settlements as of December 31, 2006 and
2007 of approximately $4.4 million and $3.7 million, respectively.

Bank Covenants

In
2006, prior to the recapitalization, the Company was not in compliance with the
bank loan covenants. The bank did not take action in this regard and the
recapitalization of December 5, 2006 resolved the compliance matter. Under
the Restructured bank debt agreement (described in Note 11), the Company
did not have covenant requirements in 2007.

The
Companys Restructured bank debt agreement contains certain covenants,
including covenants to provide current audited or reviewed financial
information to the Bank and to comply with certain financial ratios as set out
in the Restructuring Agreement. Specifically, the ratio of total debt to
earnings before interest, taxes, depreciation and amortization (as such terms
are defined in the Restructuring Agreement) shall not exceed 13:1 for fiscal
2008, 6:1 for fiscal 2009 and 5:1 for fiscal 2010 and each fiscal year
thereafter. Calculations shall be made on a quarterly basis for each year,
commencing at the end of the first quarter of 2008. In addition, operating
income as a percentage of revenues shall be no less than 3% in each quarter of
2008, 4% in each quarter of 2009, and 6% in each quarter of 2010 and 2011. Each
year the Company and the Bank will agree upon the ratio of equity to total
assets and the required minimum amount of equity (see Note 20  Subsequent
Events regarding amendments to the Companys bank debt agreement).

The
Restructuring Agreement also contains certain negative covenants, including to
refrain from encumbering any of the Companys assets (other than specifically
permitted under the Restructuring Agreement); from incurring additional debt in
excess of $30 million; from entering into or approving any merger,
consolidation, or scheme of reconstruction; from making certain acquisitions;
from entering into certain transactions with related parties; and from
disposing of assets except as set forth in the Restructuring Agreement.

In
the event that the Company defaults under the Restructuring Agreement, the Bank
may call all amounts then outstanding immediately due and payable or declare
that all then outstanding amounts shall be repayable on demand. After an event
of default, a default rate of interest shall apply, which shall be equal to the
interest rate previously in effect plus 2.5%.

F-23

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---

NOTE 15 
FINANCING EXPENSES, NET

|                                         |  |                                    |        |      |   |        |   |   |        |  
|---------------------------------------- |  | ---------------------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                         |  | For the
  Years Ended December 31, |       
|                                         |  |                                    |       
|                                         |  | 2007                               |        | 2006 |   | 2005   |  
|                                         |  |                                    |        |      |   |        |  
|                                         |  | (US $
  in thousands)              |       
|                                         |  |                                    |        |      |   |        |   |   |        |  
|Interest expense and bank charges (1)    |  | $                                  | 801    |      | $ | 13,854 |   | $ | 13,739 |  
|Exchange rate (gain) loss, net           |  |                                    | (1,562 | )    |   | 1,567  |   |   | 1,243  |  
|Amortization of bank fees (2)            |  |                                    | 0      |      |   | 5,364  |   |   | 5,700  |  
|                                         |  |                                    |        |      |   |        |   |   |        |  
|Total (income) expenses                  |  |                                    | (761   | )    |   | 20,785 |   |   | 20,682 |  
|Interest income                          |  |                                    | (3,090 | )    |   | (15    | ) |   | (49    | )
|                                         |  |                                    |        |      |   |        |   |   |        |  
|Total financing
  (income) expenses, net |  | $                                  | (3,851 | )    | $ | 20,770 |   | $ | 20,633 |  
|                                         |  |                                    |        |      |   |        |   |   |        |  

(1) As discussed above in Note 11  Bank
Debt, as a result of the Companys bank debt restructuring in December 2006 and
in accordance with SFAS 15, interest on the Companys debt has been
capitalized with the loan. As a result, interest payments in 2007 were recorded
against the bank debt liability and not as interest expense as they had been
prior to the restructuring.

(2) The amounts noted in 2005 and 2006 relate to the
amortization of bank fees associated with bank loans taken by the Company in
years prior to 2005. In December 2006, the unamortized balances of these fees
were written off in conjunction with the bank debt restructuring.

NOTE 16 
EMPLOYEE AND DIRECTOR STOCK-BASED COMPENSATION

Stock Option Plans
     1998 Plans

In
1998, the Company acquired Laser Industries Ltd. In connection with the
acquisition, the Company assumed the stock options outstanding under the Laser
stock option plans. The Companys board of directors administers these options.
No further options may be granted under the Laser stock option plans. These
options expire not later than ten years from the date of issuance. The
following table presents option grant data for these plans as of
December 31, 2007.

|                                              |  |                       |        |                                     |   |      | 
|--------------------------------------------- |  | --------------------- | ------ | ----------------------------------- | - | ---- | 
|Ordinary Shares Reserved 
  for Option Grants |  | Options
  Outstanding |        | Weighted
  Average
  Exercise Price |  
|                                              |  |                       |        |                                     |  
|                                              |  |                       |        |                                     |   |      | 
|40,500                                        |  |                       | 40,500 |                                     | $ | 6.80 | 

1999 Share
Option Plan

In
May 2000, the Company adopted its 1999 Share Option Plan, which was
subsequently amended in May 2003. Directors, officers, employees and certain
consultants and dealers of the Company and its subsidiaries are eligible to
participate in the plan. As regards US resident employees, this plan
provides for the grant of options that are qualified, as defined by the
U.S. Tax Code, and options that are not so qualified. The Companys board
of directors administers the plan. Options granted under this plan may not
expire later than ten years from the date of grant. The following table
presents option grant data for this plan as of December 31, 2007:

|                                              |  |                       |           |                                     |   |      | 
|--------------------------------------------- |  | --------------------- | --------- | ----------------------------------- | - | ---- | 
|Ordinary Shares Reserved 
  for Option Grants |  | Options
  Outstanding |           | Weighted
  Average
  Exercise Price |  
|                                              |  |                       |           |                                     |  
|                                              |  |                       |           |                                     |   |      | 
|5,000,000                                     |  |                       | 2,207,884 |                                     | $ | 6.63 | 

