SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

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



For Quarter Ended            March 31, 2001         Commission File No.  0-24866


                             ISOLYSER COMPANY, INC.
             (Exact name of Registrant as specified in its charter)


             Georgia                                   58-1746149
------------------------------------               ------------------
(State or other jurisdiction of                        (IRS Employer
 incorporation or organization)                    Identification No.)

                           4320 International Blvd NW
                             Norcross, Georgia 30093
                    (Address of principal executive offices)

                                 (770) 806-9898
              (Registrant's telephone number, including area code)

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 at least the past 90 days.

Yes   X     No
    -----      -----

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common equity, as of the latest practicable date.

            Class                                    Outstanding at May 11, 2001
-----------------------------                        ---------------------------
Common Stock, $.001 par value                                 41,673,563



<PAGE>

<TABLE>
<CAPTION>
                                                   ISOLYSER COMPANY, INC.
                                           Condensed Consolidated Balance Sheets
                                                       (in thousands)
<S>                                                                     <C>                             <C>
                                                                           (unaudited)
                                ASSETS                                      March 31, 2001                December 31, 2000
                                                                        -----------------------         ---------------------
Current assets
        Cash and cash equivalents                                                 $      9,261                $       14,379
        Accounts receivable, net                                                        17,327                        12,269
        Inventory, net                                                                  22,851                        16,160
        Prepaid expenses and other assets                                                1,358                         1,633
                                                                        -----------------------         ---------------------
                    Total current assets                                                50,797                        44,441
                                                                        -----------------------         ---------------------
Property and equipment                                                                  22,471                        19,980
        Less accumulated depreciation                                                  (13,506)                      (12,948)
                                                                        -----------------------         ---------------------
                    Property and equipment, net                                          8,965                         7,032
                                                                        -----------------------         ---------------------

Intangible assets, net                                                                  26,361                        23,057
Other assets, net                                                                        3,206                         2,439
                                                                        -----------------------         ---------------------
                    Total assets                                                $       89,329                $       76,969
                                                                        =======================         =====================

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
        Accounts payable                                                         $       8,875                $        4,035
        Accrued expenses                                                                 2,757                         3,260
        Current portion of accrued customer rebates                                        490                           490
        Current portion of long-term debt                                                  257                           256
        Current portion of deferred licensing revenue                                    1,502                         1,508
        Current portion of product financing agreement                                     520                           520
                                                                        -----------------------         ---------------------
                    Total current liabilities                                           14,401                        10,069
                                                                        -----------------------         ---------------------

Long-term debt                                                                           7,146                           491
Long-term portion of deferred licensing revenue                                          1,136                         1,508
Long-term portion of product financing agreement                                           271                           406
Other long-term liabilities                                                              1,978                           897
                                                                        -----------------------         ---------------------
                    Total liabilities                                                   24,932                        13,371
                                                                        -----------------------         ---------------------

Shareholders' equity
        Common stock                                                                        42                            42
        Additional paid-in capital                                                     209,078                       208,613
        Accumulated deficit                                                           (142,998)                     (143,425)
        Other comprehensive loss                                                          (265)                         (180)
        Unearned shares restricted to employee stock ownership plan                       (120)                         (120)
                                                                        -----------------------         ---------------------
                                                                                        65,737                        64,930
Treasury shares, at cost                                                                (1,340)                       (1,332)
                                                                        -----------------------         ---------------------
        Total shareholders' equity                                                      64,397                        63,598
                                                                        -----------------------         ---------------------
                    Total liabilities and shareholders' equity                  $       89,329                $       76,969
                                                                        =======================         =====================
</TABLE>

See notes to condensed consolidated financial statements.


                                       2
<PAGE>


<TABLE>
<CAPTION>

                                            ISOLYSER COMPANY, INC.
                   Condensed Consolidated Statements of Operations and Comprehensive Income
                                    (in thousands, except per share data)
                                                 (unaudited)
<S>                                                           <C>                        <C>
                                                                Three months ended        Three months ended
                                                                  March 31, 2001            March 31, 2000
                                                              -----------------------    ----------------------

Net sales                                                             $       15,877            $       13,265
Licensing revenues                                                               379                       750
                                                              -----------------------    ----------------------
                Net revenues                                                  16,256                    14,015

