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 September 30, 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

                                  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

ESC MEDICAL SYSTEMS LTD.
--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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 November
14, 2001 was 36,654,711 Ordinary Shares, NIS 0.10 par value per share.

<PAGE>


                                  LUMENIS LTD.

                                    FORM 10-Q

                    For the Quarter Ended September 30, 2001


                                      INDEX


PART I.  FINANCIAL INFORMATION................................................2

     ITEM 1.   Financial Statements...........................................2

          1)   Independent Accountant's Review Report.........................2

          2)   Consolidated Balance Sheets....................................3

          3)   Consolidated Statements of Operations..........................4

          4)   Statement of Changes in Shareholders' Equity...................5

          5)   Consolidated Statements of Cash Flows..........................6

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

     ITEM 2.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations.....................................17

     ITEM 3.   Quantitative and Qualitative Disclosure about
               Market Risk...................................................24


PART II. OTHER INFORMATION...................................................23

     ITEM 1.   Legal Proceedings.............................................25

     ITEM 2.   Changes in Securities and Use of Proceeds.....................27

     ITEM 4.   Submission of Matters to a Vote of Security Holders...........28

     ITEM 6.   Exhibits and Reports on Form 8-K..............................29

                                   # # # # # #


                                       1
<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     Independent Accountant's Review Report


The Board of Directors
LUMENIS Ltd.
Yokneam


We have reviewed the accompanying interim consolidated balance sheet of LUMENIS
Ltd. ("the Company") and consolidated subsidiaries as of September 30, 2001, the
related interim consolidated statements of operations for the nine-month and
three-month periods ended September 30, 2001 and the related statement of
changes in shareholders' equity and statement of cash flows for the nine-month
period ended September 30, 2001. 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
November 14, 2001

                                   # # # # # #


                                       2
<PAGE>


                LUMENIS LTD. (FORMERLY ESC MEDICAL SYSTEMS LTD.)
                       INTERIM CONSOLIDATED BALANCE SHEET
                        (In thousands, except share data)


                                                   September 30,    December 31,
                                                       2001            2000
                                                   -------------    ------------
                                                   (Unaudited)
CURRENT ASSETS
  Cash and cash equivalents                          $100,543        $ 43,396
  Short-term investments                                   --             123
  Trade receivables                                    95,381          54,156
  Prepaid expenses and other receivables               14,439           6,949
  Inventories                                          71,381          50,288
                                                     --------        --------
                                                      281,744         154,912
                                                     --------        --------

FINISHED GOODS USED IN OPERATIONS                       9,860           2,758

LONG-TERM INVESTMENTS
  Bank deposits and securities                            937             941
  Investments in non marketable shares                  3,501           6,993
  Long term trade receivables                           1,260             341

FIXED ASSETS                                           14,432           9,695

OTHER ASSETS                                          145,536           4,889
                                                     --------        --------

     Total assets                                    $457,270        $180,529
                                                     ========        ========
CURRENT LIABILITIES
  Short-term debt and current maturities of
  long-term loans                                    $ 47,000        $  4,420
  Accounts payable and accrued expenses               143,336          54,316
  Subordinated notes                                   12,904              --
                                                     --------        --------
                                                      203,240          58,736
                                                     --------        --------
LONG TERM LIABILITIES
  Bank loans                                          100,023              18
  Restructuring accrual                                    --             963
  Accrued severance pay, net                            1,115           1,162
  Convertible subordinated notes                       70,667          91,787
                                                     --------        --------
                                                      171,805          93,930
                                                     --------        --------
Total liabilities                                     375,045         152,666
                                                     --------        --------
SHAREHOLDERS' EQUITY
  Ordinary shares of NIS 0.1 par value:
  Authorized - 100,000,000 and 50,000,000 shares;
  respectively Issued and outstanding -
  36,609,821 and 27,629,017 shares, respectively          798             578
  Additional paid-in capital                          320,388         137,033
  Unearned compensation                                    --            (120)
  Accumulated deficit                                (238,709)        (96,693)
  Treasury stock, at cost: 36,498 and 1,871,684
  shares, respectively                                   (252)        (12,935)
                                                     --------        --------
    Total shareholders' equity                         82,225          27,863
                                                     --------        --------
    Total liabilities and shareholders' equity       $457,270        $180,529
                                                     ========        ========


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


                                       3
<PAGE>


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


<TABLE>
<CAPTION>
                                              For the nine months      For the three months
                                              ended September 30,       ended September 30,
                                               2001         2000         2001        2000
                                            ----------------------    ----------------------
                                                   (Unaudited)              (Unaudited)
<S>                                         <C>          <C>          <C>         <C>
SALES, NET                                  $ 214,413    $ 115,601    $ 90,173    $ 37,058
COST OF SALES                                 109,478       48,474      39,807      14,320
                                            ---------    ---------    --------    --------
      Gross profit                            104,935       67,127      50,366      22,738
                                            ---------    ---------    --------    --------

OPERATING EXPENSES
  Research and development, net                14,904        8,731       6,465       2,952
  In process research and development          46,650           --          --          --
  Selling, marketing and
  administrative expenses                     170,175       44,657      38,616      14,468
  Amortization of goodwill and other
  intangible assets                             5,357           --       3,217          --
  Write-down of investments                     3,986           --          --          --
                                            ---------    ---------    --------    --------
      Total operating expenses                241,072       53,388      48,298      17,420
                                            ---------    ---------    --------    --------
OTHER OPERATING INCOME                             --        1,450          --          --
                                            ---------    ---------    --------    --------
    Operating income (loss)                  (136,137)      15,189       2,068       5,318
                                            ---------    ---------    --------    --------
OTHER INCOME                                       --          599          --          --

FINANCING EXPENSES, NET                        (7,095)      (3,673)     (1,735)     (1,025)
                                            ---------    ---------    --------    --------
      Income (loss) before income taxes      (143,232)      12,115         333       4,293

INCOME TAX  BENEFIT (EXPENSE)                   1,216          (98)       (200)         --
                                            ---------    ---------    --------    --------
      Income (loss) after income taxes       (142,016)      12,017         133       4,293

