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 March 31, 1997         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.)

                              650 Engineering Drive
                                 Technology Park
                             Norcross, Georgia 30092
                    (Address of principal executive offices)

                                 (770) 582-6363
              (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 May 14, 1997

Common Stock, $.001 par value                           39,242,669

433441.1

<PAGE>



                                     PART I

                              FINANCIAL INFORMATION



Item 1.        Financial Statements

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

(in thousands)
<TABLE>
<CAPTION>
Assets                                                                   March 31, 1997                  December 31, 1996
------                                                                   --------------                  -----------------
Current Assets:
<S>                                                                             <C>                                <C>    
     Cash and cash equivalents......................                          $18,147                            $20,925
     Accounts receivable, net.......................                           27,671                             27,691
     Inventories, net...............................                           64,750                             63,757
Prepaid expenses and other assets...................                            2,917                              2,629
                                                                         --------------                      -------------
     Total current assets...........................                          113,485                            115,002
                                                                         --------------                      -------------
Property, plant and equipment.......................                           89,446                             88,289
     Less accumulated depreciation..................                          (14,111)                           (12,279)
                                                                         --------------                      -------------
         Net property, plant and equipment..........                           75,335                             76,010
                                                                         --------------                      -------------
Assets held for sale................................                            1,642                              1,642
Intangibles and other assets, net...................                           57,225                             58,281
                                                                         --------------                      -------------

                                                                             $247,687                           $250,935
                                                                         ==============                      =============


</TABLE>





433441.1
                                        2

<PAGE>



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




<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity                               
------------------------------------                                

Current Liabilities:
<S>                                                                     <C>                               <C>         
    Current installments of long term debt..........                        $    4,323                        $    4,497
    Accounts payable................................                             9,336                            10,982
    Bank overdraft..................................                             1,770                             3,229
    Accrued expenses................................                             6,369                             5,975
                                                                          --------------                    --------------
         Total current liabilities..................                            21,798                            24,683
                                                                          --------------                    --------------

Long-term debt, excluding current installments......                            49,726                            47,028
Other liabilities...................................                               392                               420
                                                                          --------------                    --------------
                                                                                50,118                            47,448
                                                                          --------------                    --------------
         Total liabilities..........................                            71,916                            72,131
                                                                          --------------                    --------------
Shareholders' equity
     Common stock...................................                                39                                39
     Additional paid in-capital.....................                           203,840                           203,346
     Accumulated deficit............................                           (25,738)                          (21,825)
     Unearned shares restricted to employee
     stock ownership plan...........................                              (360)                             (360)
                                                                          --------------                    --------------
                                                                               177,781                           181,200
     Treasury shares................................                            (2,010)                           (2,397)
                                                                          --------------                    --------------
         Total shareholders' equity.................                           175,771                           178,804
                                                                          --------------                    --------------
Total liabilities and shareholders' equity..........                         $ 247,687                         $ 250,935
                                                                          ==============                    ==============

</TABLE>






See accompanying notes.




433441.1
                                        3

<PAGE>



                             ISOLYSER COMPANY, INC.
                 Condensed Consolidated Statements of Operations
                                   (unaudited)


                  (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Three months ended         Three months ended
                                                                March 31, 1997             March 31, 1996
                                                                --------------             --------------

<S>                                                                     <C>                          <C>    
Net sales..............................................                  $ 40,003                  $  40,145
Cost of goods sold.....................................                    30,846                     28,665
                                                                    -------------              -------------
         Gross profit..................................                     9,157                     11,481

Operating expenses:
     Selling & marketing...............................                     6,902                      6,305
     General & administrative..........................                     3,632                      3,107
     Research & development............................                       768                        372
     Amortization of intangibles.......................                       956                      1,041
                                                                    -------------              -------------
         Total operating expenses......................                    12,258                     10,824
                                                                    -------------              -------------
Income (loss) from operations..........................                    (3,101)                       656
Interest income........................................                       228                        641
Interest expense.......................................                    (1,020)                      (573)
Losses in joint venture................................                       (14)                       (18)
                                                                    -------------             --------------
Income (loss) before income tax expense................                    (3,906)                       705
Estimated tax expense..................................                         4                        268
                                                                    -------------             --------------
Net income (loss)......................................                  $ (3,910)                 $     437
                                                                    =============             ==============

Net income (loss) per common share.....................                  $  (0.10)                 $     .01
                                                                     ============             ==============
Weighted average number of common shares
outstanding............................................                    38,828                     38,735
                                                                    =============              =============

</TABLE>



See accompanying notes.



