<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                       
                                   FORM 10-K

             [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                          OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998

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

                         COMMISSION FILE NUMBER 1-8549
                                          
                              AVATEX CORPORATION
            (Exact name of registrant as specified in its charter)

                     DELAWARE                               25-1425889
  (State or other jurisdiction of incorporation          (I.R.S. Employer
                 or organization)                      Identification No.)
   5910 NORTH CENTRAL EXPRESSWAY, SUITE 1780 ,                75206
                  DALLAS, TEXAS                             (Zip Code)
     (Address of principal executive offices)


        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  214-365-7450

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                          Name of each exchange
       Title of each class                                on which registered
       -------------------                                ---------------------
Common Stock, par value $5 per share                     New York Stock Exchange
$5 Cumulative Convertible Preferred Stock                New York Stock Exchange
$4.20 Cumulative Exchangeable Series A Preferred Stock   New York Stock Exchange


       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X   No   
                     ---    ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. 
          ---
On June 22, 1998, the aggregate value of voting stock held by non-affiliates of
the registrant was approximately $27,680,300.

On June 22, 1998, there were 13,806,375 shares of the registrant's common stock
outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE:

                                     NONE

<PAGE>

                                       PART I

ITEM 1.  BUSINESS

Avatex Corporation is a holding company that, along with its subsidiaries 
(collectively, the "Corporation"), owns interests in hotels and office 
buildings and in other corporations and partnerships.  Through Phar-Mor, Inc. 
("Phar-Mor"), its 38% owned affiliate, the Corporation is involved in 
operating a chain of discount retail drugstores. In addition, during a 
portion of the fiscal year, the Corporation was involved in electronic 
medical claims processing through a wholly-owned subsidiary US HealthData 
Interchange, Inc. ("USHDI").  On November 19, 1997, the Corporation sold 
substantially all of the assets of USHDI.  

The Corporation was incorporated in Delaware on September 27, 1982, for the 
purpose of effecting a corporate restructuring of National Steel Corporation 
("NSC") and its subsidiaries in which NSC assets pertaining to the steel 
industry were separated from its non-steel assets.  Pursuant to the 
restructuring, on September 13, 1983, NSC was merged into a subsidiary of the 
Corporation and the stockholders of NSC became stockholders of the 
Corporation. The Corporation sold substantially all of its investment in NSC 
and related metals operations by fiscal 1991 and invested in distribution 
businesses, principally FoxMeyer Corporation ("FoxMeyer").  On August 27, 
1996, FoxMeyer and several of its subsidiaries filed for protection under 
Chapter 11 of the U.S. Bankruptcy Code.  On November 8, 1996, the Bankruptcy 
Court approved the sale of the principal assets of FoxMeyer to McKesson 
Corporation.  On March 18, 1997, the Chapter 11 cases were converted into 
Chapter 7 liquidation cases.


                              DESCRIPTION OF BUSINESS

Except for historical information contained herein, the matters discussed in 
this annual report contain forward-looking statements which involve risks and 
uncertainties including, but not limited to, economic, competitive, 
governmental and technological factors affecting the Corporation's and its 
investments' operations, markets, products and services.

REAL ESTATE

The Corporation has made certain investments in real estate through limited 
partnerships.  These limited partnerships are controlled by wholly-owned 
subsidiaries of the Corporation which hold a 50% partnership interest in 
these limited partnerships.  The Corporation controls these partnerships 
pursuant to rights granted by the partnership agreements which specify that 
the partnership's business shall be managed, and its business controlled, 
exclusively by the Corporation's subsidiary.  The Corporation will lose its 
right to exclusively manage the partnerships if (i) the current co-chief 
executive officers cease to be officers or directors of the Corporation or 
(ii) there has been at least a 50% aggregate return on the capital invested 
by the Corporation.

