UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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


                  For the Quarterly Period Ended March 31, 2001


[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934.

                  For the Transition Period From ____ to _____

                         Commission File Number 0-13012

                            ESC MEDICAL SYSTEMS LTD.
             (Exact name of registrant as specified in its charter)

                      Israel                                     N.A.
   (State or other jurisdiction of incorporation           (I.R.S. Employer
                 or organization)                        Identification No.)


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

Registrant's telephone number, including area code: 972-4-9599000

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
                                      ---    ---

     The number of shares  outstanding  of the  registrant's  common stock as of
May 17, 2001 was 33,070,391 Ordinary Shares, NIS 0.10 par value per share.

<PAGE>

                            ESC MEDICAL SYSTEMS LTD.

                                    FORM 10-Q

                      For the Quarter Ended March 31, 2001


                                      INDEX


PART I.  FINANCIAL INFORMATION................................................4

  ITEM 1.  Financial Statements...............................................4

     1)  Independent Accountant's Review Report...............................5

     2)  Consolidated Balance Sheets..........................................6

     3)  Consolidated Statements of Operations................................7

     4)  Statement of Changes in Shareholders' Equity.........................8

     5)  Consolidated Statements of Cash Flows................................9

     6)  Notes to Unaudited Condensed Interim Consolidated Financial
         Statements..........................................................10

  ITEM 2.  Management's  Discussion and Analysis of Financial Condition
           and Results of Operations.........................................15

  ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk.........18


PART II. OTHER INFORMATION...................................................18

  ITEM 1.  Legal Proceedings.................................................18

  ITEM 6.  Exhibits and Reports on Form 8-K..................................19

                                   # # # # # #



                                       2
<PAGE>


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                     Independent Accountant's Review Report


The Board of Directors
ESC Medical Systems Ltd.
Yokneam


We have  reviewed the  accompanying  interim  consolidated  balance sheet of ESC
Medical Systems Ltd. ("the Company") and  consolidated  subsidiaries as of March
31, 2001 and the related interim consolidated statement of operations, statement
of  changes  in  shareholders'  equity  and  statement  of  cash  flows  for the
three-month period then ended. These financial statements are the responsibility
of the Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and making  inquiries of persons  responsible  for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the  accompanying  financial  statements for them to be in conformity
with accounting principles generally accepted in the United States of America.

Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu

Tel Aviv
May 18, 2001



                                       3
<PAGE>

                            ESC MEDICAL SYSTEMS LTD.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                           March 31,   December 31,
                                                                             2001         2000
                                                                          ---------     ---------
                                                                         (Unaudited)
                                                                          ---------
CURRENT ASSETS
<S>                                                                       <C>           <C>
  Cash and cash equivalents                                               $  30,203     $  43,396
  Short-term investments                                                      4,640           123
  Trade receivables                                                          54,656        54,156
  Prepaid expenses and other receivables                                      7,132         6,949
  Inventories                                                                55,536        50,288
                                                                          ---------     ---------
                                                                            152,167       154,912


FINISHED  GOODS USED IN OPERATIONS                                            3,508         2,758

LONG-TERM INVESTMENTS
  Bank deposits and securities                                                  941           941
  Trade receivables                                                             460           341
  Other                                                                       6,562         6,993

FIXED ASSETS                                                                  9,730         9,695

OTHER ASSETS                                                                  6,209         4,889
                                                                          ---------     ---------
         Total assets                                                     $ 179,577     $ 180,529
                                                                          =========     =========

CURRENT LIABILITIES
  Short-term debt and current maturities of long-term loans               $   4,420     $   4,420
  Accounts payable and accrued expenses                                      39,573        54,316
                                                                          ---------     ---------
                                                                             43,993        58,736
                                                                          ---------     ---------
LONG TERM LIABILITIES
  Bank loans                                                                     15            18
  Restructuring accrual                                                         878           963
  Accrued severance pay                                                       1,408         1,162
  Convertible subordinated notes                                             91,787        91,787
                                                                          ---------     ---------
                                                                             94,088        93,930
                                                                          ---------     ---------
Total liabilities                                                           138,081       152,666
                                                                          ---------     ---------
SHAREHOLDERS' EQUITY
  Ordinary shares of NIS 0.1 par value: Authorized - 50,000,000 shares;
    Issued and outstanding - 27,630,895 and 27,629,017 shares,
    respectively
                                                                                580           578
  Additional paid-in capital                                                140,473       137,033
  Unearned compensation                                                          --          (120)
  Accumulated deficit                                                       (92,465)      (96,693)
  Treasury stock, at cost: 1,026,208 and 1,871,684 shares, respectively      (7,092)      (12,935)
                                                                          ---------     ---------
         Total shareholders' equity                                          41,496        27,863
                                                                          ---------     ---------
         Total liabilities and shareholders' equity                       $ 179,577     $ 180,529
                                                                          =========     =========
</TABLE>


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


                                       4
<PAGE>

                            ESC MEDICAL SYSTEMS LTD.
                  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (In thousands, except per share data)

                                                              For the three
                                                               months ended
                                                                March 31,
                                                          ---------------------
                                                            2001         2000
                                                          --------     --------
REVENUES                                                  $ 43,868     $ 36,028