COMPANY'S SHARE OF LOSSES OF AFFILIATES            --          733          --         313
                                            ---------    ---------    --------    --------
      Income (loss) before
         extraordinary item                  (142,016)      11,284         133       3,980
                                            =========    =========    ========    ========

EXTRAORDINARY GAIN ON PURCHASE
   OF COMPANY'S CONVERTIBLE NOTES                  --          292          --          --
                                            ---------    ---------    --------    --------
      Net income (loss) for the period      $(142,016)   $  11,576    $    133    $  3,980
                                            =========    =========    ========    ========

EARNINGS (LOSS) PER SHARE
  Basic:
  Income (loss) before extraordinary item   $   (4.60)   $    0.45    $     --    $   0.16
  Extraordinary gain                               --         0.01          --          --
                                            ---------    ---------    --------    --------
      Net earnings (loss) per share         $   (4.60)   $    0.46    $     --    $   0.16
                                            =========    =========    ========    ========

  Diluted:
  Income before extraordinary item             $(4.60)   $    0.40    $     --    $   0.14
  Extraordinary gain                               --         0.01          --          --
                                            ---------    ---------    --------    --------
      Net earnings per share                $   (4.60)   $    0.41    $     --    $   0.14

WEIGHTED AVERAGE NUMBER OF SHARES
   Basic                                       30,866       25,233     35,254       25,460
                                            =========    =========    ========    ========
   Diluted                                                  28,095     39,536       29,357
                                                         =========    =======     ========
</TABLE>


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


                                       4
<PAGE>


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


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

Share issuance to
   Coherent                       132      89,498                                          89,630

  Grant of options to bank                  9,704                                           9,704

Grant of options to
   Employees and consultants                8,963                                           8,963

Exercise of options                69      36,682                               12,683     49,434

Conversion of notes                19      21,396                                          21,415

Amortization of
unearned compensation                                   120                                   120

Non-cash compensation                      17,112                                          17,112

Net loss for the period                                         (142,016)                (142,016)
                                -----   ---------    ------     ----------   ---------   --------
Balance as of
September 30, 2001              $ 798   $ 320,388    $   --     $ (238,709)  $    (252)  $ 82,225
                                =====   =========    ======     ==========   =========   ========
</TABLE>


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


                                       5
<PAGE>


                LUMENIS LTD. (FORMERLY ESC MEDICAL SYSTEMS LTD.)
                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                  For the nine months
                                                                   ended September 30
                                                             -----------------------------
                                                                2001                2000
                                                             ---------           ---------
<S>                                                          <C>                  <C>
CASH FLOWS - OPERATING ACTIVITIES
 Net income (loss)                                           $(142,016)           $ 11,576
 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                  96
     Grant of options                                            8,963                  --
     Non-cash compensation                                      16,400                  --
     Depreciation and amortization                              10,255               2,781
     In process research and development                        46,650                  --
     Gain on purchase of Company's convertible notes                --                (292)
     Other income                                                   --                (599)
     Other operating income                                         --              (1,450)
     Write-down of investments                                   3,986                  --
     Other                                                      (2,081)                574

   Changes in operating assets and liabilities:
     Increase in trade receivables                              (5,952)             (9,033)
     Increase in prepaid expenses and other
     receivables                                                (4,598)             (1,969)
     Decrease (Increase) in inventories (1)                      3,720              (8,160)
     Increase (decrease) in accounts payable and
     accrued expenses                                           42,914             (20,075)
                                                             ---------            --------
      Net cash -operating activities                           (21,639)            (26,551)
                                                             ---------            --------

CASH FLOWS - INVESTING ACTIVITIES
 Purchase of fixed assets, net                                  (2,091)             (2,345)
 long term deposit, net                                              4                  --
 Short term deposit, net                                           123                  --
 Sale of subsidiary's operations                                    --                 814
 Proceeds from investments, net                                   (151)             25,817
 Payment for operations acquired (Appendix A)                   (9,744)                 --
 Purchase of distribution rights                                  (500)                 --
                                                             ---------            --------
      Net cash- investing activities                           (12,359)             24,286
                                                             ---------            --------

CASH FLOWS - FINANCING ACTIVITIES
 Purchase of convertible notes                                      --                (873)
 Proceeds from exercise of options                              49,434               3,328
 Increase (Decrease) in long-term loans                              5                 (15)
 Increase in short-term bank debt, net                          42,580               5,999
 Finance costs associated with long term loan                     (874)                 --
                                                             ---------            --------
      Net cash- financing activities                            91,145               8,439
                                                             ---------            --------

INCREASE IN CASH AND CASH EQUIVALENTS                           57,147               6,174
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                43,396              24,524
                                                             ---------            --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $ 100,543            $ 30,698
                                                             =========            ========

CASH PAID DURING THE PERIOD IN RESPECT OF:

  Income taxes                                               $     422            $    710
                                                             =========            ========
  Interest                                                   $   6,600            $  5,869
                                                             =========            ========
</TABLE>

(1)  Including finished goods used in operations.


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


                                       6
<PAGE>

                LUMENIS LTD. (FORMERLY ESC MEDICAL SYSTEMS LTD.)
                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands )


          Appendix A - Payments for operation acquired

                                                       For the nine months
                                                     ended September 30, 2001
                                                     ------------------------
                                                            (Unaudited)
                                                     ------------------------
Current assets                                               (71,343)
Fixed assets, net                                             (5,223)
Current liabilities                                           39,524
In process research and development                          (46,650)
Goodwill and other intangibles                               134,761)
Equity payment (the Company's shares)                         89,630
Cash payment, financed by a long term loan                   100,000
Liability with respect to acquisition                          6,175
Note                                                          12,904
                                                             -------
                                                              (9,744)
                                                             =======

          Appendix B - Non cash activities

                                                       For the nine months
                                                     ended September 30, 2001
                                                     ------------------------
                                                            (Unaudited)
                                                     ------------------------

          Conversion of notes                                 21,120

          Non cash compensation                                1,423

          Grant of options to bank                             9,704


                                       7
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 1 - BASIS OF PRESENTATION

     A.   The unaudited condensed interim consolidated financial statements as
          of September 30, 2001 and for the nine-month and three-month periods
          then ended ("interim financial statements") of Lumenis LTD. (Formerly
          ESC Medical Systems Ltd.) (the "Company") and subsidiaries should be
          read in conjunction with the audited 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 periods
          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 financial
          statements.

