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, 1999             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 10, 1999
-----                                           --------------------------------

Common Stock, $.001 par value                                 40,732,191



<PAGE>
                                     PART I
                             FINANCIAL INFORMATION

                          Item 1. Financial Statements

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

<TABLE>
<CAPTION>

Assets                                                                          September 30, 1999       December 31, 1998
                                                                                ------------------       -----------------
<S>                                                                             <C>                      <C>

Current assets
         Cash and cash equivalents                                              $    18,554              $       7,325
         Accounts receivable, net                                                    15,417                     18,118
         Inventories                                                                 24,258                     23,647
         Prepaid expenses and other assets                                            4,238                      1,413
         Net assets held for sale                                                         -                      9,873
                                                                                ------------------       -----------------
                 Total current assets                                                62,467                     60,376
                                                                                ------------------       -----------------

Property, plant and equipment                                                        21,839                     31,072
         Less accumulated depreciation                                              (13,082)                   (15,511)
                                                                                ------------------       -----------------
                 Property, plant, and equipment, net                                  8,757                     15,561
                                                                                ------------------       -----------------

Intangibles and other assets, net                                                    27,157                     33,581
                                                                                ------------------       -----------------
                                                                                $    98,381              $     109,518
                                                                                ==================       =================

Liabilities and Shareholders' Equity
Current liabilities
         Current installments of long term debt                                 $       916              $       9,395
         Current portion of deferred licensing revenue                                3,000                          -
         Accounts payable                                                             4,726                      6,247
         Bank overdraft                                                                 759                        361
         Accrued expenses                                                             5,512                      5,250
                                                                                ------------------       -----------------
                 Total current liabilities                                           14,913                     21,253
                                                                                ------------------       -----------------

Long term debt, excluding current installments                                        3,679                     19,376
Long term deferred licensing revenue                                                  6,750                          -
Other                                                                                     -                        214
                                                                                ------------------       -----------------
                 Total liabilities                                                   25,342                     40,843
                                                                                ------------------       -----------------
Shareholders' equity
         Common stock
                                                                                         41                         40
         Additional paid in capital                                                 205,705                    203,364
         Accumulated deficit                                                       (132,053)                  (133,980)
         Cumulative translation adjustment
                                                                                         20                        (75)
         Unearned shares restricted to employee stock ownership plan                   (240)                      (240)
                                                                                ------------------       -----------------
                                                                                     73,473                     69,109
Treasury shares, at cost                                                               (434)                      (434)
                                                                                ------------------       -----------------
         Total shareholders' equity                                                  73,039                     68,675
                                                                                ------------------       -----------------
                                                                                $    98,381              $     109,518
                                                                                ==================       =================
</TABLE>

See accompanying notes.

                                       2
<PAGE>


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

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED  THREE MONTHS ENDED   NINE MONTHS ENDED   NINE MONTHS ENDED
                                                  SEPTEMBER 30, 1999  SEPTEMBER 30, 1998   SEPTEMBER 30, 1999  SEPTEMBER 30, 1998
                                                  ------------------  ------------------   ------------------  ------------------
<S>                                               <C>                 <C>                  <C>                 <C>

Net product sales                                 $ 16,303            $     36,112         $   83,323          $   116,216
Licensing revenue                                      750                      --                750                   --
                                                  ------------------  ------------------   ------------------  ------------------
         Total revenues                             17,053                  36,112             84,073              116,216

Cost of products sold                                9,713                  26,139             52,936               86,859
                                                  ------------------  ------------------   ------------------  ------------------
         Gross profit                                7,340                   9,973             31,137               29,357

Operating expenses:
         Selling, general and administrative         5,171                   9,785             23,304               29,612
         Research & development                        585                     846              1,628                2,649
         Impairment loss                                --                      --              1,590                5,300
         Amortization of intangibles                   311                     501              1,208                1,549
                                                  ------------------  ------------------   ------------------  ------------------
               Total operating expenses              6,067                  11,132             27,730               39,110
                                                  ------------------  ------------------   ------------------  ------------------
Income (loss) from operations                        1,273                  (1,159)             3,407               (9,753)

