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         September 30, 1996         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 Boulevard, N.W.
                             Norcross, Georgia 30093
                             -----------------------
                    (Address of principal executive offices)

                                 (770) 381-7566
              (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 November 13, 1996
-----                                          --------------------------------

Common Stock, $.001 par value                           39,096,992

380456.1
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

Item 1.        Financial Statements
<TABLE>
<CAPTION>

                             Isolyser Company, Inc.
                      Condensed Consolidated Balance Sheets
                                 (in thousands)
                                   (unaudited)

                               Assets                             September 30, 1996        December 31, 1995
                              --------                         -------------------------------------------------
<S>                                                                <C>                          <C>  
Current assets
     Cash and cash equivalents                                       $ 22,038                   $ 54,816
     Accounts receivable-net                                           26,391                     22,142
     Inventories
         Raw materials                                                 21,712                     20,144
         Work in process                                               18,457                      7,967
         Finished goods                                                26,331                     17,952
     Deferred income taxes                                              2,605                      2,601
     Prepaid expenses and other assets                                  3,905                      3,272
                                                               
         Total current assets                                          121,439                   128,894
                                                                      ----------------------------------

Property, plant and equipment                                           86,574                    69,901
     Less accumulated depreciation                                      11,061                     5,860
                                                                      ----------------------------------
         Net property, plant, and equipment                             75,513                    64,041
                                                                      ----------------------------------

Intangibles and other assets, net                                     $ 62,214                  $ 61,031
                                                                      ----------------------------------
                                                                      $259,166                  $253,966
                                                                      ==================================
                Liabilities and Shareholders' Equity
                ------------------------------------
Current liabilities
     Current installments of long term debt                           $  4,199                  $  4,042
     Accounts payable                                                   12,982                    16,437
     Bank overdraft                                                      2,084                     1,800
     Accrued expenses                                                    7,123                     5,566
                                                                     -----------------------------------
         Total current liabilities                                      26,388                    27,845
                                                                     -----------------------------------

Long term debt, excluding current installments                          37,192                    26,413
Deferred income taxes                                                    3,963                     3,959
     Other liabilities                                                     186                       423
                                                                     -----------------------------------
         Total liabilities                                              67,729                    58,640
                                                                     -----------------------------------

Shareholders' equity
     Common stock                                                           39                        39
     Additional paid in capital                                        201,919                   199,635
     Retained earnings                                                  (7,704)                   (1,457)
     Unearned  shares restricted to employee 
     stock ownership plan                                                 (420)                     (420)
                                                                     -----------------------------------
                                                                       193,834                   197,797
Treasury shares                                                         (2,397)                   (2,471)
                                                                     -----------------------------------
     Total shareholders' equity                                        191,437                   195,326
                                                                     -----------------------------------
                                                                      $259,166                  $253,966
                                                                     ===================================      
</TABLE>


See accompanying notes.

380456.1
                                        2

<PAGE>

<TABLE>
<CAPTION>

                                               ISOLYSER COMPANY, INC.
                                   Condensed Consolidated Statements of Operations
                                        (in thousands except per share data)
                                                     (unaudited)


                                           Three months ended     Three months ended    Nine months ended     Nine months ended
                                           September 30, 1996     September 30, 1995    September 30, 1996    September 30, 1995
                                 -------------------------------------------------------------------------------------------
<S>                                              <C>                   <C>                 <C>                     <C>     
Net sales                                        $ 42,165              $ 26,543            $ 123,598               $ 68,467
     Cost of goods sold                            31,736                19,183               88,556                 48,380
                                 -------------------------------------------------------------------------------------------
     Gross Profit                                  10,429                 7,360               35,042                 20,087

Operating Expenses
     Selling & marketing                            7,401                 4,859               20,896                 12,756
     General & administrative                       3,492                 2,527                9,804                  6,408
     Research & development                           461                   249                1,411                    716
     Amortization of intangibles                    1,101                   643                3,261                  1,367
     Non-recurring cost                             3,232                    --                3,341                     --
       associated with the
       merger of Microtek
       Medical, Inc.
     Restructuring charges                          1,390                    --                1,390                     --
                                 -------------------------------------------------------------------------------------------
       Total Operating Expenses                    17,077                 8,278               40,103                 21,247
                                 -------------------------------------------------------------------------------------------
     Loss from Operations                         (6,648)                 (918)              (5,061)                (1,160)

