SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For Quarter Ended  June 30, 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 August 14, 1997

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

462968.1

<PAGE>



                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements

                             ISOLYSER COMPANY, INC.
                      Condensed Consolidated Balance Sheets
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                           June 30, 1997         December 31, 1996
                                                                                       ------------------    -----------------------
                                     Assets
Current assets
<S>                                                                                   <C>                   <C>                   
    Cash and cash equivalents                                                         $          10,275     $               20,925
    Accounts receivable-net                                                                      26,771                     27,691
    Inventories                                                                                  61,723                     62,824
    Prepaid expenses and other assets                                                             4,023                      3,562
                                                                                       ------------------    -----------------------
         Total Current Assets                                                                   102,792                    115,002
                                                                                       ------------------    -----------------------

Property, plant and equipment                                                                    91,920                     88,289
    Less accumulated depreciation                                                              (16,695)                   (12,279)
                                                                                       ------------------    -----------------------
         Net property, plant, and equipment                                                      75,225                     76,010
                                                                                       ------------------    -----------------------

Assets held for sale                                                                              1,655                      1,642
Intangibles and other assets, net                                                                56,560                     58,281
                                                                                       ------------------    -----------------------
                                                                                      $         236,232     $              250,935
                                                                                       ------------------    -----------------------
                      Liabilities and Shareholders' Equity
Current liabilities
    Current installments of long term debt                                            $           3,534     $                4,497
    Accounts payable                                                                              8,855                     10,982
    Bank overdraft                                                                                  849                      3,229
    Accrued expenses                                                                              6,786                      5,975
                                                                                       ------------------    -----------------------
         Total current liabilities                                                               20,024                     24,683
                                                                                       ------------------    -----------------------

Long term debt, excluding current installments                                                   43,409                     47,028
    Other liabilities                                                                               365                        420
                                                                                       ------------------    -----------------------
         Total liabilities                                                                       63,798                     72,131
                                                                                       ------------------    -----------------------

Shareholders' equity
    Common stock                                                                                     39                         39
    Additional paid in capital                                                                  203,763                    203,346
    Retained earnings                                                                          (29,315)                   (21,840)
    Cumulative translation adjustment                                                               107                         15
    Unearned shares restricted to employee stock ownership plan                                   (360)                      (360)
                                                                                       ------------------    -----------------------
                                                                                                174,234                    181,200
Treasury shares                                                                                  (1,800)                    (2,396)
                                                                                       ------------------    -----------------------
    Total shareholders' equity                                                                  172,434                    178,804
                                                                                       ------------------    -----------------------
                                                                                      $         236,232     $              250,935
                                                                                       ==================    =======================
</TABLE>
See accompanying notes.


462968.1
                                        2

<PAGE>



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

                                                       Three months        Three months         Six months           Six months
                                                           ended              ended               ended                 ended
                                                       June 30, 1997      June 30, 1996       June 30, 1997         June 30, 1996
                                                     -----------------  ------------------ --------------------   -----------------
<S>                                                 <C>                 <C>                <C>                    <C>           
Net sales                                           $       42,434      $        40,879    $         82,437       $       81,026
Cost of goods sold                                          32,962               28,184              63,808               56,849
                                                     -----------------  ------------------ --------------------   -----------------
    Gross profit                                             9,472               12,695              18,629               24,177

Operating expenses:
    Selling & marketing                                      6,680                6,764              13,581               13,069
    General & administrative                                 3,864                3,281               7,497                6,387
    Research & development                                     619                  582               1,387                  954
    Amortization of intangibles                                961                1,072               1,917                2,113
    Merger costs                                                 -                  109                   -                  109
                                                     -----------------  ------------------ --------------------   -----------------
         Total operating expenses                           12,124               11,808              24,382               22,632
                                                     -----------------  ------------------ --------------------   -----------------
Income (loss) from operations                              (2,652)                  887             (5,753)                1,545
Interest income                                                111                  490                 340                1,130
Interest expense                                           (1,012)                (637)             (2,031)              (1,210)
Losses in joint venture                                        (6)                 (23)                (20)                 (41)
                                                     -----------------  ------------------ --------------------   -----------------
Income (loss) before income tax expense                    (3,559)                  717             (7,464)                1,424
Estimated tax expense                                            7                  449                  11                  718
                                                     -----------------  ------------------ --------------------   -----------------
Net income (loss)                                   $      (3,566)      $           268    $        (7,475)       $          706
                                                     =================  ================== ====================   =================

Net income (loss) per common share                  $          (0.09)   $            0.01  $            (0.19)    $           0.02
                                                     -----------------  ------------------ --------------------   -----------------
Weighted average number of common
    shares outstanding                                      39,252               39,089              39,214               38,912
                                                     =================  ================== ====================   =================

</TABLE>

See accompanying notes.