Interest income                                        171                      64                253                  235
Interest expense                                      (130)                   (896)            (1,342)              (2,865)
Gain on sale of assets                                 124                      --                124                   --
Other income (loss)                                     --                      (2)                                     10
                                                  ------------------  ------------------   ------------------  ------------------
Income (loss) before income tax expense              1,438                  (1,993)             2,442              (12,373)

Income tax expense                                     128                      63                515                  229
                                                  ------------------  ------------------   ------------------  ------------------

Net income (loss)                                 $  1,310            $     (2,056)        $    1,927          $   (12,602)
                                                  ------------------  ------------------   ------------------  ------------------

Other comprehensive income (loss)
         Foreign currency translation gain (loss) $     80            $        (16)        $       83          $        (9)
                                                  ------------------  ------------------   ------------------  ------------------

Comprehensive income (loss)                       $  1,390            $     (2,072)        $    2,022          $   (12,611)
                                                  ==================  ==================   ==================  ==================

Net income (loss) per common share - basic        $   0.03            $      (0.05)        $     0.05          $     (0.32)
                                                  ==================  ==================   ==================  ==================

Net income (loss) per common share - diluted      $   0.03            $      (0.05)        $     0.05          $     (0.32)
                                                  ==================  ==================   ==================  ==================

Basic weighted average number of common
  shares outstanding                                40,499                  39,869             40,190               39,957
                                                  ==================  ==================   ==================  ==================

Diluted weighted average number of common
  shares outstanding                                42,030                  39,869             40,943               39,957
                                                  ==================  ==================   ==================  ==================

</TABLE>

See accompanying notes.

                                       3
<PAGE>

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

                                                                                    NINE MONTHS ENDED    NINE MONTHS ENDED
                                                                                    SEPTEMBER 30, 1999   SEPTEMBER 30, 1998
                                                                                    ---------------------------------------
<S>                                                                                 <C>                  <C>

Cash flows from operating activities:
           Net income (loss) ...................................................    $  1,927             $  (12,602)

Adjustments  to  reconcile  net income  (loss) to net cash  provide by (used in)
operating activities:
           Depreciation ........................................................       2,696                  2,928
           Amortization ........................................................       1,197                  1,549
           Provision for doubtful accounts                                               134                    125
           (Gain) loss on disposal of property, plant & equipment...............        (124)                    10
           Impairment loss .....................................................       1,590                  5,300
           Changes in assets and liabilities ...................................       2,091                 (1,195)
                                                                                    ---------            -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................       9,511                 (3,885)
                                                                                    ---------            -----------

Cash flows from investing activities:
           Additions to property, plant and equipment ..........................      (1,562)                (3,185)
           Proceeds from sale of assets, net of effects from dispositions.......       25,395                11,450
                                                                                    ---------            -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES ......................................      23,833                  8,265
                                                                                    ---------            -----------
Cash flows from financing activities:
           Net repayments under credit agreements ..............................     (25,213)                (9,053)
           Changes in bank overdraft
                                                                                         756                     (3)
           Proceeds from exercised stock options
                                                                                         590                     --
           Proceeds from issuance of stock .....................................       1,751                    255
           Issuance of stock to 401(k) Plan
                                                                                           1                    378
                                                                                    ---------            -----------
NET CASH USED IN FINANCING ACTIVITIES ..........................................     (22,115)                (8,423)
                                                                                    ---------            -----------
Net increase (decrease) in cash and cash equivalents ...........................      11,229                 (4,043)
Cash and cash equivalents at beginning of period ...............................       7,325                  9,299
                                                                                    ---------            -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .....................................    $ 18,554             $    5,256
                                                                                    =========            ===========
</TABLE>

See accompanying notes.


                                       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.  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, 1998.