433441.1
                                        4

<PAGE>



                             ISOLYSER COMPANY, INC.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

(in thousands)                                                                            Three months ended   Three months ended
                                                                                            March 31, 1997       March 31, 1996

Cash flows from operating activities:
<S>                                                                                                <C>                 <C>       
     Net income (loss)..................................................................           $  (3,910)          $      437
     Net income for Microtek Medical, Inc. for December 1995............................                   0                   27
Adjustments to reconcile net income (loss) in operating activities:
     Depreciation.......................................................................               1,834                2,037
     Amortization.......................................................................                 956                1,041
     Provision for doubtful accounts....................................................                  57                    9
     Loss on disposal of property, plant and equipment..................................                   6                    0
     Changes in assets and liabilities, net of acquisitions.............................              (2,500)              (9,630)
                                                                                                  ----------            ---------
     Net cash used in operating activities..............................................              (3,557)              (6,079)
                                                                                                  ----------            ---------
Cash flows from investing activities:
     Additions to property, plant and equipment net of acquisitions.....................              (1,166)              (5,019)
     Acquisitions -- net of cash acquired...............................................                   0               (1,175)
                                                                                                  ----------           ----------
Net cash used in investing activities...................................................              (1,166)              (6,194)
                                                                                                  ----------           ----------
Cash flows from financing activities:
     Net borrowings under credit agreements.............................................               2,524                3,101
     Changes in bank overdraft..........................................................              (1,459)                  89
     Proceeds form exercised stock options..............................................                 574                  506
     Proceeds from issuance of stock....................................................                 306                  119
     Direct costs relating to issuance of common stock..................................                   0                  (14)
                                                                                                  ----------           ----------
Net cash provided from financing activities.............................................               1,945                3,800
                                                                                                  ----------           ----------
Net decrease in cash and cash equivalents...............................................              (2,778)              (8,472)
Cash and cash equivalents at beginning of period........................................              20,925               54,819
                                                                                                  ----------            ---------
Cash and cash equivalents at end of period..............................................           $  18,147            $  46,346
                                                                                                  ==========            =========
</TABLE>




See accompanying notes.

433441.1
                                        5

<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, 1996.

         (2) On August 30,  1996 the Company  acquired  Microtek  Medical,  Inc.
("Microtek")  and, in connection  therewith,  issued  7,722,965 shares of common
stock  for  all  of  Microtek's  outstanding  common  stock.  Microtek  designs,
manufactures  and sells a broad range of  surgical  and  medical  supplies.  The
merger  was  accounted  for as a pooling  of  interests  and,  accordingly,  the
Company's  financial  statements  for the three months ended March 31, 1996 have
been restated to include the results of Microtek.

         In  connection  with the merger,  Microtek  changed its fiscal year end
from November 30 to December 31 which  conforms to  Isolyser's  fiscal year end.
Microtek's  separate  results  for  fiscal  year 1996 have  been  restated  to a
December 31 year end.

         (3) At March 31,  1997,  the  Company  was not in  compliance  with the
restrictive  covenant of its credit  facility  pertaining  to net  income.  This
existing covenant violation was waived by the Company's lenders on May 13, 1997.

         (4) In February 1997, SFAS 128, "Earnings Per Share", was issued and is
effective for interim and annual periods  ending after  December 15, 1996.  This
Statement  simplifies  the standards  for  computing  earnings per share ("EPS")
previously  found in APB  Opinion  15,  "Earnings  Per  Share"  ("APB  15"),  by
replacing the  presentation of primary EPS with basic EPS. It also requires dual
presentation  of basic and diluted EPS on the face of the income  statement  for
all entities with complex capital  structures and requires a  reconciliation  of
the numerator and  denominator of the basic EPS computation to the numerator and
denominator  of the diluted EPS  computation.  Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of common
shares  outstanding for the period.  Diluted EPS is computed  similarly to fully
diluted EPS under APB 15. The  Company  intends to adopt this  Statement  in the
fourth  quarter  of 1997.  Application  of SFAS 128 to each of the  three  month
periods included herein would have no impact on the EPS calculation.

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

433441.1
                                                         6

<PAGE>



Item 2.

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

Results of Operations

The Company's  consolidated  statements of operations for the three months ended
March 31, 1996 have been restated to include the  operating  results of Microtek
which was acquired in a pooling of interests transaction on August 30, 1996.