Cost of goods sold                                                             9,593                     7,902
                                                              -----------------------    ----------------------
                Gross profit                                                   6,663                     6,113

Operating expenses:
       Selling, general and administrative                                     5,379                     4,890
       Research and development                                                  453                       816
       Amortization of intangibles                                               320                       391
                                                              -----------------------    ----------------------
                Total operating expenses                                       6,152                     6,097
                                                              -----------------------    ----------------------

Income from operations                                                           511                        16

Interest income                                                                  113                       169
Interest expense                                                                (107)                     (142)
                                                              -----------------------    ----------------------
Income before income tax provision                                               517                        43

Income tax provision                                                              90                        41
                                                              -----------------------    ----------------------

Net income                                                                       427                         2
                                                              -----------------------    ----------------------

Other comprehensive income (loss):
         Foreign currency translation loss                                       (85)                      (22)
         Unrealized (loss) gain on available for sale
           securities                                                            (14)                      636
                                                              -----------------------    ----------------------

Comprehensive income                                                   $         328             $         616
                                                              =======================    ======================

Net income per common share  - basic
   and diluted                                                         $        0.01             $        0.00
                                                              =======================    ======================

Basic weighted average number of common
  shares outstanding                                                          41,408                    40,898
                                                              =======================    ======================

Diluted weighted average number of common
  shares outstanding                                                          41,578                    43,804
                                                              =======================    ======================
</TABLE>

See notes to condensed consolidated financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                     ISOLYSER COMPANY, INC.
                                        Condensed Consolidated Statements of Cash Flows
                                                         (in thousands)
                                                          (unaudited)
<S>                                                                       <C>                         <C>
                                                                              Three months ended          Three months ended
                                                                                March 31, 2001              March 31, 2000
                                                                          ------------------------    -------------------------

Cash flows from operating activities:
        Net income                                                                  $         427               $         2

Adjustments to reconcile net income to net cash used in
        operating activities:
        Depreciation                                                                          558                       605
        Amortization of intangibles                                                           320                       391
        Provision for doubtful accounts                                                        10                        30
        Licensing revenues                                                                   (379)                     (750)
        Provision for obsolete and slow moving inventory                                      177                         -
        Changes in assets and liabilities, net of effects of acquisitions                  (1,394)                   (2,619)
                                                                          ------------------------    -------------------------
Net cash used in operating activities                                                        (281)                   (2,341)
                                                                          ------------------------    -------------------------
Cash flows from investing activities:
        Purchase of and deposits for property and equipment                                  (345)                     (406)
        Investment in available for sale securities                                             -                      (249)
        Acquisitions                                                                      (11,983)                        -
                                                                          ------------------------    -------------------------
Net cash used in investing activities                                                     (12,328)                     (655)
                                                                          ------------------------    -------------------------

Cash flows from financing activities:
        Net borrowings under credit agreements                                              6,663                         -
        Changes in bank overdraft                                                             875                      (251)
        Net repayments under notes payable                                                   (155)                     (149)
        Proceeds from exercise of stock options                                                 -                     1,566
        Repurchase of treasury stock                                                           (8)                        -
        Proceeds from issuance of common stock                                                201                         1
                                                                          ------------------------    -------------------------
Net cash provided by financing activities                                                   7,576                     1,167
                                                                          ------------------------    -------------------------
Effect of exchange rate changes on cash                                                       (85)                      (22)
                                                                          ------------------------    -------------------------
Net decrease in cash and cash equivalents                                                  (5,118)                   (1,851)
Cash and cash equivalents at beginning of period                                           14,379                    17,006
                                                                          ------------------------    -------------------------
Cash and cash equivalents at end of period                                         $        9,261            $       15,155
                                                                          ========================    =========================
</TABLE>

See notes to condensed consolidated financial statements.




                                       4
<PAGE>

                             ISOLYSER COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                   (unaudited)


1)   In the  opinion of  management,  the  information  furnished  reflects  all
     adjustments (consisting only of normal recurring adjustments) necessary for
     a fair  presentation of the financial  position,  results of operations and
     cash flows for the  interim  periods  presented.  Results  for the  interim
     periods are not  necessarily  indicative  of results to be expected for the
     full  year.  These  consolidated  financial  statements  should  be read in
     conjunction  with the consolidated  financial  statements and notes thereto
     contained in the  Company's  Annual  Report on Form 10-K for the year ended
     December 31, 2000 (the "Annual Report").