The limited partnerships are engaged in the buying, holding, operating and 
disposing of real estate, principally hotels and office buildings.  The 
properties owned by these partnerships are located in Maryland and 
Washington, D.C. and are as follows:

A 38,510 square foot office building and 150 room hotel located in Annapolis, 
Maryland.  Both properties were purchased in November 1993 and refurbished.  
The office building was 91% occupied and the hotel was approximately 66% 
occupied during fiscal 1998.

A 194 room hotel located in Washington, D.C. in the Watergate area.  A 
partnership in which the Corporation is a general partner assumed operating 
control of the hotel in November 1995 and has completely refurbished the 
property.  The fiscal 1998 occupancy rate was approximately 79%.

A 103,000 square foot office building with adjoining townhouse located in 
Washington, D.C. was purchased in May 1996.  The townhouse was sold in 
January 1998.  The building is presently being renovated with a plan to 
convert the building into a 158 room hotel with an expected opening date in 
November 1998. The projected cost of the renovation is approximately $14.8 
million.  The Corporation is committed to fund approximately $1.3 million 
with 

                                       1

<PAGE>

the remainder to be provided through a construction loan.  The partnership 
had borrowed $2.2 million under the construction loan at March 31, 1998.

At the present time, the Corporation has no obligation for future 
contributions with respect to the partnerships other than those discussed 
above.  The partnership mortgage loans are secured by the associated 
properties.  Certain mortgages are guaranteed by entities related to the 
minority partner, or by the subsidiaries of the Corporation that hold 
partnership interests.

EQUITY INVESTMENT IN PHAR-MOR, INC.

In fiscal 1996, the Corporation acquired a 69.8% interest in Hamilton Morgan 
LLC, a Delaware limited liability company ("Hamilton Morgan").  Hamilton 
Morgan subsequently acquired an approximate 30.9% common stock interest in 
Phar-Mor. On September 19, 1997, the Corporation, under an agreement among 
Hamilton Morgan, the owner of the minority interest in Hamilton Morgan and 
certain other parties, acquired from Hamilton Morgan 3,750,000 shares of 
Phar-Mor common stock in exchange for (i) the redemption of the Corporation's 
ownership interest in Hamilton Morgan, (ii) the satisfaction of a promissory 
note from Hamilton Morgan and (iii) the transfer of approximately $6.1 
million in other assets to Hamilton Morgan.  The Corporation now owns, 
including shares of Phar-Mor common stock which it had previously owned and 
were not involved in this transaction, approximately 38.4% of Phar-Mor's 
outstanding common stock.

Phar-Mor operates a chain of 106 discount retail drugstores in 19 states 
devoted to the sale of prescription and over-the-counter drugs, health and 
beauty care products, and other general merchandise and grocery items.  
Approximately 51% of Phar-Mor stores are located in Pennsylvania, Ohio and 
West Virginia.  An additional 23% are located in Virginia, North Carolina and 
South Carolina.

In April through June 1998, Phar-Mor acquired approximately 11.2% of the 
Corporation's outstanding common stock.

OTHER

The Corporation, through a limited partnership and from shares directly 
owned, holds the equivalent of an approximate 11.3% interest in Carson, Inc., 
a global manufacturer of cosmetics.

The Corporation has an approximate 5.3% interest in Imagyn Medical 
Technologies, Inc., a developer, manufacturer and distributor for the 
urology, minimally invasive and general surgery, and gynecology markets.

The Corporation has an approximate 5.5% interest in JW Genesis Financial 
Corp., a full service securities broker and investment banking firm providing 
securities transaction processing and other related services.

The Corporation has an approximate 6.3% interest in Caring Technologies, Inc. 
which is a privately held corporation that develops, manufactures and markets 
miniature continuous-wear vital signs monitors that combine proprietary 
sensor and wireless data transmission technologies.

The Corporation has a 10.8% ownership interest in AM Cosmetics, Inc., a 
leading privately-held manufacturer of low cost cosmetics.

