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, 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 November 6, 2001
------------------------------        -------------------------------
Common Stock, $.001 par value                    41,833,439



                                       1
<PAGE>


<TABLE>
<CAPTION>

                                              ISOLYSER COMPANY, INC.
                                       Condensed Consolidated Balance Sheets
                                                  (in thousands)
<S>                                                               <C>                      <C>
                                                                          (unaudited)
                               Assets                                  September 30, 2001      December 31, 2000
                               ------                             -----------------------------------------------
Current assets
        Cash and cash equivalents                                      $           9,353       $         14,379
        Accounts receivable, net                                                  18,820                 12,269
        Inventory, net                                                            26,733                 16,160
        Prepaid expenses and other assets                                          1,062                  1,633
                                                                  -----------------------------------------------
                    Total current assets                                          55,968                 44,441
                                                                  -----------------------------------------------

Property and equipment                                                            22,833                 19,980
        Less accumulated depreciation                                            (14,796)               (12,948)
                                                                  -----------------------------------------------
                    Property and equipment, net                                    8,087                  7,032
                                                                  -----------------------------------------------

Intangible assets, net                                                            26,600                 23,057
Other assets, net                                                                  2,825                  2,439
                                                                  -----------------------------------------------
                    Total assets                                       $          93,480       $         76,969
                                                                  ===============================================

                Liabilities and Shareholders' Equity
                ------------------------------------
Current liabilities
        Accounts payable                                               $           6,118       $          4,035
        Accrued expenses                                                           3,257                  3,260
        Current portion of accrued customer rebates                                  490                    490
        Current portion of long-term debt                                            259                    256
        Current portion of deferred licensing revenue                              1,502                  1,508
        Current portion of product financing agreement                               520                    520
                                                                  -----------------------------------------------
                    Total current liabilities                                     12,146                 10,069
                                                                  -----------------------------------------------

Long-term debt                                                                    13,007                    491
Long-term portion of deferred licensing revenue                                      382                  1,508
Long-term portion of product financing agreement                                      12                    406
Other long-term liabilities                                                        1,276                    897
                                                                  -----------------------------------------------
                    Total liabilities                                             26,823                 13,371
                                                                  -----------------------------------------------

Shareholders' equity
       Common stock                                                                   42                     42
       Additional paid-in capital                                                209,374                208,613
       Accumulated deficit                                                      (140,730)              (143,425)
       Cumulative translation adjustment                                            (207)                  (180)
       Unrealized loss on available for sale securities                             (116)                    --
       Unearned shares restricted to employee stock ownership plan                  (120)                  (120)
                                                                  -----------------------------------------------
                                                                                  68,243                 64,930

Treasury shares, at cost                                                          (1,586)                (1,332)
                                                                     --------------------------------------------
        Total shareholders' equity                                                66,657                 63,598
                                                                     --------------------------------------------
                    Total liabilities and shareholders' equity         $          93,480       $         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>                    <C>                  <C>
                                               Three months ended      Three months ended    Nine months ended   Nine months ended
                                               September 30, 2001      September 30, 2000   September 30, 2001   September 30, 2000
                                              ---------------------- ---------------------- -------------------- -------------------
Net sales                                      $             21,492   $             13,662   $          58,708     $         40,606
Licensing revenues                                              377                    506               1,133                2,006
                                              ---------------------- ---------------------- -------------------- -------------------
              Net revenues                                   21,869                 14,168              59,841               42,612

Cost of goods sold                                           12,816                  7,982              35,655               23,655
                                              ---------------------- ---------------------- -------------------- -------------------
              Gross profit                                    9,053                  6,186              24,186               18,957

Operating expenses:
    Selling, general and administrative                       6,525                  5,106              18,463               15,423
    Research and development                                    382                  1,016               1,280                2,667
    Amortization of intangibles                                 395                    279               1,093                  838
                                              ---------------------- ---------------------- -------------------- -------------------
              Total operating expenses                        7,302                  6,401              20,836               18,928
                                              ---------------------- ---------------------- -------------------- -------------------

Income (loss) from operations                                 1,751                   (215)              3,350                   29
Interest income                                                  67                    387                 256                  748
Interest expense                                               (251)                   (52)               (594)                (400)
Other income                                                     -                      20                  -                     -
                                              ---------------------- ---------------------- -------------------- -------------------
Income before income tax provision                            1,567                    140               3,012                  377