COST OF SALES                                               15,562       16,481
                                                          --------     --------
         Gross profit                                       28,306       19,547
                                                          --------     --------
OPERATING EXPENSES
   Research and development, net                             3,075        2,806
   Selling, marketing and administrative expenses           20,579       14,549
                                                          --------     --------
         Total operating expenses                           23,654       17,355
                                                          --------     --------
         Operating income                                    4,652        2,192

FINANCING EXPENSES, NET                                     (1,369)      (1,040)
                                                          --------     --------
         Income before income taxes                          3,283        1,152

INCOME TAXES                                                 1,496          (98)
                                                          --------     --------
         Income after income taxes                           4,779        1,054

COMPANY'S SHARE IN LOSSES OF AFFILIATES                        551          102
                                                          --------     --------
       Net income before extraordinary item                  4,228          952

EXTRAORDINARY GAIN ON PURCHASE OF
  COMPANY'S CONVERTIBLE NOTES                                   --          292
                                                          --------     --------
         Net income for the period                        $  4,228     $  1,244
                                                          ========     ========

EARNINGS PER SHARE
   Basic:
   Income before extraordinary item                       $   0.16     $   0.04
   Extraordinary gain                                           --         0.01
                                                          --------     --------
         Net earnings per share                           $   0.16     $   0.05

   Diluted:
   Income before extraordinary item                       $   0.14     $   0.04
   Extraordinary gain                                           --         0.01
                                                          --------     --------
         Net earnings per share                           $   0.14     $   0.05
                                                          ========     ========

WEIGHTED AVERAGE NUMBER
   OF SHARES
     Basic                                                  26,181       25,061
                                                          ========     ========
     Diluted                                                30,297       27,564
                                                          ========     ========

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


                                       5
<PAGE>


                            ESC MEDICAL SYSTEMS LTD.
              INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                              Additional
                                     Share      paid in    Unearned    Accumulated   Treasury
                                     capital   capital   compensation    deficit      stock       Total
                                     -------   -------   ------------   --------     --------    -------
<S>        <C> <C>                   <C>      <C>          <C>          <C>          <C>         <C>
Balance as of
  December 31, 2000                  $  578   $137,033     $  (120)     $(96,693)    $(12,935)   $27,863

Exercise of options                       2      2,473                                  5,843      8,318

Amortization of unearned
  compensations                                                120                                   120


Acceleration of vesting of options                                                                   967

Net income for the period                                                  4,228                   4,228
                                     ------   --------     -------      --------     --------    -------
Balance as of March 31, 2001         $  580   $140,473     $  --        $(92,465)    $ (7,092)   $41,496
                                     ======   ========     =======      ========     ========    =======
</TABLE>


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




                                       6
<PAGE>

                            ESC MEDICAL SYSTEMS LTD.
                  INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                        For the three months
                                                                           ended March 31
                                                                        --------------------
                                                                         2001        2000
                                                                       --------    --------
<S>                                                                    <C>         <C>
CASH FLOWS - OPERATING ACTIVITIES
  Net income                                                           $  4,228    $  1,244
  Adjustments to reconcile net income to net cash
    used in operating activities -
      Income and expenses not affecting operating cash flows:
       Amortization of unearned compensation                                120          32
       Acceleration of vesting of option                                    967
       Depreciation and amortization                                      1,086       1,143
       Gain on purchase of Company's convertible notes                       --        (292)
       Company's share on losses of affiliates                              551         102
       Other                                                                246        (316)
      Changes in operating assets and liabilities:
       Increase in trade receivables                                       (619)     (4,961)
       Decrease (Increase) in prepaid expenses and other receivables     (1,633)        565
       Decrease (increase) in inventories (1)                            (5,998)      2,868
       Decrease in accounts payable and accrued expenses                (14,828)    (18,724)
                                                                       --------    --------
       Net cash - operating activities                                  (15,880)    (18,339)
                                                                       --------    --------

CASH FLOWS - INVESTING ACTIVITIES
  Purchase of fixed assets                                                 (991)       (696)
  Short-term investments, net                                            (4,637)      4,473
                                                                       --------    --------
       Net cash - investing activities                                   (5,628)      3,777
                                                                       --------    --------

CASH FLOWS - FINANCING ACTIVITIES
  Purchase of convertible notes                                              --        (873)
  Proceeds from exercise of options                                       8,318       1,186
  Repayment of long-term loans                                               (3)         (4)
  Increase in short-term bank debt, net                                      --          44
                                                                       --------    --------
       Net cash - financing activities                                    8,315         353
                                                                       --------    --------

DECREASE IN CASH AND CASH EQUIVALENTS                                   (13,193)    (14,209)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                         43,396      24,524
                                                                       --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                               30,203      10,315
                                                                       ========    ========

CASH PAID DURING THE PERIOD IN RESPECT OF:
  Income taxes                                                              141         211
                                                                       ========    ========
  Interest                                                                2,767       2,777
                                                                       ========    ========

(1) Including finished goods used in operations
</TABLE>


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



                                       7
<PAGE>

                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)


Note 1 - BASIS OF PRESENTATION

     A.   The unaudited condensed interim  consolidated  financial statements as
          of March  31,  2001 and for the  three  months  then  ended  ("interim
          financial statements") of ESC Medical Systems Ltd. ("the Company") and
          subsidiaries   should  be  read  in   conjunction   with  the  audited
          consolidated  financial  statements  of the Company as of December 31,
          2000 and for the year then ended,  including  the notes  thereto.  The
          results of  operations  for the  interim  period  are not  necessarily
          indicative of the results to be expected on a full-year basis.