2)   Inventories are stated at the lower of cost or market and are summarized as
     follows:
<TABLE>
<CAPTION>
<S>                                                          <C>                       <C>

                  (in thousands)                             March 31, 2001            December 31, 2000
                                                             --------------            -----------------
     Raw materials and supplies                              $      15,234             $         10,019
     Work in process                                                   972                          984
     Finished goods                                                 12,291                        9,830
                                                             --------------            -----------------
                                                                    28,497                       20,833
     Reserves for slow moving and
       obsolete inventories                                         (5,646)                      (4,673)
                                                             --------------            -----------------
     Inventory, net                                          $      22,851             $         16,160
                                                             ==============            =================
</TABLE>

     At March  31,  2001  and  December  31,  2000  the net  OREX  inventory  is
     approximately $2.5 million and $2.6 million, respectively.

3)   Effective February 2, 2001, Microtek entered into a definitive agreement to
     acquire  substantially all of the assets of Deka Medical, Inc. ("Deka") for
     cash.  Microtek and Deka  manufacture and sell specialty  equipment  drapes
     used in various surgical procedures to prevent infection. Concurrently with
     the  signing  of  the  definitive   agreement,   Microtek  acquired  Deka's
     post-surgical  clean-up  product line.  Effective  March 2, 2001,  Microtek
     concluded the acquisition by acquiring  substantially  all of the assets of
     Deka used in Deka's patient and medical  equipment  drape product line. The
     preliminary   allocation  of  the  total   estimated   purchase   price  of
     approximately $11.3 million is subject to adjustment in 2001 when finalized
     and resulted in an excess of purchase  price over the fair value of the net
     assets acquired (goodwill) of approximately $2.2 million.  Such goodwill is
     being amortized on a straight-line basis over 15 years.

     On February 16, 2001,  the Company  acquired the assets of  MICROBasix  LLC
     ("MICROBasix")  for cash of  approximately  $675,000  and the  issuance  of
     250,000  shares of the  Company's  common  stock  having a market  value of
     approximately  $265,000  on the date of the  acquisition.  The  acquisition
     follows  the  development  of  a  cooperative  alliance  relationship  with
     MICROBasix  in 2000 for the purpose of sharing  technologies,  products and
     services that provide significant volume reduction of low level radioactive
     waste for the nuclear industry.

                                       5
<PAGE>

     Each of the  above  described  acquisitions  were  accounted  for under the
     purchase method, and accordingly,  the results of operations related to the
     acquired   assets  have  been  included  in  the   accompanying   condensed
     consolidated   financial   statements  from  their   respective   dates  of
     acquisition.  The  following  unaudited  pro  forma  financial  information
     reflects the Company's  results of operations as if the Deka and MICROBasix
     acquisitions had been completed on January 1, 2000:
<TABLE>
<CAPTION>
<S>                                                             <C>                  <C>
                                                                           Three months ended
        (in thousands, except per share data)                   March 31, 2001       March 31, 2000
                                                                --------------       --------------

      Net sales                                                 $      19,982        $      19,910
      Net income (loss)                                                   425                 (506)
      Net  income  (loss)  per  common  share -  basic  and
        diluted                                                           .01                 (.01)
</TABLE>

     The pro forma  financial  information is based on estimates and assumptions
     which  management  believes are  reasonable  and is also based on unaudited
     statements of operations  data provided by Deka. Such data provided by Deka
     is  subject to  change.  Accordingly,  the  foregoing  pro forma  financial
     information  is  subject to change.  The  Company  expects to file with the
     Securities  and  Exchange  Commission  under a  current  report on Form 8-K
     statements  of  operations  data of Deka as audited  by Deka's  independent
     public  accountants and unaudited pro forma financial  information based in
     part thereon after such audit is completed.  The pro forma  information  is
     not  necessarily  indicative  of the  operating  results  that  would  have
     occurred had these  acquisitions been consummated as of the date indicated,
     nor is it necessarily indicative of future operating results.

4)   Basic per share income (loss) is computed using the weighted average number
     of common  shares  outstanding  for the period.  Diluted  per share  income
     (loss) is  computed  including  the  dilutive  effect  of all  contingently
     issuable shares.  The difference between basic and diluted weighted average
     shares is  attributable  to 170,000 and 2.9 million  stock  options for the
     three months ended March 31, 2001 and March 31, 2000, respectively.

