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, 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.)

                              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 12, 1998
-----                                             ---------------------------
Common Stock, $.001 par value                             39,958,300


547812.2

<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                 ASSETS                               MARCH 31, 1998        DECEMBER 31, 1997
                                 ------                              ---------------------------------------- 
<S>                                                                    <C>                  <C>               
Current Assets
        Cash and cash equivalents                                      $    9,813           $    9,299
        Accounts receivable, net                                           15,430               13,909
        Inventories                                                        30,091               32,067
        Prepaid expenses and other assets                                   1,588                1,745
        Assets held for sale                                               35,081               35,751
                                                                        ---------            --------- 
                 Total Current Assets                                      92,003               92,771
                                                                        ---------            ---------
Property, plant and equipment                                              39,115               37,622
        Less accumulated depreciation                                    (18,260)             (17,630)
                                                                        ---------            ---------
                 Property, plant, and equipment, net                       20,855               19,992
Intangibles and other assets, net                                          31,124               31,571
                                                                        ---------            ---------
                                                                       $  143,982           $  144,334
                                                                        =========            =========
                  LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
        Current installments of long term debt                         $    3,647           $    4,610
        Accounts payable                                                    7,793               10,108
        Bank overdraft                                                        483                    -
        Accrued expenses                                                    4,861                5,644
                                                                        ---------            ---------
                 Total current liabilities                                 16,784               20,362
                                                                        ---------            ---------
Long term debt, excluding current installments                             41,705               37,546
        Other liabilities                                                     286                  309
                                                                        ---------            ---------
                 Total liabilities                                         58,775               58,217
                                                                        ---------            ---------
Shareholders' equity
        Common stock                                                           39                   39
        Additional paid in capital                                        203,017              203,601
        Retained earnings                                               (117,031)            (115,743)
        Cumulative translation adjustment                                   (102)                (103)
        Unearned shares restricted to employee stock ownership plan         (300)                (300)
                                                                        ---------            ---------
                                                                           85,623               87,494
Treasury shares                                                             (416)              (1,377)
                                                                        ---------            ---------
        Total shareholders' equity                                         85,207               86,117
                                                                        ---------            ---------
                                                                       $  143,982           $  144,334
                                                                        =========            =========

See accompanying notes.
</TABLE>

547812.2
                                       -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
                                                                  MARCH 31, 1998         MARCH 31, 1997
                                                                ------------------------------------------
<S>                                                             <C>                      <C>
Net sales                                                       $   41,230               $   40,003
Costs of goods sold                                                 30,588                   30,846
                                                                ----------                ---------
          Gross profit                                              10,642                    9,157
Operating expenses:
          Selling & marketing                                        6,122                    6,902
          General & administrative                                   3,668                    3,632
          Research & development                                       681                      768
          Amortization of intangibles                                  527                      956
                                                                ----------                 --------   
                   Total operating expenses                         10,998                   12,258
                                                                ----------                 ---------
Loss from operations                                                 (356)                  (3,101)
Interest income                                                         92                      228
Interest expense                                                     (950)                  (1,020)
Gain (loss) in joint venture                                             3                     (13)
                                                                ----------                 ---------
Loss before income tax expense                                     (1,211)                  (3,906)
Income tax expense                                                      76                        4
                                                                ----------                 ---------
Net loss                                                        $  (1,287)                $ (3,910)
                                                                ----------                 ---------
Net loss per common share - Basic and Diluted                   $   (0.03)                $  (0.10)
                                                                ==========                 =========
Weighted average number of common shares outstanding                39,512                   38,828
                                                                ==========                 =========