Note 2 - ADDITIONAL INFORMATION

     A.   On February 25, 2001, the Company, its wholly-owned subsidiary,
          Lumenis Holdings Inc. (formerly known as Energy Systems Holdings
          Inc.), 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 ("CMG"), Coherent's medical products division
          (the "Acquisition"). The assets acquired include, among other things,
          plant, equipment and other physical property.

          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 $12,904 (the "Note",
          together with the Cash Purchase Price and the Shares, the "Closing
          Consideration"). The Cash Purchase Price is subject to an yet
          undetermined adjustment based on the net tangible value, at the
          Closing, of CMG's assets acquired. 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>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


7Note 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 nine-year term loan, (b) up to $50,000
          revolving line of credit until April, 2002 and up to $20,000 revolving
          line of credit from April, 2002 to April, 2003 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 approximately $92,000
          to refinance the Company's 6% convertible subordinated notes due
          September 1, 2002. Based on the Bank's letter of intent and the
          Company's intention to use long-term financing to pay the notes due in
          September 2002, the convertible subordinated notes have been presented
          as long-term liabilities. Each of the facilities is or will be secured
          by substantially all of the assets of the Company, Lumenis Holdings
          and certain of their material subsidiaries. In connection with the
          Financing, on April 30, 2001, the Company and the Bank also entered
          into 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, of which 1,363,700 options have
          been exercised.

          The Acquisition was accounted for as a purchase. The aggregate
          consideration including costs directly attributable to the completion
          of the Acquisition (together, the "Purchase Price"), have been
          allocated to the assets and liabilities acquired. The allocation of
          the Purchase Price among the identifiable intangible assets was based
          upon independent estimates of fair value of those assets. As a result,
          $46,650 was allocated to purchased in-process research and
          development, which has not yet reached technological feasibility and
          does not have alternative future uses. This amount has been charged to
          the Company's operations in accordance with FASB Interpretation No. 4.

          The Company examines on an ongoing basis, its long-lived assets,
          including those acquired in the acquisition. Failure to reach the
          level of operations used for the valuation of CMG's tangible and
          intangible assets or to utilize such assets as currently anticipated,
          could result in impairment of the associated assets and could require
          the Company to accelerate the time period over which such assets are
          being amortized, which could have a material adverse effect on the
          Company's result of operations.

          The interim consolidated balance sheet as of September 30, 2001 and
          the interim consolidated statement of operations for the nine-month
          period then ended, include, on a consolidated basis, the financial
          data of CMG as of such date and for the period from the Closing to
          September 30, 2001, respectively.


                                       9
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 2 - ADDITIONAL INFORMATION (Cont.)

     A.   (Cont.)

          The total purchase price and the purchase price allocation are as
          follows:

          Total purchase price:
            Equity payment (the company's shares)                    $ 89,630
            Cash payment                                              100,000
            Liability with respect to acquisition                       6,175
            Note                                                       12,904
                                                                     --------
              Total payment                                           208,709
            Assumed liabilities                                        39,524
                                                                     --------
            Total consideration                                       248,233
            Acquisition expenses                                       10,471
                                                                     --------
              Total purchase price                                   $258,704
                                                                     ========
          Purchase price allocation:
            Fair value of net tangible assets acquired from CMG at
               April 30, 2001                                        $ 77,293

          Intangible assets acquired:
            Coherent name                                               2,990
            Product names                                               1,420
            Developed technology                                       29,910
            Covenant not to compete                                       878
            In process research and development                        46,650
            Goodwill                                                   99,563
                                                                     --------
                                                                     $258,704
                                                                     ========

          Purchased technology, other intangibles and goodwill are amortized
          over their estimated useful lives, generally two to fifteen years.

          The Company recorded a one-time charge of $46,650 in the nine-month
          period ended September 30, 2001 for purchased in-process research and
          development related to a developed project that had not reached
          technological feasibility, had no alternative future use, and for
          which successful development is uncertain.


                                       10
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 2 - ADDITIONAL INFORMATION (Cont.)

     A.   (Cont.)

          The developed technology of CMG, valued at $29,910, focuses on
          solid-state lasers and diode lasers that are developed and optimized
          for aesthetic, surgical and ophthalmic application. The core CMG
          technologies are in the area of lasers, optics, embedded software,
          electronic controllers, power supplies, and mechanical design, and in
          their integration in the form of reliable products. LightSheer (TM),
          PowerSuite (TM), Ultrapulse (R) Encore (TM), and Opal (TM) are major
          products whose development was completed during 2000 and 2001 and
          include all the above-mentioned core technologies.

     Pro Forma Financial Results:

          The following selected unaudited pro forma combined results of
          operation for the nine months ended September 30, 2001 and 2000 of the
          Company and CMG, have been prepared assuming the Acquisition occurred
          at the beginning of each of the periods presented.

          The following pro forma financial information do 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 these periods.

                                               For the nine months
                                                ended September 30
                                              ---------------------
                                                2001        2000
                                              ---------    --------
                                                   (Unaudited)
          Sales, Net                          $ 275,356    $273,867
          Net income (loss)                     (98,928)      6,974
          Net earnings (loss) per share           (2.87)       0.23

          Shares used in calculation of net
            earnings (loss) per share            34,487      30,665

          The pro forma results of operations give effect to certain
          adjustments, including amortization of purchased intangibles, goodwill
          and deferred stock option expense, acceleration of vesting of options,
          write down of inventories and receivables.

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


                                       11
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 2 - ADDITIONAL INFORMATION (Cont.)

     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, in the nine-month period ended September 30,2001 a gain from
          the reversal of the accrual recorded in previous years in a total
          amount of $ 1,600.