Income tax provision                                            144                     48                 317                  172
                                              ---------------------- ---------------------- -------------------- -------------------

Net income                                     $              1,423   $                 92   $           2,695    $             205
                                              ====================== ====================== ==================== ===================

Other comprehensive income (loss):
    Foreign currency translation loss                          (104)                   (81)               (235)                (199)
    Unrealized (loss) gain on available
             for sale securities                                (97)                    25                (116)                 369
                                              ---------------------- ---------------------- -------------------- -------------------

Comprehensive income                           $              1,222   $                 36   $           2,344    $             375
                                              ====================== ====================== ==================== ===================

Net income per common share - basic and
    diluted                                    $               0.03   $               0.00   $            0.06    $            0.00
Basic weighted average number of common
    shares outstanding                                       41,724                 41,442              41,605               41,230
                                              ====================== ====================== ====================  ==================

Diluted weighted average number of common
    shares outstanding                                       42,843                 43,141              42,234               44,012
                                              ====================== ====================== ==================== ===================

</TABLE>

See notes to condensed consolidated financial statements.



                                       3
<PAGE>

<TABLE>
<S>                                                                <C>                       <C>

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

                                                                Nine months ended     Nine months ended
                                                                September 30, 2001    September 30, 2000
                                                                ------------------    ------------------

Cash flows from operating activities:
      Net income                                                      $    2,695       $    205

Adjustments to reconcile net income to net cash
  (used in) provided by operating activities:
      Depreciation                                                         1,848          1,768
      Amortization of intangibles                                          1,093          1,172
      Provision for doubtful accounts                                         10             90
      Licensing revenues                                                  (1,133)        (2,006)
      Provision for obsolete and slow moving inventory                       177            134
      Changes in assets and liabilities,
        net of effects of acqusitions                                     (8,814)          (734)
                                                                     -------------    ------------
Net cash (used in) provided by operating activities                       (4,124)           702
                                                                     -------------    ------------

Cash flows from investing activities:
      Purchase of and deposits for property and equipment                   (758)          (997)
      Investment in available for sale securities                              -           (249)
      Investment in other securities                                           -            (44)
      Disposition proceeds                                                     -            167
      Acquisitions                                                       (12,315)             -
                                                                     -------------    ------------
Net cash used in investing activities                                    (13,073)        (1,123)
                                                                     -------------    ------------

Cash flows from financing activities:
      Net borrowings under credit agreements                              12,541              -
      Changes in bank overdraft                                             (169)           281
      Net repayments under notes payable                                    (416)        (2,768)
      Proceeds from exercise of stock options                                130          1,507
      Repurchase of treasury stock                                          (254)          (371)
      Proceeds from issuance of common stock                                 366            402
                                                                     -------------    ------------
Net cash provided by (used in) financing activities                       12,198           (949)
                                                                     -------------    ------------
Effect of exchange rate changes on cash                                      (27)          (199)
Net decrease in cash and cash equivalents                                 (5,026)        (1,569)
Cash and cash equivalents at beginning of period                          14,379         17,006
                                                                     -------------    ------------
Cash and cash equivalents at end of period                           $     9,353      $  15,437
                                                                     =============    ============

</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.  The
consolidated  financial statements herein 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:

   (in thousands)              September 30, 2001     December 31, 2000
                               ------------------     -----------------
Raw materials and supplies     $     15,760           $    10,019
Work in process                         386                   984
Finished goods                       12,420                 9,830
                               ---------------        -----------------
                                     28,566                20,833
Reserves for slow moving
  and obsolete inventories           (1,833)               (4,673)
                               ---------------        ------------------
         Inventory, net        $     26,733           $    16,160
                               ===============        =================

     At September  30, 2001 and December 31, 2000,  the net OREX  inventory  was
approximately $2.6 million.

