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, 1998 Commission File No. 0-24866


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



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

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

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


                              650 Engineering Drive
                                 Technology Park
                             Norcross, Georgia 30092
                                (Former Address)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for at least the past 90 days.

Yes   X     No

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

Class                                Outstanding at November 13, 1998

Common Stock, $.001 par value            40,077,412
                                         


<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements

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

                          Assets     September 30, 1998     December 31, 1997
                          ------     ------------------     ----------------
Current assets
 Cash and cash equivalents               $  5,256            $   9,299
 Accounts receivable, net                  16,647               13,909
 Inventories                               23,658               32,067
 Prepaid expenses and other assets          1,110                1,745
 Assets held for sale                      22,535               35,751
                                        ---------------      ---------------
          Total current assets             69,206               92,771
                                        ---------------    ----------------

Property, plant and equipment              33,268               37,622
 Less accumulated depreciation            (14,688)             (17,630)
                                        ---------------    ----------------
    Property, plant, and equipment, net    18,580               19,992
                                        ---------------    ----------------

Intangibles and other assets, net          32,035               31,571
                                        ===============    ================
                                        $ 119,821           $  144,334
                                         ==============     ===============

           Liabilities and Shareholders' Equity

Current liabilities
  Current installments of long term debt $  28,461            $  4,610
  Accounts payable                           6,615              10,108
  Accrued expenses                           5,641               5,644
                                            ----------     ------------
      Total current liabilities             40,717              20,362
                                            ----------     ------------

Long term debt, excluding current  
      installments                           4,729              37,546
  Other liabilities                            238                 309
                                            ----------      ------------
       Total liabilities                    45,684              58,217
                                            ----------      ------------

Shareholders' equity
  Common stock                                  40                  39
  Additional paid in capital               203,291             203,601
  Retained earnings                       (128,347)           (115,743)
  Cumulative translation adjustment           (113)               (103)
  Unearned shares restricted to 
          employee stock ownership plan       (300)               (300)
                                             ----------     ------------
                                            74,571              87,494
Treasury shares                               (434)             (1,377)
                                             ----------     ------------
   Total shareholders' equity               74,137              86,117
                                             ==========     ============
                                         $ 119,821         $   144,334
                                             ==========     ============

See accompanying notes.




<PAGE>

<TABLE>

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

<CAPTION>

                                     Three months ended Three months    Nine months     Nine months ended
                                     September 30, 1998 ended September ended September September 30, 1997
                                                         30, 1997           30, 1998
                                     ------------------ --------------- ---------------  --------------------
<S>                                    <C>             <C>              <C>               <C>

Net sales                              $3636,112         41,877$          116,216           124,314
Cost of goods sold                        26,139         46,492            86,859           110,300
                                     ------------------ --------------- ---------------  -----------------
 Gross profit/(loss)                       9,973         (4,615)           29,357            14,014

Operating expenses:
 Selling, general & administrative         9,785         10,159            29,612            31,237
 Research & development                      846            595             2,649             1,982
 Impairment loss                               -              -             5,300                 -
 Amortization of intangibles                 501            961             1,549             2,878
                                      -------------- -------------- ------------------ -----------------
          Total operating expenses         11,132         11,715            39,110           36,097
                                      -------------- -------------- ------------------ -----------------
Loss from operations                       (1,159)       (16,330)           (9,753)         (22,083)
Interest income                                64            118               235              458
Interest expense                             (896)          (946)           (2,865)          (2,977)
Gain (loss) in joint venture                   (2)           (13)               10              (33)
Loss before income tax expense             (1,993)       (17,171)          (12,374)         (24,635)

Income tax expense                             63              6               229               17
                                      -------------- ---------------- ---------------- ------------------

Net loss                              $    (2,056)        (17,177)         (12,605)         (24,652)
                                      -------------- ---------------- ---------------- ------------------

Net loss per common share -
    Basic and Diluted                 $     (0.05)          (0.44)         $ (0.32)          $(0.63)
                                      ============== ================ ================ ==================

