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, 2002

          |_| 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

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

                  Israel                             N.A.
     (State or other jurisdiction of           (I.R.S. Employer
      incorporation 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: 972-4-959-9000

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 13,
2002 was 36,758,606 Ordinary Shares, NIS 0.10 par value per share.

<PAGE>

                                  LUMENIS LTD.

                                    FORM 10-Q

                      For the Quarter Ended March 31, 2002

                                      INDEX

PART I.  FINANCIAL INFORMATION.................................................3

      ITEM 1.  Financial Statements............................................3

        1)     Independent Accountant's Review Report..........................3

        2)     Consolidated Balance Sheets.....................................4

        3)     Consolidated Statements of Operations...........................5

        4)     Statement of Changes in Shareholders' Equity....................6

        5)     Consolidated Statements of Cash Flows...........................7

        6)     Notes to Unaudited Condensed Consolidated Financial
               Statements......................................................8

      ITEM 2.  Management's  Discussion and Analysis of Financial Condition
               and Results of Operations......................................14

      ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk......23

PART II. OTHER INFORMATION....................................................24

      ITEM 1.  Legal Proceedings..............................................24

      ITEM 2.  Changes in Securities and Use of Proceeds......................25

      ITEM 6.  Exhibits and Reports on Form 8-K...............................26

                                   # # # # # #


                                      -2-
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Brightman Almagor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164                                   Deloitte
Israel                                                         & Touche
                                                               Brightman Almagor
Tel: +972 (3) 6085555
Fax: +972 (3) 6094022
info@deloitte.co.il
www.deloitte.co.il

                     Independent Accountant's Review Report

The Board of Directors
Lumenis Ltd. (Formerly ESC Medical Systems Ltd.):
Yokneam

We have  reviewed the  accompanying  consolidated  balance sheet of Lumenis Ltd.
(Formerly ESC Medical Systems Ltd.) (the  "Company") and its  subsidiaries as of
March 31, 2002 and the related 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 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 8, 2002

Deloitte                        Tel Aviv  Jerusalem  Haifa  Eilat
Touche
Tohmatsu


                                      -3-

<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                          March 31,      December 31,
                                                                             2002            2001
                                                                         ------------    ------------
                                                                         (Unaudited)
<S>                                                                      <C>             <C>
CURRENT ASSETS
   Cash and cash equivalents                                             $     23,664    $     31,400
   Trade receivables, net                                                     113,888         100,823
   Prepaid expenses and other receivables                                      10,734          10,968
   Inventories                                                                 76,950          83,614
                                                                         ------------    ------------
                                                                              225,236         226,805
                                                                         ------------    ------------
FINISHED GOODS USED IN OPERATIONS                                               9,317           9,180

LONG-TERM INVESTMENTS
   Bank deposits and securities                                                    --             970
   Investments in non marketable equity securities                              3,241           3,337
   Long term trade receivables                                                  2,464           3,134

FIXED ASSETS, NET                                                              18,477          16,198

GOODWILL AND OTHER ASSETS, NET                                                130,060         127,650
                                                                         ------------    ------------
      Total assets                                                       $    388,795    $    387,274
                                                                         ============    ============

CURRENT LIABILITIES
   Short-term bank debt                                                  $     24,479    $         --
   Current maturities of long term loans                                       10,000          10,000
   Trade payables                                                              23,538          25,763
   Other accounts payable and accrued expenses                                 88,711          90,749
   Subordinated note                                                           12,904          12,904
                                                                         ------------    ------------
                                                                              159,632         139,416
                                                                         ------------    ------------
LONG TERM LIABILITIES

   Bank loans                                                                  90,000          90,000
   Deferred income                                                              1,172           1,172
   Accrued severance pay, net                                                   1,546           1,169
   Convertible subordinated notes                                              56,514          70,667
   Other long-term liabilities                                                    582           5,484
                                                                         ------------    ------------
                                                                              149,814         168,492
                                                                         ------------    ------------

Total liabilities                                                             309,446         307,908
                                                                         ------------    ------------
CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY
Ordinary shares of NIS 0.1 par value: Authorized - 100,000,000 shares;
Issued and outstanding 36,758,606 and 36,667,070 shares, respectively             802             800
   Additional paid-in capital                                                 321,854         321,230
   Accumulated deficit                                                       (243,204)       (242,561)
   Treasury stock, at cost: 14,898 and 14,898 shares, respectively               (103)           (103)
                                                                         ------------    ------------
      Total shareholders' equity                                               79,349          79,366
                                                                         ------------    ------------
Total liabilities and shareholders' equity                               $    388,795    $    387,274
                                                                         ============    ============
</TABLE>

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


                                      -4-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                         For the three months
                                                            ended March 31,
                                                      ---------------------------
                                                         2002             2001
                                                      ----------       ----------
<S>                                                   <C>              <C>
NET REVENUES                                          $   86,122       $   43,868

COST OF REVENUES                                          41,030           15,562
                                                      ----------       ----------
     Gross profit                                         45,092           28,306
                                                      ----------       ----------

OPERATING EXPENSES
  Research and development, net                            7,007            3,075
  Selling, marketing and administrative expenses          33,135           20,579
  Amortization of intangible assets                        1,816               --
  Write-down of investment                                    --              551
                                                      ----------       ----------
     Total operating expenses                             41,958           24,205
                                                      ----------       ----------
     Operating income                                      3,134            4,101

FINANCING EXPENSES, NET                                   (3,676)          (1,369)
                                                      ----------       ----------
     Income (loss) before income taxes                      (542)           2,732

INCOME TAX BENEFIT (EXPENSE)                                (102)           1,496
                                                      ----------       ----------

     Income (loss) after income taxes                       (644)           4,228

COMPANY'S SHARE IN LOSSES OF AN AFFILIATE                     91               --
                                                      ----------       ----------
     Net income (loss) before extraordinary item            (735)           4,228

EXTRAORDINARY GAIN ON PURCHASE OF COMPANY'S
CONVERTIBLE NOTES                                             92               --
                                                      ----------       ----------
     Net income (loss) for the period                 $     (643)      $    4,228
                                                      ==========       ==========
EARNINGS PER SHARE
  Basic:
  Income (loss) before extraordinary item             $    (0.02)      $     0.16
  Extraordinary gain                                          --               --
                                                      ----------       ----------
     Net earnings (loss) per share                    $    (0.02)      $     0.16
                                                      ==========       ==========
  Diluted:
  Income (loss) before extraordinary item             $    (0.02)      $     0.14

  Extraordinary gain                                          --               --
                                                      ----------       ----------
     Net earnings (loss) per share                    $    (0.02)      $     0.14
                                                      ==========       ==========
WEIGHTED AVERAGE NUMBER
  OF SHARES

     Basic                                                36,713           26,181
                                                      ==========       ==========
     Diluted                                              36,713           30,297
                                                      ==========       ==========
</TABLE>

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


                                      -5-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                Additional
                                    Share         paid in      Accumulated      Treasury
                                   capital        capital        deficit          stock           Total
                                  ---------     ----------     -----------      ---------       ---------
<S>                               <C>            <C>            <C>             <C>             <C>
Balance as of
   December 31, 2001              $     800      $ 321,230      $(242,561)      $    (103)      $  79,366

Exercise of options                       2            624             --              --             626

Net loss for the period                                              (643)                           (643)