2000 Share
Option Plan

In
July 2001, the Company adopted its 2000 Share Option Plan, which was
subsequently amended and restated in May 2005, and was most recently amended in
September 2006. Directors, officers, employees and certain consultants and
dealers of the Company and it subsidiaries are eligible to participate in this
plan. As regards US resident employees, this plan provides for the grant
of options that are qualified, as defined by the U.S. Tax Code, and
options that are not so qualified. Pursuant to the May 2005 amendment, Israeli
grantees who are directors, officers and employees of Lumenis may be granted
options under this plan that qualify for special tax treatment under the
capital gain route provisions of Section 102(b)(2) of the Israeli Tax
Ordinance. Pursuant to Section 102(b)(2), qualifying options or shares
issued upon exercise of such options, are held in trust and registered in the
name of a trustee selected by the board of directors. The trustee may not
release these options or shares to the holders thereof before the second
anniversary of the registration of the options in the name of the trustee. The
Israeli Tax Authority, or ITA, has approved this plan as required by applicable
law. The plan also permits the grant to Israeli grantees of options that do not
qualify under Section 102(b)(a). In addition to the grant of awards under
the relevant tax regimes of the United States and Israel, the plan contemplates
grant of awards to grantees in other jurisdictions. The Companys board of
directors administers the plan. Options granted under this Plan may not expire
later than ten years from the date of grant. The following table presents option
grant data for this plan as of December 31, 2007:

|                                              |  |                       |           |                                     |   |      | 
|--------------------------------------------- |  | --------------------- | --------- | ----------------------------------- | - | ---- | 
|Ordinary Shares Reserved 
  for Option Grants |  | Options
  Outstanding |           | Weighted
  Average
  Exercise Price |  
|                                              |  |                       |           |                                     |  
|                                              |  |                       |           |                                     |   |      | 
|11,500,000                                    |  |                       | 9,528,741 |                                     | $ | 5.26 | 

F-24

---

---

Israel
2003 Share Option Plan

In
May 2003, the Companys shareholders approved and adopted the Lumenis Israel
2003 Share Option Plan. Only directors, officers and employees of the
Company and its subsidiaries who are residents of Israel are eligible to
participate in this plan. Options may be granted under this plan that qualify
under the capital gain route provisions of Section 102(b)(2) of the
Israeli Tax Ordinance (see above under 2000 Share Option Plan) and the
plan has been approved by the ITA. The Companys board of directors administers
the plan. Options granted under this plan may not expire later than ten years
from the date of grant. The following table presents option grant data for this
plan as of December 31, 2007:

|                                              |  |                       |           |                                     |   |      | 
|--------------------------------------------- |  | --------------------- | --------- | ----------------------------------- | - | ---- | 
|Ordinary Shares Reserved 
  for Option Grants |  | Options
  Outstanding |           | Weighted
  Average
  Exercise Price |  
|                                              |  |                       |           |                                     |  
|                                              |  |                       |           |                                     |   |      | 
|2,000,000                                     |  |                       | 1,929,025 |                                     | $ | 1.47 | 

2007 Share
Incentive Plan

In
January 2007, the Companys board of directors approved and adopted the Lumenis
2007 Share Incentive Plan. In September 2007, the Companys board amended this
plan and increased the number of shares reserved for the exercise of options
granted under the plan from 10,000,000 to 11,500,000. In December 2007, the
plan, as amended, was approved by the Companys shareholders. The Companys
employees, directors, officer, consultants, advisors, suppliers and any other
person or entity whose services are considered valuable to the Company are
eligible to participate in this plan. This plan provides for the grant of
awards consisting of the grant of stock options, restricted stock, and other
share-based awards (including cash and stock appreciation rights). The plan
provides for the grant to residents of Israel of options that qualify under the
provisions of Section 102 of the Israeli Tax Ordinance (see above under
2000 Share Option Plan), as well as for the grant of options that do not
qualify under such provisions. This plan has been approved by the ITA The plan
also provides for the grant of options that are qualified, as defined by the
U.S. Tax Code, and options that are not so qualified. In addition to the
grant of awards under the relevant tax regimes of the United States and Israel,
the plan contemplates grant of awards to grantees in other jurisdictions, with
respect to which the board is empowered to make the requisite adjustments in
the plan. The Companys board of directors administers the plan. Options
granted under the plan may not expire later than ten years from the date of
grant. The following table presents option grant data for this plan as of
December 31, 2007:

|                                              |  |                       |           |                |   |        | 
|--------------------------------------------- |  | --------------------- | --------- | -------------- | - | ------ | 
|Ordinary Shares Reserved 
  for Option Grants |  | Options
  Outstanding |           | Exercise Price |  
|                                              |  |                       |           |                |  
|                                              |  |                       |           |                |   |        | 
|11,500,00                                     |  |                       | 9,584,242 |                | $ | 1.0722 | 

A
summary of the status of the option plans as of December 31, 2007, 2006
and 2005, and changes during the years ended on those dates, is presented
below.

|                                         |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               |  |  |        |  |  |      | 
|---------------------------------------- |  | ----------------------- | ------ | ----------------------------- |  | -------------------- |  | ----------------------------- | ------ | -------------------- |  | ----------------------------- |  |  | ------ |  |  | ---- | 
|                                         |  | Year Ended December 31, |       
|                                         |  |                         |       
|                                         |  | 2007                    |        | 2006                          |  | 2005                 | 
|                                         |  |                         |        |                               |  |                      | 
|                                         |  | Number(In Thousands)    |        | WeightedAverageExercise Price |  | Number(In Thousands) |  | WeightedAverageExercise Price |        | Number(In Thousands) |  | WeightedAverageExercise Price | 
|                                         |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               | 
|                                         |  |                         |        | $                             |  |                      |  | $                             |        |                      |  | $                             | 
|                                         |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               |  |  |        |  |  |      | 
|Balance outstanding at beginning of year |  |                         | 14,791 |                               |  | 4.83                 |  |                               | 11,627 |                      |  | 5.86                          |  |  | 10,226 |  |  | 6.39 | 
|Changes during the year:                 |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               |  |  |        |  |  |      | 
|Granted                                  |  |                         | 10,093 |                               |  | 1.07                 |  |                               | 3,575  |                      |  | 1.15                          |  |  | 1,731  |  |  | 2.01 | 
|Exercised                                |  |                         |       |                               |  |                     |  |                               |       |                      |  |                              |  |  | 2      |  |  | 1.77 | 
|Forfeited                                |  |                         | 1,594  |                               |  | 2.64                 |  |                               | 411    |                      |  | 1.81                          |  |  | 328    |  |  | 2.12 | 
|Balance outstanding at end of year       |  |                         | 23,290 |                               |  | 3.35                 |  |                               | 14,791 |                      |  | 4.83                          |  |  | 11,627 |  |  | 5.86 | 
|                                         |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               |  |  |        |  |  |      | 
|Balance exercisable at end of year       |  |                         | 11,603 |                               |  | 5.52                 |  |                               | 10,250 |                      |  | 6.22                          |  |  | 8,289  |  |  | 7.35 | 
|                                         |  |                         |        |                               |  |                      |  |                               |        |                      |  |                               |  |  |        |  |  |      | 