Interest Income                                       337                   631                1,468                  2,548
Interest expense                                    (671)                 (422)              (1,829)                  (923)
Losses in joint venture                              (40)                  (17)                (179)                   (48)
                                 -------------------------------------------------------------------------------------------
Earnings (loss) before income                     (7,022)                 (726)              (5,601)                    417
  taxes and extraordinary item
Estimated tax expense (benefit)                     (490)                   365                  228                    842
                                 -------------------------------------------------------------------------------------------
Loss before extraordinary item                    (6,532)               (1,091)              (5,829)                  (425)
Extraordinary loss from                               575                                        575
  refinancing of credit facilities,
  net of tax benefit of $214
                                 -------------------------------------------------------------------------------------------
Net loss                                        $ (7,107)             $ (1,091)            $ (6,404)                $ (425)
                                 ===========================================================================================

Net loss per share                               $ (0.18)              $ (0.03)             $ (0.17)               $ (0.01)
Weighted average shares                            38,484                32,625               38,769                 34,736
  outstanding
                                 ===========================================================================================
</TABLE>



See accompanying notes.

380456.1
                                        3

<PAGE>

<TABLE>
<CAPTION>

                                                       ISOLYSER COMPANY, INC.
                                           Condensed Consolidated Statements of Cash Flows
                                                           (in thousands)
                                                             (unaudited)

                                                                        Nine months ended          Nine months ended
                                                                        September 30, 1996         September 30, 1995
                                                         ----------------------------------------------------------------

<S>                                                                          <C>                            <C>    
Cash flows from operating activities:                                        
     Net loss                                                                $ (6,404)                      $ (425)
       Net income for Microtek Medical, Inc. for 
       December 1995                                                              143                           --
Adjustments to reconcile net loss to net cash provided
  used in operating activities:
     Depreciation and amortization                                               8,462                        2,937
     Compensation expense associated with vesting of                               
       variable options                                                            500                          --
     Provision for doubtful accounts                                                 -                           38
     Loss on disposal of property, plant and equipment                               -                           11
     Changes in assets and liabilities, net of acquisitions                    (20,460)                      (5,611)
                                                           -----------------------------------------------------------
     Net cash used in operating activities                                     (17,939)                      (3,050)
                                                           -----------------------------------------------------------

Cash flows from investing activities
     Additions to property, plant, and equipment net of                       (16,329)                     (26,884)
     acquisitions
     Acquisitions-net of cash acquired                                        (11,362)                     (26,542)
                                                           -----------------------------------------------------------
     Net cash used in investing activities                                    (27,691)                     (53,426)
                                                           -----------------------------------------------------------

Cash flows from financing activities
     Net borrowings under credit agreements                                     10,703                        7,537
     Change in bank overdraft                                                      284                        (217)
     Proceeds from exercised options                                             1,766                          564
     Purchase of treasury stock                                                     --                      (3,747)
     Direct cost relating to issuance of common stock                             (20)                        (325)
     Proceeds from issuance from stock                                             119                           --
                                                           -----------------------------------------------------------
     Net cash provided by financing activities                                  12,852                        3,812
                                                           -----------------------------------------------------------

Net decrease in cash and cash equivalents                                     (32,778)                     (52,664)
Cash and cash equivalents at beginning of period                                54,816                       72,014
                                                           -----------------------------------------------------------
Cash and cash equivalents at end of period                                    $ 22,038                     $ 19,350
                                                           ===========================================================

</TABLE>


See accompanying notes.

380456.1
                                        4
<PAGE>

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


Note 1

In the  opinion  of  management,  all  adjustments,  consisting  only of  normal
recurring  adjustments  that are  necessary for a fair  presentation,  have been
included in the unaudited financial information for the interim periods. 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, 1995.

