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               June 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 August 10, 2001

Common Stock, $.001 par value                              41,757,499





<PAGE>


                             ISOLYSER COMPANY, INC.
                      Condensed Consolidated Balance Sheets
                                 (in thousands)

                                                     (unaudited)
                                                       June 30,         December
                 Assets                                  2001           31, 2000
                 ------                               --------------------------
Current assets
     Cash and cash equivalents                        $    9,371    $    14,379
     Accounts receivable, net                             18,868         12,269
     Inventory, net                                       24,204         16,160
     Prepaid expenses and other assets                     1,308          1,633
                                                      --------------------------
           Total current assets                           53,751         44,441
                                                      --------------------------

Property and equipment                                    22,687         19,980
     Less accumulated depreciation                       (14,181)       (12,948)
                                                      --------------------------
           Property and equipment, net                     8,506          7,032
                                                      --------------------------
Intangible assets, net                                    26,553         23,057
Other assets, net                                          3,107          2,439
                                                      --------------------------
           Total assets                               $   91,917    $    76,969
                                                      ==========================

        Liabilities and Shareholders' Equity
        ------------------------------------

Current liabilities
        Accounts payable                              $   7,534     $     4,035
        Accrued expenses                                  2,687           3,260
        Current portion of accrued customer rebates         490             490
        Current portion of long-term debt                   258             256
        Current portion of deferred licensing revenue     1,502           1,508
        Current portion of product financing agreement      520             520
                                                      --------------------------
           Total current liabilities                     12,991          10,069
                                                      --------------------------

Long-term debt                                           11,140             491
Long-term portion of deferred licensing revenue             759           1,508
Long-term portion of product financing agreement            142             406
Other long-term liabilities                               1,629             897
                                                      --------------------------
           Total liabilities                             26,661          13,371
                                                      --------------------------

Shareholders' equity
        Common stock                                         42              42
        Additional paid-in capital                      209,280         208,613
        Accumulated deficit                            (142,154)       (143,425)
        Cumulative translation adjustment                  (311)           (180)
        Unrealized loss on available for sale securities    (19)              -
        Unearned shares restricted to employee stock
           ownership plan                                  (120)           (120)
                                                      --------------------------
                                                         66,718          64,930
Treasury shares, at cost                                 (1,462)         (1,332)
                                                      --------------------------
           Total shareholders' equity                    65,256          63,598
                                                      --------------------------
           Total liabilities and shareholders'
                 equity                               $  91,917     $    76,969
                                                      ==========================

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    Six months ended     Six months ended
                                                   June 30, 2001          June 30, 2000        June 30, 2001        June 30, 2000
                                               ---------------------- ---------------------- ------------------- -------------------

Net sales                                       $      21,339         $         13,678       $    37,216         $       26,943
Licensing revenues                                        377                      750               756                  1,500
                                               ---------------------- ---------------------- ------------------- -----------------
          Net revenues                                 21,716                   14,428            37,972                 28,443

Cost of goods sold                                     13,246                    7,770            22,839                 15,673
                                               ---------------------- ---------------------- ------------------- -----------------
          Gross profit                                  8,470                    6,658            15,133                 12,770

Operating expenses:
    Selling, general and administrative                 6,559                    5,336            11,938                 10,336
    Research and development                              445                      836               898                  1,652
    Amortization of intangibles                           378                      279               698                    559
                                               ---------------------- ---------------------- ------------------- -----------------
          Total operating expenses                      7,382                    6,451            13,534                 12,547
                                               ---------------------- ---------------------- ------------------- -----------------
Income from operations                                  1,088                      207             1,599                    223

Interest income                                            76                      190               189                    363
Interest expense                                         (236)                    (204)             (343)                  (350)
                                               ---------------------- ---------------------- ------------------- -----------------
Income before income tax provision                        928                      193             1,445                    236

Income tax provision                                       83                       82               173                    123

Net income                                      $         845         $            111       $     1,272         $          113
                                               ====================== ====================== =================== =================

Other comprehensive income (loss):
    Foreign currency translation loss                     (46)                     (96)             (131)                  (118)
    Unrealized (loss) gain on available for
        sale securities                                    (5)                    (292)              (19)                   344
                                               ---------------------- ---------------------- ------------------- -----------------
Comprehensive income (loss)                     $         794         $           (277)      $     1,122         $          339
                                               ====================== ====================== =================== =================

Net income per common share - basic and         $        0.02         $           0.00       $      0.03         $         0.00
diluted Basic weighted average number
       of common shares outstanding                    41,680                   41,362            41,545                 41,129
                                               ====================== ====================== =================== =================

Diluted weighted average number of common shares
       outstanding                                     42,024                   44,224            41,759                 44,024
                                               ====================== ====================== =================== =================




</TABLE>
See notes to condensed consolidated financial statements.