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

                                                    September 30,   December 31,
                                                        1999           1998
                                                        ----           ----

Raw materials and supplies                          $  14,793,000   $ 16,959,000
Work in process                                         1,393,000      1,747,000
Finished goods                                         20,967,000     21,864,000
                                                      -----------    -----------
         Total                                      $   37,153,000  $ 40,570,000

Reserve for excess, slow moving
     and obsolete inventory                            (12,895,000) (16,923,000)
                                                       -----------   -----------
         Total                                      $   24,258,000  $ 23,647,000
                                                       ===========   ===========

At December 31, 1998, the Company's LIFO inventory is included as a component of
net assets held for sale.

At  September  30,  1999  and  December  31,  1998  the net  OREX  inventory  is
approximately $7,959,000 and $4,920,000, respectively.

3) The remaining net assets of the MedSurg  subsidiary at September 30, 1999 and
the  net  assets  of the  White  Knight  subsidiary  and  the  Company's  former
headquarters  at  December  31,  1998  are  classified  as held  for sale in the
accompanying condensed  consolidated financial statements,  and are comprised of
the following:

                                             September 30,          December 31,
                                                 1999                   1998
                                                 ----                   ----
Assets:
         Accounts receivable                $     --               $   3,589,000
         Inventory ......................     4,846,000                6,744,000
         Prepaid expense and other assets         --                      71,000
         Property and equipment, net ....         --                   2,000,000
         Other assets ...................         --                      73,000
                                             ----------               ----------
                   Total Assets .........   $ 4,846,000            $   12,477,00
                                             ==========              ===========


                                       5
<PAGE>

Liabilities
         Accounts payable                   $ 3,211,000            $   1,441,000
         Bank overdraft                            --                    361,000
         Accrued liabilities                  1,635,000                  786,000
         Long-term debt                            --                     16,000
                                             ----------               ----------
                   Total Liabilities          4,846,000                2,604,000
                                             ----------               ----------

         Net assets held for sale          $       --               $  9,873,000
                                             ==========               ==========

On March 31, 1999, the Company disposed of its former corporate headquarters for
proceeds of  approximately  $1.9 million.  Effective  May 31, 1999,  the Company
disposed  of the stock of its  White  Knight  subsidiary  ("White  Knight")  for
proceeds of  approximately  $8.2  million.  These  proceeds  were used to reduce
outstanding borrowings under the Company's Credit Agreement.

On July 12, 1999, the Company disposed of substantially all of the assets of its
MedSurg  subsidiary  and entered into an OREX License and Supply  Agreement (the
"License  Agreement")  with Allegiance  Healthcare for proceeds of approximately
$31.3 million. Of the $31.3 million in proceeds from the Allegiance transaction,
the Company  allocated  $20.8  million to the sale of  substantially  all of the
assets of the  Company's  MedSurg  subsidiary  and $10.5  million to the License
Agreement,  which is recorded as deferred revenue on the accompanying  condensed
consolidated   balance  sheet.   The  license  fee  is  being   amortized  on  a
straight-line  basis over 14 quarterly periods. A portion of these proceeds were
used to pay-off the remaining balance of the Company's Credit Agreement. As part
of the sale of MedSurg  assets,  title to certain MedSurg assets and liabilities
will  transfer  to  Allegiance   upon   completion  of  a  short-term   contract
manufacturing  agreement with  Allegiance,  which is expected to be completed by
January 31,  2000.  As part of the  MedSurg  sales  agreement,  proceeds of $3.1
million   were   deposited   into  an  escrow   account   to  secure   potential
indemnification  claims by  Allegiance.  The balance of funds on deposit will be
released from escrow on July 12, 2000.