5)   On February 11, 2000,  the Company paid  $249,000 for  approximately  13.0%
     interest in Consolidated  Ecoprogress  Technology,  Inc. ("CES").  CES is a
     Canadian  environmental  technology  company  focused  on being a leader in
     developing and selling biodegradable and disposable absorbent products such
     as diapers,  feminine hygiene, adult incontinence and other products.  This
     investment  is  classified  in  accordance   with  Statement  of  Financial
     Accounting  Standards ("SFAS") 115,  Accounting for Certain  Investments in
     Debt and Equity  Securities as available for sale  securities and is stated
     at market value.  Any change in market value between periods is included as
     other comprehensive  income, a component of shareholders' equity. The value
     of this investment as of March 31, 2001 was $222,000.

6)   At  December  31,  2000,  the Company  had  restructuring  reserves of $4.7
     million.  Charges against the reserves  totaled $703,000 during the quarter
     ended March 31, 2001,  leaving a balance of $4.0 million in the reserves at
     March 31, 2001. The activity is shown below:

                                       6
<PAGE>
<TABLE>
<CAPTION>
<S>                                                        <C>                    <C>                 <C>
                  (in thousands)                           December 31, 2000                           March 31, 2001
     Description                                                 Balance              Activity             Balance
     -----------                                           -----------------      ----------------    ----------------
     Reserve for obsolete inventory                               $ 3,477               $(177)                $3,300

     Severance and consulting arrangements                            885                (525)                   360

     Closed office lease liabilities                                  281                  (1)                   280

     Impaired equipment reserve                                        75                   -                     75
                                                           -----------------      ----------------    ----------------
     Total                                                        $ 4,718               $(703)                $4,015
                                                           -----------------      ----------------    ----------------
</TABLE>

     Severance  benefits  for 99  employees  totaling  $636,000  were accrued at
     December 31, 2000.  Five of these  employees  were  terminated  in 2000 and
     three have been terminated in 2001.  Severance  benefits  totaling $478,000
     were paid to these eight employees during the quarter ended March 31, 2001.

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

     Net revenues for the three months ended March 31, 2001 (the "2001 Quarter")
were $16.3 million as compared to $14.0 million for the three months ended March
31,  2000 (the  "2000  Quarter"),  an  increase  of 16.0%.  Excluding  licensing
revenues and net sales  related to the product  lines  acquired  from Deka,  net
revenues in the 2001 Quarter were $13.6  million as compared to $13.3 million in
the 2000 Quarter, an increase of 2.2%.

     Net revenues from sales of Microtek  products (which includes the Company's
safety  products)  were $15.6  million in the 2001  Quarter as compared to $12.6
million in the 2000 Quarter,  an increase of 23.4%.  Excluding the impact of the
Deka  acquisition,  Microtek's  sales  in the  2001  Quarter  increased  5.1% or
$643,000  over the  2000  Quarter  to $13.3  million.  Increases  in  Microtek's
domestic  core  branded  revenues  more  than  offset   continued   weakness  in
international  revenues.  Sales of the Company's safety products  increased 5.7%
from $1.8 million in the 2000 Quarter to $1.9 million in the 2001  Quarter.  The
Company  expects  that the Deka  acquisition  will  contribute  in excess of $20
million in sales revenue during 2001,  including increased revenues recorded for
the 2001 Quarter.

     Net revenues of OREX  Technologies  International  ("OTI") were $600,000 in
the 2001  Quarter as compared  to $1.3  million in the 2000  Quarter.  Licensing
revenues in the 2001 Quarter decreased $371,000 from the 2000 Quarter due to the
settlement with Allegiance Healthcare that was recorded in 2000 and described in
the Annual  Report.  Additionally,  OTI's  healthcare  product sales in the 2001
Quarter  decreased  by $357,000  from the 2000  Quarter  reflecting  in part the
Company's increased focus on the profitable Microtek business. The Company's OTI
business  is subject to various  risks  described  under  "Risk  Factors" in the
Company's Annual Report.