3) Effective February 2, 2001, Microtek Medical, Inc. ("Microtek"), a subsidiary
of the Company, 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 $11.6 million, as adjusted through September 30,
2001 and subject to further  adjustment in 2001 until finalized,  resulted in an
excess  of  purchase  price  over the  fair  value  of the net  assets  acquired
(goodwill) of approximately $3.0 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  approximately  $675,000 in cash 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 acquisition had been completed on January 1, 2000:

<TABLE>
<S>                                  <C>                   <C>                <C>                   <C>

                                            Three months ended                        Nine months ended
(in  thousands,  except              September 30,     September 30,        September 30,         September 30,
per share data)                      -------------     -------------        -------------         -------------
                                          2001            2000                  2001                   2000
                                          ----            ----                  ----                   ----
Net revenues                            $21,869         $19,788               $63,591                $60,246
Net income (loss)                         1,423            (652)                2,704                 (2,283)
Net income (loss) per
   Common share - basic
   and diluted                              .03            (.02)                  .06                   (.06)

</TABLE>

     Including  the  MICROBasix  acquisition  in the above  pro forma  financial
information would not have a material effect on the amounts  presented.  The pro
forma  financial  information  is  based  on  estimates  and  assumptions  which
management  believes  are  reasonable.  However,  the pro forma  results are not
necessarily indicative of the operating results that would have occurred had the
Deka  acquisition  been  consummated  as of the  date  indicated,  nor are  they
necessarily indicative of future operating results.

4) 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.  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  (5.13% at  September  30,  2001).  There were no
outstanding  borrowings under the revolving credit facility at December 31, 2000
and $12.5  million of borrowings  at September  30, 2001.  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.  In addition,  the Company is not permitted to pay any
dividends.  At  September  30,  2001,  the  Company was in  compliance  with its
financial covenants under the Credit Agreement.

5) Basic per share  income is  computed  using the  weighted  average  number of
common shares  outstanding for the period.  Diluted per share income is computed
including  the  dilutive  effect  of  all  contingently   issuable  shares.  The
difference  between basic and diluted weighted average shares is attributable to
1.1 million and 629,000 dilutive stock options  outstanding for the three months
and nine months ended September 30, 2001,  respectively.  There were 1.7 million
and 2.8 million dilutive stock options outstanding for the three months and nine
months ended September 30, 2000.

6) 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


                                       6
<PAGE>

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 a component of shareholders' equity.
The value of this investment as of September 30, 2001 was $133,000.

7) At December 31, 2000, the Company had restructuring reserves of $4.7 million.
Additions to and charges against the reserves totaled $143,000 and $4.7 million,
respectively, during the nine months ended September 30, 2001, leaving a balance
of $191,000 in the reserves at September 30, 2001. The activity is shown below:

<TABLE>
<S>                                      <C>                <C>               <C>                <C>

(in thousands)                           December 31,                                            September 30,
                                            2000                                                     2001
Description                                Balance          Additions         Deductions           Balance
-----------                                -------          ---------         ----------           -------

Reserve for obsolete inventory             $  3,477          $      -         $ (3,477)         $       -

Severance and consulting
     arrangements                               885             143               (912)               116

Closed office lease liabilities                 281               -               (281)                 -

Impaired equipment reserve                       75               -                -                   75
                                          ----------        ----------       -----------       -----------
Total                                     $   4,718          $    143         $ (4,670)         $     191
                                          ==========        ==========       ===========       ===========
</TABLE>


     Severance  benefits  for 99  employees  totaling  $636,000  were accrued at
December  31, 2000.  Additional  severance  benefits  for 54 employees  totaling
$143,000 were accrued during the second quarter of 2001. Five of these employees
were  terminated  in 2000 and the  remaining  148 have been  terminated in 2001.
Severance benefits totaling $762,000 were paid to these 153 employees during the
nine months ended  September 30, 2001.  Deductions to the Company's  reserve for
obsolete inventory represent the non-cash write-off of the inventory and related
reserve  during the nine months  ended  September  30, 2001.  Deductions  to the
Company's closed office lease liabilities  include the $45,000 cash payment made
during the second  quarter of 2001 to settle  the  Company's  outstanding  lease
obligations  and the  non-cash  reversal of the  $236,000  remaining  obligation
subsequent to the settlement.