The following  represents  the results of operations of the above noted disposed
entities for the three and nine months ended September 30, 1999 and 1998:

                              Three months ended             Nine months ended
                                   Sept. 30                       Sept. 30
                          -------------------------     ------------------------
                                1999         1998          1999          1998
                                ----         ----          ----          ----
Net sales                    1,536,000   23,306,000     38,851,000   76,709,000
Net loss                       (44,000)  (1,119,000)      (465,126)   1,790,000)
Net loss per share - basic       (0.00)       (0.03)         (0.01)       (0.30)
Net loss per share - diluted     (0.00)       (0.03)         (0.01)       (0.30)


4) Basic per share earnings (loss) is computed using the weighted average number
of common shares  outstanding for the period.  Diluted per share earnings (loss)
is computed  including the dilutive effect of all contingently  issuable shares.
The difference between basic and diluted weighted average shares is attributable
to 1,531,000  stock options for the three months ended  September 30, 1999,  and
753,000 stock options for the nine months ended  September 30, 1999.  There were
no  dilutive  stock  options  outstanding  for the three and nine  months  ended
September 30, 1998.

                                       6
<PAGE>

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, 1999 (the "1999  Quarter")
were  $17.1  million  compared  to $36.1  million  for the  three  months  ended
September 30, 1998 (the "1998 Quarter"),  a decrease of 52.8%. Net sales for the
nine month  period  ended  September  30,  1999 (the "1999  Period")  were $84.1
million compared to $116.2 million for the nine month period ended September 30,
1998 (the "1998 Period"), a decrease of 27.7%.  Excluding sales of White Knight,
the industrial division of White Knight ("White Knight Industrial"),  SafeWaste,
Struble and Moffitt and MedSurg  (businesses  disposed of prior to September 30,
1999),  net sales for the 1999  Quarter  and Period  increased  12.2% and 13.3%,
respectively,  as  compared to the 1998  Quarter  and Period.  Sales of Microtek
products increased to $14.2 million during the 1999 Quarter as compared to $12.7
million  during the 1998 Quarter,  an increase of 17.2%,  and increased to $44.1
million in the 1999 Period as compared to $37.3  million in the 1998 Period,  an
increase of 20.7%.  This  increase  was  primarily a result of new  business and
increased  sales from a short-term  manufacturing  contract  arrangement  with a
customer.  Sales of Microtek  safety  products  declined  10.6%  during the 1999
Quarter as  compared  to the 1998  Quarter  and  increased  6.2% during the 1999
Period as compared to the 1998 Period.  The quarter to quarter decline in safety
product  sales  reflects an  unusually  large  purchase  order  received  from a
distributor in the 1998 Quarter. The period to period increase in safety product
sales was a result of substantially increased purchases from a distributor.

Included  in  the  foregoing  sales  figures  are  $523,000  in  sales  of  OREX
Degradables  and  Enviroguard  products during the 1999 Quarter and $2.1 million
during the 1999 Period as compared to $1.1 million and $4.2  million  during the
corresponding  periods of 1998. During 1997, the Company  substantially  reduced
selling  and  marketing  efforts  related  to OREX  Degradables  and  focused on
preserving  its  existing  base of hospitals  purchasing  OREX  Degradables  and
evaluating means to exploit the market position of OREX  Degradables  within its
various market potentials.  During 1998, the Company  substantially  revised its
strategy to commercialize  its OREX products.  As a result of these efforts,  in
April 1999 the Company  introduced  new  degradable  products to the  healthcare
industry  under  the  Enviroguard  trademark,  which  uses  a  hydroentanglement
manufacturing  process to  produce a  spunlaced  fabric.  The  Company's  future
performance will depend to a substantial  degree upon market  acceptance of this
product and the Company's ability to successfully  manufacture,  market, deliver
and expand its OREX Degradables and Enviroguard  lines of products at acceptable
profit margins.  In connection with the July 12, 1999 sale by the Company of the
assets of MedSurg to Allegiance  Healthcare,  the Company  granted to Allegiance
Healthcare a worldwide  exclusive  license to  Isolyser's  OREX and  Enviroguard
proprietary technologies to make, use and sell products made from material which
can be dissolved and disposed of through a sanitary  sewer system for healthcare
applications.  Revenues  for the 1999  Quarter  and Period  include  $750,000 of
licensing  revenues  attributable  to the  License  Agreement.  There  can be no
assurances  that OREX  Degradables  or  Enviroguard  products  will  achieve  or
maintain substantial acceptance in their target markets. See the risks described
under "Risk Factors" in the Company's  Annual Report on Form 10-K for the period
ending  December  31,  1998  (the  "1998  Annual  Report")  including,   without
limitation,  "Risk Factors- Limited Operating  History;  Net Losses," "-Risks of
New Products" and "-Manufacturing and Supply Risks" in the Company's 1998 Annual
Report.