Note 2

On August 30, 1996 the Company acquired Microtek Medical, Inc. ("Microtek") and,
in  connection  therewith,  issued  7,722,965  shares of common stock for all of
Microtek's outstanding common stock. Microtek designs,  manufactures and sells a
broad range of surgical and medical supplies.  The merger was accounted for as a
pooling of interest and,  accordingly,  the Company's financial  statements have
been  restated to include the  results of  Microtek  for all periods  presented.
Combined and separate results of the Company and Microtek are as follows:
<TABLE>
<CAPTION>


                                                     Isolyser          Microtek      Eliminations      Combined
                                                 --------------------------------- ----------------- -----------
                                                                             (in thousands)
<S>                                             <C>                <C>              <C>              <C>
Nine months ended September 30, 1996:
         Net Sales                               $     93,886      $    30,516      $ (804)         $ 123,598
         Earnings from operations                $    (7,380)      $     2,593      $ (274)         $ (5,061)
         Net income (loss) before                
           extraordinary item                    $    (6,114)      $       285      $    --         $ (5,829) 
         Net income (loss)                       $    (6,406)      $         2      $    --         $ (6,404)

Nine months ended September 30, 1995:
(Microtek as of August 31,1995)
         Net Sales                               $     47,115      $    21,809      $ (457)         $  68,467
         Earnings from operations                $    (4,048)      $     2,990      $ (102)         $ (1,160)
         Net Income (loss)                       $    (1,924)      $     1,499      $    --         $   (425)

</TABLE>

Note:  All eliminations are related to inter-company sales and purchases.

In  connection  with the  merger,  Microtek  changed  its  fiscal  year end from
November  30 to  December  31 which  conforms  to  Isolyser's  fiscal  year end.
Microtek's  separate results for fiscal 1996 have been restated to a December 31
year end.  Microtek's  separate  results of operations for the month of December
1995, therefore,  are not reflected in the consolidated statement of operations.
The  following is a condensed  statement of income for Microtek for the month of
December 1995.


380456.1
                                        5

<PAGE>

<TABLE>
<CAPTION>


                                                 Month of
                                              December 1995
                                              (in thousands)
                                              -------------------

<S>                                           <C>   

Net Sales                                               $ 2,701

Cost of goods sold                                        1,423
                                              -------------------

Gross profit                                              1,278

Selling, general, and administrative                        939
                                              -------------------

Earnings from operations                                    339

Interest expense                                            105
                                              -------------------

Income before taxes                                         234

Estimated tax expense                                        91
                                              -------------------

Net income                                                $ 143
                                              ===================

</TABLE>

The  consolidated  financial  statements  for all periods prior to 1996 have not
been restated for the change in fiscal years.  They include the Company's result
of operations on a December 31, fiscal year basis,  and Microtek's on a November
30, fiscal year basis.

Cost related to the merger of  $3,341,000  were charged to expense  primarily in
the third quarter of fiscal 1996.

Note 3

On August 31, 1995 the  Company's  Board of  Directors  approved a 2 for 1 stock
split  effected in the form of a 100% stock  dividend paid on October 2, 1995 to
shareholders  of record on September 15, 1995. All share and per share data have
been adjusted to give retroactive effect to this stock split.


380456.1
                                        6
<PAGE>

Item 2.

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Results of Operations

The  Company's  consolidated  statements  of  operations  have been  restated to
include the  operating  results of Microtek  which was  acquired in a pooling of
interest  transaction  on  August  30,  1996.  The  operations  of White  Knight
Healthcare,  Inc. ("White Knight"),  acquired effective  September 1,  1995, are
included in the Company's  consolidated  statements of operations only from such
acquisition date.