The
weighted average fair value of options granted during the year, estimated by
using the Black & Scholes option-pricing model, was $0.29, $0.43 and
$1.33 for the years ended December 31, 2007, 2006 and 2005, respectively.
The fair value of these options was estimated on the date of grant, based on
the following weighted average assumptions: dividend yield of 0% for 2005-2007;
expected volatility of 65%, 64% and 100% for 2007, 2006 and 2005 respectively,
risk free interest rate for 2007  4.01%, 2006  4.6% and 2005 3.43%; and
expected lives of: 2007  4.6 years, 2006  4.4 years and
2005  3.71 years.

The
expected volatility for 2004 through the date the Companys shares were
de-registered is based on the historical volatility of the Companys stock. For
the period after the de-registration the volatility is based on volatility of
similar companies whose share prices are publicly available The risk-free
interest rate assumption is based on observed interest rates appropriate for
the expected term of the stock options granted. Per SAB 107, the Company
used the simplified method to compute the expected option term for options
granted in 2006 and 2007. The dividend yield assumption reflects the expected
dividend yield based on historical dividends. A pre-vesting forfeiture rate of
12% was estimated based on pre-vesting forfeiture experience.

In
November 2005, the FASB issued Staff Position (FSP) FAS 123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards (FSP 123(R)-3). The Company has elected to adopt the
alternative transition method provided in FSP 123(R)-3 for computing the
tax effects of stock-based compensation pursuant to SFAS 123R. The
alternative transition method includes a simplified method of establishing the
APIC pool related to the tax effects of employee stock-based compensation on
adoption of SFAS 123R.

F-25

---

---

The
following table summarizes information about stock options granted to employees
and directors outstanding and exercisable at December 31, 2007:

|                           |  |                       |            |                                                  |      |                               |  |                   |  |                                                  |  |                               |  |      |  |  |       | 
|-------------------------- |  | --------------------- | ---------- | ------------------------------------------------ | ---- | ----------------------------- |  | ----------------- |  | ------------------------------------------------ |  | ----------------------------- |  | ---- |  |  | ----- | 
|                           |  | Options
  Outstanding |            | Options
  Exercisable                           
|                           |  |                       |            |                                                 
|Range of
  Exercise Prices |  | NumberOutstanding     |            | Weighted-AverageRemainingcontractualLife (Years) |      | Weighted-AverageExercisePrice |  | NumberExercisable |  | Weighted-AverageRemainingcontractualLife (Years) |  | Weighted-AverageExerciseprice
|                           |  |                       |            |                                                  |      |                               |  |                   |  |                                                  |  |                              
|                           |  |                       |            |                                                  |      |                               |  |                   |  |                                                  |  |                               |  |      |  |  |       | 
|$1.00  $2.99              |  |                       | 18,183,600 |                                                  | 5.45 |                               |  | 1.25              |  |                                                  |  | 6,597,430                     |  | 4.01 |  |  | 1.47  | 
|$3.00  $4.99              |  |                       | 230,416    |                                                  | 4.32 |                               |  | 3.74              |  |                                                  |  | 230,416                       |  | 4.32 |  |  | 3.74  | 
|$5.00  $6.99              |  |                       | 914,325    |                                                  | 1.83 |                               |  | 5.07              |  |                                                  |  | 914,325                       |  | 1.83 |  |  | 5.07  | 
|$7.00  $8.99              |  |                       | 1,152,103  |                                                  | 2.02 |                               |  | 8.52              |  |                                                  |  | 1,152,103                     |  | 2.02 |  |  | 8.52  | 
|$9.00  $10.99             |  |                       | 1,883,094  |                                                  | 3.18 |                               |  | 10.86             |  |                                                  |  | 1,782,294                     |  | 3.18 |  |  | 10.86 | 
|Above $11                  |  |                       | 926,854    |                                                  | 3.65 |                               |  | 21.24             |  |                                                  |  | 926,854                       |  | 3.65 |  |  | 21.24 | 
|                           |  |                       |            |                                                  |      |                               |  |                   |  |                                                  |  |                               |  |      |  |  |       | 
|                           |  |                       | 23,290,392 |                                                  |      |                               |  |                   |  |                                                  |  | 11,603,422                    |  |      |  |  |       | 
|                           |  |                       |            |                                                  |      |                               |  |                   |  |                                                  |  |                               |  |      |  |  |       | 

NOTE 17 
INCOME TAXES

a. Measurement of taxable
income:

Results
for tax purposes are measured in real terms, in accordance with the changes in
the Israeli Consumer Price Index (CPI) or changes in the exchange rate of the
NIS against the U.S. dollar for a foreign investors company. The Company
has elected to measure its results for tax purposes on the basis of the changes
in the exchange rate of NIS against the U.S. dollar.

b. Tax benefits under the Israel Law for the
Encouragement of Capital Investments, 1959 (the Law):

The
Company and one of its subsidiaries in Israel have been granted the status of
an Approved Enterprise under the Law. According to the provisions of the Law,
the Company has elected the alternative benefits program and as such are
entitled to receive certain tax benefits including accelerated depreciation of
fixed assets in the investment programs as well as a full tax exemption on
undistributed income that is derived from the portion of the Company and its
subsidiaries facilities granted approved enterprise status, for a period of
10 years or a full tax exemption for a period of 6 years and reduced
tax rates of 10%-25% (based on the percentage of foreign ownership in each taxable
year) for an additional period of up to 4 years. The benefits commence
with the date on which taxable income is first earned. The period of tax
benefits detailed above is subject to a limit of the earlier of 12 years
from the commencement of production or 14 years from receiving the
approval. The exemption period for the Company and its subsidiary commenced in
1995.