See accompanying notes.
</TABLE>


547812.2
                                       -3-

<PAGE>



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

                                                                 THREE MONTHS ENDED    THREE MONTHS ENDED
                                                                   MARCH 31, 1998        MARCH 31, 1997
                                                                 ----------------------------------------
<S>                                                              <C>                     <C>
Cash flows from operating activities:
          Net loss                                                $ (1,287)              $  (3,910)
Adjustments to reconcile net loss to net cash used in operating
activities:
          Depreciation                                                  965                   1,834
          Amortization                                                  527                     956
          Provision for doubtful accounts                                66                      57
          Loss on disposal of property, plant & equipment                10                       6
          Changes in assets and liabilities                         (1,956)                 (2,500)
                                                                   --------               ---------
NET CASH USED IN OPERATING ACTIVITIES:                              (1,675)                 (3,557)
                                                                   --------               ---------
Cash flows from investing activities
          Additions to property, plant and equipment                (1,651)                 (1,166)
                                                                   --------               ---------
NET CASH USED IN INVESTING ACTIVITIES:                              (1,651)                 (1,166)
                                                                   --------               ---------
Cash flows from financing activities:
          Net borrowings under credit agreements                      3,270                   2,524
          Changes in bank overdraft                                     194                 (1,459)
          Proceeds from exercised stock options                           -                     574
          Proceeds from issuance of stock                               255                     306
          Issuance of stock to 401(k) Plan                              121                       -
                                                                   --------               ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES:                            3,840                   1,945
                                                                   --------               ---------
Net increase (decrease) in cash and cash equivalents                    514                 (2,778)
Cash and cash equivalents at beginning of period                      9,299                  20,925
                                                                   --------               ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                        $   9,813              $   18,147
                                                                   ========               =========

See accompanying notes.
</TABLE>

547812.2
                                       -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 for the year ended  December  31, 1997 (the  "Annual
Report").

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

                                            MARCH 31, 1998     DECEMBER 31, 1997
                                            --------------     -----------------
  
Raw materials and supplies                  $  23,543,000        $  24,121,000
Work in process                                 3,950,000            4,456,000
Finished goods                                 24,681,000           25,901,000
                                             ------------         ------------
         Total                                 52,174,000           54,478,000

Reserve for excess, slow moving and 
obsolete inventory                           (22,083,000)         (22,411,000)
                                             ------------         ------------
         Total                              $  30,091,000        $  32,067,000
                                             ============         ============

         At March 31,  1998 and  December  31,  1997 the net OREX  inventory  is
approximately $6,326,000 and $7,500,000 respectively.

3) On February  25,  1998,  the  Company  approved a plan to dispose of its OREX
manufacturing  facilities  and White  Knight  subsidiary.  Accordingly,  the net
assets of these  entities at March 31, 1998 and December 31, 1997 are classified
as held  for  sale in the  accompanying  consolidated  balance  sheets,  and are
comprised of the following:

                                           MARCH 31, 1998    DECEMBER 31, 1997
                                           --------------    -----------------
Assets:
     Accounts receivable                   $ 9,348,000           $ 8,848,000
     Inventory                              11,942,000            13,085,000
     Prepaid expense and other assets        1,067,000               186,000
     Property and equipment, net            19,794,000            19,980,000
     Other assets                              280,000               286,000
                                            ----------            ----------
              Total assets                 $42,431,000           $42,385,000
                                            ----------            ----------



547812.2
                                       -5-

<PAGE>




                                           MARCH 31, 1998    DECEMBER 31, 1997
                                           --------------    -----------------
Liabilities:
         Accounts payable                    $  3,317,000      $  2,247,000
         Bank overdraft                           219,000           508,000
         Accrued liability                      1,905,000         2,044,000
         Long-term debt                         1,909,000         1,836,000
                                              -----------        ----------

                  Total liabilities             7,350,000         6,635,000
                                              -----------        ----------    

                  Net assets held for sale   $ 35,081,000      $ 35,750,000
                                              ===========        ==========



The Company anticipates disposing of these entities in 1998.

The following represents the results of operations of the above noted assets and
White Knight for the quarters ended March 31, 1998 and December 31, 1997:

                                               QUARTER ENDED     QUARTER ENDED
                                               MARCH 31, 1998  DECEMBER 31, 1997
                                               --------------  -----------------
Net sales                                    $   11,592,474      $  13,357,000
Net loss                                        (1,850,927)        (1,882,000)
Net loss per share - basic and diluted               (0.05)             (0.05)
                                               ------------       ------------



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". Effective January 1, 1998, the Company adopted
SFAS 130.  Management  believes the pronouncement does not significantly  impact
the presentation of the Company's consolidated financial statements.