Net sales for the three  months ended March 31, 1997 (the "1997  Quarter")  were
$40.0  million  compared to $40.1  million for the three  months ended March 31,
1996 (the "1996  Quarter).  The sales mix for the 1997 Quarter  included a 13.6%
increase in sales of procedure  trays and related  products,  a 9.6% increase in
Microtek  sales and a 15.6%  decrease  in White  Knight  sales.  Sales of safety
products  decreased  by 9.5% in the 1997 Quarter as compared to the 1996 Quarter
due to timing  differences in purchase orders. The decline in White Knight sales
may be  attributable to the  acquisition in July,  1996 of Sterile  Concepts,  a
significant  customer of White Knight, by Maxxim,  which is a product competitor
of the  Company.  While  Sterile  Concepts  remains  contractually  obligated to
purchase  from the Company a yearly  minimum of $5.1  million of products  until
June 30, 1998, such  acquisition is expected to continue to adversely affect the
Company's sales for the remainder of 1997 and future periods.  Sales by Microtek
during the first quarter were  adversely  affected by a decision made during the
fourth quarter to immediately  change the method of selling Microtek products by
switching  to direct sales  through the  Company's  sales force and  immediately
cease sales through independent representatives as part of a strategy to seek to
promote long term sales growth.

Included  in the  foregoing  sales  figures  are $2.1  million  in sales of OREX
Degradables  during the 1997 Quarter as compared to $1.6 million  during each of
the 1996 Quarter and the quarter ended  December 31, 1996.  Management  believes
that this small increase in OREX Degradable sales is attributable to having only
a small group of hospitals  converted  to using  degradable  versus  traditional
products.  Management  believes  that the rate of growth in OREX  sales has been
adversely  affected by delays in bringing  new OREX  catalog  items to market in
quantities  sufficient for commercial supply and product  performance or quality
concerns  for  certain  of  the  Company's  OREX  Degradables  products.   While
management believes that the Company's group of OREX products currently includes
substantially all non-woven  products most often used in the operating room, the
Company does not yet manufacture for commercial  sale OREX  Degradables  film or
thermoformed and extruded products such as bowls, basins and utensils.  Sales of
OREX Degradables during the 1997 Quarter did not contribute any gross profits to
the Company's  operating results.  Management believes the Company will continue
to fail to receive  profitable  margins on sales of OREX  Degradables  pending a
combination of selling OREX Degradables in greater volumes, the operation of the
Company's OREX  manufacturing  plants at higher  efficiencies and increasing the
unit  price for OREX  Degradables  to an amount  which  takes into  account  the
disposal  cost  savings  provided by such  products.  The  Company is  currently
undertaking  a thorough  review and  analysis  of the  market  position  of OREX
Degradables within

433441.1
                                        7

<PAGE>



its  various  market  potentials.  As a part of such  review and  analysis,  the
Company plans to implement appropriate adjustments to its marketing plan to seek
to improve the Company's  operating  results in connection with the 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 a number of risks  described in the  Company's  Annual Report on Form
10-K for the year ended  December  31,  1996 (the  "Annual  Report")  including,
without limitation, those described in such Annual Report under "Risk Factors --
Risks of New Products", and "-- Manufacturing and Supply Risks".

Gross profit for the 1997 Quarter was $9.1 million as compared to $11.5  million
for the 1996 Quarter, a decline of 20.2%. The decline is primarily attributed to
excess  capacity of the  Company's  OREX  manufacturing  facilities.  During the
latter  portions of 1996,  the Company  reduced  production at its Abbeville and
Arden manufacturing plants to more closely align production with product demand.
During the 1997  Quarter,  the Company  sold product  from  existing  inventory,
further  negatively  affecting  margin.  Pending  increased  utilization  of the
Company's   existing   manufacturing   capacity  at  its   Abbeville  and  Arden
manufacturing  plants and  adjusting  pricing of OREX  Degradables  to take into
account  disposal cost savings over  traditional  products,  the overhead of the
Company  incurred  through  its  Abbeville  and Arden  plants  will  continue to
negatively impact profit margins.  In addition to the effect of OREX Degradables
on gross  margins,  the decline in White Knight sales created  excess  capacity,
adversely affecting gross margin.

Selling and marketing expenses were $6.9 million or 17.2 percent of net sales in
the 1997  Quarter  as  compared  to $6.3  million  or 15.7  percent  in the 1996
Quarter.  The  increase in sales and  marketing  expenses was  primarily  due to
increased  distribution costs related to the movement of the Company's drape and
gown operation  located in Acuna to Apson,  Mexico,  and increased  salaries and
benefits.