     C.   In the nine-month period ended September 30, 2001, the Board of
          Directors approved the acceleration of vesting of stock options
          granted to the Company's certain employees and members of the Board of
          Directors. As a result, and in accordance with FASB Interpretation
          No.44., compensation expense with regard to such acceleration, in the
          total amount of $16,400 is included in the statement of operations.

          In May 2001, the Board of Directors approved the grant of fully vested
          stock options, to purchase 200,000 shares, to two of the Company's
          senior employees, at an exercise price of $10.90 per share (equal to
          the exercise price of options granted to some of the Company's other
          employees prior to the Acquisition). As a result, and in accordance
          with APB 25, compensation expense in the total amount of $3,300 is
          included in the statement of operations.

     D.   The trade receivables as of September 30, 2001 and December 31, 2000
          are presented net of allowances of $ 26,315 (unaudited) and $ 14,154
          respectively.

Note 3 - INVENTORIES

     Inventories are composed of the following:

                                              September 30,  December 31,
                                                   2001          2000
                                              -------------  ------------
                                               (Unaudited)

          Raw materials                          $24,410       $30,468
          Work in process                         15,639         8,354
          Finished products                       31,332        11,466
                                                 -------       -------
                                                 $71,381       $50,288
                                                 =======       =======

     The cost of sales for the nine-month period ended September 30, 2001,
     include the write down of inventories in the total amounts of approximately
     $17,569


                                       12
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 4 - SEGMENT INFORMATION

     A.   COMPOSITION OF REVENUES BY GEOGRAPHIC AREAS

                                For the nine months      For the three months
                                ended September 30,      ended September 30,
                               ---------------------     -------------------
                                 2001         2000         2001        2000
                               --------     --------     -------     -------
                                    (Unaudited)              (Unaudited)
          Revenues
            America            $ 98,895     $ 49,846     $43,816     $16,461
            Europe               43,150       27,391      17,286       8,364
            Asia                 62,010       27,308      26,264       9,055
            Other                10,358       11,056       2,806       3,178
                               --------     --------     -------     -------
             Consolidated      $214,413     $115,601     $90,173     $30,313
                               ========     ========     =======     =======

     B.   REPORTABLE SEGMENTS

                                                  For the nine    For the nine
                                                  months ended    months ended
                                                  September 30,   September 30,
                                                       2001          2000
                                                    ---------      ---------
                                                   (Unaudited)    (Unaudited)
          Revenues
            Surgical, Aesthetics and Ophthalmic     $ 198,085      $  99,866
            Dental                                      7,478          5,071
            Industrial                                  8,850         10,664
                                                    ---------      ---------
              Consolidated                          $ 214,413      $ 115,601
                                                    =========      =========

          Operating Income (Loss)
            Surgical and aesthetics                 $(137,477)     $  17,704
            Dental                                     (2,385)        (2,286)
            Industrial                                  1,045           (229)
                                                    ---------      ---------
              Consolidated                           (136,137)        15,189
          Other income                                   --              599
          Financing expense, net                       (7,095)        (3,673)
                                                    ---------      ---------
          Income before income taxes                $(143,232)     $  12,115
                                                    =========      =========

                                                            September 30
                                                                2001
                                                              --------
                                                             (Unaudited)
          Assets
            Surgical, Aesthetics and Ophthalmic               $435,158
            Dental                                              10,230
            Industrial                                          11,882
                                                              --------
               Consolidated                                   $457,270
                                                              ========


                                       13
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 5 - CONTINGENT LIABILITIES

     A.   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 Company has reached an
          agreement in principle with the plaintiffs to settle the action, and
          is working to finalize a formal agreement with the plaintiffs. The
          final settlement is subject to negotiation and execution of the formal
          agreement. In addition, the final agreement must be approved by the
          Court, a process which will likely take several months.

     B.   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
          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.


                                       14
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 5 - CONTINGENT LIABILITIES (Cont.)

     C.   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 December
          2001.

     D.   On May 8, 2001, Lumenos, Inc. ("Lumenos"), the owner of several
          applications with the United States Patent and Trademark Office to
          register the term "Lumenos" as a trademark, filed a complaint for
          trademark infringement against the Company in the United States
          District Court for the District of Massachusetts, seeking equitable
          relief and damages. In its complaint, Lumenos seeks to prevent the
          Company from using or promoting the name "Lumenis" as a company name,
          trademark or Internet domain name. The time to serve the Lumenos
          Complaint has now lapsed. The parties have reached an agreement
          resolving the dispute. The parties are in the process of having the
          agreement signed whereupon the Lumenos suit is to be dismissed with
          prejudice.

     E.   On September 20, 1999, Dr. Richard Urso filed what purports to be a
          class action lawsuit against the Company and against a leasing company
          in Harris County, Texas, alleging a variety of causes of action. In
          December 2000, plaintiff amended his complaint to eliminate the class
          action claim. On April 13, 2001 the lawsuit was dismissed and on May
          3, 2001, Dr. Urso and approximately forty-eight physicians and medical
          clinics re-filed what purports to be a class action lawsuit in Harris
          County, Texas. Plaintiffs have filed a motion to remand the case to
          State Court. The lawsuit was removed to the U.S. District Court for
          the Southern District of Texas. The current allegations on behalf of
          plaintiffs are breach of contract, breach of express and implied
          warranties, fraud, misrepresentation, conversion, product liability,
          violation of the Texas Deceptive Trade Practices Act and Texas
          Securities Act as well as lender liability and unconscionable conduct.
          The Company is defending this case vigorously.

     F.   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 further
          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.

     G.   The statements of operations for the nine-month period ended September
          30, 2001 include a provision of $ 26,000 reflecting management
          estimate of the Company's potential exposure with respect to certain,
          not all, legal proceedings, claims and litigation. 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.


                                       15
<PAGE>


                LUMENIS LTD. (FORMALLY ESC MEDICAL SYSTEMS LTD.)
                NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
          FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2001
                     (In thousands, except per share data)


Note 6 - NEW ACCOUNTING PRONOUNCEMENTS

          In June 2001, the FASB issued SFAS No. 141, "Business Combinations".
          SFAS No. 141 establishes new standards for accounting and reporting
          requirements for business combinations and requires that the purchase
          method of accounting be used for all business combinations initiated
          after June 30, 2001. Use of the pooling-of-interests method will be
          prohibited. The Company expects to adopt this statement during the
          first quarter of fiscal 2002.