Weighted average number of common shares
outstanding                                39,869           39,308          39,957           39,240
                                      ============== ================ ================ ==================


See accompanying notes.
</TABLE>


<PAGE>




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


                                            Nine months ended Nine months ended
                                           September 30, 1998 September 30, 1997
                                         -------------------- -----------------
Cash flows from operating activities:
         Net loss                                  $ (12,604) $ (24,652)
Adjustments to reconcile net loss to 
  net cash (used in)/provided
     by operating activities:
         Depreciation                                  2,928      5,571
         Amortization                                  1,549      2,879
         Provisions for doubtful accounts                125        206
         Loss(Gain) on disposal of property, 
             plant & equipment                            10        (27)
         Impairment loss                               5,300          -
         Changes in assets and liabilities            (1,195)    16,617
                                                     ---------- ---------------
Net cash (used in)/provided by operating activities:  (3,887)       594
                                                     ---------- ---------------

Cash flows from investing activities
         Additions to property, plant and equipment   (3,185)    (4,273)
         Proceeds on sale of assets held for sale     11,450          -
                                                    ---------   ---------------
Net cash provided by/(used in) investing activities:   8,265     (4,273)
                                                     ---------- ---------------

Cash flows from financing activities:                          
         Net repayments under credit agreement       $  (9,052) $  (5,957)
         Changes in bank overdraft                          (2)    (2,978)
         Proceeds from exercised stock options             -          574
         Proceeds from issuance of stock                   255        333
         Issuance of stock to 401(k) Plan                  378        259
                                                     ---------- ---------------
Net cash used in financing activities:                  (8,421)    (7,769)
                                                     ---------- ---------------
Net decrease in cash and cash equivalents               (4,043)   (11,448)
Cash and cash equivalents at beginning of period         9,299     20,925
                                                     ---------- ---------------
Cash and cash equivalents at end of period           $   5,256  $   9,477
                                                     ---------- ---------------

See accompanying notes.



<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.  Results  for  the  interim  periods  are not
necessarily  indicative  of results  to be  expected  for the full  year.  These
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements and notes thereto contained in the Company's
Annual Report on Form 10-K at December 31, 1997.

2)  Inventories  are stated at the lower of cost or market and are summarized as
follows:

                                           September 30, 1998  December 31, 1997
                                           ------------------  -----------------

Raw materials and supplies                  $  15,722,000      $  24,121,000
Work in process                                 3,351,000          4,456,000
Finished goods                                 22,042,000         25,901,000
                                           ------------------  -----------------

                 Total                         41,115,000          54,478,000

Reserve for excess, slow moving
  and obsolete inventory                      (17,457,000)        (22,411,000)
                                           ------------------  -----------------
                 Total                      $  23,658,000      $   32,067,000


At  September  30, 1998 and December  31, 1997 net OREX  inventory  approximated
$4,753,000 and $7,500,000, respectively.

3) On February  25,  1998,  the  Company  approved a plan to dispose of its OREX
manufacturing  facilities in Arden and Charlotte,  North Carolina and Abbeville,
South Carolina,  and its White Knight subsidiary and recorded impairment charges
to adjust the carrying  value of such  entities to their  estimated  fair market
value based on appraisals  and/or analyses of discounted  future  operating cash
flows from those entities.

The Company is currently  negotiating to dispose of the remaining portion of its
White  Knight  subsidiary.  The  net  assets  of the  remaining  portion  of the
Company's  White  Knight   subsidiary  at  September  30,  1998,  its  Abbeville
manufacturing  facility,  and its Norcross headquarters are classified as assets
held for sale in the accompanying consolidated balance sheets, and are comprised
of the following:


                                September 30, 1998            December 31, 1997
                                  -----------------          -------------------
Assets:
 Accounts receivable                $ 7,024,000              $      8,848,000
 Inventory                            9,577,000                    13,085,000
 Prepaid expense and other assets     1,108,000                       186,000
 Property and equipment, net          9,951,000                    19,980,000
 Other assets                           237,000                       287,000
                                  ---------------             ------------------