     B.   The interim financial statements have been prepared in accordance with
          accounting  principles  generally  accepted  in the  United  States of
          America.

          The accounting  principles applied in the preparation of these interim
          financial  statements are consistent with those principles  applied in
          the  preparation  of  the  most  recent  annual  audited  consolidated
          financial statements.

          Certain amounts in the  consolidated  balance sheet as of December 31,
          2000 have been  reclassified in order to conform to the March 31, 2001
          presentation.


Note 2 - ADDITIONAL INFORMATION

     A.   On February 25, 2001, the Company, its wholly-owned subsidiary, Energy
          Systems  Holdings  Inc.  ("ESH"),  and  Coherent,  Inc.  ("Coherent"),
          entered  into an Asset  Purchase  Agreement,  dated as of February 25,
          2001 (the "Asset  Purchase  Agreement"),  pursuant  to which  Coherent
          agreed to sell or cause to be sold to the  Company  and certain of its
          subsidiaries  (collectively,  the "Buyer Group")  substantially all of
          the assets and liabilities of the Coherent  Medical Group,  Coherent's
          medical products division (the "Acquisition").  On April 30, 2001, the
          Buyer  Group  and  Coherent  and  its   subsidiaries   completed   the
          Acquisition  (the  "Closing").  In addition,  on April 30,  2001,  the
          parties amended the Asset Purchase Agreement.

          At the Closing,  the Coherent  entities received $100,000 in cash (the
          "Cash Purchase Price"),  5,432,099 ordinary shares of the Company (the
          "Shares"),  and an eighteen-month note bearing interest at the rate of
          5% per  annum and in the  principal  amount of  $12,900  (the  "Note",
          together  with the Cash  Purchase  Price and the Shares,  the "Closing
          Consideration").  The Asset  Purchase  Agreement  also  provides for a
          post-Closing earn-out payment to Coherent of up to $25,000, subject to
          certain   financial    conditions   being   met   (the   "Post-Closing
          Consideration"). The amount and terms of the Closing Consideration and
          the   Post-Closing   Consideration   were  determined  by  arms-length
          negotiations among the parties.


                                       8
<PAGE>

                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)


Note 2 - ADDITIONAL INFORMATION (Cont.)

     A.   (Cont.)

          To finance the  Acquisition,  ongoing  working  capital  needs and, if
          needed,  the refinancing of the Company's 6% convertible  subordinated
          notes  due  September  1,  2002,   the  Company  and  certain  of  its
          subsidiaries   entered  into  various   financing   arrangements  (the
          "Financing")  with  Bank  Hapoalim  B.M (the  "Bank").  The  Financing
          consists of: (a) a $100,000  six-year term loan, (b) a $50,000 line of
          credit and (c) a letter of intent  pursuant to which the Bank  agreed,
          subject to the terms and conditions  set forth therein,  to provide up
          to $92,000 to  refinance  the  Company's 6%  convertible  subordinated
          notes due  September  1, 2002.  Each of the  facilities  is or will be
          secured by  substantially  all of the assets of the  Company,  ESH and
          certain  of  their  material  subsidiaries.  In  connection  with  the
          Financing,  on April 30,  2001,  the Company and the Bank also entered
          into,  subject to shareholder  approval,  a five-year option agreement
          granting  the Bank or any of its  subsidiaries  the right to  purchase
          from the Company up to 2,500,000  ordinary  shares of the Company at a
          purchase price of US$20.25 per share, subject to certain adjustments.

          The assets acquired include,  among other things, plant, equipment and
          other  physical  property.  It is the Company's  current  intention to
          continue to use such assets for  purposes  similar to the purposes for
          which those assets are currently being used.

     B.   In April 2001, the Company  reached a final agreement with the Israeli
          income tax authorities with regard to tax returns filed by the Company
          for the  years up to and  including  1998.  As a result,  the  Company
          recorded a gain from release of provision  recorded in previous  years
          in a total amount of $1.6 million.

     C.   In January 2001, the Board of Directors  approved the  acceleration of
          vesting of stock  options  granted to the  Company's  Chief  Executive
          Officer and Chief  Financial  Officer.  As a result and in  accordance
          with APB 25,  expenses in the total amount of $967 are included in the
          statement of operations.

     D.   The trade  receivables  as of March 31, 2001 and December 31, 2000 are
          presented  net of  allowances  of $  13,302  (unaudited)  and $ 14,154
          respectively.