                                       7
<PAGE>

Gross  profit for the 1999  Quarter was $7.3  million,  or 43.0% of net sales as
compared  to $10.0  million,  or 27.6% of net sales in the 1998  Quarter.  Gross
profit for the 1999 Period was $31.1 million,  or 37.0% of net sales as compared
to $29.4 million, or 25.3% of net sales for the 1998 Period. Included in cost of
sales  during the 1999  Period was  approximately  $1.6  million of excess  OREX
inventory reserve primarily due to anticipated usage under the License Agreement
with Allegiance, which increased gross profit. Included in cost of sales for the
1998  Period was  approximately  $900,000  in  inventory  reserves  recorded  in
connection  with the sale of the  industrial  division  of White  Knight,  which
reduced gross profit. Exclusive of these adjustments,  gross profit was 35.1% of
net sales  for the 1999  Period  as  compared  to 26.0% of net sales in the 1998
Period. The improvement in gross profit is attributable to improved gross profit
at the Company's  Microtek  subsidiary,  licensing  revenues from the Allegiance
License Agreement, reduced costs associated with the sale of the Company's Arden
and  Abbeville  manufacturing  facilities  in  August  1998  and  October  1998,
respectively,  and  improvements  in sales mix associated  with the cessation of
sales of lower margin products due to divestiture transactions. Microtek's gross
profit  improved  15.1% in the 1999  Quarter as compared to the 1998 Quarter and
improved  21.7% for the 1999  Period as compared  to the 1998  Period.  Improved
gross  profit  at  Microtek  results  from  increased  sales and  improved  cost
efficiencies as a result of consolidating two offshore manufacturing facilities.

Selling,  general and administrative expenses were $5.2 million, or 30.3% of net
sales in the 1999 Quarter as compared to $9.8 million,  or 27.1% of net sales in
the 1998  Quarter.  Selling,  general  and  administrative  expenses  were $23.3
million,  or 27.7% of net sales in the 1999 Period as compared to $29.6 million,
or 25.5% of net sales in the 1998  Period.  Included  in  selling,  general  and
administrative  expenses  for the 1998  Period  were  approximately  $300,000 in
charges  related  to the sale of  White  Knight  Industrial.  The  reduction  in
selling,  general and  administrative  expenses was due primarily to the sale by
the  Company  of White  Knight  and  certain  assets  of the  Company's  MedSurg
subsidiary.  The  increase in selling,  general  and  administrative  costs as a
percentage of sales was due to sales mix. The Company's White Knight and MedSurg
subsidiaries  traditionally  had lower  sales  costs as a  percentage  of sales.
Although  Microtek's selling cost to sales ratio is higher than White Knight and
MedSurg,  Microtek's  gross margins are  significantly  higher.  During the 1999
Quarter and Period,  Microtek  reduced its selling,  general and  administrative
cost as a  percentage  of sales by 1.7% as  compared  to the  1998  Quarter  and
Period.

Research and development expenses were $585,000 or 3.4% of net sales in the 1999
Quarter  as  compared  to  $846,000,  or 2.3% of net sales in the 1998  Quarter.
Research and development expenses were $1.6 million, or 1.9% of net sales in the
1999  Period  as  compared  to $2.6  million,  or 2.3% of net  sales in the 1998
Period. The decline in research and development  expense is primarily related to
reduced costs  associated with the development and registration of the Company's
LTS  Plus  product  as well as  reduced  development  cost  associated  with the
introduction of the Company's Enviroguard product line.