   Total assets                      27,897,000                    42,386,000
                                  ---------------             ------------------

Liabilities:
 Accounts payable                      2,235,000                    2,247,000
 Bank overdraft                          505,000                      508,000
 Accrued liabilities                     955,000                    2,044,000
 Long-term debt                        1,667,000                    1,836,000
                                 ----------------                ---------------

   Total liabilities                   5,362,000                    6,635,000
                                 ----------------                 --------------

   Net assets held for sale        $  22,535,000                $    35,751,000
                                  ==============               ================

The following represents the results of operations of the entities held for sale
for the three and nine months ended September 30, 1998 and 1997:

            Three months ended September 30,     Nine months ended September 30,
                     1998           1997                1998             1997
            ------------------ -------------     -----------------  ------------

Net sales   $ 8,400,000        $ 12,463,000      $29,675,000        $37,316,000
Net loss     (1,304,000)         (2,929,000)     (11,486,000)        (6,851,000)
Net loss per
share- basic
 and diluted      (0.03)              (0.07)           (0.29)             (0.17)

On August 11,  1998,  the  Company  disposed of its Arden and  Charlotte,  North
Carolina OREX  manufacturing  facilities,  the industrial  division of its White
Knight  subsidiary  and  substantially  all  of  the  assets  of  its  SafeWaste
subsidiary   for  proceeds  of   approximately   $13.4  million  which  includes
approximately  $2.0 million of proceeds for the purchase of the  Company's  OREX
fiber inventory under a product financing arrangement.  On October 14, 1998, the
Company disposed of its Abbeville,  South Carolina OREX  manufacturing  facility
for proceeds of approximately $8 million, consisting of $7.5 million in cash and
a $500,000  note. The Company  maintains a 20% minority  interest in the company
formed to operate the Abbeville and Arden  facilities.  The Company has recorded
this minority interest under the equity method of accounting for investments.

4) Loss per common share is computed using the weighted average number of common
shares outstanding during the respective periods. There is no difference between
basic and diluted weighted average and per share amounts for these periods.

5) In June 1997,  the  Financial  Accounting  Standards  Board  issued SFAS 130,
"Reporting  Comprehensive  Income".  SFAS  130  establishes  new  rules  for the
reporting  and  display of  comprehensive  income and its  components.  SFAS 130
requires  foreign  currency  translation  adjustments  to be  included  in other
comprehensive  income.  Effective January 1, 1998, the Company adopted SFAS 130.
The Company currently has no material foreign currency translation adjustment in
the  financial  statements.  Management  believes  the  pronouncement  does  not
significantly  impact the presentation of the Company's  consolidated  financial
statements.

6) Certain prior period amounts have been reclassified for comparative purposes.

7) September 30, 1998, the Company was not in compliance  with a covenant of its
credit facility  pertaining to operating  results.  Such covenant  violation was
waived by the Company's lenders on November 12, 1998.

Item 2.