Note 3 - INVENTORIES

          Inventories are composed of the following:

                                                  March 31          December 31
                                                   2001                2000
                                               -----------          -----------
                                               (Unaudited)
                                               -----------

          Raw materials                           $35,053             $30,468
          Work in process                           7,363               8,354
          Finished products                        13,120              11,466
                                               ----------           ---------
                                                  $55,536             $50,288
                                               ==========           =========

                                       9
<PAGE>


                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)


Note 4 - SEGMENT INFORMATION


     A.   REPORTABLE SEGMENTS


                                            For the three    For the three
                                            months ended     months ended
                                              March 31         March 31,
                                            -------------    -------------
                                                2001             2000
                                            -------------    -------------
                                             (Unaudited)      (Unaudited)
                                            -------------    -------------

          Revenues
            Surgical and aesthetics           $ 37,968         $ 31,328
            Dental                               2,754            1,130
            Industrial                           3,146            3,570
                                            ----------       ----------
              Consolidated                      43,868           36,028
                                            ==========       ==========

          Operating income (loss)
            Surgical and aesthetics           $  4,551         $  3,309
            Dental                                (199)            (827)
            Industrial                             390             (290)
                                            ----------       ----------
              Consolidated                       4,652            2,192

          Financing expenses, net               (1,369)          (1,040)
                                            ----------       ----------

          Income before income taxes          $  3,283         $  1,152
                                            ==========       ==========


                                              March 31,      December  31,
                                            -------------    -------------
                                                2001             2000
                                            -------------    -------------
                                             (Unaudited)
                                            -------------

          Assets
            Surgical and aesthetics           $159,615         $165,501
            Dental                               8,586            6,721
            Industrial                          11,376            8,307
                                            ----------       ----------
              Consolidated                    $179,577         $180,529
                                            ==========       ==========


                                       10
<PAGE>


                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)


Note 4 - SEGMENT INFORMATION (Cont.)

          B.   COMPOSITION OF REVENUES BY GEOGRAPHIC AREAS

                                                For the three
                                            ------------------------
                                                Months ended
                                                  March 31,
                                               2001           2000
                                            -----------    -----------
                                            (Unaudited)    (Unaudited)
                                            -----------    -----------

          Revenues
            North America                      $14,939        $13,825
            Europe                              10,891          8,521
            Asia                                12,733          8,504
            Central and South America            1,523          1,407
            Other                                3,783          3,771
                                              --------       --------
              Consolidated                     $43,868        $36,028
                                              ========       ========

Note 5 - CONTINGENT LIABILITIES

          (1)  In late 1998 the Company was named in a number of purported class
               action  securities  lawsuits that have been  consolidated  in the
               United  States  District  Court for the Southern  District of New
               York. In July 1999, a  consolidated  amended  complaint was filed
               naming,  among others, the Company and several additional current
               and  former  directors  and  officers  of the  Company  and Laser
               Industries  Limited,  a subsidiary of the company  ("Laser"),  as
               defendants.  The consolidated amended complaint seeks damages and
               attorneys'  fees  under the  United  States  securities  laws for
               alleged  "tipping" of  non-public  information  to an  investment
               banker in September  1998 and for alleged  irregularities  in the
               way in which the  Company  reported  its  financial  results  and
               disclosed certain facts throughout 1997 and 1998. On December 23,
               1999,  the  Company  moved to dismiss  the  consolidated  amended
               complaint.  On  August  31,  2000,  the  Court  entered  an order
               dismissing  the claim  against  the Laser  director  and  officer
               defendants  and  denying  the  remaining  dismissal  counts.  The
               parties have entered into a scheduling  order and have  commenced
               discovery.  The Company's  insurance carrier has agreed to assume
               the  defense  of the action  under a  reservation  of rights.  No
               accrual has been  recorded in the financial  statements  for this
               matter.

          (2)  On May 10,  1999,  the Company and a former  director and officer
               were  named as  defendants  in an  action  filed in the  Tel-Aviv
               District Court by H.K.  Hashalom Ltd. in connection with the sale
               of the  Company's  EpiLight  systems.  H.K.  Hashalom  is seeking
               monetary  damages in the amount of $2,500  but has  reserved  the
               right to increase such amount as well as to request a declaratory
               judgment that, among other things,  the Company  indemnify it for
               certain costs and expenses arising out of the transaction between
               the parties.  On July 15, 1999, the defendants  filed a statement
               of defense. At a pre-trial hearing, the Court advised the parties
               to  resolve  the  dispute  through  mediation,  which  has  since
               commenced.  The parties are  currently  negotiating  a settlement
               agreement.   No  accrual  has  been  recorded  in  the  financial
               statements for this matter.

          (3)  On November 5, 1998,  Light Age, Inc. ("Light Age") instituted an
               ex-parte   application  in  the  Tel-Aviv   District  Court  (the
               "Tel-Aviv  Court")  against the  Company  and  others,  seeking a
               temporary injunction against the development, production and sale
               of the Company's  Alexandrite  laser for  dermatological  or hair
               removal  treatments.  Light


                                       11
<PAGE>


                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)

               Age's principal  contentions  are that the  Alexandrite  laser is
               based on technology  developed by Light Age and is competing with
               Light  Age's  Alexandrite  laser,  in  breach  of  the  Company's
               non-disclosure and non-compete undertakings in a supply agreement
               with Light Age.  In  addition,  Light Age is seeking a  permanent
               injunction  against the Company engaging in such activities.  The
               Tel-Aviv  Court  denied  Light  Age's  request  for  an  ex-parte
               injunction  and ordered  that a hearing be held with both parties
               present. On March 21, 1999, the Tel-Aviv Court denied Light Age's
               motion  for a  preliminary  injunction.  The  parties  have since
               agreed to submit their dispute for arbitration.  Accordingly, the
               parties filed a motion to stay the proceedings, which was granted
               by the Tel Aviv Court on October 14, 1999.