The
entitlement to the above benefits is conditional upon the Company fulfilling
the conditions stipulated by the above Law, regulations published thereunder
and the certificates of approval for the specific investments in an Approved
Enterprise. In the event of failure to comply with these conditions, the
benefits may be canceled and the Company may be required to refund the amount
of the benefits, in whole or in part, including interest.

The
tax-exempt income attributable to an Approved Enterprise can be distributed
to shareholders without subjecting the Company to taxes only upon the complete
liquidation of the Company. If this net retained tax-exempt income is
distributed in a manner other than in the complete liquidation of the company,
it would be taxed at the corporate tax rate applicable to such profits as if
the Company had not elected the alternative tax benefits (currently 25% of the
gross dividend).

As
of December 31, 2007, the Company had approximately
NIS 511 million (approximately $133 million at December 31,
2007 rates of exchange) derived from tax-exempt profits earned by its Approved
Enterprises prior to 1999. The Company has decided not to declare dividends
out of such tax-exempt income. Accordingly, no deferred tax liabilities have
been provided on income attributable to the Companys Approved Enterprises.

Income
of the Company from sources other than the Approved Enterprise during the
period of benefits will be taxable at regular corporate tax rates.

An
amendment to the Law, effective April 1, 2005 (the Amendment) changed
certain provisions of the Law. The Amendment allowed tax benefits to be awarded
pursuant to the Law so that companies no longer require Investment Center
pre-approval in order to qualify for tax benefits. The Companys existing
Approved Enterprises will generally not be covered by the Amendment. As a
result of the Amendment, where the Company benefits from tax-exempt income
pursuant to the new regime, any such tax-exempt income generated will be
subject to taxes on its distribution or upon liquidation of the Company.

F-26

---

---

c. Tax Assessments:

The
Company has been issued assessments for tax years 2000 and 2001 by the Israel
Tax Authority (ITA) in Israel in the amount of approximately
NIS 273 million (approximately $71 million at December 31,
2007 rates of exchange), including interest and penalties. The assessments are
primarily based on an attempt by the ITA to disallow the exemption available
for the Companys Approved Enterprise, which would then subject the Companys
income to the full tax rate, and, in addition, tax on an alleged deemed
dividend from earnings under the Companys Approved Enterprise program. The
Company believes the entire assessment to be in error and that no tax is due
and intend to vigorously contest the assessments in the courts in Haifa, Israel
and under applicable tax treaties as necessary. The Company believes that it
has sufficient existing reserves for any final settlement.

In
addition, the Company has reached agreements to settle all years through 2005
with no additional tax due for two of its operating subsidiaries in Israel and
for all years through 2006 with no taxes due for all years for its former
European headquarters subsidiary in the Netherlands

d. Corporate Tax Rates in
Israel:

Taxable
income of Israeli companies is subject to tax at the rate of 35% in 2004, 34%
in 2005, 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and
thereafter.

e. Net Operating Loss Carry forward

As
of December 31, 2007, the Company had carry forward tax losses totaling
approximately $258 million, primarily in Israel, which can be carried forward
indefinitely. As a result of applying FIN 48, the carry forward tax losses
above exceed the net operating losses used to compute the deferred tax asset in
its financial statement and as shown under Note 17f.

On
December 28, 2006 the Company filed an application for a tax free merger
of the Israeli group companies. If the ITA will approve the tax free merger, at
the effective date of the merger, net operating losses prior to the merger may
be carried forward to subsequent years and may be set off against the merged
companys taxable income, commencing with the tax year immediately following
the merger. The use of the tax loss carry forward from the effective approved merger
date and prior years is limited to the lesser of:

| |    |                                                                                                                                  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------
| | 1. | 20% of the aggregate net operating loss carry
  forwards of the merged companies prior to the effective date of the merger;
  and
| |    |                                                                                                                                  
| | 2. | 50% of the combined companys taxable income in the
  relevant tax year                                                          

The
above noted limitation on the use of carry forward tax losses is for a period
of five years commencing with the tax year immediately following the merger.

As
a result of the issuance of additional shares in December 5, 2006, the
Company experienced a change in ownership. As a result, the Companys operating
loss carry forwards in the US are subject to limitations as defined under IRC
Section 382 that limit its ability to use substantially all of its US
operating loss carry forwards and certain other deductions in the future.

F-27

---

---

f. Deferred Tax Assets and
Liabilities:

Deferred
taxes reflect the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts recorded for tax purposes. Significant components of the Companys
deferred tax assets and liabilities are as follows:

|                                                 |  |                       |         |      |   |          |  
|------------------------------------------------ |  | --------------------- | ------- | ---- | - | -------- | -
|                                                 |  | December 31,          |        
|                                                 |  |                       |        
|                                                 |  | 2007                  |         | 2006 |  
|                                                 |  |                       |         |      |  
|                                                 |  | (US $
  in thousands) |        
|                                                 |  |                       |         |      |   |          |  
|Deferred tax assets:                             |  |                       |         |      |   |          |  
|Net operating
  loss carry forward               |  | $                     | 25,877  |      | $ | 121,971  |  
|Accrued expenses                                 |  |                       | 1,166   |      |   | 1,455    |  
|Reserves                                         |  |                       | 9,976   |      |   | 6,340    |  
|Restructured
  Loan (See Note 11)                |  |                       | 7,029   |      |   | 9,159    |  
|Other                                            |  |                       | 7,452   |      |   | (7,294   | )
|                                                 |  |                       |         |      |   |          |  
|Deferred tax
  assets before valuation allowance |  |                       | 51,500  |      |   | 131,631  |  
|Valuation
  allowance                            |  |                       | (48,923 | )    |   | (128,634 | )
|                                                 |  |                       |         |      |   |          |  
|Deferred tax
  assets                            |  |                       | 2,577   |      |   | 2,997    |  
|                                                 |  |                       |         |      |   |          |  
|Deferred tax liabilities:                        |  |                       |         |      |   |          |  
|Goodwill                                         |  | $                     | (8,270  | )    |   | (6,900   | )
|                                                 |  |                       |         |      |   |          |  
|Deferred tax
  liabilities                       |  | $                     | (8,270  | )    | $ | (6,900   | )
|                                                 |  |                       |         |      |   |          |  