462968.1
                                        3

<PAGE>



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

                                                                                      Six months ended          Six months ended
                                                                                       June 30, 1997              June 30, 1996
                                                                                    --------------------      ----------------------

Cash flows from operating activities:
<S>                                                                                <C>                       <C>                  
    Net income (loss)                                                              $           (7,475)       $                 706
    Net income for Microtek Medical, Inc. for December 1995                                       ----                          27

Adjustments to reconcile net income (loss) in operating activities:
    Depreciation                                                                                 3,650                       3,635
    Amortization                                                                                 1,917                       2,114
    Provision for doubtful accounts                                                                173                          18
    Loss on disposal of property, plant & equipment                                               (27)                        ----
    Changes in assets and liabilities, net of acquisitions                                        (87)                    (19,074)
                                                                                    --------------------      ----------------------
Net cash used in operating activities:                                                         (1,849)                    (12,574)
                                                                                    --------------------      ----------------------

Cash flows from investing activities
    Additions to property, plant and equipment net of acquisitions                             (2,852)                    (11,728)
    Acquisitions, net of cash acquired                                                            ----                     (5,874)
                                                                                    --------------------      ----------------------
Net cash used in investing activities:                                                         (2,852)                    (17,602)
                                                                                    --------------------      ----------------------

Cash flows from financing activities:
    Net borrowings under credit agreements                                                     (4,582)                       8,074
    Changes in bank overdraft                                                                  (2,380)                       (155)
    Proceeds from exercised stock options                                                          574                       1,695
    Proceeds from issuance of stock                                                                306                         119
    Direct costs relating to issuance of common stock                                              133                        (20)
                                                                                    --------------------      ----------------------
Net cash provided from financing activities:                                                   (5,949)                       9,713
                                                                                    --------------------      ----------------------
Net increase (decrease) in cash and cash equivalents                                          (10,650)                    (20,463)
Cash and cash equivalents at beginning of period                                                20,925                      54,819
                                                                                    --------------------      ----------------------
Cash and cash equivalents at end of period                                         $            10,275       $              34,356
                                                                                    ====================      ======================

</TABLE>

See accompanying notes.


462968.1
                                        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, 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 quarter and six months  ended June 30,
1996 have been restated to include the results of Microtek.

         (3) 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.

         (4)      Inventories are stated at the lower of cost or market and are
summarized as follows:
<TABLE>
<CAPTION>

                                                                      June 30, 1997               December 31, 1996
                                                                -------------------------    ---------------------------

<S>                                                            <C>                          <C>                        
Raw materials and supplies                                     $              26,842,000    $                20,936,000
Work in process                                                                7,570,000                     23,267,000
Finished goods                                                                36,695,000                     29,346,000
                                                                -------------------------    ---------------------------
         Total                                                                71,107,000                     73,549,000
                                                                -------------------------    ---------------------------
Slow moving and obsolete inventory                                            (9,532,000)                   (10,041,000)
Reserve for LIFO inventory                                                       148,000                       (684,000)
                                                                -------------------------    ---------------------------
         Total                                                 $              61,723,000    $                62,824,000
                                                                =========================    ===========================
</TABLE>

The first-in  first-out  ("FIFO") valuation method is used to determine the cost
of inventories  except for inventories held by the Company's  subsidiary,  White
Knight  Healthcare,  Inc.  ("White  Knight").  White  Knight  uses  the  last-in
first-out ("LIFO") inventory valuation method. At June 30, 1997 and December 31,
1996, LIFO inventories approximated $26,896,000 and $28,324,000, respectively.

462968.1
                                        5

<PAGE>




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

         (6) At June  30,  1996,  the  Company  was not in  compliance  with the
restrictive  covenants of its credit  facility  pertaining to net income and net
worth. This existing  covenant  violation was waived by the Company's lenders on
August 12, 1997.

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

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 and six months
ended June 30,  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 June 30, 1997 (the "1997  Quarter")  were
$42.4 million compared to $40.9 million for the three months ended June 30, 1996
(the "1996  Quarter"),  an increase of 3.7%.  Net sales for the six months ended
June 30, 1997 (the "1997  Period") were $82.4 million  compared to $81.0 million
for the six months ended June 30, 1996 (the "1996 Period"), an increase of 1.7%.
The  increase  in net  sales  in the  1997  Quarter  and  1997  Period  over the
corresponding  periods of 1996 reflects the 20.5% and 17.2% increase in sales of
procedure trays and related products, respectively, the 14.2% and 12.0% increase
in sales of  Microtek  products,  respectively,  the 26.5% and 5.2%  increase in
sales of safety products,  respectively,  offset by a 26.2% and 24.3% decline in
sales of White Knight products.  The Company believes that these increased sales
for  procedure  trays and Microtek  products  are  primarily  attributable  to a
combination of new business  development and increased product usage by existing
customers,  while the  increased  sales of safety  products is primarily  due to
timing of distributor  orders.  Management  anticipates  that sales of procedure
trays and related  products will be adversely  affected during the third quarter
by the Company's  implementation of and conversion to an upgraded  manufacturing
system at the Company's  MedSurg  division during the third quarter of 1997. 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.  For the twelve months ended June 30, 1997, Sterile Concepts had
purchased  substantially  less than its yearly minimum purchase  requirement for
such twelve months.