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

Results of Operations

Net sales for the three months  ended  September  30, 1998 (the "1998  Quarter")
were  $36.1  million  compared  to $41.9  million  for the  three  months  ended
September  30, 1997 (the "1997  Quarter"),  a decrease of 13.8%.  Excluding  net
sales from the Company's White Knight industrial  division and Struble & Moffitt
division which were disposed  during the 1998 Period,  net sales decreased 7.2%.
Net sales for the nine months ended  September 30, 1998 (the "1998 Period") were
$116.2 million  compared to $124.3  million for the nine months ended  September
30, 1997 (the "1997 Period"),  a decrease of 6.5%.  Excluding net sales from the
Company's White Knight industrial  division and Struble & Moffitt division,  net
sales  decreased  4.3%.  Sales of custom  procedure  trays and related  products
decreased 5.8% in the 1998 Quarter and increased  1.6% in the 1998 Period.  This
decrease in the 1998  Quarter is primarily  attributable  to timing of shipments
during the 1997 Quarter in anticipation of the Company's  implementation  during
fourth quarter 1997 of a new management  information  system.  Sales of Microtek
products  decreased  6.6%  and  3.1% in the 1998  Quarter  and the 1998  Period,
respectively,  as  compared  to the  corresponding  periods  of  1997  primarily
attributed to lower sales volume to Microtek's  international and OEM customers.
Sales of safety  products  declined  3.6% and 15.6% in the 1998 Quarter and 1998
Period, respectively,  as compared to the corresponding periods of 1997 due to a
substantial  reduction in purchases of LTS products by  Allegiance,  the primary
distributor  of  such  products,  and  previously  reported  adverse  regulatory
developments  which  occurred  in the first  quarter of 1998.  While the Company
plans to  introduce a new LTS product to preserve  its market  share  created by
LTS, the Company's ability to do so is subject to obtaining federal registration
of such product.  See "Risk Factors - Regulatory  Risks" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "Annual  Report").
The Company  expects that its  operating  results will  continue to be adversely
affected by reduced  sales of LTS, and no  assurances  can be provided  that the
Company  will be able to  maintain  its  market  share on such  products  by the
registration  and  introduction  of a new LTS product.  White Knight  Healthcare
sales  declined  12.9%  and  17.2% in the  1998  Quarter  and the  1998  Period,
respectively,  as compared to the corresponding periods of 1997. Such decline in
sales is due to the timing of divestitures  affecting the White Knight business,
a competitor's  purchase of a significant customer and the Company's decision to
de-emphasize  marketing  of White  Knight  products  in favor of  higher  margin
products sold by its other subsidiaries. In February 1998, the Company announced
plans  to sell  its  White  Knight  subsidiary,  which,  if  consummated,  would
significantly  reduce the Company's net sales.  On August 11, 1998,  the Company
sold the industrial division of White Knight and is currently in negotiations to
sell the remaining portion of White Knight. See "Risk Factors - Risks of Planned
Divestitures" in the Company's Annual Report.

Included  in the  foregoing  sales  figures  are $1.1  million  in sales of OREX
Degradables  during the 1998 Quarter and $4.2 million  during the 1998 Period as
compared to $1.5 million and $5.5 million  during the  corresponding  periods of
1997.  During 1997,  the Company  substantially  reduced its efforts to increase
sales of OREX Degradables and instead focused on preserving its existing base of
hospitals  purchasing  OREX  Degradables  and  evaluating  means to market  OREX
Degradables  within its various market  potentials.  The Company to date has not
achieved any gross profits on its sale of OREX Degradables. The Company's future
performance  will depend to a substantial  degree upon market  acceptance of and
the Company's ability to successfully  manufacture,  market,  deliver and expand
its  OREX  Degradables  line of  products  at  acceptable  profit  margins.  The
Company's  ability to achieve such  objectives is subject to risks including the
risks described in the Company Annual Report under "Risk Factors".

Gross  profit for the 1998  Quarter  was $10.0  million or 27.6% of net sales as
compared  to gross  (loss) of $(4.6)  million  or (11)% of net sales in the 1997
Quarter.  Gross  profit for the 1998  Period  was $29.4  million or 25.3% of net
sales as  compared  to $14.0  million or 11.3% of net sales in the 1997  Period.
Included  in cost of sales for the 1998  Period was  approximately  $900,000  in
inventory  charges  recorded  in  connection  with  the  sale of the  industrial
division of White  Knight.  Included  in cost of sales for the 1997  Quarter and
Period was  approximately  $13.0 million  reserved for  potentially  excess OREX
inventories.  Exclusive of such  reserves,  gross profit in the 1998 Quarter and
Period would  approximate  $10.0  million and $30.3  million,  respectively,  as
compared  to $8.4  million and $27.0  million  for the 1997  Quarter and Period,
respectively.  The  improvement  in  gross  profit  margin  is  attributable  to
increased overhead absorption at the Company's Arden and Abbeville base material
plants due to impairment  reserves  recorded  during the fourth quarter of 1997,
improved  gross  profit  at the  Company's  Microtek  division,  the sale of the
Company's Arden manufacturing plant and contract  manufacturing at the Company's
Abbeville manufacturing plant.