                                       8
<PAGE>

On July 12, 1999,  the Company  completed the sale of  substantially  all of the
assets of its MedSurg subsidiary for approximately  $20.8 million.  Concurrently
with the sale of MedSurg, the Company and Allegiance Healthcare entered into the
License Agreement described above.  Effective May 31, 1999, the Company disposed
of the stock of its White Knight Healthcare  subsidiary for  approximately  $8.2
million in cash. In  conjunction  with this  disposition,  the Company  recorded
impairment  charges of approximately  $1.6 million in the 1999 Period. On August
11,  1998,  the Company  disposed  of its Arden and  Charlotte,  North  Carolina
manufacturing  facilities,  White Knight Industrial and substantially all of the
assets of its SafeWaste  subsidiary for proceeds of approximately  $13.4 million
in cash. The Company also contracted to sell its Abbeville,  South Carolina OREX
manufacturing  facility,  which  was  subsequently  sold  in  October  1998.  In
conjunction with these sales, the Company  recorded  impairment  charges of $5.3
million during the 1998 Period.

Amortization  of  intangibles  was $311,000 and $1.2 million in the 1999 Quarter
and  Period,  respectively,  as compared  to  $501,000  and $1.5  million in the
corresponding  periods  of  1998.  The  decline  in  amortization  expenses  was
primarily due to the sale of White Knight Industrial during 1998 and disposition
of certain assets of the Company's MedSurg subsidiary.

The resulting  income from  operations was $1.3 million and $3.4 million for the
1999  Quarter  and  1999  Period,  respectively,  as  compared  to  losses  from
operations  of $1.2  million and $9.8  million for the 1998  Quarter and Period,
respectively.

Interest  income,  net of interest  expense,  was $41,000 in the 1999 Quarter as
compared to a net expense of $832,000 in the 1998  Quarter.  For the 1999 Period
and the 1998 Period,  interest expense, net of interest income, was $1.1 million
and $2.6 million, respectively. The decline in interest expense is attributed to
reduced  borrowings  during  the 1999  Quarter  and  Period  as a result  of the
disposition  of the  aforementioned  assets  during  1998 and  1999,  offset  by
increases in the Company's borrowing interest rate.

During the 1999 Quarter and Period,  the Company  recorded a gain on the sale of
certain assets of its MedSurg subsidiary in the amount of $124,000.

Provision  for income  taxes  reflects  expenses of $128,000 and $515,000 in the
1999  Quarter and Period,  respectively,  as compared to $63,000 and $229,000 in
the corresponding periods of 1998.

The  resulting net income was $1.3 million and $1.9 million for the 1999 Quarter
and 1999  Period,  respectively,  as compared to net losses of $2.1  million and
$12.6 million in the 1998 Quarter and Period, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At September  30, 1999,  the  Company's  cash and  equivalents  totaled $18.6 as
compared to $7.3 million at December 31, 1998.

                                       9
<PAGE>

During  the 1999  Period,  the  Company  generated  $9.5  million  of cash  from
operating  activities  as compared to a use of $3.9  million in the 1998 Period.
The Company  generated  approximately  $23.8 million from  investing  activities
during the 1999  Period  consisting  of  approximately  $25.4  million  from the
disposition of White Knight  Healthcare,  the Company's former  headquarters and
substantially  all of the assets of the  MedSurg  subsidiary.  Offsetting  these
proceeds were approximately $1.6 million in capital expenditures during the 1999
Period. The majority of these capital expenditures were incurred by Microtek for
computer  software  and bar coding.  The Company  generated  $8.3  million  from
investing  activities during the 1998 Period,  consisting of approximately $11.5
million  from the  disposition  of the  Company's  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.  Offsetting these amounts were approximately $3.2 million in capital
expenditures  during the 1998 Period.  During the 1999 Period,  the Company used
approximately  $22.1 million in cash from financing  activities compared to $8.4
million in the 1998 Period. The Company utilized cash proceeds from dispositions
to reduce amounts outstanding under its Credit Agreement.