                                  ---------      ---------      ---------       ---------       ---------
Balance as of March 31, 2002      $     802      $ 321,854      $(243,204)      $    (103)      $  79,349
                                  =========      =========      =========       =========       =========
</TABLE>

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


                                      -6-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    For the three months
                                                                                 ---------------------------
                                                                                       ended March 31
                                                                                 ---------------------------
                                                                                    2002             2001
                                                                                 ----------       ----------
<S>                                                                              <C>              <C>
CASH FLOWS - OPERATING ACTIVITIES
   Net income (loss)                                                             $     (643)      $    4,228
   Adjustments to reconcile net income (loss) to net cash
     used in operating activities -
       Income and expenses not affecting operating cash flows:
         Amortization of unearned compensation                                           --              120
         Acceleration of vesting of option                                               --              967
         Depreciation and amortization                                                4,386            1,445
         Extraordinary gain on purchase of Company's convertible notes                  (92)              --
         Company's share on losses of an affiliate                                       91               --
         Write-down of investment                                                        --              551
         Amortization of other long term assets                                         858               --
         Other                                                                         (430)             246
       Changes in operating assets and liabilities:
         Increase in trade receivables                                              (12,395)            (619)
         Decrease (Increase) in prepaid expenses and other receivables                  306           (1,441)
         Decrease (Increase) in inventories (1)                                       4,862           (6,549)
         Decrease in accounts payable, accrued expenses and other long-term
           liabilities                                                              (11,040)         (14,828)
                                                                                 ----------       ----------
         Net cash - operating activities                                            (14,097)         (15,880)
                                                                                 ----------       ----------

CASH FLOWS - INVESTING ACTIVITIES
         Additional payments for business acquired                                     (637)              --
         Purchase of fixed assets, net                                               (3,443)            (991)
         Investment in other long-term assets                                        (1,250)              --
         Investments, deposits and securities, net                                      970           (4,637)
                                                                                 ----------       ----------
         Net cash - investing activities                                             (4,360)          (5,628)
                                                                                 ----------       ----------

CASH FLOWS - FINANCING ACTIVITIES
         Purchase of convertible notes                                              (14,384)              --
         Proceeds from exercise of options                                              626            8,318
         Increase (decrease ) of long-term loans                                         --               (3)
         Increase in short-term bank debt, net                                       24,479               --
                                                                                 ----------       ----------
         Net cash - financing activities                                             10,721            8,315
                                                                                 ----------       ----------

DECREASE IN CASH AND CASH EQUIVALENTS                                                (7,736)         (13,193)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     31,400           43,396
                                                                                 ----------       ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $   23,664       $   30,203
                                                                                 ==========       ==========
CASH PAID DURING THE PERIOD IN RESPECT OF:
   Income taxes                                                                  $      347       $      141
                                                                                 ==========       ==========
   Interest                                                                      $    2,578       $    2,767
                                                                                 ==========       ==========
</TABLE>

(1)   Including finished goods used in operations.

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


                                      -7-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 1 - BASIS OF PRESENTATION

     The accompanying  unaudited condensed  consolidated financial statements of
     Lumenis Ltd.  (Formerly ESC Medical  Systems Ltd.) (the  "Company") and its
     subsidiaries  (collectively  "the  Group") as of March 31, 2002 and for the
     three  months  then  ended  are  unaudited  and  reflect  all   adjustments
     (consisting only of normal recurring adjustments) which are, in the opinion
     of management,  necessary for a fair presentation of the financial position
     and operating  results for the interim period.  The condensed  consolidated
     financial  statements  should be read in conjunction  with the consolidated
     financial  statements and notes thereto,  contained in the Company's Annual
     Report on Form 10-K for the  fiscal  year  ended  December  31,  2001.  The
     results of  operations  for the three  months  ended March 31, 2002 are not
     necessarily  indicative  of the results  for the entire  fiscal year ending
     December 31, 2002.

     Certain prior period balances have been  reclassified to conform to current
     period presentation.

Note 2 - NEW ACCOUNTING PRONOUNCEMENT

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
     Accounting  Standards No. 142 ("SFAS 142"),  "Goodwill and Other Intangible
     Assets."  SFAS 142  requires,  among other things,  the  discontinuance  of
     amortization  related to goodwill and indefinite lived  intangible  assets.
     These assets will then be subject to an impairment  test at least annually.
     In  addition,  the  statement  includes  provisions  upon  adoption for the
     reclassification  of certain existing  recognized  intangibles to goodwill,
     the  identification  of  reporting  units  for  the  purpose  of  assessing
     potential  future  impairments of goodwill,  the reassessment of the useful
     lives  of  existing  recognized  intangibles  and the  reclassification  of
     certain intangibles out of previously reported goodwill.

     The  adoption of SFAS No. 142  resulted  in an  exclusion  of  amortization
     expenses in the amount of approximately  $1,500 for the quarter ended March
     31, 2002 and approximately  $6,000 for the year 2002. Any impairment losses
     recorded  in the  future  could  have an  adverse  impact on our  financial
     condition and results of operations.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
     Retirement  Obligations".  SFAS No. 143 addresses financial  accounting and
     reporting  for  obligations  associated  with the  retirement  of  tangible
     long-lived  assets and the associated asset retirement  costs. SFAS No. 143
     is effective  for fiscal  years  beginning  after June 15, 2002.  While the
     Company is  currently  evaluating  the impact the  adoption of SFAS No. 143
     will have on its financial position and results of operations,  it does not
     expect such impact to be material.

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
     Accounting  Standards No. 144 ("SFAS 144"),  "Accounting for the Impairment
     or Disposal of  Long-Lived  Assets."  This  statement  addresses  financial
     accounting  and reporting for the  impairment  of  long-lived  assets.  The
     statement also broadens the  definition of what  constitutes a discontinued
     operation  and  how  the  results  of a  discontinued  operation  are to be
     measured  and  presented.  The  adoption of this  statement  did not have a
     material  impact  on the  Company's  results  of  operations  or  financial
     position.


                                      -8-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 3 - MERGERS AND ACQUISITIONS

     A.   On April 30, 2001 (the  "Closing"),  the Group  acquired from Coherent
          Inc. ("Coherent") all of the assets and assumed certain liabilities of
          the Coherent Medical Group ("CMG"), Coherent's medical group division.
          The assets  acquired  included among other things,  plant,  equipment,
          certain technology,  goodwill and other physical property. CMG focuses
          on  solid-state  lasers  and  diode  lasers  that  are  developed  for
          aesthetic,   surgical  and  ophthalmic  applications.   The  core  CMG
          technologies  are in the area of lasers,  optics,  embedded  software,
          electronic controllers, power supplies, and mechanical design

          Pro Forma Financial Results:

          The following  selected  unaudited pro forma results of operations for
          three  months  ended  March 31,  2001 of the Group and CMG,  have been
          prepared  assuming the CMG  acquisition  occurred at the  beginning of
          2001.