The
Company has provided valuation allowances in respect of certain deferred tax
assets resulting from tax loss carry forwards and other reserves and allowances
due to its history of losses and uncertainty concerning realization of these
deferred tax assets. A deferred tax liability has been established to reflect
the tax amortization of goodwill for which no financial statement amortization
has occurred under US GAAP.

g. A reconciliation of the
Companys effective tax rate to the statutory tax rate in Israel is as follows:

|                                                                                      |  |                           |         |      |   |         |   |   |        |  
|------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- | - | ------- | - | - | ------ | -
|                                                                                      |  | Year
  Ended December 31, |        
|                                                                                      |  |                           |        
|                                                                                      |  | 2007                      |         | 2006 |   | 2005    |  
|                                                                                      |  |                           |         |      |   |         |  
|                                                                                      |  |                           |         |      |   |         |   |   |        |  
|Income before
  taxes on income, as reported in the consolidated statements of income |  | $                         | (24,605 | )    | $ | (47,118 | ) | $ | (8,572 | )
|Statutory tax
  rate in Israel                                                        |  |                           | 29      | %    |   | 31      | % |   | 34     | %
|Theoretical tax
  expense (income tax benefit)                                        |  |                           | (7,135  | )    |   | (14,607 | ) |   | (2,914 | )
|Approved
  enterprise benefits                                                        |  |                           | 0       |      |   | 0       |   |   | 0      |  
|Losses and other
  items for which a valuation allowance was provided                 |  |                           | 9,005   |      |   | 16,009  |   |   | 3,912  |  
|Goodwill
  amortization                                                               |  |                           | 1,370   |      |   | 1,241   |   |   | 1,241  |  
|Non-deductible
  expenses                                                             |  |                           | 438     |      |   | 597     |   |   | 548    |  
|Other                                                                                 |  |                           | (165    | )    |   | (40     | ) |   | (128   | )
|                                                                                      |  |                           |         |      |   |         |   |   |        |  
|Actual tax
  expense                                                                  |  | $                         | 3,513   |      | $ | 3,200   |   | $ | 2,659  |  
|                                                                                      |  |                           |         |      |   |         |   |   |        |  

h. Income before taxes on
income is comprised as follows (US $ inthousands):

|         |  |                           |         |      |   |          |   |   |         |  
|-------- |  | ------------------------- | ------- | ---- | - | -------- | - | - | ------- | -
|         |  | Year
  Ended December 31, |        
|         |  |                           |        
|         |  | 2007                      |         | 2006 |   | 2005     |  
|         |  |                           |         |      |   |          |  
|         |  |                           |         |      |   |          |   |   |         |  
|Domestic |  | $                         | (34,063 | )    | $ | (177,714 | ) | $ | 12,995  |  
|Foreign  |  |                           | 9,458   |      |   | 130,596  |   |   | (21,567 | )

i.Taxes on income are
comprised as follows (US $ in thousands):

|         |  |                           |       |      |   |       |  |   |       | 
|-------- |  | ------------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|         |  | Year
  Ended December 31, |      
|         |  |                           |      
|         |  | 2007                      |       | 2006 |   | 2005  | 
|         |  |                           |       |      |   |       | 
|         |  |                           |       |      |   |       |  |   |       | 
|Current  |  | $                         | 1,723 |      | $ | 3,006 |  | $ | 2,514 | 
|Deferred |  |                           | 1,790 |      |   | 194   |  |   | 145   | 
|         |  |                           |       |      |   |       |  |   |       | 
|         |  |                           | 3,513 |      |   | 3,200 |  |   | 2,659 | 
|         |  |                           |       |      |   |       |  |   |       | 
|Domestic |  |                           | 1,051 |      |   | 532   |  |   | 802   | 
|Foreign  |  |                           | 2,462 |      |   | 2,668 |  |   | 1,857 | 
|         |  |                           |       |      |   |       |  |   |       | 
|         |  |                           | 3,513 |      |   | 3,200 |  |   | 2,659 | 
|         |  |                           |       |      |   |       |  |   |       | 

F-28

---

---

j.Uncertain tax positions
(US$ in thousands):

The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48) on January 1, 2007. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with
SFAS 109 and prescribes a recognition threshold of more-likely-than-not to
be sustained upon examination. Upon adoption of FIN 48, the Companys
policy to include interest and penalties related to gross unrecognized tax
benefits within its provision for income taxes did not change. As of that date,
the Company had unrecognized tax benefits of $9.761 million. The adoption
did not result in a charge to retained earnings.

A
reconciliation of the beginning and ending amount of total unrecognized tax
benefits is as follows (in thousands):

|                                                        |  |   |        | 
|------------------------------------------------------- |  | - | ------ | 
|Balance at January 1, 2007                              |  | $ | 10,122 | 
|Increases related to prior year tax positions           |  |   | 784    | 
|Decreases related to prior year tax positions           |  |   | -      | 
|Increases related to current year tax positions         |  |   | 598    | 
|Settlements                                             |  |   | -      | 
|Decreases related to lapses of statute of
  limitations |  |   | -      | 
|                                                        |  |   |        | 
|Balance at December 31, 2007                            |  | $ | 11,504 | 
|                                                        |  |   |        | 

Included
in the balance of total unrecognized tax benefits at December 31, 2007,
are potential benefits of $7.968 million that if recognized, would affect
the effective rate on income from continuing operations. Uncertain tax
positions relate primarily to the on-going Israeli tax examination, discussed
above, and certain withholding taxes.

Total
accrued interest and penalties related to uncertain tax positions as of
December 31, 2007 was $2.91 million. These interest and penalties
were recognized through tax expense.

The
Company believes it is reasonably possible that up to $4.6 million of
unrecognized tax benefits related to the Israeli tax examination could be
settled in 2008 if the examination concludes during the year.

The
Company files tax returns in many jurisdictions worldwide, but the Companys
main jurisdictions are Israel and the United States. The Company is currently
under examination in Israel with respect to its 2000-2006 tax years. The
Companys U.S. subsidiaries open for assessment for tax years 2001-2007.