Net sales for the three months  ended  September  30, 1996 (the "1996  Quarter")
were  $42.2  million  compared  to $26.5  million  for the  three  months  ended
September 30, 1995 (the "1995  Quarter"),  an increase of 59 percent.  Net sales
for the nine months ended  September  30, 1996 (the "1996  Period")  were $123.6
million compared to $68.5 million for the nine months ended  September 30,  1995
(the "1995  Period"),  an  increase  of 80  percent.  The  increase in net sales
partially  resulted  from the  $14.2  million  and  $44.9  million  of net sales
contributed   by  White  Knight   during  the  1996  Quarter  and  1996  Period,
respectively,  compared  with $4.9 million of sales by White Knight  included in
the Company's  results for the 1995 Quarter and Period.  Microtek  sales for the
1996 Quarter and 1996 Period were $10.5 million and $29.8 million, respectively,
an  increase  of $3.0  million and $8.4  million,  respectively,  over the prior
corresponding  periods of 1995 primarily due to Microtek  acquisitions in recent
months.  Sales of procedure trays and related products increased $2.6 million or
26 percent in the 1996 Quarter and $4.7 million or 15 percent in the 1996 Period
over the prior  corresponding  periods  of 1995.  Sales of safety  products  and
services  were $2.6  million and $8.2  million in the 1996  Quarter and the 1996
Period, respectively,  compared to $2.4 million and $6.5 million during the 1995
Quarter and 1995 Period, respectively.  The sales of the Company during the 1995
Period include the net revenues of SafeWaste  Corporation from the May 31,  1995
acquisition date.

The Company's sales of OREX Degradables in the 1996 Quarter and 1996 Period were
$1.5 million and $5.5 million,  respectively  (which amounts are included in the
sales figures described above).  The Company's future performance will depend to
a substantial  degree upon market  acceptance  of and the  Company's  ability to
successfully  manufacture,  market, deliver and expand its OREX Degradables line
of products.  The Company's  ability to achieve such  objectives is subject to a
number of risks  described in the  Company's  Annual Report on Form 10-K for the
year  ended  December  31,  1995  (the  "Annual  Report")   including,   without
limitation,  those described in the Annual Report under "Risk Factors - Risks of
New Products", "- Risks of Expansion" and "- Manufacturing and Supply Risks".

Included in cost of goods sold for the 1996  Quarter and 1996 Period are charges
of $531,000 for inventory shrinkage relating to product quality  deficiencies in
the OREX non-woven fabrics manufacturing operation, and a $1 million reserve for
slow moving and potentially  obsolete  inventory  throughout the Company.  After
adjusting gross profit by eliminating  these charges,  

380456.1
                                        7
<PAGE>

gross  profit for the 1996 Quarter and the 1996 Period was 28.4 percent and 29.6
percent of net sales respectively,  compared to 27.7 percent and 29.3 percent of
net sales,  respectively for the 1995 Quarter and 1995 Period. Pending increased
utilization of the Company's  existing  manufacturing  capacity at its Arden and
Abbeville OREX manufacturing facilities,  the Company will continue to encounter
low profit margins on sales of its OREX  Degradables  products.  During the 1996
Quarter and Period the Company  manufactured  more OREX  Degradable  towels than
were sold.  While the Company plans to sell such surplus  towels,  no assurances
can be  provided  that the  Company  will be  successful  in such  efforts.  The
possible  inability  of the  Company to sell its towel  supplies  at  acceptable
prices could  materially  adversely affect the Company's  operating  margins and
profitability.

Selling and marketing expenses were $7.4 million or 17.6 percent of net sales in
the 1996  Quarter  and $4.9  million or 18.3% of net sales in the 1995  Quarter.
Selling and  marketing  expenses were $20.9 million or 16.9 percent of net sales
in the 1996  Period and $12.8  million or 18.6  percent of net sales in the 1995
Period.  This increase in real dollars  reflects  primarily the  acquisition  of
White Knight, and the corresponding distribution and selling expenses associated
with White Knight's sales volume.

General  and  administrative  expenses  were $3.5  million or 8.3 percent of net
sales in the 1996  Quarter  and $2.5  million or 9.5 percent of net sales in the
1995 Quarter.  These expenses were $9.8 million or 7.9% of net sales in the 1996
Period and $6.4  million or 9.4  percent of net sales in the 1995  Period.  This
increase in real dollars reflects primarily the acquisition of White Knight.

Research and  development  expenses were $461,000 or 1.1 percent of net sales in
the 1996  Quarter  compared  to $249,000 or 0.9 percent of net sales in the l995
Quarter.  Research and development  expenses were $1.4 million or 1.1 percent of
net sales in the 1996  Period and  $716,000  or 1.0  percent of net sales in the
1995 Period.