<TABLE>
<CAPTION>
                                                                               Three months ended
                                                                                    March 31,
                                                                                      2001
                                                                                   ----------
                                                                                   (Unaudited)
                                                                                   ----------
<S>                                                                                <C>
          Net Revenues                                                             $   97,951
          Net income                                                               $    2,790
          Basic net earnings per share                                             $     0.09
          Diluted net earnings per share                                           $     0.07
          Weighted average number of shares used in calculation of basic net
            earnings per share                                                         31,613
          Weighted average number of shares used incalculation of diluted net
            earnings per share                                                         41,040
</TABLE>

     The pro forma  results of  operations  give effect to certain  adjustments,
     including  amortization  of  purchased  intangibles,  goodwill  and options
     granted in  connection  with  financing and write down of  inventories  and
     receivables.  Such unaudited  information does not purport to be indicative
     of the combined  results of operations  of future  periods or indicative of
     the results that actually  would have been realized had the entities been a
     single entity during the period presented.

     The $46,650 charge for purchased  in-process  research and  development has
     been excluded from the pro forma results, as it is a material non-recurring
     charge.


                                      -9-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 4 - TRADE RECEIVABLES

     The  trade  receivables  as of March 31,  2002 and  December  31,  2001 are
     presented  net of allowance  for doubtful  accounts of $17,296 and $19,744,
     respectively and provision for returns of $2,767 and $2,849, respectively.

Note 5 - INVENTORIES

     Inventories are composed of the following:

<TABLE>
<CAPTION>
                                                          March 31,       December
                                                            2002          31, 2001
                                                         ----------      ----------
<S>                                                      <C>             <C>
     Raw materials                                       $   28,999      $   35,362
     Work in process                                         13,944          15,536
     Finished products                                       34,007          32,716
                                                         ----------      ----------
                                                         $   76,950      $   83,614
                                                         ==========      ==========
</TABLE>

Note 6 - SEGMENT INFORMATION

     A. REPORTABLE SEGMENTS

     Commencing January 1, 2002, the Company began to evaluate its business on a
     basis of four separate business units, as follows: Aesthetics,  Ophthalmic,
     Surgical,  and Other.  Those  business  units were  identified as operating
     segments in accordance with SFAS No. 131,  "Disclosure about Segments of an
     Enterprise  and Related  Information".  The  information  evaluated  by the
     Company's  decision  makers in deciding how to allocate  resources to these
     segments are net revenues and gross profit.

<TABLE>
<CAPTION>
                                       For the three months ended March 31, 2002

                       Aesthetics     Ophthalmic      Surgical        Other      Consolidated
<S>                    <C>            <C>            <C>            <C>            <C>
     Net Revenues      $  37,162      $  17,903      $  14,626      $  16,431      $  86,122

     Gross Profit      $  25,721      $   8,255      $   7,918      $   3,198      $  45,092
</TABLE>


                                      -10-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 6 - SEGMENT INFORMATION (Cont.)

<TABLE>
<CAPTION>
                                                             For the three
                                                              months ended
                                                                March 31,
                                                             -------------
                                                                 2001
                                                             -------------
<S>                                                           <C>
      Net Revenues
        Surgical and aesthetics                               $    37,968
        Dental                                                      2,754
        Industrial                                                  3,146
                                                              -----------
         Consolidated                                         $    43,868
                                                              ===========
      Operating income (loss)
        Surgical and aesthetics                               $     4,551
        Dental                                                       (199)
        Industrial                                                    390
                                                              -----------
         Consolidated                                               4,652
      Financing expenses, net                                      (1,369)
                                                              -----------
      Income before income taxes                              $     3,283
                                                              ===========
</TABLE>

     B. GEOGRAPHIC INFORMATION:

     The following presents net revenues based on the location of the customer:

<TABLE>
<CAPTION>
                                                    For the three
                                                     months ended
                                                       March 31,
                                            --------------------------------
                                                2002               2001
                                            -------------      -------------
<S>                                         <C>                <C>
      Net Revenues
         North America                      $      43,574      $      14,939
         Europe                                    15,502             10,891
         Asia                                      22,296             12,733
         Israel                                       747                662
         Other                                      4,003              4,643
                                            -------------      -------------
         Consolidated                       $      86,122      $      43,868
                                            =============      =============

<CAPTION>

                                              March 31,         December 31,
                                            -------------      -------------
                                                2002               2001
                                            -------------      -------------
<S>                                         <C>                <C>
         Assets
           North America                    $     185,603      $     193,866
           Europe                                 117,545             88,446
           Asia                                    27,523             34,023
           Israel                                  58,124             70,939
                                            -------------      -------------
           Consolidated                     $     388,795      $     387,274
                                            =============      =============
</TABLE>


                                      -11-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 7 - FINANCING ACTIVITIES

     On March 26,  2002,  the  Company  entered  into new  agreements  with Bank
     Hapoalim  for a new four year loan in the amount of $70,667 , the  proceeds
     of  which  will  be  used  to  repay  the  Company's  existing  convertible
     subordinated  notes due  September  1, 2002.  The $70,667  loan  matures on
     September  1, 2006 and bears  interest  at LIBOR plus 6.55%  increasing  to
     7.80% over the life of the loan.  The Company also  increased its revolving
     credit facility to $35,000 from $20,000.  In connection with these loan and
     credit  facilities,  the Company is obligated to pay Bank Hapoalim a $4,000
     fee.

Note 8 - CONTINGENT LIABILITIES

     The  Company  is a party  to  various  legal  proceedings  incident  to its
     business.  Except as noted  below or set forth in the  "Legal  Proceedings"
     section of the 2001 Form 10-K,  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.

     In February  2002,  the Company  received a request from the United  States
     Securities and Exchange  Commission ("SEC") to voluntarily  provide certain
     documents and  information  for a period  commencing  January 1, 1998.  The
     request  primarily  relates  to  the  Company's   relationships   with  its
     distributors,  and also asks for amplification of the Company's explanation
     of certain  previously  disclosed charges and write-downs.  The Company has
     begun to deliver to the SEC  documents  and  information  responsive to the
     inquiry,  and is continuing  that process.  On May 15, 2002 the Company was
     informed that the SEC had issued a formal order of  investigation  on these
     matters.  The Company is unable to predict the  duration or outcome of this
     process.

     Following the Company's  announcement of the  information  request from the
     SEC,  several  plaintiffs' law firms announced  during March and April 2002
     the filing of purported  class action suits in the United  States  District
     Court for the  Southern  District  of New York (the  "District  Court")  on
     behalf of purchasers of securities of Lumenis Ltd.  between January 7, 2002
     and February 28, 2002,  inclusive (the "Class Period),  against the Company
     and certain of its officers and directors.

     On April 23, 2002,  the Company was served with summonses and complaints in
     the matter of Martin Waldherr, et. al v. Lumenis Ltd., Jacob Frenkel, Yacha
     Sutton,  Sagi Genger and Asif Adil and in the matter of John Roefs,  et. al
     v. Lumenis Ltd.,  Jacob  Frenkel,  Yacha Sutton,  Sagi Genger and Asif Adil
     which were filed in the District  Court.  On May 14, 2002,  the Company was
     served with a summons and complaint in the matter of James Endsley,  et. al
     v. Lumenis Ltd.,  Jacob Frenkel,  Yacha Sutton,  Sagi Genger and Asif Adil,
     which  was  filed  in the  District  Court.  To the  best of the  Company's
     knowledge, in addition to these two actions, there are four other purported
     class actions  pending in the District  Court  against the same  defendants
     which assert similar  claims.  To the best of its knowledge,  as of May 15,
     2002,  the Company had not been served with a summons and  complaint in any
     of the other related actions.