NOTE 18 
RELATED PARTY TRANSACTIONS

The
Companys articles of association permits it to exculpate, indemnify and insure
its office holders to the fullest extent permitted by the Companies Law. The
Company has entered into agreements with certain of its officer holders,
exculpating them from a breach of their duty of care to the Company to the
fullest extent permitted by law and undertaking to indemnify them to the
fullest extent permitted by law to the extent that these liabilities are not
covered by insurance.

As
part of the Purchase Agreement in the 2006 recapitalization, the Companys
former officers and directors entered into new indemnification agreements and
are entitled to the benefit of a run-off insurance policy for the coverage of
certain liability in connection with actions or omissions. In addition, the
directors immediately prior to the closing received certain options as part of
their director compensation for 2005 and 2006, and the new directors after
closing received certain options as part of their director compensation for
2006.

Registration
Rights Agreement:

Contemporaneously
with the Recap and Transaction described above in Note 2, the Company
entered into a Registration Rights Agreement with LM Partners LP, Ofer Hi-Tech
Investments Ltd. (together the Investors) and the Bank to provide certain
registration rights to the Investors and the Bank, and their respective
assignees.

The
registration rights relate not only to the shares acquired by the Investors at
the closing, but also the shares issuable upon any of the adjustment events
under the Purchase Agreement and upon exercise of the warrants issued to the
Investors. The Registration Rights Agreement covers the shares underlying the warrants
held by the Bank pursuant to the bank warrant agreement, replacing the previous
registrations rights granted to the Bank.

The
Company has undertaken customary obligations in the Registration Rights
Agreement, including, but not limited to, the preparation and filing of any
required amendments to registration statements, furnishing of prospectuses and
registration and qualification of the securities under applicable Blue Sky
laws. The Company is required to pay all fees and expenses incident to the
registration of the registrable shares.

The
parties have agreed to indemnify each other against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.

F-29

---

---

NOTE 19 
GEOGRAPHIC AREA INFORMATION

The
Company evaluates its business on the basis of four separate geographic units,
as follows: Americas, Europe, China/APAC and Japan. Those business units were
identified as operating segments in accordance with SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information.

|                        |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|----------------------- |  | ------------------------------ | ------- | ------ | - | ---------- |  | ----- | ------ | ------------ | - | ------ |  | - | ------- | 
|                        |  | Year
  Ended December 31, 2007 |        
|                        |  |                                |        
|                        |  | Americas                       |         | Europe |   | China/APAC |  | Japan |        | Consolidated |  
|                        |  |                                |         |        |   |            |  |       |        |              |  
|                        |  | (U.S. $
  in thousands)        |        
|                        |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|Net revenues            |  | $                              | 129,148 |        | $ | 68,686     |  | $     | 33,804 |              | $ | 36,191 |  | $ | 267,829 | 
|Total long-lived assets |  |                                | 52,328  |        |   | 6,302      |  |       | 10,331 |              |   | 13,021 |  |   | 81,982  | 
|Depreciation expense    |  |                                | 1,019   |        |   | 1,465      |  |       | 106    |              |   | 129    |  |   | 2,719   | 

|                          |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|------------------------- |  | ------------------------------ | ------- | ------ | - | ---------- |  | ----- | ------ | ------------ | - | ------ |  | - | ------- | 
|                          |  | Year
  Ended December 31, 2006 |        
|                          |  |                                |        
|                          |  | Americas                       |         | Europe |   | China/APAC |  | Japan |        | Consolidated |  
|                          |  |                                |         |        |   |            |  |       |        |              |  
|                          |  | (U.S. $
  in thousands)        |        
|                          |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|Net revenues              |  | $                              | 127,874 |        | $ | 59,795     |  | $     | 39,484 |              | $ | 37,225 |  | $ | 264,378 | 
|Total
  long-lived assets |  |                                | 52,696  |        |   | 4,064      |  |       | 10,460 |              |   | 13,180 |  |   | 80,400  | 
|Depreciation
  expense    |  |                                | 1,093   |        |   | 1,501      |  |       | 76     |              |   | 222    |  |   | 2,892   | 

|                          |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|------------------------- |  | ------------------------------ | ------- | ------ | - | ---------- |  | ----- | ------ | ------------ | - | ------ |  | - | ------- | 
|                          |  | Year
  Ended December 31, 2005 |        
|                          |  |                                |        
|                          |  | Americas                       |         | Europe |   | China/APAC |  | Japan |        | Consolidated |  
|                          |  |                                |         |        |   |            |  |       |        |              |  
|                          |  | (U.S. $
  in thousands)        |        
|                          |  |                                |         |        |   |            |  |       |        |              |   |        |  |   |         | 
|Net revenues              |  | $                              | 143,798 |        | $ | 60,268     |  | $     | 38,786 |              | $ | 42,586 |  | $ | 285,438 | 
|Total
  long-lived assets |  |                                | 57,588  |        |   | 5,262      |  |       | 10,891 |              |   | 13,552 |  |   | 87,293  | 
|Depreciation
  expense    |  |                                | 1,300   |        |   | 1,927      |  |       | 41     |              |   | 172    |  |   | 3,440   | 

NOTE 20 
SUBSEQUENT EVENTS

In
March 2008, the Company filed a complaint in the Tel Aviv District Court in
Israel against Alma Lasers Ltd and its founders, all former employees of the
Company, claiming misappropriation of the Companys trade secrets and
technology and for the use of such technology in certain of Almas products
sold worldwide. The Company has requested that the court impose an injunction
against the use of such core technology by Alma in its products and is seeking
monetary damages in the amount of NIS 200 million (or approximately
$52 million based on the December 31, 2007 exchange rate) based on
the profits earned by Alma and its founders from the utilization of the
Companys technology. The Company also requested from and obtained leave of the
U.S. District Court, where the Company had previously filed a patent
infringement action against Alma Lasers Ltd and Alma Lasers, Inc., to file an
amended complaint to include a cause of action for misappropriation of trade
secrets against Alma Lasers Inc.