General  and  administrative  expenses  were $3.6  million or 9.2 percent of net
sales in the 1997  Quarter as  compared  to $3.1  million or 7.7  percent of net
sales in the 1996 Quarter.  The increase in general and administrative  expenses
was primarily due to increased  consulting fees, audit fees and costs related to
the Company's corporate office.

Research and  development  expenses were $558,000 or 1.4 percent of net sales in
the 1997 Quarter as compared to $297,000 or 0.7 percent of net sales in the 1996
Quarter.  This  increase  in research  and  development  expense  was  primarily
attributed to the Company's development of fiber and compounding technology.

Amortization  of intangibles was $956,000 during the 1997 Quarter as compared to
$1.0 million during the 1996 Quarter.



433441.1
                                        8

<PAGE>




Interest  income was $228,000 in the 1997 Quarter as compared to $641,000 in the
1996  Quarter.  The  decrease in interest  income is primarily  attributed  to a
reduction of the Company's cash position as a result of the  acquisition of OREX
Degradable inventory and manufacturing capabilities during 1996.

Interest  expense was $1.0  million in the 1997  Quarter as compared to $573,000
during  the  1996  Quarter.  The  increase  in  interest  expense  is  primarily
attributed  to the  Company's  acquisition  of  OREX  Degradable  inventory  and
manufacturing capabilities during 1996.

Provisions  for income  taxes  reflect an expense for the 1997 Quarter of $4,000
compared to a tax expense of $268,000 for the 1996  Quarter.  The  effective tax
rate in the 1997 Quarter  differs from the  statutory  rate due primarily to the
amortization  of a portion of goodwill which is not deductible for tax purposes.
At March 31, 1997,  the Company had a net operating loss of $11.5 million which,
if not utilized, expires through 2012.

The  resulting  net loss was $3.9 million in the 1997 Quarter as compared to net
income of $437,000 in the 1996 Quarter.

Liquidity and Capital Resources

At March 31, 1997 the Company's cash and cash equivalents  totaled $18.1 million
as compared to $20.9 million at December 31, 1996.

During the 1997  Quarter,  the Company  used $3.6  million of cash in  operating
activities  as compared  to $6.1  million in the 1996  Quarter.  The use of cash
during the 1997  Quarter  is  attributable  to a  combination  of the  Company's
operating  loss, an increase in inventory  and a reduction in accounts  payable.
The Company used $1.2 million in investing activities during the 1997 Quarter as
compared to $6.2  million  during the 1996  Quarter.  The use of cash during the
1997  Quarter  was  primarily   attributable   to  several   computer   software
implementations in progress.

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.  Current  additional  borrowing
availability  under  the  revolving  credit  facility  at  March  31,  1997  was
approximately  $5.1 million.  Outstanding  borrowings under the revolving credit
facility  were  approximately  $32.0  million  at March  31,  1997.  Outstanding
borrowings  under the term loan  facility  were $14.0 million at March 31, 1997.
The Credit Agreement provides for the issuance of up to $3 million in letters of
credit.  Outstanding  letters of credit were $50,000 at March 31, 1997. At March
31,  1997,  the  Company  was not in  compliance  with the net  income  covenant
contained in the Credit Agreement. This covenant violation was waived on May 13,
1997. No assurances 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

433441.1
                                                         9

<PAGE>



to have a  material  adverse  effect  upon  the  Company.  At  March  31,  1997,
outstanding  indebtedness under the Credit Agreement exceeded the Company's cash
and cash equivalents.

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 will be adequate to
meet its liquidity and capital  requirements  through 1997. Currently unforeseen
future  developments  and increased  working  capital  requirements  may require
additional  debt  financing or issuances of common stock in 1997 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.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

433441.1
                                       10

<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.  Defaults Upon Senior Securities

         At  March  31,  1997,  the  Company  was  not in  compliance  with  the
restrictive  covenant of its credit  facility  pertaining  to net  income.  This
existing covenant violation was waived by the Company's lenders on May 13, 1997.

Item 4.  Submission of Matters to a Vote of Securityholders

         None.

Item 5.  Other Information

         None.

433441.1
                                                         11

<PAGE>



Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits:
<TABLE>
<CAPTION>

         Exhibit No.                        Description

<S>      <C>                                                                                   
         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

------------------
<FN>


         (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.

</FN>
</TABLE>




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




433441.1
                                                         12

<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 May 15, 1997.


                                            ISOLYSER COMPANY, INC.



                                            By:    /s/ Gene R. McGrevin
                                                   Gene R. McGrevin
                                                   President
                                                   (principal executive officer)


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







433441.1