                                       3
<PAGE>



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

                                          Six months ended      Six months ended
                                           June 30, 2001         June 30, 2000
                                          --------------------------------------

Cash flows from operating activities:
      Net income                            $      1,272          $      113

Adjustments to reconcile net income to net
   cash used in operating activities:
      Depreciation                                 1,233               1,164
      Amortization of intangibles                    698                 781
      Provision for doubtful accounts                 10                  60
      Licensing revenues                            (756)             (1,482)
      Provision for obsolete and slow
         moving inventory                            177                 126
      Changes in assets and liabilities,
         net of effects of acquisitions           (6,164)             (1,723)
                                          --------------------------------------
Net cash used in operating activities             (3,530)               (961)
                                          --------------------------------------

Cash flows from investing activities:
      Purchase of and deposits for
         property and equipment                     (562)               (673)
      Investment in available
         for sale securities                           -                (249)
      Investment in other securities                   -                 (41)
      Acquisitions                               (11,983)                  -
                                          --------------------------------------
Net cash used in investing activities            (12,545)               (963)
                                          --------------------------------------

Cash flows from financing activities:
      Net borrowings under credit agreements      10,665                   -
      Changes in bank overdraft                      540                (357)
      Net repayments under notes payable            (278)               (214)
      Proceeds from exercise of stock options        125               1,676
      Repurchase of treasury stock                  (131)               (337)
      Proceeds from issuance of common stock         277                   1
                                           -------------------------------------
Net cash provided by financing activities         11,198                 769
                                           -------------------------------------
Effect of exchange rate changes on cash             (131)               (118)
Net decrease in cash and cash equivalents         (5,008)             (1,273)
Cash and cash equivalents at beginning
      of period                                   14,379              17,006
                                           -------------------------------------
Cash and cash equivalents at end of period  $      9,371          $   15,733
                                           =====================================


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)                   June 30, 2001         December 31, 2000

Raw materials and supplies               $      13,884        $      10,019
Work in process                                    725                  984
Finished goods                                  11,802                9,830
                                       -----------------     -------------------
                                                26,411               20,833
Reserves for slow moving and
     obsolete inventories                       (2,207)              (4,673)
                                       -----------------     -------------------
         Inventory, net                  $      24,204        $      16,160
                                       =================     ===================

     At June  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  $11.3 million is subject to adjustment in 2001
when  finalized and resulted in an excess of purchase  price over the fair value
of the net assets  acquired  (goodwill)  of  approximately  $2.7  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.

     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
                                       5
<PAGE>

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                     Six months ended
(in thousands, except        June 30, 2001      June 30, 2000      June 30, 2001      June 30, 2000
    per share data)          -------------      -------------      -------------      -------------
Net revenues                  $  21,716          $  20,548           $  41,722         $  40,458
Net income (loss)                   845               (709)              1,290            (1,610)
Net income (loss) per
   common share - basic
   and diluted                      .02               (.02)                .03              (.04)
</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 (6.2% at June 30, 2001). There were no outstanding
borrowings  under the revolving  credit  facility at December 31, 2000 and $10.7
million of borrowings at June 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.
The Company also is not permitted to pay any  dividends.  At June 30, 2001,  the
Company was not in violation of any of 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
344,000 and 214,000 stock options for the three months and six months ended June
30,  2001,   respectively.   There  were  2.9  million  dilutive  stock  options
outstanding for the three months and six months ended June 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
classified  in  accordance  with  Statement  of Financial  Accounting  Standards
(0"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 June 30, 2001 was $230,500.

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 $4.6 million,
respectively,  during the six months ended June 30,  2001,  leaving a balance of
$261,000 in the reserves at June 30, 2001. The activity is shown below:
                                       6
<PAGE>
<TABLE>
<S>                                       <C>                  <C>            <C>              <C>

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

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

Severance and consulting
   arrangements                                     885             143           (842)              186

Closed office lease liabilities                     281               -           (281)                -

Impaired equipment reserve                           75               -            -                  75
                                                -------           -----        -------             -----

Total                                           $ 4,718           $ 143        $ 4,600             $ 261
                                                =======           =====        =======             =====
</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 $740,000 were paid to these 153 employees during the
six months ended June 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 six months ended June 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 operation.

Item 2.

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

Net revenues for the three months ended June 30, 2001 (the "2001  Quarter") were
$21.7  million as compared to $14.4  million for the three months ended June 30,
2000 (the "2000 Quarter"), an increase of 50.5%. Net revenues for the six months
ended June 30, 2001 (the "2001  Period") were $38.0 million as compared to $28.4
million for the six months ended June 30, 2000 (the "2000 Period"),  an increase


                                       7
<PAGE>

of 33.5%.  Excluding licensing  revenues,  net revenues in the 2001 Quarter were
$21.3 million as compared to $13.7  million in the 2000 Quarter,  an increase of
56.0%,  and net  revenues in the 2001  Period were $37.2  million as compared to
$26.9 million in the 2000 Period, an increase of 38.1%.