          In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
          Intangible Assets," which supersedes APB Opinion No. 17, "Intangible
          Assets". SFAS No. 142 establishes new standards for goodwill and other
          intangibles acquired in a business combination and eliminates
          amortization of goodwill and intangible assets with indefinite lives
          and instead sets forth methods to periodically evaluate them for
          impairment. The Company expects to adopt this statement during the
          first quarter of fiscal 2002. During the five-month ended September
          30, 2001, goodwill amortization totaled approximately $2,730.


                                       16
<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 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, surgical and ophthalmic
applications, including photorejuvenation, hair removal, non-invasive treatment
of vascular lesions and pigmented lesions, acne, ENT, gynecology, urinary
lithotripsy, benign prostatic hyperplasia, open angle glaucoma, secondary
cataracts, age-related macular degeneration, and refractive eye correction, as
well as neurosurgery. 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, LUMENIS, its wholly-owned subsidiary, Lumenis Holdings
Inc. (formerly known as Energy Systems Holdings Inc. ), 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 LUMENIS and certain of its subsidiaries (collectively,
the "Buyer Group") substantially all of the assets and liabilities of the
Coherent Medical Group ("CMG") , Coherent's medical products division (the
"Acquisition"). The assets acquired include, among other things, plant,
equipment and other physical property. On April 30, 2001, the Buyer Group and
Coherent and its subsidiaries completed the Acquisition (the "Closing"). In
addition, on April 30, 2001, the Asset Purchase Agreement was amended by the
parties thereto (the "First Amendment").

At the Closing, the Coherent entities received $100,000,000 in cash (the "Cash
Purchase Price"), 5,432,099 LUMENIS ordinary shares (the "Shares"), and an
eighteen-month note bearing interest at the rate of 5% per annum and in the
principal amount of $12,904,000 (the "Note", together with the Cash Purchase
Price and the Shares, the "Closing Consideration"). The Cash Purchase Price is
subject to an yet undetermined adjustment based on the net tangible value, at
the Closing, of CMG's assets acquired. 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 LUMENIS's 6% convertible subordinated notes due September 1,
2002, LUMENIS 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
revolving line of credit until April, 2002 and up to $20,000,000 revolving line
of credit from April 2002 to April, 2003 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 approximately $92,000,000 to refinance LUMENIS'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 LUMENIS, Lumenis Holdings and
certain of their material subsidiaries. In connection with the Financing, on
April 30, 2001, LUMENIS and the Bank also entered into a five year option
agreement granting the Bank or any of its subsidiaries the right to purchase
from LUMENIS up to 2,500,000 LUMENIS ordinary shares at a purchase price of
US$20.25 per share, subject to certain adjustments. The Bank has exercised
options for 1,363,7000 shares.

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


                                       17
<PAGE>


RESULTS OF OPERATIONS

THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 COMPARED WITH THREE AND
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 (In thousands of U.S. Dollars)

Revenues. The Company's net revenues increased by 143% to $90,173 for the three
months ended September 30, 2001 compared to $37,058 for the three months ended
September 30, 2000. The Company's net revenues increased by 85% to $214,413 for
the nine months ended September 30, 2001 compared to $115,601 for the nine
months ended September 30, 2000.

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

Gross Profit. Gross profit increased by 122% to $50,366 for the three months
ended September 30, 2001 from $22,738 for the three months ended September 30,
2000. As a percentage of sales the gross profit was 56% in the three months
ended June 30, 2001, compared to 61% in the same period in 2000. Gross profit
increased by 56% to $104,935 for the nine months ended September 30, 2001 from
$67,127 for the nine month period ended September 30, 2000. Excluding write down
of inventory and other charges mainly connected with the acquisition of CMG,
gross profit increased by 82% for the nine months ended September 30, 2001. As a
percentage of sales, excluding write downs of inventory and other charges, the
gross profit was 57% in the nine months ended September 30, 2001 compared to 58%
in the same period in 2000.

The increase in gross profit, excluding write downs of inventory and other
charges, in the nine months ended September 30, 2001 was due to the five months
of contribution from the CMG acquisition.

The decrease in gross profit, excluding write down and other charges, as a
percentage of sales in the nine months ended September 30, 2001 stems from the
inherently lower margins of the CMG product lines and was aggravated by the
product mix.

Research and Development, net. Net research and development costs increased by
119% to $6,465 for the three months ended September 30, 2001 from $2,952 in the
same period in 2000. As a percentage of sales, research and development costs
were 7% in the three month period ended September 30, 2001 compared to 8% in the
same period in 2000. Net research and development costs increased by 71% to
$14,904 for the nine months ended September 30, 2001 from $8,731 in the same
period in 2000. As a percentage of sales, research and development costs were 7%
in the nine month period ended September 30, 2001 compared to 8% in the same
period in 2000 .

The increase in research and development costs in the nine and three months
ended September 30, 2001 is due mainly to the five months contribution from CMG
activities.

In process research and development. In process research and development
expenses in the nine months ended September 30, 2001 represents the fair value
allocated to in process research and development of the CMG acquisition purchase
price, based upon independent valuation.


                                       18
<PAGE>


Selling, Marketing and Administrative expenses. Selling, Marketing and
Administrative expenses increased by 167% to $38,616 for the three months ended
September 30, 2001 compared to $14,468 for the same period in 2000. As a
percentage of sales, Selling Marketing and Administrative expenses in the three
months ended September 30, 2001 were 43% compared to 39% in the same period in
2000. As a percentage of sales, excluding one time charges (listed below) mainly
in connection with the CMG acquisition and Discontinued Business Activities
expense (detailed below), Selling Marketing and Administrative expenses in the
three months ended September 30, 2001 were 32%. Selling Marketing and
Administrative expenses increased by 281% to $170,175 for the nine months ended
September 30, 2001 compared to $ 44,657 for the same period in 2000. As a
percentage of sales, Selling Marketing and Administrative in the nine months
period ended September 30, 2001 were 79% compared to 39% in the same period in
2000. As a percentage of sales, excluding one time charges mainly in connection
with the CMG acquisition and Discontinued Business Activities expenses, selling,
marketing and administration expenses in the nine months ended September 30,
2001 were 33%.