Selling,  general and administrative  expenses were $9.8 million or 27.1% of net
sales in the 1998 Quarter as compared to $10.2  million or 24.3% of net sales in
the 1997  Quarter.  Selling,  general  and  administrative  expenses  were $29.6
million or 25.5% of net sales in the 1998 Period as compared to $31.2 million or
25.1%  of net  sales  in the 1997  Period.  Included  in  selling,  general  and
administrative  expenses  in the 1998  Quarter  and  Period  were  approximately
$300,000  in charges  related to the sale of the  industrial  division  of White
Knight.  The  reduction  in  selling,  general  and  administrative  expense  is
attributed to a combination of  implementation  of the Company's  operating plan
that focused on reorganizing  marketing and sales efforts to achieve  reductions
in selling and marketing expenses, and lower commissions on reduced sales.

Research and development  expenses were $0.8 million or 2.3% of net sales in the
1998  Quarter  as  compared  to $0.6  million  or 1.4% of net  sales in the 1997
Quarter.  Research  and  development  expenses  were $2.6 million or 2.3% of net
sales in the 1998 Period as compared to $2.0 million or 1.6% of net sales in the
1997  Period.  The  increase in research  and  development  expense is primarily
attributed to increased  effort in development of OREX roll-stock  production in
Asia, and regulatory  expense  associated  with the Company's  effort to receive
federal regulatory approval of its new LTS products.

Amortization  of intangibles was $501,000 and $1,549,000 in the 1998 Quarter and
1998  Period,  respectively,  as  compared  to $961,000  and  $2,878,000  in the
corresponding periods of 1997. The decline in amortization expense was primarily
due to charges  recorded during the fourth quarter of 1997 for the impairment of
carrying value of the Company's OREX  manufacturing  facilities and White Knight
business and the related decision to sell such assets.

The  resulting  loss from  operations  was $1.2  million in the 1998  Quarter as
compared  to a $16.3  million  loss from  operations  in the 1997  Quarter.  The
resulting  loss from  operations was $9.8 million in the 1998 Period as compared
to a $22.1  million loss from  operations  in the 1997 Period.  Included in loss
from  operations  in the 1998 Period was $6.5  million in  impairment  and other
charges related to the Company's disposal of the aforementioned  assets held for
sale.  Included in the 1997  Quarter  and Period was a reserve of $13.0  million
related to potentially  excess OREX inventories.  Exclusive of such reserves and
impairment  and other  charges,  the  Company's  loss from  operations  was $1.2
million and $3.3  million for the 1998  Quarter  and  Period,  respectively,  as
compared  to $3.3  million  and $9.1  million  for the 1997  Quarter and Period,
respectively.

Interest expense,  net of interest income,  was $832,000 and $2.6 million in the
1998  Quarter and 1998  Period,  respectively,  as compared to $828,000 and $2.5
million in the  corresponding  periods of 1997. The increase in interest expense
is  attributed  to  increased  interest  rates during 1998  combined  with lower
interest income as a result of lower cash balances during 1998.

Provision  for income  taxes  reflects an expense of $63,000 and $229,000 in the
1998 Quarter and 1998 Period, respectively,  as compared to an expense of $6,000
and $17,000 in the corresponding periods of 1997.

The  resulting  net loss was $2.1 million and $12.6 million for the 1998 Quarter
and 1998 Period,  respectively,  as compared to a net loss of $17.2  million and
$24.7 million for the corresponding periods of 1997.

Liquidity and Capital Resources

At September 30, 1998, the Company's cash and  equivalents  totaled $5.3 million
as compared to $9.3 million at December 31, 1997.

During the 1998  Period,  the  Company  used $3.9  million of cash in  operating
activities. This use of cash in the 1998 Period is attributable to a combination
of the Company's operating loss,  increase in accounts receivable  primarily due
to such  increases  at the  Company's  Microtek  subsidiary  and a  decrease  in
accounts  payable as a result of  accelerated  payments  for  purposes of taking
advantage of discounts on accounts  payable.  The Company generated $8.3 million
from investing activities during the 1998 Period. This generation of cash during
the 1998 Period was primarily  attributable to proceeds from the  aforementioned
sale of assets. The Company used $3.2 million in investing activities during the
1998  Period,   primarily  for  several  computer  software  implementations  in
progress.  During the 1998 Period, the Company reduced indebtedness  outstanding
under its senior credit facility by approximately $9.1 million.