Net revenues  from sales of Microtek  products  (which  includes  the  Company's
safety  products)  were $21.3  million in the 2001  Quarter as compared to $13.3
million in the 2000  Quarter,  an increase of 60.3%.  Net revenues from sales of
Microtek  products  were $36.9  million in the 2001  Period as compared to $25.9
million in the 2000 Period, an increase of 42.3%. The increases  recorded in the
2001 Quarter and 2001 Period are primarily  attributable to the Deka acquisition
which was completed during March 2001.  Additionally,  Microtek's  domestic core
branded revenues remain strong. Sales of the Company's safety products increased
4.1% from $2.1  million in the 2000  Quarter to $2.2 million in the 2001 Quarter
and 4.9% from  $3.9  million  in the 2000  Period  to $4.1  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  $420,000 and $1.0 million,  respectively,  as compared to $1.1
million  and $2.4  million in the 2000  Quarter and 2000  Period,  respectively.
Licensing  revenues in the 2001 Quarter and 2001 Period  decreased  $373,000 and
$744,000  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 $319,000  and $676,000  from the 2000 Quarter and 2000
Period,  respectively,  reflecting in part the Company's  increased focus on the
profitable  Microtek business.  The Company's OTI business is subject to various
risks described under "Risk Factors" in the Company's Annual Report.

Gross profit for the 2001 Quarter was $8.5 million, or 39.0% of net revenues, as
compared to $6.7  million,  or 46.1% of  revenues,  in the 2000  Quarter.  Gross
profit  for the 2001  Period was $15.1  million,  or 39.9% of net  revenues,  as
compared  to $12.8  million,  or  44.9% of  revenues,  in the 2000  period.  The
decreases  in gross  profit  margin  in the 2001  Quarter  and 2001  Period  are
attributable to the costs of transitioning production from the Microtek plant in
Mexico to its facility in the Dominican  Republic and expenses  associated  with
integrating  the Deka  operations.  The Mexico  transition  was completed in May
2001.  Additionally,  the reduced margins in 2001 reflect the slightly  dilutive
nature of the OEM businesses acquired from Deka.  Microtek's gross profit in the
2001  Quarter  was $8.1  million or 38.3% of net  revenues  as  compared to $5.9
million or 44.4% of net revenues in the 2000 Quarter. Microtek's gross profit in
the 2001 Period was $14.4  million or 39.1% of net revenues as compared to $11.3
million or 43.5% of net revenues in the 2000 Period. Contributing to the overall
decline in gross  margin,  OTI's  gross  profit  decreased  $440,000 in the 2001
Quarter and $807,000 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 $6.6 million, or 30.2% of net
revenues,  in the 2001  Quarter,  as compared to $5.3  million,  or 37.0% of net
revenues, in the 2000 Quarter. Selling, general and administrative expenses were
$11.9  million,  or 31.4% of net  revenues,  in the 2001 Period,  as compared to
$10.3  million,  or  36.3% 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


                                       8
<PAGE>

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 synergies resulting from the Deka acquisition.

Research and development  expenses in the 2001 Quarter and 2001 Period decreased
by  $391,000  or 46.7% and  $754,000  or 45.6%  from the 2000  Quarter  and 2000
Period,  respectively.  These  decreases  are  primarily  a  result  of  reduced
development  costs,  reflecting  management's  objective to focus the  Company's
resources on the OTI division's more promising market segments.

Amortization of intangible  assets was $378,000 in the 2001 Quarter and $698,000
in the 2001  Period,  reflecting  increases of $99,000 from the 2000 Quarter and
$139,000  from the 2000  Period.  These  increases  result  from the  effect  of
amortization  of intangible  assets  acquired in  conjunction  with 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 $160,000 in the 2001 Quarter as
compared  to $14,000 in the 2000  Quarter.  Interest  expense,  net of  interest
income,  was $154,000 in the 2001 Period as compared to interest income,  net of
interest expense, of $13,000 in the 2000 Period.  These increases 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 $83,000 and $173,000 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 $1,000 and $50,000,
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 $845,000,  or $0.02 per basic and diluted share,  in
the 2001 Quarter  compares  favorably to net income of $111,000  recorded in the
2000 Quarter.  Net income for the 2001 Period of $1.3 million, or $.03 per basic
and diluted share,  compares favorably to net income of $113,000 recorded in the
2000 Period.