     The  complaints  generally  allege that the Company  violated U.S.  Federal
     securities  laws by  issuing  materially  false and  misleading  statements
     throughout the Class Period that had the effect of  artificially  inflating
     the market price of the Company's  securities.  The complaints  allege that
     throughout the Class Period, defendants discounted and disputed marketplace
     rumors  about  its  operations  even  as the  Company  knew  it  was  being
     investigated by the SEC and that its distributors had been contacted by the
     SEC, and that even after  announcing in a press release that it was subject
     to an SEC investigation,  the Company continued to hid the fact that it had
     been aware of the SEC investigation  and had been providing  information to
     the SEC for several weeks.

     On May 9, 2002, there was a public  announcement of another purported class
     action suit against the same  defendants in the District Court on behalf of
     purchasers of Lumenis  securities  between  August 2, 2001 and May 7, 2002,
     inclusive (the "Extended Class Period"). According to the announcement, the
     complaint alleges that the defendants violated U.S. Federal securities laws
     by making a series of material  misrepresentations to the market during the
     Extended  Class  Period  regarding  the  Company's  financial  performance,
     successful  execution  of its  business  plan  and  strong  demand  for the
     Company's  products,  thereby  artificially  inflating the price of Lumenis
     securities.  As of May 15,  2002,  the  Company  had not been served with a
     summons and complaint in this action.


                                      -12-
<PAGE>

                                  LUMENIS LTD.
                       (FORMERLY ESC MEDICAL SYSTEMS LTD.)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                    FINANCIAL STATEMENTS AS OF MARCH 31, 2002
                 (In thousands, except share and per share data)

Note 8 - CONTINGENT LIABILITIES (CONT.)

     The  Company  believes  that all the  allegations  and claims in all of the
     above purported class action suits are baseless, and the Company intends to
     vigorously defend against them.

     In  addition to the  certain  actions set forth in the 2001 Form 10-K,  the
     Company is a party in certain actions in various  countries,  including the
     U.S.,  in which the Company  sells its products in which it is 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.  Management believes that none of these actions (other than
     those set  forth  above or in the Form  10-K)  that are  presently  pending
     individually  would  have a  material  adverse  impact on the  consolidated
     financial  position of the Company,  although such actions in the aggregate
     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 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.

     The balance sheet as of March 31, 2002 includes an accrual of approximately
     $18,000  (including  the provision of $13,000 due to the  class-action,  as
     disclosed in the Company's 2001 Form 10-K) reflecting management's estimate
     of the Company's  potential exposure with respect to certain,  but not all,
     legal proceedings, claims and litigation. With respect to the pending legal
     proceedings  and  claims  for which no  accrual  has been  recorded  in the
     financial  statements,  Company management 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.

Note 9 -- EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                      Period ended                            Period ended
                                                     March 31, 2002                           March 31, 2001
                                         -------------------------------------       ------------------------------------
                                                                        Per                                       Per
                                                                       Share                                      Share
                                          Income         Shares        Amount         Income        Shares        Amount
                                         --------       --------      --------       --------      --------      --------
<S>                                          <C>          <C>            <C>            <C>          <C>            <C>
      Net income (loss)                      (643)            --            --          4,228            --
                                         ========                                    ========
      Basic earnings per share
      Income (loss) before
        extraordinary items                  (735)        36,713         (0.02)         4,228        26,181          0.16
      Extraordinary gain                       92         36,713            --             --        26,181            --
                                         ========                     ========       ========                    ========
      Income available to
        ordinary shareholders                (643)        36,713         (0.02)         4,228        26,181          0.16
                                         ========                     ========       ========                    ========
      Effect of diluting securities
        Options                                               --                                      4,116
        Warrants                                              --                                         --
                                                        --------                                   --------
      Diluted earnings per share
      Income (loss) before
        extraordinary items                  (735)        36,713         (0.02)         4,228        30,297          0.14
      Extraordinary gain                       92         36,713            --             --        30,297            --
                                         ========                     ========       ========                    ========

      Income (loss) available
        to ordinary shareholders             (643)        36,713         (0.02)         4,228        30,297          0.14
                                         ========                     ========       ========                    ========
</TABLE>


                                      -13-
<PAGE>

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

OVERVIEW

Lumenis  Ltd.  ("Lumenis"  or "the  Company")  is a world  leader in the design,
manufacture,  marketing  and  servicing  of laser and light  based  systems  for
aesthetic, ophthalmic, surgical and dental applications.  Lumenis offers a broad
range of laser and intense  pulsed light ("IPL")  systems which are used in skin
treatments,  hair  removal,  non-invasive  treatment  of  vascular  lesions  and
pigmented lesions,  acne, psoriasis,  ear, nose and throat ("ENT"),  gynecology,
urinary  lithotripsy,   benign  prostatic  hyperplasia,   open  angle  glaucoma,
secondary   cataracts,   age-related   macular   degeneration,   refractive  eye
correction, neurosurgery, dentistry and veterinary.

The Company's systems are designed for use in a variety of medical environments.
The principal target markets for the Company's aesthetic products are physicians
with  private  practices  or  clinics,  as well as leading  beauty/hair  removal
centers.  Many of these are  customers  who wish to access the vanity market and
are  looking to increase  their  revenues  and reduce  dependence  on  insurance
reimbursements.  The target  markets for the  Company's  surgical  products  are
hospitals  and  outpatient  clinics  that use  lasers  for  certain  procedures.
Ophthalmologists are the primary target market for the ophthalmic products;  and
dentists are the primary target market for the dental products.

On April 30, 2001, the Company  completed the purchase of Coherent Medical Group
("CMG"), the medical division of Coherent,  Inc. ("Coherent").  This acquisition
approximately  doubled the  Company's  sales,  expanded its leading  position in
sales of pulsed  light and laser based  systems for the  aesthetic  and surgical
markets,  made it a  significant  competitor  in the  ophthalmic  portion of the
medical  laser market,  expanded its  proprietary  technology  and increased its
critical mass by country and customer  type for the marketing and  cross-selling
of its products.  After completion of this acquisition,  the Company changed its
Name from ESC Medical Systems Ltd. ("ESC") to Lumenis Ltd.

On November 30, 2001 the Company completed the acquisition of the stock of FISMA
Corporation,  Instruments  for Medicine & Diagnostics,  Inc. and Instruments for
Surgery  (collectively "HGM") from the Estate of William H. McMahan ("McMahan").
HGM is a Salt Lake City developer and manufacturer of medical laser devices. The
purchase price for HGM was $9.9 million in cash.  This  transaction  expands the
Company's  ophthalmic product offerings,  provides  specialized  technologies to
help reduce the cost of manufacturing  certain parts and accessories and enables
the  Company to  transfer  certain  manufacturing  operations  from  higher cost
locations.  The purchase  included HGM's  manufacturing  facilities.  In January
2002, the Company  exercised its right of first refusal to purchase from McMahan
the adjacent premises for the purchase price of $900,000.

In this Report,  unless the context  otherwise  requires,  all references to the
"Company",  "Lumenis",  "We" or "Our" are to  Lumenis  Ltd.  and its  direct and
indirect wholly owned subsidiaries.