The increase in Selling Marketing and Administrative expense in three and nine
months ended September 30, 2001 is due to the one time charges, mainly in
connection with the CMG Acquisition and expenses of approximately $ 4,446 and $
8,762 respectively of business activities ("Discontinued Business Activities")
which represents duplicate activities with little or no future economic benefit
as of September 30, 2001, incurred post acquisition. In the main, such
activities have already ceased or definitive actions have been taken to
eliminate them in the short term.

Selling, Marketing and Administrative expenses in the three and nine months
ended September 30, 2001 include one-time charges, mainly in connection with the
CMG Acquisition, as follows:

o    $14,043 write down of account receivables mainly in connection with
     distributors consolidation for the nine months ended September 30, 2001.

o    $3,196 and $36,861of exceptional personnel cost in respect of termination,
     retention and bonuses, mostly non-cash for the three and nine months ended
     September 30, 2001 respectively.

o    $29,266 with respect to certain legal proceedings, claims and litigation,
     which represents the Company's management estimation of the Company's
     potential exposure relating to such proceedings for the nine months ended
     September 30, 2001.

o    $5,537 relating to facility change, including future lease commitments,
     leases of unused space and related cost for the nine months ended September
     30, 2001.

o    $2,064 and $5,112 of integration related and other expenses for the three
     and nine months ended September 30, 2001, respectively.

Amortization of intangible assets. Amortization of intangible assets of $ 3,217
and $ 5,357 for the three and nine months ended September 30, 2001,
respectively, includes amortization of intangible assets arising from the CMG
Acquisition.

Write down of investments. Write downs of investments for the nine months ended
September 30, 2001 of $3,986 represents mainly impairment of value of
investments in affiliated companies.

Other operating income. Other operating income in the nine month period ended
September 30, 2000 includes the profit from sale of operations of a unit in our
industrial division, Applied Optronics Corporation, in the United States.


                                       19
<PAGE>


Operating Income (loss). For the three months ended September 30, 2001,
operating income was $2,068 compared to operating income of $5,318 for the same
period in 2000. For the nine months ended September 30, 2001, operating loss was
$136,137, compared to operating income of $15,189 for the same period in 2000.
Excluding inventory write downs and other charges, in process research and
development write-downs, one time charges, litigation expenses, amortization of
intangible assets, write downs of investments and Discontinued Business
Activities, as mentioned above, operating income for the three and nine months
ended September 30, 2001, was $14,991 and $37,004, representing 17% and 17% of
sales, respectively. Excluding other income from sales of a unit in our
industrial division, operating income for the nine months ended September 30,
2000 was $13,739, representing 12% of sales.

Other income. Other income of $599 in the nine months ended September 30, 2000
includes profits due to dilution of the Company's interests in one of its
high-tech ventures, Galil Medical Ltd.

Financing expenses, net. For the three months ended September 30, 2001,
financing expenses were $1,735 compared to financing expenses of $1,025 in the
same period in 2000. For the nine months ended September 30, 2001, financing
expenses were $7,095 compared to financing expenses of $3,673 in the same period
in 2000.

The increase in the three months ended September 30, 2001 in finance expense is
mainly due to the $1,959 financing cost of the long term bank loan in connection
with the CMG acquisition including amortization of $500 in respect of value of
options given to the bank as part of the financing agreement and offset by
exchange rate income.

The increase in the nine months ended September 30, 2001 in finance expense is
mainly due to the $3,480 financing cost of the long term bank loan in connection
with the CMG acquisition including amortization of $1,000 in respect of value of
options given to the bank as part of the financing agreement.

Income Tax Benefit (expense). Income tax expense in the three months ended
September 30, 2001 was $200 compared to no Income tax in the same period last
year. Tax benefit for the nine months ended September 30, 2001 was $1,216
compared with expense of $98 in the same period in 2000. In April 2001, the
Company reached a final agreement with the 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 from reversal of the accrual
recorded in previous years. Most of the Company's income in Israel is exempt
from income taxes; the Israeli statutory tax rate for the purpose of
reconciliation of the reported tax expense is approximately zero. Income tax
expense in the financial statements relates primarily to the income taxes of
non-Israeli subsidiaries. Additionally, the Company has over $100,000 of net
operating losses, mostly in the United States and Israel.

Company's share on losses of affiliates. For the three months ended September
30, 2000, the Company's share on losses of affiliates was $313. For the nine
months ended September 30, 2000, the Company's share on losses of affiliates was
$733.

Extraordinary gain on purchase of Company's convertible notes. For the nine
months ended September 30, 2000, extraordinary gain on the purchase of the
Company's convertible notes was $292.

Net Income (loss). As a result of the foregoing factors, the Company's net
income was $133 for the three months ended September 30, 2001 compared to net
income of $3,980 in the same period in 2000. The Company's net loss was $142,016
for the nine months ended September 30, 2001 compared to net income of $11,576
in the same period in 2000.

The decrease in net income is due to the factors cited above.


                                       20
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES
(in thousands of dollars)

As of September 30, 2001, the Company had cash and cash equivalents of $100,543
compared to $43,396 on December 31, 2000. The increase of $57,147 is mainly
attributable to:

Operating activities
(in thousands of dollars)

For the nine months ended September 30, 2001, cash used for operating activities
was $21,639. The difference between the loss of $142,016 and cash used for
operations is attributed to non-cash expenses and changes in working capital.

Non cash expenses of $84,293 consisted of the following:

o    $46,650 for purchased in-process research and development.

o    $10,255 for Amortization and depreciation, including goodwill and other
     intangible assets of $7,688 and fixed assets depreciation of $2,567.

o    $8,963 for Grant of options.

o    $16,400 for Non cash compensation.

o    $3,986 for Write down of investment.