As more fully  described in the Company's  Annual Report,  the Company has a $55
million credit  agreement (the "Credit  Agreement")  consisting of a $40 million
revolving  credit  facility  maturing on August 31, 1999 and a $15 million  term
loan facility maturing on August 31, 2001. The Company had additional  borrowing
availability  of $1.7 million under the revolving  credit  facility at September
30, 1998.  Outstanding  borrowings  under the  revolving  credit  facility  were
approximately $25.4 million at September 30, 1998.  Outstanding borrowings under
the term loan  facility  were $2.1  million at September  30,  1998.  The Credit
Agreement  provides  for the  issuance of up to $3 million in letters of credit.
Outstanding  letters of credit were $50,000 at September  30, 1998. At September
30,  1998,  the Company  was in  violation  of the  operating  results  covenant
contained in the Credit  Agreement.  This  violation was waived by the Company's
lenders on November  12,  1998.  As part of that waiver  agreement,  the Company
reduced  the amount of its  revolving  credit  facility  from $40 million to $30
million  and revised  the  December  31, 1998  operating  results  covenant.  No
assurance  can be provided that other  violations of covenants  contained in the
Company's  Credit  Agreement will not occur in the future or, if such violations
occur, that those violations will be waived. Any unwaived default by the Company
under the Credit  Agreement would be expected to have a material  adverse effect
upon the Company.  At September  30, 1998,  outstanding  indebtedness  under the
Credit Agreement exceeded the Company's cash and cash equivalents.

On August 11,  1998,  the  Company  disposed of its Arden and  Charlotte,  North
Carolina  manufacturing  facilities,  its White Knight  industrial  division and
substantially  all of the assets of its  SafeWaste  subsidiary  for  proceeds of
approximately  $13.4 million.  On October 14, 1998, the Company  disposed of its
Abbeville,   South  Carolina  OREX   manufacturing   facility  for  proceeds  of
approximately  $8  million,  consisting  of $7.5  million in cash and a $500,000
note.  Proceeds from the disposition were used to reduce outstanding  borrowings
under the Company's Credit  Agreement,  including  satisfaction of the Company's
term loan  facility.  The  Company is  currently  negotiating  to dispose of the
remaining portion of its White Knight subsidiary including the Company's Struble
& Moffitt plant located in New Jersey.  The Company recently began to market for
sale the Company's  administrative  office  building in Norcross,  Georgia while
consolidating such offices with the Company's nearby leased technology offices.

Based upon its current  business plan, the Company  currently  expects that cash
equivalents  and short term  investments on hand, the Company's  existing credit
facility and funds  budgeted to be generated  from  operations and proceeds from
sales of assets will be adequate to meet its liquidity and capital  requirements
over the next year, provided that the Company successfully replaces its existing
revolving  credit  facility prior to its scheduled  maturity on August 31, 1999.
Currently   unforeseen   future   developments  and  increased  working  capital
requirements  may require  additional  debt  financing or the issuance of common
stock in 1998 and subsequent years.  There can be no assurances that the Company
will be able to  obtain a  replacement  credit  facility,  obtain  any  required
additional debt financing or successfully consummate an issuance of common stock
on terms favorable to the Company, if at all.

Year 2000 Issue

Many companies are affected by the year 2000 issue,  which could cause equipment
reliant upon computer  applications to fail or create  erroneous  results due to
the  failure of  computer  programs to  correctly  identify  the year 2000 after
December 31, 1999.