               On January 25,  1999,  the Company,  along with three  affiliated
               entities,  brought an action seeking  declaratory  and injunctive
               relief in the Superior Court of New Jersey,  Somerset County, Law
               Division,  against Light Age. The litigation  relates to disputes
               arising out of an agreement  between Light Age and Laser pursuant
               to which Light Age  supplied  certain  medical  laser  devices to
               Laser.  On  March 5,  1999,  defendant  Light  Age  answered  the
               complaint  and   counterclaimed   against   plaintiffs,   seeking
               unspecified  damages under thirteen  counts alleging a variety of
               causes  of  action   such  as   breach  of   contract,   tortious
               interference    with    contract,    unjust    enrichment,    and
               misappropriation.  On July 1, 1999 the court  granted Light Age's
               motion to compel the Company and the three affiliated entities to
               arbitrate.  On August  13,  1999,  Light  Age filed a demand  for
               arbitration  on its  counterclaim  with the American  Arbitration
               Association.  On  November  22,  1999 the  Company  and the three
               affiliated  entities  filed a response to Light Age's demand.  An
               arbitration panel has been appointed,  discovery is ongoing,  and
               hearings  on the merits  have been  scheduled  for Fall 2001.  No
               accrual has been  recorded in the financial  statements  for this
               matter.

          (4)  On May 8, 2001,  Lumenos,  Inc.  filed a complaint  in the United
               States District Court for the District of Massachusetts, in which
               it  alleged  that  the  Company  and its  wholly  owned  indirect
               subsidiary ESC Medical Systems,  Inc.  (together,  "ESC Medical")
               infringe  the  name  and  mark  "Lumenos"  due to  ESC  Medical's
               contemplated  change  of its  name to  "Lumenis."  The  complaint
               further alleges unfair  competition and related causes of action,
               all  pertaining  to the name change.  Neither the Company nor ESC
               Medical  Systems,  Inc. has been served with this  complaint.  If
               served,  both companies intend to vigorously defend the suit. The
               ultimate outcome, however, is undetermined at this time.


                                       12
<PAGE>


                            ESC MEDICAL SYSTEMS LTD.
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2001
                       (In thousands, except share data)


Note 5 - CONTINGENT LIABILITIES (Cont.)

          (5)  With respect to the legal proceedings,  claims and litigation for
               which no accrual has been recorded in the  financial  statements,
               management  of the  Company is unable to predict  the  outcome of
               such matters,  the  likelihood of an  unfavorable  outcome or the
               amount or range of potential loss, if any.

          (6)  The Company and its  subsidiaries  are involved in further  legal
               proceedings, claims and litigation arising in the ordinary course
               of business.  In the opinion of  management,  the outcome of such
               current legal  proceedings,  claims and  litigation  could have a
               material effect on quarterly or annual operating  results or cash
               flows when resolved in a future period.  However,  in the opinion
               of management,  each of these matters  individually is not likely
               to  materially  affect  the  Company's   consolidated   financial
               position.





                                  # # # # # # #



                                       13
<PAGE>


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

OVERVIEW

The  Company  is a  world  leader  in the  design,  manufacture,  marketing  and
servicing  of a broad  range of medical  devices  that  incorporate  proprietary
intense pulsed light technology, state-of-the-art lasers and accessories as well
as other technologies.  The Company's systems incorporate these technologies for
applications in aesthetic dermatology, plastic and re-constructive surgery, ear,
nose and  throat  procedures  and oral and dental  surgery,  among  others.  The
Company's  systems are  designed  for use in a variety of medical  environments,
ranging from physicians' offices to acute care hospitals.

On February 25, 2001, the Company, its wholly-owned  subsidiary,  Energy Systems
Holdings Inc. ("ESH"), and Coherent,  Inc.  ("Coherent"),  entered into an Asset
Purchase  Agreement,  dated  as  of  February  25,  2001  (the  "Asset  Purchase
Agreement"),  pursuant to which  Coherent  agreed to sell or cause to be sold to
the Company and certain of its  subsidiaries  (collectively,  the "Buyer Group")
substantially  all of the assets and liabilities of the Coherent  Medical Group,
Coherent's medical products division (the "Acquisition"). On April 30, 2001, the
Buyer Group and Coherent and its  subsidiaries  completed the  Acquisition  (the
"Closing").  In  addition,  on April 30,  2001,  the  parties  amended the Asset
Purchase Agreement.

At the Closing,  the Coherent entities received  $100,000,000 in cash (the "Cash
Purchase  Price"),   5,432,099  ESC  ordinary  shares  (the  "Shares"),  and  an
eighteen-month  note  bearing  interest  at the rate of 5% per  annum and in the
principal  amount of  $12,900,000  (the "Note",  together with the Cash Purchase
Price and the Shares, the "Closing Consideration"). The Asset Purchase Agreement
also  provides  for  a  post-Closing  earn-out  payment  to  Coherent  of  up to
$25,000,000,   subject  to   certain   financial   conditions   being  met  (the
"Post-Closing Consideration"). The amount and terms of the Closing Consideration
and the Post-Closing  Consideration were determined by arms-length  negotiations
among the parties.