ITEM 2.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

Net sales for the three months ended March 31, 1998 ( the "1998  Quarter")  were
$41.2  million  compared to $40.0  million for the three  months ended March 31,
1997 ( the "1997 Quarter"). Sales of custom procedure trays and related products
increased  22.0% in the 1998  Quarter  as  compared  to the 1997  Quarter.  This
increase is primarily attributable to the relief of backlog

547812.2
                                       -6-

<PAGE>



created by the reduction of production  during the Company's  implementation  of
and conversion to an upgraded  manufacturing system during the fourth quarter of
1997, and new business.  Sales of Microtek  products  increased 2.8% in the 1998
Quarter as compared to the 1997  Quarter,  primarily  attributable  to increased
market  penetration at the hospital  level.  Sales of safety  products  declined
18.5% in the 1998 Quarter as compared to the 1997 Quarter,  due to a substantial
reduction in purchases of LTS products by Allegiance, the primary distributor of
such products,  and recent adverse  regulatory  developments.  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. 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 sales
declined  14.2% in the 1998  Quarter as compared to the 1997  Quarter,  due to 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.  Sterile  Concepts,  a  significant
customer of White Knight, was acquired by Maxxim,  which is a product competitor
of the Company, in 1996. While Sterile Concepts remains contractually  obligated
to purchase a yearly  minimum of $5.1  million of products  until June 30, 1998,
the Company  expects that Sterile  Concepts will no longer purchase White Knight
products.  The Company is negotiating with Maxxim for a new supply agreement for
the sale of other  products  of the  Company in  settlement  of the  outstanding
obligations of Sterile  Concepts to White Knight.  No assurances can be provided
that the Company will be able to complete any such settlement  negotiations.  In
February 1998, the Company announced plans to sell its White Knight  subsidiary,
which, if consummated,  would significantly  reduce the Company's net sales. See
"Risk Factors - Risks of Planned Divestitures" in the Company's Annual Report.

Included  in the  foregoing  sales  figures  are $1.8  million  in sales of OREX
Degradables  during the 1998  Quarter as  compared  to $2.1  million in the 1997
Quarter.  Sales of OREX  Degradables  in the 1998 Quarter did not contribute any
gross  profits to the  Company's  operating  results.  During 1997,  the Company
substantially  reduced its selling and  marketing  efforts to increase  sales of
OREX  Degradables  and  instead  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.  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  objective is subject to risks
including  the risks  described  in the  Company's  Annual  Report  under  "Risk
Factors."

Gross  profit in the 1998  Quarter was $10.6  million,  or 25.8% of net sales as
compared to $9.2 million in the 1997 Quarter,  or 22.9% of net sales.  The 16.2%
improvement in gross profit is  attributable  to increased  gross profits at the
Company's  custom  procedure  tray and Microtek  divisions  on increased  sales,
commencing  utilization  of  manufacturing  capacity at the Company's  Abbeville
manufacturing  plant for the production of traditional  products on a short-term
basis,

547812.2
                                       -7-

<PAGE>



and reduced  depreciation expense due to impairment reserves recorded during the
fourth quarter of 1997.

Selling,  general and administrative  expenses were $9.8 million or 23.7% of net
sales in the 1998 Quarter as compared to $10.5  million or 26.3% of net sales in
the 1997 Quarter. The reduction in selling,  general and administrative  expense
is primarily  attributed to implementation of the Company's  operating plan that
focused on  reorganizing  marketing and sales  efforts to achieve  reductions in
selling and marketing expenses.

Research and  development  expenses were $681,000 in the 1998 Quarter or 1.7% of
net sales as compared to $768,000 in the 1997 Quarter or 1.9% of net sales.  The
decline in research and development expense is primarily attributed to a decline
in expenses incurred in the development of fiber technology.

Amortization  of  intangibles  was  $527,000 in the 1998  Quarter as compared to
$956,000 in the 1997  Quarter.  The decline in  amortization  expense was due to
charges  recorded  during the fourth quarter of 1997 for the impairment of White
Knight's carrying value.