During 1996, as part of a program to install improved  information  systems on a
Company-wide  basis, the Company initiated a conversion from existing management
information  software to programs  that are year 2000  compliant.  In the fourth
quarter of 1997, the Company's MedSurg operations completed substantially all of
its conversion to a year 2000 compliant  system,  with certain minor conversions
to be  completed in first  quarter,  1999.  The  Company's  Microtek  operations
substantially  completed such  conversion in September  1998, with certain minor
conversions scheduled to be completed in December, 1998. The Company's corporate
operations  are  scheduled to complete  such  conversion  by June,  1999. If the
Company  does not sell its  remaining  White  Knight  business,  the Company has
scheduled to complete such  conversion  for the White Knight  business by second
quarter,  1999.  Costs incurred to date for such  conversions  approximate  $7.1
million of which $1.8 million have been expensed with $5.3 million  representing
capital expenditures.  The Company estimates that costs remaining to be incurred
before scheduled  completion of such conversion will be approximately  $550,000,
all of which are  expected to be  capitalized.  The  Company has begun,  but not
completed,  a program  to  evaluate  year  2000  compliance  of  non-information
technology assets. The Company has scheduled to complete compliance solutions on
such assets by second  quarter 1999,  and  estimates  related costs at less than
$200,000.  Other than such costs,  the  Company  does not believe its efforts to
become year 2000 compliant will have a material adverse impact upon the Company.
Estimated  costs to be incurred and the  schedule to become year 2000  compliant
are subject to  uncertainties  and risks  (including,  for  example,  failure to
timely identify and correct non-compliant  systems,  encountering  unanticipated
delays or  impediments  to  conversion  and  disruptions  of  ordinary  business
operations),  and the failure of the Company to complete such conversion  within
budget and on schedule could adversely affect the Company.

The  Company is not  currently  aware of any of its  customers,  product  users,
suppliers or other  vendors which are  non-compliant  with year 2000 in a manner
which  would have an adverse  effect  upon the  Company or its  operations.  The
Company  continues  to  evaluate  the  potential  impact  upon  the  Company  of
noncompliance  with year 2000  issues by third  parties  with which the  Company
deals. The Company's customers are primarily healthcare  institutions or vendors
to such institutions.

The  Company has not adopted a specific  contingency  plan to address  year 2000
non-compliance  issues.  The  Company's  experience  in  installing  replacement
information  systems  has  caused  the  Company  to  become  familiar  with  the
consequences  of  reliance  on such  technology  and short  term  solutions  for
temporary interruptions to such systems.

The statements made under this caption are Year 2000 Readiness  Disclosure under
the Year 2000 Information and Readiness Disclosure Act.

Forward Looking Statements

Statements  made in this  Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations,   including  statements  regarding  the
Company's future liquidity and capital resources and the effect of the year 2000
issue  upon the  Company,  include  forward-looking  statements  made  under the
provisions of the Private Securities Litigation Reform Act. The Company's actual
results could differ  materially from such  forward-looking  statements and such
results will be affected by risks  described in the  Company's  Annual Report on
Form 10-K including,  without limitation,  those described under "Risk Factors -
Limited  Operating  History;  Net Losses",  "-Risks of New Products",  "Risks of
Planned Divestitures", "-Manufacturing & Supply Risks" and "-Liquidity Risks".

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.



<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.  During the quarter
for which this report is filed,  the Company  sold no equity  securities  of the
Company that were not registered under the Securities Act of 1933, as amended.

Item 3. Default Upon Senior Securities

At September 30, 1998,  the Company was not in  compliance  with the covenant of
its credit facility pertaining to operating income. This violation was waived by
the Company's lenders on November 12, 1998.

Item 4. Submission of Matters to a Vote of Security Holders

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

27.1   Financial Data Schedule

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


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

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

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

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


(b) The Company filed a current report on Form 8-K on August 26, 1998.




<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 __, 1998.


            ISOLYSER COMPANY, INC.



                     By:      /s/ Migo Nalbantyan
                              -----------------------------
                              Migo Nalbantyan
                              President & CEO
                              (principal executive officer)


                     By:      /s/ Peter A. Schmitt
                              -----------------------------
                              Peter A. Schmitt
                              Chief Financial Officer
                              (principal financial officer)