To finance the  Acquisition,  ongoing working capital needs and, if needed,  the
refinancing of the Company's 6% convertible  subordinated notes due September 1,
2002, the Company and certain of its subsidiaries entered into various financing
arrangements  (the  "Financing")  with  Bank  Hapoalim  B.M  (the  "Bank").  The
Financing consists of: (a) a $100,000,000  six-year term loan, (b) a $50,000,000
line of credit  and (c) a letter of intent  pursuant  to which the Bank  agreed,
subject  to the terms  and  conditions  set  forth  therein,  to  provide  up to
$92,000,000  to refinance the Company's 6%  convertible  subordinated  notes due
September 1, 2002. Each of the facilities is or will be secured by substantially
all  of  the  assets  of  the  Company,   ESH  and  certain  of  their  material
subsidiaries.  In connection with the Financing,  on April 30, 2001, the Company
and the Bank also entered into,  subject to  shareholder  approval,  a five year
option  agreement  granting  the Bank or any of its  subsidiaries  the  right to
purchase  from the Company up to 2,500,000  ordinary  shares of the Company at a
purchase price of US$20.25 per share, subject to certain adjustments.

The assets  acquired  include,  among other things,  plant,  equipment and other
physical property. It is the Company's current intention to continue to use such
assets for purposes similar to the purposes for which those assets are currently
being used.

In this Report,  unless the context  otherwise  requires,  all references to the
"Company"  are to ESC Medical  Systems Ltd.  and its direct and indirect  wholly
owned subsidiaries.


                                       14
<PAGE>

RESULTS OF OPERATIONS

THREE MONTH PERIOD ENDED MARCH 31, 2001  COMPARED  WITH THREE MONTH PERIOD ENDED
MARCH 31, 2000 (In thousands of U.S. Dollars)

Revenues.  The Company's net revenues  increased by 22% to $43,868 for the three
months ended March 31, 2001 compared to $36,028 for the three months ended March
31, 2000.

The increase in sales is attributable to a significant increase in unit sales in
all territories.

Gross  Profit.  Gross  profit  increased  by 45% to $28,306 for the three months
ended March 31, 2001 from $19,547 for the three months ended March 31, 2000.  As
a percentage  of sales the gross profit was 65% in the three months period ended
March 31,  2001  compared  to 54% in the same  period in 2000.  The  significant
increase  in gross  profit is due to the  increase  in sales and more  favorable
product mix.

Research and Development,  Net. Net research and development  costs increased by
10% to $3,075 for the three  months ended March 31, 2001 from $2,806 in the same
period in 2000. As a percentage of sales,  research and development cost were 7%
in the three  month  period  ended March 31, 2001 as compared to 8% in the three
month period ended March 31, 2000.

Marketing,   Selling  and  Administrative  Expenses.   Marketing,   selling  and
administrative  expenses  increased by 41% to $20,579 for the three months ended
March 31, 2001  compared to $14,549 for the same period in 2000.  Excluding  one
time costs relating to the Coherent  transaction of $2,337 and legal  settlement
cost of $1,506,  marketing,  selling and administrative  expense were $16,736 in
the three  months ended March 31, 2001.  As a  percentage  of sales,  marketing,
selling and administrative expenses excluding one time and legal settlement cost
in the three month  period  ended March 31, 2001 were 38% compared to 40% in the
same period in 2000.

Operating  Income.  For the three months ended March 31, 2001,  operating profit
was $4,652  compared to operating  profit of $2,192 for the same period in 2000.
Excluding one time and legal  settlement  cost, the operating profit was $8,495,
which  represents  19% of sales  compared to 6% of sales in the same  quarter in
2000.

The  improvement  in operating  results is due to higher sales, a more favorable
product mix and completion of the restructuring plan.

Financing  Expenses,  Net. For the three months ended March 31, 2001,  financing
expenses were $1,369 compared to financing expenses of $1,040 in the same period
in 2000.  The  increase in finance cost is due mainly to a decrease in available
cash and to differences in foreign currency charges.

Taxes on Income.  Taxes on income  provided income of $1,496 in the three months
ended March 31, 2001 compared with expense of $98 in the same period in 2000. On
April 2001,  the Company  reached a final  agreement with the Israeli income tax
authorities  with regard to tax returns filed by the Company for the years up to
and  including  1998.  As a result,  the Company  recorded a gain of $1,600.

Company's  Share in  Losses  of  Affiliates.  The  Company's  Share in Losses of
Affiliates in 2001 was $551 compared to $102 in 2000.

Extraordinary  gain on purchase of Company's  convertible  notes.  For the three
months  ended March 31,  2000  extraordinary  gain on purchase of the  Company's
convertible notes was $292.


                                       15
<PAGE>

Net Income. As a result of the foregoing  factors,  the Company's net income was
$4,228 for the three  months  ended  March 31,  2001  compared  to $1,244 in the
period in 2000.  Excluding one time cost,  legal  settlement cost and the income
resulting  from reverse of excess income tax  provision,  the net income for the
three month period ended March 31, 2000 was $6,575.

The  improvement  in net income is due to the  higher  sales,  a more  favorable
product mix and completion of the restructuring plan.

LIQUIDITY AND CAPITAL RESOURCES
(in thousands of dollars)

As of March 31,  2001,  the  Company  had cash and cash  equivalents  of $30,203
compared  to $43,396 on December  31,  2000.  The  decrease of $13,193 is mainly
attributable to:

Operating activities
(in thousands of dollars)

For the three months ended March 31, 2001,  cash used for  operating  activities
was $15,880.  The primary  operating  activities  were the reduction of accounts
payable and accrued expenses of $14,828, increase in inventory levels of $5,998,
increase in prepaid expense and other  receivables of $1,633,  increase in trade
receivables  of $619,  offset  by non cash  charges  of  $2,970  and a profit of
$4,228.