462968.1
                                        6

<PAGE>



As the Company  previously  reported  in its Annual  Report on Form 10-K for the
year ended December 31, 1996 (the "Annual  Report"),  the State of California is
reviewing  the   regulatory   restrictions   currently  in  effect  on  customer
landfilling  of LTS-treated  waste in California.  The Company was recently made
aware that other states, including Florida and Georgia, are reviewing regulatory
restrictions  applicable to customer  landfilling of LTS-treated  waste in those
states,  possibly  as a result of certain  efforts of a product  competitor.  To
date, these regulatory review processes have had no discernable  impact on sales
of safety products.  In the event such processes result in further  restrictions
on the landfilling of such waste, such  restrictions  could adversely affect the
Company's  sales of LTS.  Gross margins on sales of LTS for the 1997 Quarter and
Period were in excess of 10% of corporate gross margin for such periods.

Included  in the  foregoing  sales  figures  are $2.5  million  in sales of OREX
Degradables  during the 1997 Quarter and $4.7 million  during the 1997 Period as
compared to $2.4 million and $4.0  million  during the  corresponding  period of
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  product.  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
Degradable products.  While management believes that the Company's group of OREX
Products currently include  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  and
Period 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 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 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 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 and 1997  Period was $9.5  million and $18.6
million, respectively,  compared to $12.7 million and $24.2 million for the 1996
Quarter and 1996 Period,  respectively.  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

462968.1
                                        7

<PAGE>



product  demand.  During the 1997  Quarter and 1997  Period,  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.  There can be no
assurances  that  the  Company  will  be  able to  increase  utilization  of the
Company's  manufacturing  capacity  at its  Abbeville  and  Arden  manufacturing
plants.  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 $6.7 million or 15.8% of net sales in the
1997 Quarter compared to $6.8 million or 16.6% of net sales in the 1996 Quarter.
Selling and  marketing  expenses were $13.6 million or 16.5% of net sales in the
1997 Period  compared to $13.1 million or 16.2% of net sales in the 1996 Period.
The  decrease  during the 1997  Quarter is a result of  decreased  salaries  and
benefits  associated with reducing the Company's sales and marketing  personnel,
and reduced  distribution  costs.  Included in selling  and  marketing  expenses
during the 1997  Quarter was  $392,000 in severance  costs  associated  with the
reduction of the Company's sales and marketing personnel.

General and  administrative  expenses  were $3.9 million or 9.1% of net sales in
the 1997  Quarter  compared  to $3.3  million  or 8.0% of net  sales in the 1996
Quarter.  General and  administrative  expenses were $7.5 million or 9.1% of net
sales in the 1997 Period  compared  to $6.4  million or 7.9% of net sales in the
1996 Period. The increase in general and  administrative  expenses was primarily
attributed to costs related to several software and hardware installations,  and
costs related to the Company's corporate office.

Research and development expenses were $619,000 or 1.5% of net sales in the 1997
Quarter compared to $582,000 or 1.4% of net sales in the 1996 Quarter.  Research
and  development  expenses  were $1.4  million  or 1.7% of net sales in the 1997
Period  compared  to  $954,000  or 1.2% of net  sales  in the 1996  Period.  The
increase in research and  development  expense was  primarily  attributed to the
Company's development of fiber and compounding technology.

Amortization  of  intangibles in the 1997 Quarter and 1996 Quarter were $961,000
and $1.1 million,  respectively.  Amortization of intangibles in the 1997 Period
and 1996 Period were $1.9 million and $2.1 million, respectively.

The resulting loss from  operations  during the 1997 Quarter was $2.7 million as
compared to income from  operations of $887,000  during the 1996  Quarter.  Loss
from  operations was $5.8 million for the 1997 Period as compared to income from
operations of $1.5 million during the 1996 Period.



462968.1
                                        8

<PAGE>



Interest  income was  $111,000 in the 1997  Quarter  compared to $490,000 in the
1996  Quarter,  and $340,000 in the 1997 Period  compared to $1.1 million in the
1996  Period.  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  compared to $637,000 in
the 1996 Quarter,  and $2.0 million in the 1997 Period  compared to $1.2 million
in the 1996 Period. The increase in interest expense is primarily  attributed to
the  Company's  acquisition  of  OREX  Degradable  inventory  and  manufacturing
capabilities during 1996.