Amortization  of  intangibles  in the 1996  Quarter  and 1995  Quarter  was $1.1
million and  $643,000  respectively.  Amortization  of  intangibles  in the 1996
Period and 1995 Period was $3.3  million  and $1.4  million  respectively.  This
increase in costs reflects the amortization of intangibles relating to the White
Knight and other acquisitions.

The Company  incurred  non-recurring  costs  associated  with the acquisition of
Microtek  of $3.2  million  in the 1996  Quarter  and $3.3  million  in the 1996
Period.  Restructuring  charges relating to severance packages and consolidation
cost  primarily  as a result of the  Microtek  acquisition  of $1.4 million were
charged in both the 1996 Quarter and Period.  The resulting loss from operations
for the 1996 Quarter was $6.6 million compared to $918,000 for the 1995 Quarter.
Loss from  operations  for the 1996  Period was $5.1  million  compared  to $1.2
million for the 1995  Period.  After  eliminating  the above noted $1.5  million
inventory charges included in costs of goods sold and non-recurring  acquisition
costs,  the resulting  income <loss> from  operations  was  $<500,000>  and $1.2
million for the 1996 Quarter and 1996 Period, respectively.


380456.1
                                        8
<PAGE>

Interest  income was $337,000 in the 1996  Quarter  compared to $631,000 for the
1995  Quarter,  and $1.5 million in the 1996 Period  compared to $2.5 million in
the 1995 Period.  This decrease in interest income reflects a reduction in short
term U. S. government and U. S. government-  backed  securities  invested during
1996, and a lower interest rate on those investments.

Interest  expense  was  $671,000  and  $422,000  for the 1996 and 1995  Quarters
respectively,  and $1.8  million  and  $923,000  for the  1996 and 1995  Periods
respectively.  This increase in interest  expense in the 1996 Quarter and Period
reflects primarily interest on debt of White Knight.

The Company  recorded an income tax benefit for the 1996 Quarter of $490,000 and
an income tax expense for the 1996 Period of $228,000  compared to a tax expense
of  $365,000  for the  1995  Quarter  and  $842,000  for the  1995  Period.  The
differences  in effective  rates are primarily  the result of the  nondeductible
nature of the Microtek merger costs combined with the taxable nature of Microtek
operations prior to the merger.

The extraordinary loss of $575,000 results from the refinancing of the Company's
credit facilities concurrent with the Microtek merger.

The  resulting  net loss was $7.1  million and $6.4 million for the 1996 Quarter
and Period,  respectively,  compared to losses of $1.1  million and $425,000 for
the 1995 Quarter and Period, respectively.

Financial Condition and Liquidity

At September 30, 1996 the Company's cash and  equivalents  totaled $22.0 million
compared to $54.8 million at December 31, 1995.

During the 1996  Period,  the Company  used $17.9  million of cash in  operating
activities  as compared to $3.1 million in the 1995 Period.  This use of cash is
primarily  associated  with the $20  million  increase in  inventories  relating
primarily to OREX  products.  The Company used $27.7  million of cash during the
1996 Period in  investing  activities  as compared to $53.4  million in the 1995
Period. The decrease in cash used in investing activities is the result of lower
capital  expenditures  (related  primarily  to purchases  of  equipment for  the
Company's OREX  manufacturing  facilities)  and  acquisitions  of which the cash
portion of the  consideration  in 1996 was less than 1995.  The increase in cash
used in operating  activities,  offset by the  combination  of decreases in cash
used in investing activities and net borrowings of $10.7 million,  resulted in a
net  decrease  in cash and cash  equivalents  during  the 1996  Period  of $32.8
million.

At  September  30, 1996,  the Company had  outstanding  commitments  to purchase
approximately  $5.3  million of  equipment  in 1996.  These  commitments  relate
primarily to the OREX roll stock plant in Arden, North Carolina,  the OREX towel
plant in Abbeville,  South Carolina  (reflecting  modifications and additions to
those  plants and  related  equipment)  and the  purchase of  equipment  for the
Company's  financial system software.  Other material  activity in the Company's
plants and equipment include further investments in the Company's OREX extrusion
manufacturing equipment located in Norcross, Georgia, and the acquisition of PVA
fiber manufacturing equipment currently located in Charlotte, North Carolina and
now operating on a test basis only.