As more fully  described  in the  Company's  1998  Annual  Report,  the  Company
maintains a $25.0  million  credit  agreement  (as amended to date,  the "Credit
Agreement") consisting of a revolving credit facility maturing on June 30, 2000.
Borrowing availability under the revolving credit facility at September 30, 1999
was approximately $12.9 million. The Company had no outstanding borrowings under
the  revolving  credit  facility at  September  30, 1999.  The Credit  Agreement
provides  for  the  issuance  of  up to  $3.0  million  in  letters  of  credit.
Outstanding  letters of credit were $50,000 at September  30, 1999. At September
30, 1999,  the Company was in  compliance  with the  covenants  contained in its
Credit Agreement.

On March 31, 1999, the Company disposed of its former corporate headquarters for
proceeds of  approximately  $1.9 million.  Effective  May 31, 1999,  the Company
disposed of the stock of its White Knight Healthcare  subsidiary for proceeds of
approximately  $8.2  million.   On  July  12,  1999,  the  Company  disposed  of
substantially  all of the assets of its MedSurg  subsidiary and entered into the
License Agreement with Allegiance  Healthcare for cash proceeds of approximately
$31.3 million. A portion of these proceeds were subsequently used to pay-off the
remaining balance of the Company's Credit Agreement.

Based upon its current  business plan, the Company expects that cash equivalents
and short term  investments on hand, the Company's  existing credit facility 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 1999 and  subsequent
years.  There can be no  assurances  that the Company  could obtain any required
additional debt financing or successfully consummate an issuance of common stock
on terms favorable to the Company, if at all.

                                       10
<PAGE>

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.  The Company's
Microtek  operations  substantially  completed  its  conversion  to a year  2000
compliant  system  in  September  1998.  The  Company's   corporate   operations
substantially completed such conversion in July 1999. Costs incurred to date for
such  conversions  approximate  $8.0  million,  of which $2.5  million have been
expensed with $5.5 million representing capital  expenditures.  The Company does
not expect to incur any additional  costs in connection  with  completion of its
conversion  to year 2000  compliant  systems.  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 in the fourth quarter of 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  for  completion  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 identify  and  complete  such  conversions  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 not  compliant  with year 2000 in a manner
which would have an adverse effect upon the Company or its operations;  however,
the Company has not yet  completed  its  inquiries to third  parties  concerning
their  compliance  with the year 2000 issue.  The Company plans to complete such
inquiries in the fourth quarter of 1999.  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. Third party  noncompliance with year
2000 issues could have a material  adverse effect on the Company.  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.  If the Company  experiences  critical
interruptions to its information  systems or  technologies,  the Company will be
required  to engage  additional  clerical  services  and  would  expect to incur
additional  distribution  expenses which could have a material adverse effect on
the Company's operating results.

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

                                       11
<PAGE>

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.  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
1998 Annual Report including,  without  limitation,  those described under "Risk
Factors - Limited  Operating  History;  Net Losses",  "-Risks of New  Products",
"-Risks of Planned Divestitures", and "-Manufacturing & Supply Risks".


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,  1999,  the Company has no  long-term  or
short-term  debt that bears  interest at  floating  rates.  However,  should the
Company incur borrowings under its Credit Agreement,  such borrowings would bear
interest at variable  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.



                                       12
<PAGE>



                                     PART II

                                OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS

Not applicable.

ITEM 2.           CHANGES IN SECURITIES

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

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.

                                       13
<PAGE>

4.1(1)            Specimen Certificate of Common Stock

10.1*             Agreement dated August 25, 1999, between the Company and
                  Travis W. Honeycutt

27.1*             Financial Data Schedule

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

*  Filed herewith.


(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 current  reports on Form 8-K on July 13, 1999 and July 27,
    1999, and amended such reports on September 13, 1999.

                                       14
<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has caused  this  quarterly  report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on November 15, 1999.


                                            ISOLYSER COMPANY, INC.



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


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



                                       15
<PAGE>
                                 EXHIBIT INDEX


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

10.1             Agreement dated August 25, 1999, between the Company and
                 Travis W. Honeycutt

27.1             Financial Data Schedule