On
March 4, 2008, the Company entered into an interest rate swap (IRS)
transaction for $40 million, which is due in stages from the third quarter
of 2009 until the end of third quarter of 2013. Under the terms of the IRS, the
Company will pay a fixed interest rate of 3.13% and will receive the three
month LIBOR rate of interest.

As
described above in Note 14, the Companys restructured bank debt agreement
contains certain covenants, including covenants to comply with certain
financial ratios as set out in the Restructuring Agreement. The Company was not
in compliance with such covenants as of the end of the first quarter of 2008.
However, the bank has agreed to amend the covenant requirements and delay the
requirement to comply with such amended covenants as described below.

On
June 25 2008, the Company entered into an amendment to the Restructuring
Agreement, with the bank pursuant to which the bank effectively rescheduled
principal repayments of $15 million of the $20 million due on each of
June 29, 2008 and December 291, 2008. In accordance with the
amendment, no later than June 30, 2008, the bank will provide the Company
with two new loans for an aggregate of $35 million, to be utilized by the
Company, together with a further $5 million to repay the principal amount
of $40 million under the original bank loan. The said $35 million is
scheduled to be paid as follows: $5 million at December 2009,
$10 million at June 2009, $10 million at June 2010 and
$10 million at June 2011. Pursuant to the terms of the amendment, the
write offs by the bank will also be rescheduled such that the net repayment of
$5 million in June 2008 and the repayment of $5 million in December
2008 will each be accompanied by a write off of $3.125 million and the
$10 million repayments in each of 2009, 2010 and 2011 will each be
accompanied by a write off of $6.25 million. The said $30 million
scheduled pursuant to the amendment for repayment in 2009, 2010 and 2011) bears
interest at 3 month LIBOR plus 3.0%.

F-30

---

---

The
Restructuring Agreement also contained covenants for the Company to comply with
certain financial ratios. The calculation of such ratios was to be made on a
quarterly basis for each year, commencing at the end of the first quarter of
2008. As part of the amendment to the Restructuring Agreement, certain
covenants have been eliminated and others have been modified. Accordingly, the
ratios with which the Company will need to comply under the amended agreement
are as follows:

a)
Debt/EBIDTA: As of the end of each quarter beginning with Q1 2009, the
Company will need to achieve a Debt/EBIDTA ratio for the four quarter period
ending in said quarter as follows: Q1 2009 - 6.5,
Q2 2009 - 5.5, Q3 2009 - 5.0,
Q4 2009 - 4.5, Q1 2010 and all subsequent quarters until
the end of the loan term  3.5.

b)
Interest coverage ratio: As of the end of each fiscal year beginning with
fiscal year 2008, the Company will need to achieve an interest coverage ratio
for such year as follows: 2008  1; 2009  1; 2010 and year
thereafter until the end of the loan term  2.

Further, as part of the June 25 2008 amendment of the restructuring
agreement, we agreed to a cash fee of $4.0 million payable to the bank
upon the earliest occurrence of any one of the following events: (a) the
Company will attain an annual earnings before interest, depreciation, taxes and
amortization, or EBITDA (as defined in the said amendment), of in excess of
$50 million; or (b) the Company will make a public offering for the
sale of its equity or convertible security(excluding a public offering
initiated by the Bank if the shares are those of the Bank), or (c) the
Company will sell all or substantially all of its assets; or (d) if one or
more of the Investors referred to in Note 2 above and certain related
parties transfer their shares in the Company to the extent that their aggregate
shareholdings are reduced by at least 40% from their aggregate holdings in the
Company as of June 2008; or (e) if the aggregate holdings of the aforesaid
persons in the Companys outstanding share capital is reduced by at least 40%
from its level as at June 2008 as a result of the issuance by the Company of
shares at a price above $1.55 per share, or (f) spin-off of the Companys
assts representing at least 30% of its total assets; or (g) voluntary
repayment of at least 75% of the outstanding loan to the bank.

F-31

---

---

# INDEX TO EXHIBITS

|Exhibit |  | Description
|------- |  | -----------

|1.1 |  | Memorandum
of Association, as amended July 26, 2001 (English translation) *B (3.1)
|--- |  | ----------------------------------------------------------------------------------

|1.2 |  | Articles
of Association, as amended and restated December 26, 2007 **
|--- |  | ---------------------------------------------------------------------

|4.(b)1 |  | Lease
Agreement dated March 18, 1998 between Skan Group Yokneam Ltd. and Lumenis (English
Translation)              with respect to the Yokneam, Israel facility *A (10.31)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)2 |  | Lease
Agreement dated September 5, 2006 between Aspen Real Estate Ltd. and Lumenis with respect
to the              Yokneam, Israel facility *G (4.8)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)3 |  | Lease
dated as of July 19, 2006 between Lumenis, Inc. and HDP Associates, LLC. with respect to
the              Santa Clara, California facility *G (4.10)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)4 |  | Lease
Agreement dated as of April 25, 2006 between Lumenis and Century East Business Center,
L.L.C.              with respect to the Salt Lake City facility *G (4.18)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)5 |  | Lease
Agreement dated as of September 27, 2006 between Lumenis and Ascend Realty Investments
LLC with              respect to the Salt Lake City facility *G (4.19)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)6 |  | Construction
and Lease Agreement dated January 8, 2008 between Industrial Buildings Corporation Ltd.
             and Lumenis (English Translation) with respect to new Yokneam, Israel
facility **
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)7 |  | Letter
Agreement with Bank Hapoalim B.M dated June 17, 2003 *D (10.5)
|------ |  | ---------------------------------------------------------------------

|4.(b)8 |  | Stock
Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Ltd. *D
(10.6)
|------ |  | -----------------------------------------------------------------------------------------------------

|4.(b)9 |  | Stock
Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Holdings
Inc. *D              (10.7)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------

|4.(b)10 |  | Cash
Fee-Ltd. Stock Letter, dated as of November 19, 2003, between Lumenis Ltd. and Bank
Hapoalim B.M.              *E (10.3)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------

|4.(b)11 |  | Asset
Purchase Agreement, dated as of January 1, 2005, by and between Lumenis Inc. and Eclipse
Medical,              Ltd. and others. (A portion of this exhibit has been omitted and
filed separately with the SEC.              Confidential treatment has been requested
with respect to the omitted portion.) *F (10.1)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)12 |  | Purchase
Agreement dated as of September 30, 2006 among Lumenis, Ofer Hi-Tech Investments, Ltd.,
LM              Partners L.P. and LM (GP) L.P.*G (4.20)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)13 |  | Restructuring
Agreement dated as of September 29, 2006 between Lumenis and Bank Hapoalim B.M.*G (4.21)
|------- |  | ------------------------------------------------------------------------------------------------------