Changes in working capital of $36,084 consisted of the following:

o    $42,914 for Increase in payables and accrued expenses mainly due to a legal
     provision reflecting management's estimate of the Company's potential
     exposure with respect to certain legal proceedings and integration and
     related provisions due to the purchase of the CMG operations.

o    $5,952 for increase in trade receivables.

o    $3,720 for decrease in inventory.

o    $4,598 for increase in prepaid expenses and other receivables.

Investing Activities
(in thousands of dollars)

For the nine months ended September 30, 2001, cash used for investing activities
was approximately $12,359 detailed as follows:

o    $9,744 for net payment for the acquisition of CMG. The total acquisition
     cost includes cash payment of $100,000 financed by a long-term loan,
     $12,904 in notes and 5,432,099 shares.

o    $123 for decrease in short term deposits.

o    $2,091 for investment in fixed assets

o    $151 for short term investments, net

o    $500 for purchase of distribution rights.


                                       21
<PAGE>


Financing Activities
(in thousands of dollars)

For the nine months ended September 30, 2001, cash provided by financing
activities was $91,145 detailed as follows:

o    $49,434 from proceeds from the exercise of options.

o    $42,580 from short term bank debt.

o    $874 for finance costs associated with long term loan.

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 until April 2003 and a $20,000 line of credit from April
2002 to April 2003 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.


                                       22
<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: (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 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.

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; RECENT INTERNATIONAL DEVELOPMENTS

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. Since October 2000, there has been a
significant increase in violence primarily in the West Bank and Gaza Strip,
terrorist attacks in Israel, and negotiations between Israel and the Palestinian
representatives have ceased. The Company cannot be certain as to whether or how
the peace process will develop or what effect it may have upon the Company.

Despite earlier 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


                                       23
<PAGE>


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 the Company's 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.

The September 11, 2001 terror attacks on the U.S. and the war implemented by the
U.S. and its international allies in Afghanistan in response, have created
additional uncertainty on the state of the U.S. economy. The war implemented by
the U.S. against terrorism might be broadened in the Middle East. As a result of
the terror attacks and the war against terrorism implemented by the U.S., the
world economy, business and trade markets can be adversely affected. Although
the Company did not experience any immediate direct adverse effect on operations
from the terrorist attacks, the longer-term and indirect economic, political and
military consequences from this catastrophic event and the war implemented in
response to those events, are not yet known. If the slowing business conditions
in the global economy accelerate, the Company's future sales and operating
results could be negatively impacted.

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 $71 million. 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 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 gains and losses on these transactions are
included in the statement of operations in the period in which the changes in
the exchange rates 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.


                                       24
<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, 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.

The Company has been named in a number of purported class action securities
lawsuits filed in the fall of 1998 that have been consolidated in the Untied
States District Court for the Southern District of New York. The consolidated
action is captioned In Re Lumenis Ltd. Securities Litigation, 98 Civ. 7530
(NRB). On July 9, 1999, a consolidated amended complaint was filed naming the
Company, Salomon Smith Barney Inc., and several additional current and former
directors and officers as defendants. The consolidated amended complaint seeks
damages and attorneys fees under the United States securities laws for alleged
irregularities in the way in which the Company reported its financial results
and disclosed certain facts throughout 1997 and 1998 and or alleged "tipping" of
non-public information to Salomon Smith Barney Inc. in September 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 Industries director and officer defendants and denying the
remaining dismissal counts. The parties have entered into a scheduling order and
have commenced discovery. The Company has reached an agreement in principle with
the plaintiffs to settle the action, and is working to finalize a formal
agreement with the plaintiffs. The final settlement is subject to negotiation
and execution of the formal agreement. In addition, the final agreement must be
approved by the Court, a process which will likely take several months.

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 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, Inc., entitled Laser
Industries Ltd., Lumenis Inc., Sharplan Lasers Inc., and Lumenis Ltd. v. Light
Age, Inc. Docket No. SOM-L-14199. The litigation relates to disputes arising out
of an agreement between Light Age and Laser Industries pursuant to which Light
Age supplied certain medical laser devices to Laser Industries. 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 beach 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
December 2001.

On May 8, 2001, Lumenos, Inc. ("Lumenos"), the owner of several applications
with the United States Patent and Trademark Office to register the term
"Lumenos" as a trademark, filed a complaint for trademark infringement against
the Company in the United States District Court for the District of
Massachusetts, seeking equitable relief and damages. In its complaint, Lumenos
seeks to prevent the Company from using or promoting the name "Lumenis" as a
company name, trademark or Internet domain name. The time to serve the Lumenos
complaint has now lapsed. The parties have reached an agreement resolving the
dispute. The parties are in the process of signing the agreement whereupon the
Lumenos suit is to be dismissed with prejudice.


                                       25
<PAGE>


On September 20, 1999, Dr. Richard Urso filed what purports to be a class action
lawsuit against the Company and against a leasing company in Harris County,
Texas, alleging a variety of causes of action. In December 2000, plaintiff
amended his complaint to eliminate the class action claim. On April 13, 2001 the
lawsuit was dismissed and on May 3, 2001, Dr. Urso and approximately forty-eight
physicians and medical clinics re-filed what purports to be a class action
lawsuit in Harris County, Texas. Plaintiffs filed a motion to remand the case to
State Court. The lawsuit was removed to the U.S. District Court for the Southern
District of Texas. The current allegations on behalf of plaintiffs are breach of
contract, breach of express and implied warranties, fraud, misrepresentation,
conversion, product liability, violation of the Texas Deceptive Trade Practices
Act and Texas Securities Act as well as lender liability and unconscionable
conduct. The Company will continue to defend this case vigorously. No assessment
of likelihood of outcome or likely damages, if any, can be made at this time.

On October 12, 2001, Lumenis Inc., a subsidiary of the Company, filed a summons
and complaint in the United States District Court for the Southern District of
New York charging Altus Medical, Inc. ("Altus") with infringement of U.S.
Patents Nos. 5,707,403 and 5,527,350. These patents relate to the field of laser
dermatology, including methods for utilizing a laser to treat and selectively
destroy blood vessels below the surface of the skin. The summons and complaint
were served on Altus on October 19, 2001. By stipulation, Altus must respond to
the complaint by November 26, 2001.