Investing Activities
(in thousands of dollars)

For the three months ended March 31, 2001,  cash used for  investing  activities
was  approximately  $5,628,  $4,637 for investment in short term  investment and
$991 for investment in fixed assets.

Financing Activities
(in thousands of dollars)

For the three months ended March 31, 2001, cash provided by financing activities
was $8,315.  The  primary  financing  activities  of the  Company  included  the
proceeds from the exercise of options of $8,318.

As described  above, in connection with the Acquisition of the Coherent  Medical
Group  which  was  completed  on April 30,  2001 the  Company  entered  into the
Financing with the Bank,  consisting of (a) a $100,000 six-year term loan, (b) a
$50,000  line of credit  and (c) a letter of intent  pursuant  to which the Bank
agreed,  subject to the term and conditions set forth therein,  to provide up to
$92,000  to  refinance  the  Company's  6%  convertible  subordinated  notes due
September 1, 2002.

The Company believes that internally  generated  funds,  together with available
cash and funds  available  under the Bank line of credit,  will  suffice over at
least the next 12 months to meet the Company's presently anticipated  day-to-day
operating  expenses,  materials,   commitments,   working  capital  and  capital
expenditure requirements.

CAUTIONARY STATEMENTS

Certain  statements  made in this  Report or made in press  releases  or in oral
presentations  made by the Company's  employees or agents  reflect the Company's
estimates  and beliefs and are  intended  to be, and are hereby  identified  as,
"forward looking  statements" for the purposes of the safe harbor  provisions of
the Private Securities Litigation Reform Act of 1995.

The Company cautions readers that such forward looking  statements involve risks
and  uncertainties  that could cause actual  results to differ  materially  from
those  expected by the Company or expressed  in the  Company's  forward  looking
statements.  These factors include,  but are not limited to, the following:  (1)
uncertainty of market  acceptance of the Company's  products;  (2) uncertainties
with respect to obtaining  regulatory approvals for new products or for the sale
of existing  products in new  markets;  (3)  uncertainties  associated  with the
enforcement  of  intellectual  property  rights by the Company  and others;  (4)
limited number of customers for the Company's  products;  (5) risks of downturns
in economic conditions generally,  and in the health care industry specifically;
(6) risks associated with competition and competitive pricing pressures; (7) the
occurrence of unanticipated  events and circumstances;  (8) the inability of the
Company to  integrate  successfully  its  operations  with  those of  Coherent's
medical group (or any other  business which the Company may acquire) and thereby
achieve the anticipated cost savings and other synergies and be in a position to
take  advantage  of  potential  opportunities


                                       16
<PAGE>

for growth;  and (9) other risks  described  in the  Company's  filings with the
Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on forward-looking  statements
made in this Report,  or made in press releases or in oral  presentations.  Such
forward-looking  statements  reflect  management's  analysis only as of the date
such  statements  are made and the Company  undertakes  no  obligation to revise
publicly these  forward-looking  statements to reflect  events or  circumstances
that arise  subsequently.  Readers should  carefully review the risk factors set
forth above and described  elsewhere in this document and in other documents the
Company files from time to time with the Securities and Exchange Commission.

CONDITIONS IN ISRAEL

The  Company's  principal  offices  and a  substantial  portion  of its  product
development  and  manufacturing  facilities  are located in the State of Israel.
Accordingly,  the Company is directly  affected by the  political,  economic and
military conditions in Israel. Since the establishment of the State of Israel in
1948,  a number of armed  conflicts  have  taken  place  between  Israel and its
neighbors.  A state of  hostility,  varying from time to time in  intensity  and
degree,  has led to security and economic problems for Israel.  However, a peace
agreement between Israel and Egypt was signed in 1979, a peace agreement between
Israel and Jordan was signed in 1994 and, since 1993, several agreements between
Israel and Palestinian representatives have been signed. In addition, Israel and
several Arab States have announced  their intention to establish trade and other
relations and are discussing  certain projects.  Israel has not entered into any
peace agreement with Syria or Lebanon,  and there have been  difficulties in the
negotiations with the Palestinians.  The Company cannot be certain as to how the
peace process will develop or what effect it may have upon the Company.

Despite  the  progress  towards  peace  between  Israel and its Arab  neighbors,
certain  countries,  companies and  organizations  continue to  participate in a
boycott of Israeli  firms and others doing  business with Israel or with Israeli
companies.  The  Company  does not  believe  that the boycott has had a material
adverse effect on the Company.  However, a prolonged  continuation of the recent
increase in hostilities in the region could lead to increased boycotts, further,
restrictive  laws,  policies or  practices  directed  towards  Israel or Israeli
businesses  and these could have a material  adverse  impact on the expansion of
the  Company's  business.  Generally,  all male  adult  citizens  and  permanent
residents of Israel under the age of 48 are obligated, unless exempt, to perform
up to 45 days, or longer under certain  circumstances,  of military reserve duty
annually. Additionally, all such residents are subject to being called to active
duty at anytime under emergency circumstances.  Currently, some of the Company's
senior  officers and key employees are obligated to perform annual reserve duty.
While the Company has operated  effectively  under these  requirements  since it
began  operations,  no  assessment  can be made as to the  full  impact  of such
requirements  on our workforce or business if conditions  should change,  and no
prediction  can be made as to the  effect on the  Company  of any  expansion  or
reduction of such obligations, particularly if emergency circumstances occur.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company  maintains an investment  portfolio  which consists mainly of income
securities  with an  average  maturity  of less  than one  year.  The  portfolio
consists of corporate bonds and bank deposits. The Company's policy is generally
to hold its fixed income  investments  until  maturity and therefore the Company
would not expect its  operating  results  or cash  flows to be  affected  to any
significant degree by a sudden change in market interest rates on its securities
portfolio.