                                      -14-
<PAGE>

RESULTS OF OPERATIONS

THREE-MONTH  PERIOD ENDED MARCH 31, 2002 COMPARED WITH THREE-MONTH  PERIOD ENDED
MARCH 31, 2001 (In thousands of U.S. Dollars, except per share data)

The Company  reported  net  revenues of $86,122 for the quarter  ended March 31,
2002  compared to net revenues of $43,868 for the quarter  ended March 31, 2001.
The net loss for the quarter ended March 31, 2002 was $643 or a diluted net loss
per share of $0.02  compared to net income of $4,228 for the quarter ended March
31, 2001 or a diluted net  earnings  per share of $0.14.  Commencing  January 1,
2002, we began to evaluate our business based on four separate  business  units,
as follows:  Aesthetics,  Ophthalmic,  Surgical, and other. These business units
are  identified  as  operating   segments  in  accordance  with  SFAS  No.  131,
"Disclosure  about  Segments  of an  Enterprise  and Related  Information".  The
information  evaluated by the  Company's  senior  management  in deciding how to
allocate resources to these segments are net revenues and gross profit.

Revenues.  The Company's net revenues  increased by 96% to $86,122 for the three
months ended March 31, 2002 compared to $43,868 for the three months ended March
31, 2001.

By business  units,  revenues  for the first  quarter  were  Aesthetic  $37,162,
Ophthalmic $17,903, Surgical $14,626 and Other $16,431.

The increase in sales reflects mainly the contribution from the CMG acquisition.

Gross  Profit.  Gross  profit  increased  by 59% to $45,092 for the three months
ended March 31, 2002 from $28,306 for the three months ended March 31, 2001.  As
a  percentage  of sales the gross profit was 52% in the three months ended March
31, 2002, compared to 65% in the same period in 2001.

As a percentage of sales,  Gross Profit of the Aesthetic unit was 69%,  Surgical
was 46% and Ophthalmic was 54%.

The increase in gross  profits  reflects  mainly the  contribution  from the CMG
acquisition.  The decrease in gross profit as a percentage of sales in the three
months ended March 31, 2002 stems from the  inherently  lower margins of the CMG
product  lines and was  aggravated  by the product  mix and lower  prices in our
surgical and ophthalmic products.

Research and Development,  net. Net Research and Development  costs increased by
128% to $7,007 for the three months ended March 31, 2002 from $3,075 in the same
period in 2001. As a percentage of sales, Research and Development costs were 8%
in the three-month period ended March 31, 2002 compared to 7% in the same period
in 2001.

The increase in Research and  Development  costs in the three months ended March
31, 2002 is due mainly to the contribution from CMG activities.

Selling,   Marketing  and  Administrative  expenses.   Selling,   Marketing  and
Administrative  expenses  increased by 61% to $33,135 for the three months ended
March 31, 2002  compared to $20,579 for the same period in 2001. As a percentage
of sales,  Selling  Marketing  and  Administrative  expenses in the three months
ended  March  31,  2002  were 38%  compared  to 47% in the same  period in 2001.
Selling Marketing and  Administrative  expenses for the three months ended March
31,  2001  (excluding  one-time  charges  of  which  $2,337  related  to the CMG
acquisition and $1,506 to a legal settlement)  totaled $16,736  representing 38%
of sales.


                                      -15-
<PAGE>

Selling, Marketing and Administrative expenses for the three months period ended
March 31,  2002  include an  unusual  one-time  charge of $3,300 for  additional
severance  costs  associated  primarily  with the  relocation  of  manufacturing
operations from the Santa Clara facility.  The charge was offset by reduction in
previously provided accruals for items associated with the CMG acquisition.

The increase in Selling,  Marketing and Administrative  expenses reflects mainly
the contribution from the CMG acquisition.

Amortization of intangible assets. Amortization of intangible assets amounted to
$ 1,816 for the three months ended March 31, 2002,  which includes  amortization
of intangible assets arising from the CMG and the HGM acquisitions.

Write-down of  investment.  Write-down  of  investment  amounted to $551 for the
three months ended March 31, 2001, which resulted from impairment of part of our
investment in Galil Medical Ltd.

Financing  expenses,  net. For the three months ended March 31, 2002,  financing
expenses were $3,676 compared to financing expenses of $1,369 in the same period
in 2001.

The increase in  financing  expenses in the three months ended March 31, 2002 is
mainly due to financing  costs of the long term bank loan in connection with the
CMG acquisition of $1,993 including  amortization of $683 in respect of value of
options  given  to  Bank  Hapoalim  as  part  of  the  financing  agreement  and
amortization of other deferred  financing costs, as well as additional  expenses
related to short-term borrowing of $140.

Income Tax Benefit (expense). Income tax expense in the three months ended March
31, 2002 was $102  compared to $1,496 income tax benefit in the same period last
year.  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 of
$1,600 in the three-month period ended March 31, 2001 from the reversal of prior
years tax provisions.

Company's share in losses of an affiliate.  For the three months ended March 31,
2002, the Company's share in Aculight (UK) Limited's losses amounted to $91.

Extraordinary  gain on purchase of Company's  convertible  notes.  For the three
months ended March 31, 2002, extraordinary gain on the purchase of the Company's
convertible notes was $92.

Net Income (loss). As a result of the foregoing factors,  the Company's net loss
was $643 for the three  months  ended March 31,  2002  compared to net income of
$4,228 in the same period in 2001.


                                      -16-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
(in thousands of dollars)

As of March 31,  2002,  the  Company  had cash and cash  equivalents  of $23,664
compared  to $31,400 on  December  31,  2001.  The  decrease of $7,736 is mainly
attributable to:

Operating activities

For the three months ended March 31, 2002,  cash used for  operating  activities
was $14,097,  attributable  mainly to a $18,267 increase in operating assets and
liabilities  that  resulted  from an  increase in trade  receivables  balance of
$12,395,  decrease in accounts  payable,  accrued  expenses and other  long-term
liabilities  of $11,040 and an offset by a decrease in the inventory  balance of
$4,862.   The  increase  in  trade  receivable  was  mainly  due  to  processing
difficulties  associated with the  integration of the accounting  systems of ESC
and CMG. The decrease of inventory  resulted from our ongoing effort to decrease
inventory levels. $7,863 of the decrease in accounts payable was for payments of
previously accrued one-time charges in respect of the CMG acquisition,  of which
$4,902 was paid for severance and retention bonuses,  $1,800 was paid in respect
of  integration  costs and $1,161 was paid mainly for  termination of agreements
with  distributors  and lease  agreements  of abandoned  facilities  for which a
sub-lease  was not yet found.  The  remaining  balance of the  accrued  one-time
integration  expenses  in the amount of $9,333 is expected to be paid before the
end of this year.

Investing Activities

For the three months ended March 31, 2002,  cash used for  investing  activities
was approximately  $4,360.  Investment in fixed assets was $3,443 which includes
an investment of approximately $900 for an additional  manufacturing facility in
Salt Lake City.  Payments of $637 were made in respect of contingencies  related
to the  acquisition of CMG that were resolved  during this period and $1,250 was
used for other long-term investments.


                                      -17-
<PAGE>

Financing Activities

For the three months ended March 31, 2002, cash provided by financing activities
was $10,721.  A total of $24,479 was provided by utilizing the available  credit
with Bank  Hapoalim  offset by payments of $14,384 to  repurchase  the Company's
convertible notes due on September 1, 2002.