     Gross  profit  for the  2001  Quarter  was  $6.7  million,  or 41.0% of net
revenues,  as  compared  to $6.1  million,  or  43.6% of  revenues,  in the 2000
Quarter.  The decrease in gross  profit  margin in the 2001 Quarter is primarily
attributable  to costs of  transitioning  production  from the Microtek plant in
Mexico to its facility in the Dominican  Republic and expenses  associated  with
integrating the Deka operations. Microtek's gross profit in the 2001 Quarter was
$6.3  million or 40.2% of net  revenues as compared to $5.4  million or 42.5% of
net revenues in the 2000 Quarter.  Excluding the impact of the Deka acquisition,


                                       7
<PAGE>

Microtek's  gross  profit in the 2001  Quarter was $5.7  million or 42.8% of net
revenues,  a  slight  improvement  over the 2000  Quarter.  Contributing  to the
overall  decline in gross profit margin in the 2001 Quarter,  OTI's gross profit
decreased $368,000 due to lower licensing revenues resulting from the settlement
with Allegiance Healthcare referred to in the preceding paragraph.

     Selling, general and administrative expenses were $5.4 million, or 33.1% of
net revenues,  in the 2001 Quarter, as compared to $4.9 million, or 34.9% of net
revenues,  in the 2000  Quarter.  The overall  increase in the  absolute  dollar
amount of selling,  general and  administrative  expenses was due in part to the
acquisition  of Deka and  increases in variable  selling  costs  resulting  from
increased net revenues in the 2001 Quarter. The improvement in selling,  general
and administrative  expenses as a percentage of net revenues in the 2001 Quarter
is the result of cost control and reduction  efforts begun in the fourth quarter
of 2000 and synergies resulting from the Deka acquisition.

     Research and development expenses in the 2001 Quarter decreased by $363,000
or 44.4% from the 2000 Quarter, primarily as a result of reduced OTI development
costs.

     Amortization  of  intangible  assets was  $320,000 in the 2001  Quarter,  a
decrease of $71,000 from the 2000 Quarter.  This  reduction is the net effect of
lower amortization  expense in the 2001 Quarter for intangible assets which were
fully amortized during 2000,  partially offset by the amortization of intangible
assets acquired in conjunction  with the Deka and MICROBasix  acquisitions  that
were completed in the 2001 Quarter.

     Interest income, net of interest expense, was $6,000 in the 2001 Quarter as
compared  to $27,000 in the 2000  Quarter.  This  decrease  is the net effect of
lower interest income on cash and cash equivalents and lower interest expense in
the 2001 Quarter  which are  attributable  to lower cash balances as a result of
recent  acquisitions and the repayment of certain  interest bearing  obligations
since the 2000 Quarter.

     The provision for income taxes reflects  expenses of $90,000 and $41,000 in
the 2001 and 2000  Quarters,  respectively.  Due to the  Company's  federal  net
operating  loss  carryforwards,  the  Company's  income  tax  provision  results
primarily from state and foreign taxes.

     The resulting net income of $427,000, or $0.01 per basic and diluted share,
in the 2001 Quarter  compares  favorably to net income of $2,000 recorded in the
2000 Quarter.

     The notes to the  Company's  condensed  consolidated  financial  statements
include unaudited pro forma financial data for the 2001 Quarter and 2000 Quarter
as if the Deka and  MICROBasix  acquisitions  had been  completed  on January 1,
2000,  rather than in February  and March 2001 as  actually  occurred.  On a pro
forma basis,  net revenues for the 2001 Quarter and 2000 Quarter would have been
$20.0  million  and $19.9  million,  respectively,  as  compared  to actual  net
revenues  in the 2001  Quarter  and 2000  Quarter  of $16.3  million  and  $14.0
million,  respectively. The pro forma adjustments to net revenues reflect Deka's
historical  net  revenues of $3.7 million for the period from January 1, 2001 to
March 2,  2001 and $5.9  million  for the 2000  Quarter.  MICROBasix  had no net
revenues  during either the 2001 Quarter or the 2000 Quarter.  The unaudited pro
forma net income of $425,000 for the 2001 Quarter  represents a $2,000  decrease
from the Company's reported net income of $427,000 for the 2001 Quarter, and the
unaudited  pro forma net loss of  $506,000  for the 2000  Quarter  represents  a
$508,000 decrease from the Company's  reported net income of $2,000 for the 2000
Quarter.  These pro forma  decreases  in  profitability  primarily  result  from
historically  inefficient  manufacturing  processes  at Deka and  product mix at
Deka, reflecting profit margins at Deka of approximately 15% in the 2001 Quarter