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. Management believes that none 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 undergone 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 statements of operations for the nine-month's and three-month periods ended
September 30, 2001 include a provision of $26 million reflecting management
estimate of the Company's potential exposure with respect to certain, not all,
legal proceedings, claims and litigation. 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.


                                       26
<PAGE>


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

     (a)  Not applicable

     (b)  Not applicable

     (c)  During the three month period ended September 30, 2001, the Company
issued: (i) 1,363,700 ordinary shares to Bank Hapoalim B.M. (the "Bank"), for an
aggregate consideration of $27,614,925, upon exercise of options which had been
granted on April 30, 2001 in connection with various financing arrangements
provided by the Bank; said shares were issued in reliance on the private
offering exemption under Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"); (ii) 399,784 ordinary shares in exchange for $10,892,000
aggregate principal amount of the Company's outstanding 6% convertible
subordinated notes due September 1, 2002 (the "Convertible Notes") from certain
holders thereof; said shares were issued in reliance on the exemption for
securities exchanged with existing securityholders under Section 3(a)(9) of the
Securities Act; and (iii) an aggregate of 188,676 ordinary shares upon the
cashless exercise of options granted pursuant to litigation settlements in 2000
and an aggregate of 21,600 ordinary shares sold to a director and to an
executive officer of the Company for an aggregate of $358,775 in cash, in each
case in reliance on the exemption under Section 4(2) of the Securities Act.
During the three months period ended June 30, 2001, the Company had issued
355,013 ordinary shares in exchange for $10,228,000 aggregate principal amount
of the Convertible Notes from certain holders thereof in reliance on the
exemption under Section 3(a)(9) of the Securities Act.

     (d)  Not applicable.


                                       27
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual General Meeting of the Company's shareholders on
July 16, 2001 (the "Annual Meeting"). The following sets forth each matter which
was presented to the Company's shareholders and voted upon at the meeting and
the number of votes cast for and against as well as the number of abstentions
for each such matter:

1. To approve the election of directors of the Company to serve until the next
Annual General Meeting. The nominees for election were: Prof. Jacob A. Frenkel,
Mr. Arie Genger, Dr. Bernard Couillaud, Mr. Aharon Dovrat, Mr. Thomas G. Hardy,
Prof. Darrell S. Rigel, Mr. Sash A. Spencer, and Prof. Zehev Tadmor.

                        FOR: 30,012,288 WITHHOLD: 52,036

2. To approve the Company's directors' and officers liability insurance
arrangements, which under the Israeli Companies Law requires approval by the
Company's Audit Committee and Board of Directors as well as the Company's
shareholders. This matter was approved by the following votes:

               FOR: 25,144,981 AGAINST: 4,904,653 ABSTAIN: 14,690

3. To approve the appointment of Brightman, Almagor & Co., a member firm of
Deloitte, Touche & Tohmatsu, as the Company's independent auditors to audit the
consolidated financial statements of the Company and its subsidiaries for fiscal
year 2001. This matter was approved by the following votes:

                 FOR: 29,991,815 AGAINST: 62,009 ABSTAIN: 10,500

4. To approve the Company's change of name from "ESC Medical Systems Ltd." to
"Lumenis Ltd.". This matter was approved by the following votes:

                 FOR: 30,016,268 AGAINST: 35,495 ABSTAIN: 12,561

5. To amend the Company's Articles of Association to increase the registered
share capital of the Company from NIS 5,000,000 to NIS 10,000,000, which will
result in the increase in the amount of Ordinary Shares from 50,000,000 Ordinary
Shares of par value NIS 0.10 to 100,000,000 Ordinary Shares of par value NIS
0.10. This matter was approved by the following votes:

                FOR: 29,572,239 AGAINST: 476,915 ABSTAIN: 15,170

6. To approve the issuance of options to purchase up to 2,500,000 Ordinary
Shares to Bank Hapoalim, B.M. or one of its associates ("Bank"), in connection
with the financing that was made available by the Bank on April 30, 2001 and
used, in part, for the purchase of the Medical Group of Coherent, Inc. This
matter was approved by the following votes:

                FOR: 21,794,540 AGAINST: 357,559 ABSTAIN: 19,180

7. To approve the engagement of Mr. Thomas G. Hardy, a director of the Company,
as an outside consultant to assist the Company in the strategic planning and
integration activities relating to the acquisition of the Medical Group of
Coherent, Inc. This matter was approved by the following votes:

                FOR: 29,673,799 AGAINST: 377,403 ABSTAIN: 13,122

8. To approve the Company's 2000 Share Option Plan, intended to encourage stock
ownership by employees, directors and consultants and thereby motivate such
individuals to contribute materially to the Company's success. This matter was
approved by the following votes:

               FOR: 15,655,646 AGAINST: 6,328,251 ABSTAIN: 187,382

9. To approve the compensation for 2001 of (i) the Company's directors who
served as directors during 2000 and (ii) Mr. Arie Genger who served as special
advisor of the Board of Directors and who was elected at the Annual Meeting as a
director. This matter was approved by the following votes:

               FOR: 22,767,568 AGAINST: 7,144,588 ABSTAIN: 152,168


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<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

10.1 Employment Agreement dated July 11, 2001 between the Company and Alon Maor

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the three months ended September
     30, 2001. However, on July 13, 2001 the Company filed an Amendment No. 1 on
     Form 8-K/A to the Form 8-K which had been filed on May 15, 2001 (date of
     earliest event reported: April 30, 2001), to set forth the financial
     statements and pro forma financial information required by Items 7(a) and
     7(b) of the said Form 8-K relating to the acquisition of the Coherent
     Medical Group.


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/  Asif Adil
                                        -----------------------------
Date: November 14, 2001                 By:  Asif Adil
                                             (Chief Financial Officer,
                                             and Duly Authorized Officer)


                                       29
<PAGE>


                                  EXHIBIT INDEX

10.1    Employment Agreement dated July 11, 2001 between the Company and
        Alon Maor


                                       30