8) In July 2001, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 141,  "Business  Combinations" and
SFAS No. 142  "Goodwill  and Other  Intangible  Assets".  SFAS No. 141  requires
business  combinations  initiated  after June 30, 2001 to be accounted for using
the   purchase   method   of   accounting   and   prohibits   the   use  of  the
pooling-of-interest   method.   SFAS  No.  142  requires  that,  upon  adoption,
amortization of goodwill will cease and instead,  the carrying value of goodwill
will be evaluated for  impairment on an annual  basis.  Identifiable  intangible
assets will  continue to be  amortized  over their useful lives and reviewed for
impairment in accordance  with SFAS No. 121  "Accounting  for the  Impairment of
Long-Lived  Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 142 is
effective  for fiscal years  beginning  after  December  15,  2001,  and will be
implemented  by the Company on January 1, 2002.  The Company is  evaluating  the
impact of the adoption of these  standards and has not yet determined the effect
of adoption on its financial position and results of operations.


                                       7
<PAGE>


Item 2.

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

Net revenues for the three months ended  September 30, 2001 (the "2001 Quarter")
were $21.9  million as compared  to $14.2  million  for the three  months  ended
September 30, 2000 (the "2000 Quarter"),  an increase of 54.3%. Net revenues for
the nine months ended  September 30, 2001 (the "2001 Period") were $59.8 million
as compared to $42.6  million for the nine months ended  September 30, 2000 (the
"2000 Period"), an increase of 40.4%. Excluding licensing revenues, net revenues
in the 2001 Quarter were $21.5  million as compared to $13.7 million in the 2000
Quarter,  an increase of 57.3%,  and net  revenues in the 2001 Period were $58.7
million as compared to $40.6 million in the 2000 Period, an increase of 44.6%.

Net revenues  from sales of Microtek  products  (which  includes  the  Company's
safety  products)  were $21.2  million in the 2001  Quarter as compared to $13.2
million in the 2000  Quarter,  an increase of 60.3%.  Net revenues from sales of
Microtek  products  were $58.1  million in the 2001  Period as compared to $39.1
million in the 2000 Period, an increase of 48.4%. The increases primarily result
from the Deka  acquisition  which was  completed  in March 2001.  Domestic  core
revenues in 2001,  excluding the effect of the Deka acquisition,  also increased
over prior periods.  International  revenues,  which had weakened earlier in the
year,  improved during the 2001 Quarter.  Sales of the Company's safety products
increased 3.9% from $2.0 million in the 2000 Quarter to $2.1 million in the 2001
Quarter  and 4.5% from $5.9  million in the 2000  Period to $6.2  million in the
2001 Period.  The Company  expects  that the Deka  acquisition  will  contribute
approximately  $20 million in sales  revenue  during 2001,  including  increased
revenues recorded for the 2001 Period.

Net revenues of OREX Technologies  International ("OTI") in the 2001 Quarter and
2001  Period  were  $631,000  and $1.6  million,  respectively,  as  compared to
$909,000 and $3.3  million in the 2000  Quarter and 2000  Period,  respectively.
Licensing  revenues in the 2001 Quarter and 2001 Period  decreased  $129,000 and
$873,000  from  the  2000  Quarter  and 2000  Period,  respectively,  due to the
settlement with Allegiance Healthcare that was recorded in 2000 and described in
the Annual  Report.  Additionally,  OTI's  product sales in the 2001 Quarter and
2001 Period  decreased by $148,000  and $824,000  from the 2000 Quarter and 2000
Period,  respectively,  reflecting in part the Company's  increased focus on the
profitable Microtek business.  During the third quarter,  the Company decided to
indefinitely  cease  further  efforts to  commercialize  the OREX  technology in
healthcare markets.  OTI continues with its product development program for OREX
in the nuclear  market.  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 $9.1 million, or 41.4% of net revenues, as
compared to $6.2  million,  or 43.7% of  revenues,  in the 2000  Quarter.  Gross
profit  for the 2001  Period was $24.2  million,  or 40.4% of net  revenues,  as
compared  to $19.0  million,  or  44.5% of  revenues,  in the 2000  period.  The
decreases  in gross  profit  margin  in the 2001  Quarter  and 2001  Period  are
attributable to the costs  associated  with  integrating the Deka operations and
transitioning  Microtek's  former Mexico  operations to the Dominican  Republic.
Additionally, changes in the mix of Microtek's sales during the 2001 Quarter and
2001 Period, including higher net revenues from Deka's OEM businesses which have
slightly  dilutive  margins,  contributed to the overall declines noted in gross
profit  margin.   With  the  completion  of  the  Deka  integration  and  Mexico
transition, the Company expects to see improvement in gross margins.  Microtek's
gross  profit in the 2001  Quarter was $8.6  million or 40.7% of net revenues as
compared  to  $5.7  million  or  43.2%  of net  revenues  in the  2000  Quarter.