On March 26, 2002, the Company  entered into new  agreements  with Bank Hapoalim
for a new four year loan in the amount of $70,667, the  proceeds  of which will
be used to repay  the  Company's  existing  convertible  subordinated  notes due
September  1, 2002.  The $70,667  loan  matures on  September  1, 2006 and bears
interest at LIBOR plus 6.55%  increasing to 7.80% over the life of the loan. The
Company also increased its revolving credit facility to $35,000 from $20,000. In
connection  with these loan and credit  facilities,  the Company is obligated to
pay Bank Hapoalim a $4,000 fee.

The Company believes that internally  generated  funds,  together with available
cash and funds available under the revolving credit agreement will be sufficient
to meet the  Company's  presently  anticipated  day-to-day  operating  expenses,
commitments, working capital, capital expenditure and debt payment requirements.


                                      -18-
<PAGE>

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:

     o    The  Company has  received a request to  voluntarily  provide  certain
          information  from the U.S.  Securities  and  Exchange  Commission  and
          subsequently  was named as a  defendant  in  several  purported  class
          action lawsuits (see Part II, Item 1- "Legal Proceedings", below).

     o    The  Company's  future  success  depends on its ability to develop and
          successfully  introduce new and enhanced  products that meet the needs
          of its customers

     o    The  Company's  market is  unpredictable  and  characterized  by rapid
          technological  changes  and  evolving  standards,  and, if the Company
          fails to keep up with such changes, its business and operating results
          will be harmed.

     o    The market for laser and light based systems for aesthetic and medical
          applications is relatively new and the Company's  business will suffer
          if we fail to educate  customers  or if the market does not develop as
          we expect.

     o    The Company must spend heavily on research and development.

     o    The  Company's  products are subject to U.S.,  E.U. and  international
          medical regulations and controls,  which impose substantial  financial
          costs on it and which can  prevent  or delay the  introduction  of new
          products.

     o    The  Company   depends  on  its   facilities  in  Israel  and  on  its
          international  sales.  Many  of its  customers'  operations  are  also
          located outside the U.S.

     o    The  Company  faces  challenges  as  it  integrates  new  and  diverse
          operations.

     o    Any  acquisitions the Company makes could harm or disrupt its business
          without bringing the anticipated synergies.

     o    The  Company  depends on skilled  personnel  to operate  its  business
          effectively in a rapidly changing market, and if the Company is unable
          to retain  existing  or hire  additional  personnel,  its  ability  to
          develop and sell its products could be harmed.

     o    The Company anticipates a decline in selling prices of its products as
          competition  increases,  which could  adversely  affect its  operating
          results.

     o    The  Company may not be able to protect  its  proprietary  technology,
          which could adversely affect its competitive advantage.

     o    The Company could become subject to litigation regarding  intellectual
          property rights, which could seriously harm its business.

     o    The long sales cycles for the Company's products may cause it to incur
          significant expenses without offsetting revenues.

     o    The  markets in which the Company  sells its  products  are  intensely
          competitive  and  increased  competition  could  cause  reduced  sales
          levels, reduced gross margins or the loss of market share.

     o    If the Company  fails to  accurately  forecast  component and material
          requirements  for its products,  it could incur  additional  costs and
          significant  delays  in  shipments,  which  could  result  in  loss of
          customers.

     o    The  Company's   dependence  on  sole  source  suppliers  for  certain
          components  exposes it to  possible  supply  interruptions  that could
          delay or prevent the manufacture of its systems.

     o    Some of the Company's medical  customers'  willingness to purchase its
          products depends on their


                                      -19-
<PAGE>

          ability  to obtain  reimbursement  for  medical  procedures  using its
          products  and its revenues  could  suffer from changes in  third-party
          coverage and reimbursement policies.

     o    Some of the Company's laser and intense pulsed light (IPL) systems are
          complex in design and may contain  defects that are not detected until
          deployed by its customers and could lead to product liability claims.

     o    The Company may be required to implement a costly product recall.

     o    The Company uses laboratory and manufacturing  materials that could be
          considered  hazardous;  and it  could  be  liable  for any  damage  or
          liability  resulting from accidental  environmental  contamination  or
          injury.

     o    If the Company's facilities located in Israel or near major earthquake
          faults  in  California  were  to  experience  catastrophic  loss,  its
          operations would be seriously harmed.

     o    Conditions in Israel affect the Company's operations and may limit its
          ability to produce and sell its products.

     o    The  Company's  operations  could  be  disrupted  as a  result  of the
          obligation of key personnel in Israel to perform military service.

     o    The Company receives tax benefits from the Israeli government that may
          be reduced or eliminated in the future.

     o    It may be  difficult to enforce a U.S.  judgment  against the Company,
          its officers and  directors  based on U.S.  securities  laws claims in
          Israel or to serve process on the Company's officers and directors.

     o    The new  Israeli  Companies  Law  may  cause  uncertainties  regarding
          corporate governance.

     o    Under  current  Israeli  law,  the  Company may not be able to enforce
          covenants  not to  compete  and  therefore  may be unable  to  prevent
          competitors  from  benefiting from the expertise of some of its former
          employees.

     o    Risks  of  downturns  in  economic  conditions  generally,  and in the
          healthcare industry specifically.

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,  in the Company's  Annual
Report on Form 10-K for the year ended  December 31, 2001 ("2001 Form 10-K") and
in other  documents the Company files from time to time with the  Securities and
Exchange Commission.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (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.  Such estimates  include,  but are not limited to,
allocation  of  corporate  expenses,   allowances  for  uncollectible   accounts
receivable  and sales returns  reserves,  inventory  reserves,  warranty  costs,
depreciation and amortization,  income taxes and  contingencies.  Actual results
could differ from those estimates.

CONDITIONS IN ISRAEL

General

     The Company is incorporated under the laws of the State of Israel, and much
of its research and development and significant executive facilities are located
in Israel. Accordingly, the Company is directly affected by political,  economic
and military conditions in Israel. The Company's operations would be


                                      -20-
<PAGE>

materially adversely affected if major hostilities involving Israel should occur
or if trade between Israel and its present trading partners should be curtailed.

Political Conditions

     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.  Additionally,  Israel is currently
experiencing  intense  violence and terrorism and from time to time in the past,
Israel has experienced civil unrest,  primarily in the West Bank and in the Gaza
Strip  administered by Israel since 1967.  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  pursuant  to  which  certain
territories in the West Bank and Gaza Strip were handed over to the  Palestinian
administration.  The  implementation  of these  agreements with the Palestinians
representatives have been subject to difficulties and delays and a resolution of
all of the  differences  between the parties  remains  uncertain.  Recently  the
political conflict with the Palestinians has worsened. Since October 2000, there
has been a significant  increase in violence primarily in the West Bank and Gaza
Strip,  as well as in Israel  itself,  and  negotiations  between Israel and the
Palestinians  representatives  cease from time to time.  Violence  in the region
intensified during 2001 and 2002. As of the date hereof,  Israel has not entered
into any peace  agreement  with Syria or  Lebanon.  The Company  cannot  predict
whether  any other  agreements  will be  entered  into  between  Israel  and its
neighboring countries,  whether a final resolution of the area's problem will be
achieved,  the nature of any  resolution  of this kind,  or whether  the current
violence  will  continue and to what extent this  violence  will have an adverse
impact on Israel's  economic  development,  on the  Company's  operations in the
future or what other effects it may have upon the Company.