The Company has fixed rate  long-term  debt of  approximately  $92 million.  The
Company  believes  that a material  decrease in interest  rates would not have a
material impact on the fair value of this debt.


                                       17
<PAGE>

The Company has foreign subsidiaries, which sell and manufacture its products in
various markets.  As a result, the Company's earnings and cash flows are exposed
to fluctuation in foreign currency exchange rates. The Company attempts to limit
this  exposure by selling and linking its products  mostly to the United  States
dollar.

The Company also enters into foreign  currency  hedging  transactions to protect
the dollar value of its non-dollar denominated trade receivables, mainly in JPY,
British  Sterling  and  EURO.  The gain and  losses  on these  transactions  are
included in the  statement of  operations  in the period in which the changes in
the exchange  rate occur.  There can be no  assurance  that such  activities  or
others will eliminate the negative  financial  impact of currency  fluctuations.
Indeed, such activities may have adverse impact on earnings.

Generally,  the Company does not hedge  transactions  nor does it use derivative
financial instruments for trading purposes.



PART II. OTHER INFORMATION

Item 1. Legal Proceedings.


The Company is a party to various  legal  proceedings  incident to its business.
Except as noted below and as noted in the  Company's  annual report on Form 10-K
for the year ended December 31, 2000, 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.

On May 8, 2001,  Lumenos,  Inc. filed a complaint in the United States  District
Court for the  District of  Massachusetts,  in which it alleged that the Company
and its wholly owned indirect  subsidiary ESC Medical Systems,  Inc.  (together,
"ESC  Medical")  infringe  the  name  and mark  "Lumenos"  due to ESC  Medical's
contemplated  change of its name to  "Lumenis."  The complaint  further  alleges
unfair  competition  and related  causes of action,  all  pertaining to the name
change.  Neither the Company nor ESC Medical Systems,  Inc. has been served with
this complaint.  If served, both companies intend to vigorously defend the suit.
The ultimate outcome, however, is undetermined at this time.

In  addition  to the  foregoing  proceedings,  the Company is a party in certain
actions in various  countries  in which the Company  sells its products in which
plaintiffs have alleged that the Company's  products did not perform as promised
and/or that the Company made certain  misrepresentations  in connection with the
sale of  products to the  plaintiffs.  The  largest  single such case  presently
pending  against the Company is a cased filed by H.K.  Hashalom  Medical Centers
Ltd. in Tel-Aviv  District Court against the Company and Dr. Shimon  Eckhouse in
connection with the sale of the Company's  EpiLight  systems.  H.K.  Hashalom is
seeking  monetary  damages in the amount of  NIS10,000,000  (approximately  $2.5
million at current exchange rates),  but has reserved the right to increase such
amount as well as to request a declaratory  judgment  that,  among other things,
the Company  indemnify  it for  certain  costs and  expenses  arising out of the
transaction  between the  parties.  On July 15,  1999,  the  defendants  filed a
Statement of Defense.  At a pre-trial hearing,  the Court advised the parties to
resolve the dispute through mediation which has since commenced. The parties are
currently negotiating a settlement agreement.

Apart from H.K. Hashalom's action, management believes that none of the other of
these  types of cases  that are  presently  pending  individually  would  have a
material adverse impact on the consolidated  financial  position of the Company,
although  such other  proceedings  could have a material  effect on quarterly or
annual operating results or cash flows when resolved in a future period.

Finally,  the Company also is a defendant in various product liability  lawsuits
in which the Company's  products are alleged to have caused  personal  injury to
certain individuals who have underwent  treatments using the Company's products.
The Company maintains  insurance against these types of claims and believes that
these claims  individually or in the aggregate are not likely to have a material
adverse impact on the business,  financial condition or operating results of the
Company.




                                       18
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

None.

(b)  Reports on Form 8-K

The Company  filed the  following  Current  Reports on Form 8-K during the three
month period ended March 31, 2001:

Date of Report                     Subject of Report
--------------                     -----------------
March 20, 2001                     Execution  of  the Asset  Purchase  Agreement
(Date of earliest event            providing  for the acquisition by the Company
reported: February 25, 2001)       of the Coherent Medical Group (reported under
                                   Item 5 of Form 8-K).

A Current Report on Form 8-K  subsequently  filed by the Company on May 15, 2000
covered the April 30 closing of the Coherent transaction and related financing.


                                   SIGNATURES

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


                                              ESC Medical Systems Ltd.

                                              /s/  Sagi A. Genger
                                              -----------------------------
Date: May 18, 2001                            By: Sagi A. Genger
                                                  (Chief Financial Officer,
                                                  and Duly Authorized Officer)


                                       19