380456.1
                                        9
<PAGE>

The Company is currently  substantially dependent upon third party manufacturers
and suppliers located in the Peoples Republic of China and elsewhere outside the
United States for the raw materials and certain of the finished goods comprising
the OREX Degradables line. Such dependence  exposes the Company to various risks
concerning the costs and availability of raw materials and finished products.

On August  30,  1996 the  Company  purchased  land and a building  in  Norcross,
Georgia  at  a  cost  of  approximately   $2.4  million,   including   estimated
refurbishment  cost.  The Company  anticipates  moving into this  building as it
corporate headquarters during the fourth quarter of 1996.

At September  30, 1996,  the Company had  outstanding  debt,  including  current
portion, of $41.4 million. As a result of the Microtek acquisition,  the Company
assumed all of  Microtek's  debt which  amounted to  approximately  $22 million.
Concurrent with the Microtek merger,  the Company  increased its existing credit
facility to $55 million.  As of September 30, 1996, the Company had  outstanding
$15 million under its term  facility and $21 million under its revolving  credit
facility leaving additional  borrowing available under the revolving facility of
approximately $19 million.

Based on its current  business plan, the Company  anticipates that existing cash
and cash equivalents,  together with borrowing  availability  under its existing
credit facility,  will be sufficient to fund its currently foreseeable liquidity
and capital requirements over the next year. While the Company is unable to make
any  assurances in such regard,  the Company  anticipates  that a combination of
improvements in operating results and reductions in requirements for the Company
to heavily invest in inventory will reduce its historically  negative cash flow.
In the event that appropriate opportunities arise to acquire as yet unidentified
product lines or businesses related to the Company's  business,  the Company may
require additional financing to pursue such opportunities.

Statements  made in this  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations,  including  those in immediately  preceding
paragraph,  include forward- looking statements made under the provisions of the
Private Securities  Litigation  Reform Act. The Company's  actual  results could
differ materially from such forward-looking  statements and such results will be
affected by various risks  described in the Company's  Annual Report  including,
without  limitation,  those described in the Annual Report under "Risk Factors -
Limited Operating History;  Net Losses", "- Risks of New Products",  "- Risks of
Expansion" and "- Manufacturing and Supply Risks".

Effects of Currency Exchange Rates

The Company currently  purchases materials used in its products in U.S. dollars.
During the 1996  Period,  the Company had export  sales  denominated  in British
pounds of 700,000  or $1.0  million  dollars.  As sales  denominated  in British
pounds or other foreign currency increase,  the Company could be affected by the
relationship of the U. S dollar to foreign currency.


380456.1
                                       10
<PAGE>

New Accounting Pronouncements

In March 1995,  the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived  Assets and  Long-Lived  Assets to be disposed of", which the Company
adopted  effective  January  1,  1996.  This  requires  impairment  losses to be
recorded on long-lived  assets used in operations  when indicators of impairment
are present and the  undiscounted  cash flows estimated to be generated by those
assets are less than the assets carrying  amount.  The initial  adoption of SFAS
No. 121 had no impact on the Company's results from operations.

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  (SFAS) No.  123  "Accounting  for  Stock-Based
Compensation"  which the Company adopted effective January 1, 1996. SFAS No. 123
requires  expanded  disclosures of stock-based  compensation  arrangements  with
employees and encourages (but does not require) compensation cost to be measured
on the fair value of the equity  instrument  awarded.  Companies are  permitted,
however, to continue to apply APB Opinion No. 25, which recognizes  compensation
based on the intrinsic value of the equity instrument awarded.  The Company will
continue to apply APB Opinion No. 25 to its stock based  compensation  awards to
employees  and will  disclose  the  required  pro forma effect on net income and
earnings per share in its 1996 Annual report. Accordingly,  the initial adoption
of SFAS No. 123 had no impact on the Company's results of operations.