The Corporation, through a limited liability company, holds the equivalent of 
an approximate 7.2% interest in Chemlink Laboratories LLC ("Chemlink") which 
is principally engaged in the development, manufacture and distribution of 
effervescent tablet formulations for use in cleaning, disinfectant and 
sterilization applications.

The Corporation owns $1.25 million of preferred stock of HPD Holdings Corp 
("HPD"), which is a privately held corporation whose subsidiary acquired 
certain assets of Block Drug Company, Inc. ("Block") used in or related to 
the manufacture, sale or distribution of Block's household product lines.  
The Corporation also has a 2.5% interest in the common stock of HPD. 




                                       2

<PAGE>

The Corporation has an approximate 8.6% interest in RAS Holding Corp. ("RAS") 
which is a privately-held corporation involved in the development and 
distribution of medical and commercial optical devices.

The interests in Chemlink, HPD and RAS noted above are only the Corporation's 
direct interest and do not include the effect of Phar-Mor's investment in 
these same companies.  Phar-Mor has an approximate 7.2% interest in Chemlink, 
a 4.6% interest in RAS, and also owns $1.25 million of preferred stock, and a 
2.5% interest in the common stock, of HPD.

The Corporation owned 17.4% of Ben Franklin Retail Stores, Inc. ("Ben 
Franklin") which filed for protection under the U.S. Bankruptcy Code in July 
1996 and subsequently liquidated its assets under Chapter 7 of the Bankruptcy 
Code.  The Corporation wrote off its investment in Ben Franklin in fiscal 
1997 as a result of the bankruptcy filing.


                              ENVIRONMENTAL REGULATION

The Corporation, like many other enterprises, is subject to federal, state 
and local laws and regulations governing environmental matters.  Such laws 
and regulations primarily affect the Corporation's previously sold or 
discontinued operations where the Corporation retained all or part of any 
environmental liabilities on conditions existing at the date of sale.  As a 
result of an agreement entered into in November 1997 between the Corporation, 
NSC and certain other parties, the Corporation was released from its 
contractual indemnification liability to NSC for environmental liabilities 
that existed from its prior ownership of NSC or NSC's Weirton steel division.

It is anticipated that compliance with statutory requirements related to 
environmental quality will continue to necessitate cash outlays by the 
Corporation for other former operations.  The amounts of these liabilities 
are difficult to estimate due to such factors as the unknown extent of the 
remedial actions that may be required and, in the case of sites not owned by 
the Corporation, the unknown extent of the Corporation's probable liability 
in proportion to the probable liability of other parties.  Moreover, the 
Corporation may have environmental liabilities that the Corporation cannot in 
its judgment estimate at this time and losses attributable to remediation 
costs may arise at other sites.  Management recognizes that additional work 
may need to be performed to ascertain the ultimate liability for such sites, 
and further information may ultimately change management's current 
assessment.  See Note N to the consolidated financial statements of the 
Corporation contained herein. Also, see "Item 3. Legal Proceedings" for a 
discussion of outstanding environmental actions involving the Corporation.


                                     EMPLOYEES

The number of persons employed by the Corporation and its consolidated 
subsidiaries was fourteen at March 31, 1998.  This number does not include 87 
employees of the consolidated real estate limited partnerships who were 
employed at March 31, 1998 by their respective management companies.


ITEM 2.  PROPERTIES

The Corporation's executive office, located at 5910 North Central Expressway,
Suite 1780, Dallas, Texas, contains approximately 6,139 square feet of space
under a lease agreement that expires in December 2001.

The following additional information is provided for the real estate properties
discussed in Item 1:

A hotel and office building located in Annapolis, Maryland have a net book value
of $5.1 million and are encumbered by a $5.2 million loan.  The loan requires
monthly principal and interest payments and matures in fiscal 2022.  The current
interest rate is 9.67% but will increase by at least 2% if the loan is not
retired by fiscal 2007.  The occupancy rate for the hotel, since its acquisition
in fiscal 1994, was 43%, 65%, 64% and 66%, respectively, for fiscal 1995 through
fiscal 1998.  