The resulting loss from  operations was $356,000 in the 1998 Quarter as compared
to a $3.1 million loss from operations in the 1997 Quarter.

Interest  expense,  net of interest income,  was $858,000 in the 1998 Quarter as
compared to $792,000 in the 1997  Quarter.  The increase in interest  expense is
attributed to increases in the Company's  borrowing  interest rate combined with
lower  interest  income  as a result  of lower  cash  balances  during  the 1998
Quarter,  offset by reduced interest  expense as a result of reduced  borrowings
during 1997.

Provision  for income taxes reflect an expense of $76,000 in the 1998 Quarter as
compared to an expense of $4,000 in the 1997 Quarter.

The  resulting  net loss was $1.3  million for the 1998 Quarter as compared to a
net loss of $3.9 million for the 1997 Quarter.


LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998,  the Company's cash and  equivalents  totaled $9.8 million as
compared to $9.3 million at December 31, 1997.

During the 1998  Quarter,  the Company  used $1.7  million of cash in  operating
activities  as compared to a cash use of $3.6 million in the 1997  Quarter.  The
use of  cash  in the  1998  Quarter  is  attributable  to a  combination  of the
Company's  operating  loss,  increases in accounts  receivable as a result of an
incremental increase in sales of $5.6 million in the 1998 Quarter as compared to
the fourth quarter of 1997 and a decrease in accounts payable as a result of the
fourth quarter

547812.2
                                       -8-

<PAGE>



1997 build-up of inventory at the Company's  custom  procedure tray division due
to systems  conversion.  The Company used $1.7  million in investing  activities
during  the 1998  Quarter  as  compared  to $1.2  million  used  during the 1997
Quarter. This use of cash during the 1998 Quarter was primarily  attributable to
several computer software implementations in progress.  During the 1998 Quarter,
the  Company  generated  approximately  $3.8  million  in  cash  from  financing
activities,  primarily  through  increasing  indebtedness  under  the  Company's
revolving  line of credit,  compared to cash  provided by  financing  activities
approximating $1.9 million in the 1997 Quarter.

As more fully described in the Company's Annual Report on Form 10-K, 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,  1998  was
approximately  $4.2 million.  Outstanding  borrowings under the revolving credit
facility  were  approximately  $28.6  million  at March  31,  1998.  Outstanding
borrowings  under the term loan  facility  were $11.8 million at March 31, 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 March 31, 1998. In March
1998,  the Bank and the Company  amended the Credit  Agreement to revise certain
covenants.  While the Company does not currently anticipate that it will violate
the  covenants  of the Credit  Agreement  in the future,  no  assurances  can be
provided that these or other violations of covenants  contained in the Company's
Credit Agreement will not occur in the future or that, if such violations occur,
that the Bank will not elect to pursue its remedies under the Credit  Agreement.
Any unwaived default by the Company under the Credit Agreement would be expected
to have a  material  adverse  effect  upon  the  Company.  At  March  31,  1998,
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 1998. Currently unforeseen
future  developments  and increased  working  capital  requirements  may require
additional  debt  financing or issuance of common  stock in 1998 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 under "Risk Factors - Limited
Operating History; Net Losses", "-Risks of New Products",  "Risks of Expansion",
"-Manufacturing & Supply Risks" and "Liquidity Risks".

547812.2
                                       -9-

<PAGE>




ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.




547812.2
                                      -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

None.

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.


547812.2
                                      -11-

<PAGE>



3.5(4)              Second  Amendment to Amended and Restated Bylaws of Isolyser
                    Company, Inc.

4.1(1)              Specimen Certificate of Common Stock

10.1                Employment  Agreement  dated as of January 1, 1998,  between
                    the Company and Terence N. Furness

10.2                Employment  Agreement dated as of February 1, 1998,  between
                    the Company and Migirdic Nalbantyan

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



547812.2
                                      -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 13, 1998.


                                    ISOLYSER COMPANY, INC.



                                          By:/s/ Terence N. Furness
                                             ---------------------------------
                                              Terence N. Furness
                                              President & CEO
                                              (principal executive officer)


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






547812.2
                                      -13-