     Certain countries, companies and organizations continue to participate in a
boycott of Israeli  firms and others doing  business with Israel or with Israeli
companies.  Although the Company is  restricted  from  marketing  the  Company's
product in these  countries,  the Company  does not believe that the boycott has
had a material adverse effect on the Company.  However, a prolonged continuation
of the increased  hostilities in the region could lead to increased boycotts and
further  restrictive  laws,  policies or practices  directed  towards  Israel or
Israeli  businesses,  and these  could  have a  material  adverse  impact on the
Company's business.

     Generally,  all male adult citizens and permanent residents of Israel under
the age of 45 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 any time under
emergency  circumstances  and many have been so called over the past few months.
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 its workforce or business if hostilities
continue,  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.

     Moreover,  the  September  11,  2001  terror  attacks  on the U.S.  and the
military response by the U.S. and its international allies in Afghanistan,  have
created  additional  uncertainty.  The U.S.  war  against  terrorist  activities
centered in  Afghanistan  could be broadened  to include the Middle East,  which
could more directly affect the Company's business.

Economic Conditions


                                      -21-
<PAGE>

     Israel's  economy  has been  subject  to  numerous  destabilizing  factors,
including a period of rampant  inflation in the early to mid-1980s,  low foreign
exchange  reserves,  fluctuations in world commodity prices,  military conflicts
and civil  unrest.  The Israeli  government  has,  for these and other  reasons,
intervened  in various  sectors of the  economy,  employing,  among other means,
fiscal and monetary policies,  import duties,  foreign currency restrictions and
controls of wages,  prices and foreign currency exchange rates.  Until May 1998,
Israel  imposed   restrictions  on  transactions  in  foreign  currency.   These
restrictions  affected  the  Company's  operations  in  various  ways,  and also
affected the right of  non-residents  of Israel to convert into foreign currency
amounts they  received in Israeli  currency,  such as the proceeds of a judgment
enforced in Israel. Despite these restrictions,  foreign investors who purchased
shares with foreign  currency are able to  repatriate  in foreign  currency both
dividends (after deduction of withholding tax) and the proceeds from any sale of
shares.  In 1998, the Israeli  currency  control  regulations  were  liberalized
significantly,  as a result of which Israeli residents generally may freely deal
in foreign  currency and  non-residents  of Israel generally may freely purchase
and sell Israeli  currency and assets.  There are currently no Israeli  currency
control  restrictions on remittances of dividends on Ordinary Shares or proceeds
from the  sale of  Ordinary  Shares;  however,  legislation  remains  in  effect
pursuant to which currency controls can be imposed by  administrative  action at
any time. In addition, Israeli residents are required to file reports pertaining
to certain types of actions or transactions.

     The Israeli Government's  monetary policy contributed to relative price and
exchange rate stability in recent years,  despite  fluctuating rates of economic
growth  and a high  rate of  unemployment.  There can be no  assurance  that the
Israeli  Government  will be  successful  in its  attempts  to keep  prices  and
exchange rates stable.


                                      -22-
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company has fixed rate short-term  debt of  approximately  $69,418,000.  The
Company  believes  that a material  decrease in interest  rates would not have a
material impact on the fair value of this debt.

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 fluctuations 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 and for trading
purposes, mainly in Yen and EURO. The gains 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 an adverse impact on earnings.


                                      -23-
<PAGE>

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 or set forth in the  "Legal  Proceedings"  section of the
2001 Form 10-K, 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.

In  February  2002,  the  Company  received  a request  from the  United  States
Securities  and  Exchange  Commission  ("SEC") to  voluntarily  provide  certain
documents and information for a period  commencing  January 1, 1998. The request
primarily relates to the Company's relationships with its distributors, and also
asks for  amplification  of the  Company's  explanation  of  certain  previously
disclosed  charges and write-downs.  The Company has begun to deliver to the SEC
documents  and  information  responsive to the inquiry,  and is continuing  that
process.  On May 15,  2002 the Company  was  informed  that the SEC had issued a
formal order of investigation on these matters. The Company is unable to predict
the duration or outcome of this process.

Following the Company's  announcement of the  information  request from the SEC,
several  plaintiffs' law firms announced  during March and April 2002 the filing
of  purported  class action suits in the United  States  District  Court for the
Southern  District of New York (the "District Court") on behalf of purchasers of
securities  of Lumenis  Ltd.  between  January 7, 2002 and  February  28,  2002,
inclusive (the "Class  Period),  against the Company and certain of its officers
and directors.

On April 23, 2002,  the Company was served with  summonses and complaints in the
matter of Martin Waldherr,  et. al v. Lumenis Ltd., Jacob Frenkel, Yacha Sutton,
Sagi  Genger and Asif Adil and in the matter of John  Roefs,  et. al v.  Lumenis
Ltd., Jacob Frenkel, Yacha Sutton, Sagi Genger and Asif Adil which were filed in
the District  Court.  On May 14, 2002, the Company was served with a summons and
complaint in the matter of James Endsley, et. al v. Lumenis Ltd., Jacob Frenkel,
Yacha Sutton,  Sagi Genger and Asif Adil, which was filed in the District Court.
To the best of the Company's knowledge,  in addition to these two actions, there
are four other purported class actions pending in the District Court against the
same defendants which assert similar claims. To the best of its knowledge, as of
May 15,  2002,  the Company had not been served with a summons and  complaint in
any of the other related actions.

The  complaints   generally  allege  that  the  Company  violated  U.S.  Federal
securities laws by issuing materially false and misleading statements throughout
the Class Period that had the effect of artificially  inflating the market price
of the Company's  securities.  The complaints  allege that  throughout the Class
Period,   defendants  discounted  and  disputed  marketplace  rumors  about  its
operations  even as the Company  knew it was being  investigated  by the SEC and
that  its  distributors  had been  contacted  by the SEC,  and that  even  after
announcing in a press release that it was subject to an SEC  investigation,  the
Company  continued  to  hid  the  fact  that  it  had  been  aware  of  the  SEC
investigation and had been providing information to the SEC for several weeks.

On May 9,  2002,  there was a public  announcement  of another  purported  class
action  suit  against the same  defendants  in the  District  Court on behalf of
purchasers  of  Lumenis  securities  between  August  2,  2001 and May 7,  2002,
inclusive (the "Extended  Class  Period").  According to the  announcement,  the
complaint alleges that the defendants  violated U.S. Federal  securities laws by
making a series of material misrepresentations to the market during the Extended
Class Period regarding the Company's financial performance, successful execution
of its  business  plan and strong  demand for the  Company's  products,  thereby
artificially inflating the price of Lumenis securities.  As of May 15, 2002, the
Company had not been served with a summons and complaint in this action.


                                      -24-
<PAGE>

The Company  believes  that all the  allegations  and claims in all of the above
purported class action suits are baseless, and the Company intends to vigorously
defend against them.

In addition to the certain  actions set forth in the 2001 Form 10-K, the Company
is a party in certain actions in various countries, including the U.S., in which
the  Company  sells  its  products  in which it is  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.
Management believes that none of these actions (other than those set forth above
or in the Form  10-K)  that are  presently  pending  individually  would  have a
material adverse impact on the consolidated  financial  position of the Company,
although such actions in the aggregate 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 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.