Provision  for income  taxes  reflect an expense for the 1997  Quarter of $7,000
compared to a tax expense of $449,000 for the 1996  Quarter.  The  provision for
income  taxes  reflects an expense for the 1997 Period of $11,000 as compared to
an expense of $717,000 for the 1996 Period.

The  resulting  net loss was $3.6 million for the 1997  Quarter  compared to net
income of $268,000 for the 1996  Quarter.  The net loss was $7.5 million for the
1997 Period as compared to net income of $706,000 for the 1996 Period.

Liquidity and Capital Resources

At June 30, 1997,  the Company's cash and  equivalents  totaled $10.3 million as
compared to $20.9 million at December 31, 1996.

During the 1997  Period,  the  Company  used $1.8  million of cash in  operating
activities  as compared to $12.6  million in the 1996  Period.  This use of cash
during  the 1997  Period  is  attributable  to a  combination  of the  Company's
operating  loss and a reduction  in  accounts  payable.  The  Company  used $2.9
million in  investing  activities  during the 1997  Period as  compared to $17.6
million  during the 1997  Period.  This use of cash during the 1997  Quarter was
primarily  attributable to several computer software  implementations  that will
continue into 1998.

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  June  30,  1997  was
approximately $11.9 million.  Outstanding  borrowings under the revolving credit
facility  were  approximately  $25.9  million  at  June  30,  1997.  Outstanding
borrowings under the term loan facility were $13.5 million at June 30, 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 June 30, 1997. At June 30,
1997,  the  Company  was not in  compliance  with the net  income  and net worth
covenants contained in the Credit Agreement. This violation was waived on August
12, 1997. In connection  with the waiver of such  violation,  certain  financial
covenants were modified and, if  availability of additional  borrowing  capacity
under the revolving credit facility falls below $10

462968.1
                                        9

<PAGE>



million for 30 consecutive days, then the otherwise  applicable rate of interest
under the Credit Agreement increases by .25%. 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 to have a material  adverse  effect  upon the  Company.  At June 30,
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.

462968.1
                                       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 have been 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 have been  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  June  30,  1997,  the  Company  was  not  in  compliance  with  the
restrictive  covenants of its credit  facility  pertaining to net income and net
worth. This existing violation was waived by the Company's lenders on August 12,
1997.

Item 4.  Submission of Matters to a Vote of Securityholders

         During the period  covered by this report,  the Company  filed with the
Securities and Exchange (the "Commission") and delivered to its shareholders the
Company's  Proxy  Statement for Annual Meeting of Shareholder  held May 29, 1997
(the "Proxy Statement").

          (a) The Company's  Annual Meeting of Shareholders  was held on May 29,
1997.

          (b) The Board of  Directors of the Company as  previously  reported to
the Commission was re-elected in its entirety.

          (c) With respect to each matter (as more fully  described in the Proxy
Statement)  voted upon at the meeting,  the inspector of election  tabulated the
following votes:





462968.1
                                       11

<PAGE>




                  (i)      Election of Directors

<TABLE>
<CAPTION>

                                        Number of Votes                 Number Votes                   Abstentions and
       Nominee for Office                     For                         Withheld                    Broker Non-Votes

<S>                                       <C>                                <C>                                  <C>
Gene R. McGrevin                          30,882,237                         771,997                             -0-

Travis W. Honeycutt                       30,849,279                         804,955                             -0-

Dan R. Lee                                30,891,516                         762,718                             -0-

Rosdon Hendrix                            30,867,162                         787,072                             -0-

Kenneth F. Davis                          30,903,623                         750,611                             -0-

Olivia F. Kirtley                         30,923,293                         730,941                             -0-


</TABLE>

                  (ii)     Proposal to Amend Isolyser's Stock Option Plan


<TABLE>
<CAPTION>
                                                                            Abstentions and
              For                             Against                       Broker Non-Votes

<S>        <C>                                <C>                               <C>      
           25,769,665                         4,350,992                         1,533,577

</TABLE>


          (d) There was no solicitation subject to Rule 14a-11 of Regulation 14A
under the Securities Exchange Act of 1934.


Item 5.  Other Information

         None.

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 of the Amended and Restated Bylaws of
                                            Isolyser Company, Inc.
</TABLE>


462968.1
                                       12

<PAGE>


<TABLE>

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

         4.1(1)                             Specimen Certificate of Common Stock

         4.2                                Sixth Amendment of Stock Option Plan

         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 the Company's Current Report on Form
                  8-K filed on 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.
</FN>
</TABLE>



462968.1
                                       13

<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on August 14, 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)



462968.1
                                       14