                                       8
<PAGE>

and 8% in the 2000  Quarter.  The increase in Deka profit  margins from the 2000
Quarter to the 2001 Quarter is primarily  attributable to relative  reduction in
sales of lower margin  products by Deka. The Company  expects that  efficiencies
resulting   from  adding  the  Deka  product   lines  to   Microtek's   existing
infrastructure  and other  initiatives  will improve margins on Deka products to
approximate the  considerably  higher margins achieved by Microtek on comparable
products  sold  by  Microtek.  The  Company  expects  to  realize  these  margin
improvements  as it completes the  integration of the Deka  operations  over the
remainder of 2001.

Liquidity and Capital Resources

     As of March 31, 2001 the Company's cash and cash  equivalents  totaled $9.3
million as compared to $14.4 million at December 31, 2000.

     During the 2001 Quarter,  the Company used $281,000 in operating activities
as compared to $2.3 million in the 2000 Quarter.  This decrease is  attributable
to improved results of operations and working capital  management.  Cash used in
investing  activities  in the 2001  Quarter  was $12.3  million as  compared  to
$655,000 in the 2000 Quarter.  Investing activities in the 2001 Quarter included
the Deka and MICROBasix  acquisitions which consumed approximately $12.0 million
in  cash  and  purchases  of  property  and  equipment  of  $345,000.  Investing
activities in the 2000 Quarter included  $249,000 for the Company's  interest in
Consolidated  Ecoprogress  Technology,   Inc.  and  purchases  of  property  and
equipment  of  $406,000.  During the 2001  Quarter,  cash  provided by financing
activities  was $7.6  million as compared to $1.2  million in the 2000  Quarter.
Borrowings  under the Company's  Credit  Agreement  provided $6.7 million in the
2001 Quarter.  Proceeds from the exercise of stock options provided $1.6 million
during the 2000 Quarter.

     The Company maintains a $17.5 million credit agreement (as amended to date,
the "Credit  Agreement") with the Chase Manhattan Bank (the "Bank"),  consisting
of a revolving credit facility maturing on June 30, 2004. Borrowing availability
under the revolving  credit  facility is based on the lesser of (i) a percentage
of eligible  accounts  receivable and inventory or (ii) $17.5 million,  less any
outstanding  letters of credit issued under the Credit Agreement.  As of May 11,
2001,  current  borrowing  availability  under the  revolving  facility was $9.9
million,  of which the Company  had  borrowed  $8.6  million.  Revolving  credit
borrowings  bear interest,  at the Company's  option,  at either a floating rate
approximating  the Bank's  prime rate plus an interest  margin,  as defined,  or
LIBOR plus an interest margin (6.9% at May 11, 2001).  There were no outstanding
borrowings  under the  revolving  credit  facility at December 31, 2000 and $6.7
million of borrowings at March 31, 2001. On March 9, 2001, the Credit  Agreement
was  amended to provide  for an  increase  in the  revolving  facility  to $13.0
million until April 30, 2001. During this period,  borrowings bore interest at a
floating  rate of  approximating  the Bank's prime rate plus an interest  margin
which totaled 9.5% at March 31, 2001. On May 14, 2001,  the Company and the Bank
revised the Credit  Agreement to extend the maturity date by three years to June
30, 2004,  increase the size of the facility and make other  modifications.  The
Credit  Agreement  provides for the issuance of up to $1.0 million in letters of
credit.  There are no  outstanding  letters  of  credit.  The  Credit  Agreement
provides  for a fee of 0.375%  per  annum on the  unused  commitment,  an annual
collateral monitoring fee of $35,000, and an outstanding letter of credit fee of
2.0% per annum.  Borrowings under the Credit Agreement are collateralized by the
Company's accounts  receivable,  inventory,  equipment,  Isolyser's stock of its
subsidiaries  and  certain  of the  Company's  plants  and  offices.  The Credit
Agreement contains certain restrictive  covenants,  including the maintenance of
certain  financial  ratios  and  earnings,   and  limitations  on  acquisitions,
dispositions, capital expenditures and additional indebtedness. The Company also
is not  permitted to pay any  dividends.  At March 31, 2001,  the Company was in
violation of certain financial covenants,  but has modified the Credit Agreement
so as to comply with such covenants.