|4.(b)14 |  | Amendment
No. 1 to Restructuring Agreement dated as of December 5, 2006 between Lumenis and Bank
             Hapoalim B.M. *G (4.22)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------

|4.(b)15 |  | Amendment
No. 2 to Restructuring Agreement dated June 25, 2008 between Lumenis and Bank Hapoalim
B.M.              **
|------- |  | ---------------------------------------------------------------------------------------------------------------------

|4.(b)16 |  | Registration
Rights Agreement dated as of December 5, 2006 among Lumenis, Ofer Hi-Tech Investments,
             Ltd., LM Partners L.P. and Bank Hapoalim B.M. *G (4.23)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)17 |  | Warrant
No. 2 dated December 5, 2006 to purchase 11,658,273 ordinary shares issued to Ofer
Hi-Tech              Investments Ltd. on or before June 5, 2007 *G (4.24)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)18 |  | Warrant
No. 4 dated December 5, 2006 to purchase 7,083,333 ordinary shares issued to Ofer Hi-Tech
             Investments Ltd. on or before December 5, 2011 *G (4.25)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)19 |  | Warrant
No. 5 dated December 5, 2006 to purchase 8,000,000 ordinary shares issued to Bank
Hapoalim B.M.              on or before November 19, 2011 *G (4.26)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)20 |  | Warrant
No. 6 dated December 5, 2006 to purchase 1,411,300 ordinary shares issued to Bank
Hapoalim B.M.              on or before November 19, 2011 *G (4.27)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)21 |  | Warrant
No. 7 dated December 5, 2006 to purchase 11,560,343 ordinary shares issued to LM Partners
L.P.              on or before June 5, 2007 *G (4.28)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(b)22 |  | Warrant
No. 8 dated December 5, 2006 to purchase 10,639,875 ordinary shares issued to LM Partners
L.P.              on or before December 5, 2011 *G (4.29)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.(c)1 |  | 1999
Share Option Plan, as amended April 30, 2003 *I (4.1)
|------ |  | ----------------------------------------------------------

|4.(c)2 |  | 2000
Share Option Plan, as amended September 30, 2006 *I (4.2)
|------ |  | --------------------------------------------------------------

|4.(c)3 |  | Israel
2003 Share Option Plan, as amended May 27, 2003 *C (Exhibit A)
|------ |  | ---------------------------------------------------------------------

|4.(c)4 |  | 2007
Share Incentive Plan, as amended September 23, 2007 *H (99.1, Appendix A)
|------ |  | ------------------------------------------------------------------------------

|4.(c)5 |  | Form
of pre-2006 recapitalization Indemnification Agreement *B (10.7)
|------ |  | ---------------------------------------------------------------------

|4.(c)6 |  | Form
of post-2006 recapitalization Indemnification Agreement *G (4.6)
|------ |  | ---------------------------------------------------------------------

|4.(c)7 |  | Lumenis
Business Conduct Policy **
|------ |  | ----------------------------------

i

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---

|Exhibit |  | Description
|------- |  | -----------

|4.(c)8 |  | Lumenis
Code of Business Ethics for Financial Officers **
|------ |  | ---------------------------------------------------------

|8 |  | List
of Subsidiaries **
|- |  | -----------------------

|12.1 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.3 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (**)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.4 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (**)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.5 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (***)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.6 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (***)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.7 |  | Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ***
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.8 |  | Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) (17 CFR 240.13a-14(a)), as adopted
             pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ***
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13 |  | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
             1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 |  | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
             1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
***
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15.6 |  | Consent
of Ziv Haft, a BDO member firm, independent registered public accounting firm ***
|---- |  | -----------------------------------------------------------------------------------------

|15.7 |  | Consent
of Blick Rothenberg, independent registered public accounting firm for Lumenis (UK)
Limited ***
|---- |  | -------------------------------------------------------------------------------------------------------

Note:
Parenthetical references following the Exhibit Number of a document relate to the exhibit
number under which such exhibit was initially filed.

|*A | Incorporated
by reference to said document filed as an exhibit to Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, File #000-27572, filed on March 30,
2000.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*B | Incorporated
by reference to said document filed as an Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, File #000-27572, filed on April 1,
2002.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*C | Incorporated
by reference to said document as an Exhibit to the Registrants Definitive Proxy
Statement for its 2003 Annual Meeting of Shareholders filed under cover of Schedule 14A
on April 30, 2003, File #000-27572.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*D | Incorporated
by reference to said document filed as an Exhibit to Quarterly Report on Form 10-Q
for the Quarterly Period ended June 30, 2003, File #000-27572, filed on August 19,
2003.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*E | Incorporated
by reference to said document filed as an Exhibit to Quarterly Report on Form 10-Q
for the Quarterly Period ended September 30, 2003, File #000-27572, filed on November 19,
2003.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*F | Incorporated
by reference to said document filed as an Exhibit to Current Report on Form 8-K,
File #000-27572, filed on January 20, 2005.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------

|*G | Incorporated
by reference to said document filed as an exhibit to Registration Statement on Form 20-F,
File #0-27572, filed on May 1, 2007.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------

|*H | Incorporated
by reference to said document filed as an Exhibit to Current Report on Form 6-K,
File #000-27572, furnished on November 21, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------

|*I | Incorporated
by reference to said document filed as an exhibit to a Post-Effective Amendment to a
Registration Statement on Form S-8, File #333-14860, filed on April 2, 2008.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|** | Filed
with the Form 20-F on June 25, 2008.
|-- | ------------------------------------------

|(**) | Filed
with Amendment No. 1 to the Form 20-F on June 26, 2008.
|---- | -------------------------------------------------------------

|(***) | Filed
with Amendment No. 2 to the Form 20-F on January 20, 2009.
|----- | ----------------------------------------------------------------

|*** | Filed
with this Amendment No. 3 to the Form 20-F.
|--- | -------------------------------------------------

ii

---

---