380456.1
                                       11
<PAGE>


                                     PART II

                                OTHER INFORMATION


Item 1.  Legal Proceedings

         A complaint  was filed against the Company as well as its President and
Chief  Financial  Officer on  December  13, 1995 on behalf of Peter Salit in the
United  States  District  Court for the  Northern  District of  Georgia.  In the
complaint,  the plaintiff  sought class  certification  and damages  relative to
certain alleged  wrongful  disclosures and omissions in various of the Company's
filings with the Securities and Exchange Commission,  including allegations that
certain  OREX   Degradables  do  not  dissolve  as  represented  and  cannot  be
manufactured  as  represented.  On September 25, 1996, a judgment was entered by
the District Court dismissing the complaint with prejudice.

         The Company is involved in routine  litigation  and  proceedings in the
ordinary course of business. Management believes that pending litigation matters
will not have a material adverse effect on the Company's  financial  position or
results of operations.

Item 2.  Changes in Securities

         Except as previously reported at Exhibits 3.1 and 20.2 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange  Commission on
July 29,  1996,  there have been no material  modifications  in the  instruments
defining the rights of shareholders.  None of the rights evidenced by the shares
of the Company's  common stock have been materially  limited or qualified by the
issuance or modification of any other class of securities.

Item 3.  Defaults Upon Senior Securities

         None.

Item 4.  Submission of Matters to a Vote of Securityholders

         During the period  covered by this report,  the Company  filed with the
Securities and Exchange (the "Commission") and delivered to its shareholders the
Company's  Proxy  Statement for Special  Meeting of Shareholder  held August 30,
1996 (the "Proxy Statement").

         (a) The Company's  Special Meeting of  Shareholders  was held on August
30, 1996.

         (b) The meeting did not involve the election of directors.


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                                       12
<PAGE>

         (c) With  respect to each matter (as more fully  described in the Proxy
Statement)  voted upon at the meeting,  the inspector of election  tabulated the
following votes:

             (i) Approval of Issuance of Shares for Microtek Acquisition


Number of Votes                 Number Votes                 Abstentions and
      For                         Against                    Broker Non-Votes
      ---                         -------                    ----------------
   15,271,394                     359,227                         1,819,732


             (ii) Proposal to Amend Isolyser's Stock Option Plan

                                                             Abstentions and
    For                       Against                       Broker Non-Votes
    ---                       -------                       ----------------

15,979,413                   1,189,726                           281,284





         (d) There was no solicitation  subject to Rule 14a-11 of Regulation 14A
under the Securities Exchange Act of 1934.


Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits:

     Exhibit No.      Description

     3.1*             Articles of Incorporation of Isolyser Company, Inc.

     3.2*             Amended and Restated Bylaws of Isolyser Company, Inc.

     3.3**            First Amendment of the Amended and Restated Bylaws of
                      Isolyser Company, Inc.

     4.1*             Specimen Certificate of Common Stock

     10.1***          Agreement and Plan of Merger dated as of March 15, 1996
                      and amended as of June 23, 1996 and July 29, 1996 among
                      Isolyser Company, Inc., Microtek Medical, Inc. and MMI
                      Merger Corp.


380456.1
                                       13
<PAGE>



     27.1             Financial Data Schedule

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


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

         **           Incorporated by reference to the Company's  Current Report
                      on Form 8-K filed on July 29, 1996.

         ***          Incorporated  by reference to the  Company's  Registration
                      Statement on Form S-4 (File No. 333-7977).




         (b)  The  Company  filed a Current  Report on Form 8-K on July 29, 1996
              and September 13, 1996.

380456.1
                                       14

<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 November 14, 1996.


                               ISOLYSER COMPANY, INC.



                               By:  /s/ Robert L. Taylor
                                    -------------------------------------------
                                    Robert L. Taylor
                                    President and Chief Executive Officer
                                    (principal executive officer)


                               By:  /s/ Dan R. Lee
                                    -------------------------------------------
                                    Dan R. Lee
                                    Chief Financial Officer
                                    (principal financial officer)



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                                       15