                                       9
<PAGE>

     Based  on  its  current  business  plan,  the  Company  expects  that  cash
equivalents and short term  investments on hand, the Company's  credit facility,
as amended,  and funds budgeted to be generated from operations will be adequate
to meet its  liquidity  and capital  requirements  for the next year.  Currently
unforeseen future  developments and increased  working capital  requirements may
require  additional  debt  financing  or  issuance  of common  stock in 2001 and
subsequent years.

Forward Looking Statements

     Statements made in this  Management's  Discussion and Analysis of Financial
Condition  and Results of Operations  include  forward-looking  statements  made
under the provisions of the Private Securities  Litigation Reform Act including,
but not  limited to,  statements  relating to  forecasted  contributions  to net
revenues resulting from the Deka acquisition,  forecasted  improvements to gross
margins  and the  ability  of the  Company  to meet its  liquidity  and  capital
requirements.  The Company's  actual results could differ  materially  from such
forward-looking  statements and such results will be affected by risks described
in the Company's Annual Report including,  without  limitation,  those described
under "Risk Factors - History of Net Losses",  "-Marketing  Risks affecting OREX
Products",  "-Manufacturing  and Supply Risks",  "-Protection of  Technologies",
"-Competition",   "-Risks  of  Technological   Obsolescence",   "-Reliance  Upon
Distributors",  "-Regulatory  Risks",  "-Environmental  Matters",  and "-Product
Liability".

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The  Company's  greatest  sensitivity  with  respect  to market  risk is to
changes in the  general  level of U.S.  interest  rates and its effect  upon the
Company's  interest  expense.  At March 31,  2001,  the Company had $7.3 million
long-term or short-term debt bearing  interest at floating rates.  Because these
rates are  variable,  an increase in interest  rates would result in  additional
interest  expense and a  reduction  in  interest  rates would  result in reduced
interest expense.

                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings

     Not applicable.

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<PAGE>

Item 2. Changes in Securities and Use of Proceeds

     During the quarter  for which this report is filed,  there were no material
modifications in the instruments defining the rights of shareholders. During the
quarter  for which this  report is filed,  none of the rights  evidenced  by the
shares of the Company's common stock were materially limited or qualified by the
issuance or modification of any other class of securities.

     On February 16, 2001, the Company issued 200,000 shares of its common stock
to one  accredited  investor  and 50,000  shares of its common  stock to another
investor as a part of the purchase  price in the  acquisition  of certain assets
from MICROBasix pursuant to a transaction exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.

Item 3. Default Upon Senior Securities

     At March 31, 2001, the Company was not in compliance with certain financial
covenants  contained  in the  Credit  Agreement,  but has  modified  the  Credit
Agreement so as to bring the Company into compliance with these covenants.

Item 4. Submission of Matters to a Vote of Securityholders

     None.

Item 5. Other Information

     None.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits:

Exhibit No.    Description
-----------    -----------

3.1(1)         Articles of Incorporation of Isolyser Company, Inc.

3.2(2)         Articles of  Amendment to Articles of  Incorporation  of Isolyser
               Company, Inc.

3.3(1)         Amended and Restated Bylaws of Isolyser Company, Inc.

3.4(3)         First  Amendment  to  Amended  and  Restated  Bylaws of  Isolyser
               Company, Inc.

3.5(4)         Second  Amendment  to Amended  and  Restated  Bylaws of  Isolyser
               Company, Inc.

4.1(1)         Specimen Certificate of Common Stock

------------------

                                       11
<PAGE>

(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1 (File No. 33-83474).

(2)  Incorporated by reference to Exhibit 3.2 of the Company's  Annual Report on
     Form 10-K for the year ended December 31, 1996.

(3)  Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
     Form 8-K filed July 29, 1996.

(4)  Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
     Form 8-K filed December 20, 1996.

     (b) The Company filed a current report on Form 8-K on March 22, 2001.



                                       12
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has caused  this  quarterly  report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on May 15, 2001.


                                  ISOLYSER COMPANY, INC.



                                  By:  /s/ Dan R. Lee
                                      ---------------------------------
                                      Dan R. Lee
                                      President & CEO
                                      (principal executive officer)


                                  By:  /s/ R.G. Wilson
                                      --------------------------------
                                      R.G. Wilson
                                      Chief Financial Officer
                                      (principal financial officer)



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