The notes to the Company's condensed  consolidated  financial statements include
unaudited pro forma financial data for the 2001 Quarter,  the 2000 Quarter,  the
2001 Period and the 2000 Period as if the Deka and MICROBasix  acquisitions  had
been  completed on January 1, 2000,  rather than in February and March 2001,  as
actually occurred.  On a pro forma basis, net revenues for the 2000 Quarter, the
2001 Period and the 2000 Period would have been $20.5 million, $41.7 million and
$40.5  million,  respectively,  as  compared  to  actual  net  revenues  in  the
respective  periods of $14.4 million,  $38.0 million and $28.4 million.  The pro
forma adjustments to net revenues reflect Deka's historical net revenues of $6.1
million for the 2000 Quarter, $3.7 million for the 2001 Period and $12.1 million
for the 2000 Period.  The pro forma net revenues,  net income and net income per
common share for the 2001 Quarter are unchanged  from actual  reported  amounts.
MICROBasix had no net revenues  during 2001 or 2000. The unaudited pro forma net
loss of $709  for  the  2000  Quarter  and  $1.6  million  for the  2000  Period
represents a decrease of $820 and $1.7 million, respectively, from the Company's
reported  net income of $111,000  for the 2000 Quarter and $113,000 for the 2000


                                       9
<PAGE>

Period.  The  unaudited  pro forma net income for the 2001 Period  represents an
increase of $18,000 from the Company's reporting net income for the 2001 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.  The  Company  expects  to realize  these  margin  improvements  as it
completes the integration of the Deka operations over the remainder of 2001.

Liquidity and Capital Resources

As of June 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 $3.5 million in operating activities as
compared to $961,000 in the 2000 Period.  This increase is  attributable  to the
Company's  expanded  operations  resulting from the Deka acquisition and working
capital  management.  Cash used in investing  activities  in the 2001 Period was
$12.5 million, as compared to $963,000 in the 2000 Period.  Investing activities
in the 2001 Period included the Deka and MICROBasix  acquisitions which consumed
approximately  $12.0  million in cash and purchases of property and equipment of
$562,000.  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 $673,000.  During the 2001 Period,  cash  provided by
financing  activities  was $11.2  million as  compared  to  $769,000 in the 2000
Period.  Borrowings under the Company's Credit Agreement  provided $10.7 million
in the 2001 Period.  Proceeds from the exercise of stock  options  provided $1.7
million 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 August
10, 2001, current borrowing  availability under the revolving facility was $14.0
million,  of which the Company had  borrowed  $11.0  million.  Revolving  credit
borrowings  bear interest,  at the Company's  option,  at either a floating rate
approximating  the Bank's  prime rate plus an interest  margin,  as defined,  or
LIBOR  plus an  interest  margin  (6.2%  at  August  10,  2001).  There  were no
outstanding  borrowings under the revolving credit facility at December 31, 2000
and $10.7 million of borrowings at June 30, 2001. At June 30, 2001,  the Company
was  not in  violation  of  any of 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
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,


                                       10
<PAGE>

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
operation.

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 June 30, 2001, the Company had $11.4 million long-term or
short-term  debt bearing  interest at floating  rates.  Because  these rates are
variable,  an increase in interest  rates would  result in  additional  interest
expense and a  reduction  in interest  rates  would  result in reduced  interest
expense.


                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

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.

                                       11
<PAGE>

Item 3. Default Upon Senior Securities

Not applicable.

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 Commission and delivered to its shareholders the Company's Proxy
Statement for its Annual Meeting of Shareholders held May 16, 2001.

(a)  The Company's  annual meeting of shareholders was held on May 16, 2001.
(b)  The  nominees  for the Board of  Directors  of the Company  are  identified
     below.
(c)  With  respect to the  election  of  directors,  the  inspector  of election
     tabulated the following votes:
<TABLE>
<S>                             <C>                  <C>                    <C>

Nominees for Office             Number of Votes       Number of Votes       Abstention and Broker Nonvotes
-------------------             ----------------      ----------------      ------------------------------
                                       For                Withheld
                                       ---                --------
Gene R. McGrevin                   36,644,648              248,999                        -
Dan R. Lee                         36,475,287              418,360                        -
Rosdon Hendrix                     36,367,742              525,905                        -
Kenneth F. Davis                   36,372,326              521,321                        -
John E. McKinley                   36,370,842              522,805                        -
Ronald L. Smorada                  36,641,463              252,184                        -

</TABLE>

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>

4.2    Amended and Restated Credit Agreement dated as of May 14, 2001,  between
       the Registrant and The Chase Manhattan Bank, as Agent

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

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

(2)  Incorporated by reference to Exhibit 3.2 of the Company's  Annual Report on
     Form  10-K for the year  ended  December  31,  1996.  (3)  Incorporated  by
     reference to Exhibit 3.1 to the Company's  Current Report on Form 8-K filed
     July 29, 1996.

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

(b)  The Company  filed an amendment to a current  report on Form 8-K on May 23,
     2001.



                                       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 August 14, 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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