                                       8
<PAGE>

Microtek's  gross  profit in the 2001  Period was $23.0  million or 39.7% of net
revenues  as  compared  to $17.0  million or 43.4% of net  revenues  in the 2000
Period.  Contributing to the overall decline in gross margin, OTI's gross profit
decreased  $75,000  in the 2001  Quarter  and  $883,000  in the 2001  Period  as
compared to the corresponding  periods of 2000, primarily due to lower licensing
revenues resulting from the settlement with Allegiance Healthcare referred to in
the preceding paragraph.

Selling,  general and administrative expenses were $6.5 million, or 29.8% of net
revenues,  in the 2001  Quarter,  as compared to $5.1  million,  or 36.0% of net
revenues, in the 2000 Quarter. Selling, general and administrative expenses were
$18.5  million,  or 30.9% of net  revenues,  in the 2001 Period,  as compared to
$15.4  million,  or  36.2% of net  revenues,  in the 2000  Period.  The  overall
increase in the absolute  dollar amount of selling,  general and  administrative
expenses  was due in part to the Deka  acquisition  and  increases  in  variable
selling costs resulting from increased net revenues in the 2001 Quarter and 2001
Period. The improvements in selling,  general and  administrative  expenses as a
percentage of net revenues in the 2001 Quarter and 2001 Period are the result of
cost control and expense  reduction  efforts begun in the fourth quarter of 2000
and increased revenues.

Research and development  expenses in the 2001 Quarter and 2001 Period decreased
by  $634,000 or 62.5% and $1.4  million or 52.0% from the 2000  Quarter and 2000
Period,  respectively.  These  decreases  are  primarily  a  result  of  reduced
development costs, reflecting the Company's objective to more narrowly focus its
resources on new market opportunities.

Amortization  of  intangible  assets was  $395,000 in the 2001  Quarter and $1.1
million in the 2001  Period,  reflecting  increases  of  $116,000  from the 2000
Quarter and  $255,000  from the 2000  Period.  These  increases  result from the
effect of amortization of intangible  assets acquired in the Deka and MICROBasix
acquisitions  that were completed in the 2001 Period,  partially offset by lower
amortization  expense in the 2001 Quarter and 2001 Period for intangible  assets
which were fully amortized during 2000.

Interest  expense,  net of interest income,  was $184,000 in the 2001 Quarter as
compared to interest income,  net of interest  expense,  of $335,000 in the 2000
Quarter.  Interest  expense,  net of interest  income,  was $338,000 in the 2001
Period as compared to interest income,  net of interest expense,  of $348,000 in
the 2000  Period.  These  increases  in net  interest  expense are the result of
higher  interest  expense in the 2001 Quarter and 2001 Period and lower interest
income on cash and cash equivalents  which are attributable to borrowings on the
Company's line of credit  facility in the 2001 Period and lower cash balances as
a result of recent acquisitions.

The provision for income taxes reflects expenses of $144,000 and $317,000 in the
2001 Quarter and 2001 Period, respectively. These provisions reflect an increase
in  income  taxes  from the 2000  Quarter  and the 2000  Period of  $96,000  and
$145,000,  respectively.  Due  to  the  Company's  federal  net  operating  loss
carryforwards, the Company's income tax provision in 2001 results primarily from
state and foreign taxes.

The resulting net income of $1.4 million,  or $0.03 per basic and diluted share,
in the 2001 Quarter compares  favorably to net income of $92,000 recorded in the
2000 Quarter.  Net income for the 2001 Period of $2.7 million, or $.06 per basic
and diluted share,  compares favorably to net income of $205,000 recorded in the
2000 Period.