The  balance  sheet as of March 31,  2002  includes  an accrual  of  $18,000,000
(including the provision of $13,000,000 due to the class-action, as disclosed in
the Company's 2001 Form 10-K) reflecting  management's estimate of the Company's
potential  exposure  with respect to certain,  but not all,  legal  proceedings,
claims and litigation.  With respect to the pending legal proceedings and claims
for which no accrual has been  recorded  in the  financial  statements,  Company
management 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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) and (b) On April 4, 2002,  the Board of Directors  of the Company  adopted a
short term  shareholder  Rights Plan and  declared a  distribution  of one bonus
right (a "Right") for each  outstanding  Ordinary Share,  par value NIS 0.10 per
share (the "Ordinary Shares"), of the Company, payable to shareholders of record
on April 11, 2002 (the "Record Date"). Each Right entitles the registered holder
to purchase from the Company one Ordinary Share at a price of $38 per share (the
"Purchase Price"), subject to adjustment.

The  summary  description  of the Rights set forth  below does not purport to be
complete and is qualified in its entirety be reference to the Rights  Agreement,
dated as of April 11,  2002 (the  "Rights  Agreement"),  between the Company and
American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent").

Until  the  earlier  to  occur  of (i) ten  business  days  following  a  public
announcement that a person or group of affiliated or associated persons (subject
to certain exceptions) acquired,  or obtained the right to acquire,  "Beneficial
Ownership" of 15% or more of the Ordinary  Shares (an  "Acquiring  Person";  the
date of such public  announcement being called the "Shares Acquisition Date") or
(ii) ten business days following the  commencement of a tender offer or exchange
offer the consummation of which would result in any person becoming an Acquiring
Person (the  earlier of such days being  called the  "Distribution  Date"),  the
Rights will be evidenced, with respect to any of the Ordinary Share certificates
outstanding as of the Record Date, by such Ordinary Share  certificate  and will
be transferred  with and only with the Ordinary  Shares.  Until the Distribution
Date (or earlier redemption, exchange or expiration of the Rights), new Ordinary
Share certificates issued after the Record Date upon transfer or new issuance of
the Ordinary Shares will contain a notation  incorporating  the Rights Agreement
by reference.  As soon as practicable  following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be


                                      -25-
<PAGE>

mailed to holders of record of the  Ordinary  Shares as of the close of business
on the  Distribution  Date and  such  separate  Right  Certificates  alone  will
evidence the Rights.

The Rights are not  exercisable  until the  Distribution  Date.  The Rights will
expire on April 11, 2003, unless earlier redeemed or exchanged by the Company as
described below.

In the event that a Person becomes an Acquiring  Person,  except  pursuant to an
offer for all outstanding Ordinary Shares which the Board of Directors, with the
concurrence of the Audit Committee, determines to be fair and not inadequate and
to otherwise be in the best  interests  of the Company and its  shareholders  (a
"Qualified  Offer"),  proper  provision  shall be made so that each  holder of a
Right,  other than Rights that were  beneficially  owned by the Acquiring Person
(or any Associate or Affiliate  thereof) on the earlier of the Distribution Date
or the Shares  Acquisition  Date (which Rights will  thereafter be void),  shall
thereafter  have the right to  receive,  upon the  exercise  thereof at the then
current Purchase Price,  that number of Ordinary Shares having a market value of
two times the Purchase Price.  If the Company does not have sufficient  Ordinary
Shares for this purpose,  the Company may, to the extent permitted by applicable
law, substitute cash, a reduction in the exercise price, other equity securities
of the Company, debt securities of the Company, other assets, or any combination
of the foregoing,  having an aggregate value equal to the value which would have
been realized if the Company had sufficient Ordinary Shares. In addition, in the
event that, at any time following the Shares  Acquisition  Date, (i) the Company
engages  in a merger  or other  business  combination  transaction  in which the
Company  is not the  surviving  corporation  (other  than with an  entity  which
acquired the shares pursuant to a Qualified Offer),  (ii) the Company engages in
a merger or other business  combination  transaction in which the Company is the
surviving corporation and the Ordinary Shares are changed or exchanged, or (iii)
50% or more of the  Company's  assets or earning  power is sold or  transferred,
proper  provision  shall be made so that each holder of a Right  (except  Rights
which have previously been voided as set forth above) shall  thereafter have the
right to receive,  upon the exercise thereof at the then current Purchase Price,
that  number  of  shares  of the  acquiring  company  which  at the time of such
transaction  would  have a market  value of two times the  Purchase  Price.  For
example,  at a  Purchase  Price of $38 per  Right,  each  Right  not owned by an
Acquiring Person (or by certain related parties) following an event set forth in
this  paragraph  would  entitle  its  holder to  purchase  $76 worth of  shares.
Assuming  that the  shares  had a per share  value of $10.00 at such  time,  the
holder of each valid Right would be entitled to purchase 7.6 shares for $38.

At any time until ten business days following the Shares  Acquisition  Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.001 per
Right. In addition,  at any time after a person becomes an Acquiring  Person and
prior to the  acquisition by such person or group of fifty percent (50%) or more
of the  outstanding  Ordinary  Shares,  the Board may exchange the Rights (other
than Rights owned by such person or group which have become  void),  in whole or
in part,  at an  exchange  ratio of one  Ordinary  Share per Right  (subject  to
adjustment).

(c) and (d) Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

4.1  Bonus Rights Agreement, dated as of April 11, 2002, between the Company and
     American Stock Transfer & Trust Company,  as Rights Agent  (incorporated by
     Reference to Exhibit 4.1 to the  Company's  Registration  Statement on Form
     8-A filed on April 17, 2002).

10.1 Letter Agreement dated March 1, 2002 between the Company and Kevin Morano.


                                      -26-
<PAGE>

10.2 Distribution Agreement,  effective as of December 31, 2001, between Lumenis
     Inc. and Eclipse Medical, Ltd.

(b) Reports on Form 8-K

During the  quarterly  period  ended March 31,  2002,  on March 1, 2002 (Date of
earliest event  reported:  February 13, 2002) the Company filed a Current Report
on Form 8-K  disclosing  (under Item 5) the Company's  receipt of a request from
the Securities and Exchange  Commission to voluntarily provide certain documents
and information for the period commencing January 1, 1998.

     After the end of this quarterly period, on April 17, 2002 (Date of earliest
event reported:  April 4, 2002),  the Company filed a Current Report on Form 8-K
disclosing  (under Item 5) the adoption by the Board of Directors of the Company
of a short term shareholder Rights Plan and distribution of bonus rights.

                                   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.

                                             Lumenis Ltd.


                                             /s/  Kevin Morano
                                             -----------------------------
Date: May 15, 2002                           By: Kevin Morano
                                                 (Chief Financial Officer,
                                                 and Duly Authorized Officer)


                                      -27-
<PAGE>

                                  EXHIBIT INDEX

4.1  Bonus Rights Agreement, dated as of April 11, 2002, between the Company and
     American Stock Transfer & Trust Company,  as Rights Agent  (incorporated by
     Reference to Exhibit 4.1 to the  Company's  Registration  Statement on Form
     8-A filed on April 17, 2002).

10.1 Letter Agreement dated March 1, 2002 between the Company and Kevin Morano.

10.2 Distribution Agreement,  effective as of December 31, 2001, between Lumenis
     Inc. and Eclipse Medical, Ltd.


                                      -28-