The notes to the Company's condensed  consolidated  financial statements include
unaudited pro forma  financial data as if the Deka and  MICROBasix  acquisitions
had been  completed on January 1, 2000,  rather than in February and March 2001,
as actually  occurred.  The pro forma adjustments to net revenues reflect Deka's




                                       9
<PAGE>


historical  net revenues of $5.6 million for the 2000 Quarter,  $3.8 million for
the portion of the 2001 Period  during which Deka's  results are not included in
the  Company's  results,  and $17.6  million for the 2000 Period.  The pro forma
decreases in  profitability in the 2000 Quarter and 2000 Period primarily result
from historically  inefficient  manufacturing processes and product mix at Deka.
The pro  forma  increase  in  profitability  in the  2001  Period  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.

Liquidity and Capital Resources

As of September 30, 2001 the Company's  cash and cash  equivalents  totaled $9.4
million as compared to $14.4 million at December 31, 2000.

During the 2001 Period, the Company used $4.1 million in operating activities as
compared to the cash  provided by operating  activities  of $702,000 in the 2000
Period.  The increase cash used in operating  activities is  attributable to the
Company's expanded operations resulting from the Deka acquisition,  particularly
in accounts receivable and inventories. Cash used in operating activities in the
2001 Period included payments to Thantex of $394,000 under the product financing
agreement  described in the Company's  Annual Report.  Payments to Thantex under
this  product  financing  agreement  totaled  $384,000 in the 2000  Period.  The
Company has a remaining  payment  obligation of $532,000 payable through August,
2002 under this product financing  agreement.  Cash used in investing activities
in the 2001 Period was $13.1  million,  as compared to $1.1  million in the 2000
Period. Investing activities in the 2001 Period included the Deka and MICROBasix
acquisitions which consumed approximately $12.3 million in cash and purchases of
property  and  equipment of $758,000.  Investing  activities  in the 2000 Period
included  $249,000  for  the  Company's  interest  in  Consolidated  Ecoprogress
Technology, Inc. and purchases of property and equipment of $997,000. During the
2001 Period, cash provided by financing activities was $12.2 million as compared
to cash used in financing activities of $949,000 in the 2000 Period.  Borrowings
under the Company's Credit Agreement  provided $12.5 million in the 2001 Period.
Repayments  under notes  payable  agreements  in the 2000 Period of $2.8 million
were partially offset by the proceeds from the exercise of stock options of $1.5
during the 2000 Period.

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 November
6, 2001,  current borrowing  availability under the revolving facility was $14.5
million,  of which the Company had  borrowed  $11.5  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  (5.13% at  November  6,  2001).  There were no
outstanding  borrowings under the revolving credit facility at December 31, 2000
and $12.5  million of  borrowings  at September 30, 2001. At September 30, 2001,
the Company was in  compliance  with its  financial  covenants  under the Credit
Agreement.

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



                                       10
<PAGE>

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.

Newly  Issued  Accounting  Standards.  In July 2001,  the  Financial  Accounting
Standards Board issued Statement of Financial  Accounting Standards ("SFAS") No.
141,  "Business  Combinations"  and SFAS No. 142 "Goodwill and Other  Intangible
Assets".  SFAS No. 141 requires business  combinations  initiated after June 30,
2001 to be accounted for using the purchase  method of accounting  and prohibits
the use of the  pooling-of-interest  method.  SFAS No. 142 requires  that,  upon
adoption, amortization of goodwill will cease and instead, the carrying value of
goodwill  will be evaluated  for  impairment  on an annual  basis.  Identifiable
intangible  assets will  continue to be  amortized  over their  useful lives and
reviewed for  impairment in  accordance  with SFAS No. 121  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of".
SFAS No. 142 is effective for fiscal years  beginning  after  December 15, 2001,
and will be  implemented  by the  Company on January  1,  2002.  The  Company is
evaluating  the  impact  of the  adoption  of  these  standards  and has not yet
determined  the effect of  adoption  on its  financial  position  and results of
operations.

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 of 1995
including,  but not limited to, statements relating to forecasted  contributions
to revenue 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  Maters",  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 September 30, 2001, the Company had $13.3 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.



                                       11
<PAGE>



                                     PART II

                                OTHER INFORMATION

Item 1.        Legal Proceedings

Not applicable.

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.

Item 3.        Default Upon Senior Securities

Not applicable.

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


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


                                       12
<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)       No current reports on Form 8-K were filed during the quarter for which
 this report is filed.


                                       13


<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 7, 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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