A hotel located in the Watergate area of Washington, D.C. has a net book value
of $8.7 million and is encumbered by two loans totaling $7.7 million.  One loan
of $7.2 million requires monthly principal and interest payments with 

                                       3
<PAGE>
a balloon payment of approximately $6.3 million in fiscal 2004.  The interest 
rate is 10.19%.  The other loan requires monthly principal and interest 
payments, has an interest rate of 9.25% and matures in fiscal 2000.  The 
occupancy rate for the hotel since its acquisition in fiscal 1995 was 66%, 
62% and 79%, respectively, for fiscal 1996 through fiscal 1998.

The office building located in Annapolis, Maryland, has two tenants which 
occupy more than 10% of the 38,510 net rentable square feet.  Fleet Business 
School occupies approximately 29% and NationsBank approximately 16% of the 
lease space. Fleet Business School's lease expires February 2000 and contains 
four 5 year renewal options.  Annual rent is $204,263.  NationsBank's lease 
expires November 1999 and contains three 5 year renewal options.  Annual rent 
is $216,611. Average rental per square foot was $21.27 in 1998.  The 
following table sets forth the lease expirations at the office building for 
all current tenants:
<TABLE>
<CAPTION>
   Fiscal Year    Number of Tenants  Lease in Square Feet   Annual Rental      % of Annual Rental
-------------------------------------------------------------------------------------------------
<S>               <C>                <C>                    <C>                <C>
      1998                2                  5,860            $ 18,000                 2.4%     
      1999                1                  2,750              59,622                 8.0%     
      2000                5                 23,786             556,306                74.4%     
      2003                4                  6,114             113,786                15.2%     
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
The occupancy rate for the office building, since its acquisition in fiscal
1994, was 95%, 100%, 100% and 91%, respectively, for fiscal 1995 through fiscal
1998.

ITEM 3.  LEGAL PROCEEDINGS

MCKESSON\VENDOR LITIGATION

On January 10, 1997, the Corporation filed a ten count lawsuit against 
McKesson Corporation ("McKesson") and certain major pharmaceutical 
manufacturers styled FOXMEYER HEALTH CORPORATION V. MCKESSON CORPORATION, ET 
AL., Cause No. 9700311, in the 95th Judicial District Court of Dallas County, 
Texas (the "Texas State Court") (the "McKesson Litigation").  In the McKesson 
Litigation, the Corporation alleges that McKesson and the pharmaceutical 
manufacturers conspired to drive the Corporation's pharmaceutical 
distribution subsidiary, FoxMeyer Drug Company, out of business, that 
McKesson misused confidential financial and competitive information to which 
it had gained access in conceiving, perpetrating and promoting a plan to 
drive FoxMeyer Drug Company out of its industry, and that McKesson exploited 
this information by interfering with FoxMeyer Drug Company's customer and 
vendor relationships and disrupting its operations in order to ultimately 
effectuate a purchase of its competitor at a significantly distressed price.  
With respect to the pharmaceutical manufacturer defendants, the Corporation 
alleges that they tightened or outright denied credit to FoxMeyer Drug 
Company and thereafter refused to work with an investment group that had 
agreed to buy FoxMeyer Drug Company's operations, thereby forcing it into 
Chapter 11, and that these actions were the result of an unlawful civil 
conspiracy.  The Corporation seeks to recover in excess of $400 million in 
compensatory damages on account of the loss in value in the Corporation's 
interest in FoxMeyer Drug Company, plus punitive damages.  In February 1997, 
certain defendants in the McKesson Litigation removed the lawsuit to the 
Bankruptcy Court for the Northern District of Texas, Dallas Division (the 
"Dallas Bankruptcy Court"), under Adversary No. 397-3052, and filed a motion 
to transfer the McKesson Litigation to the Bankruptcy Court for the District 
of Delaware (the "Delaware Bankruptcy Court") as a proceeding related to the 
Chapter 11 case of FoxMeyer Drug Company. 

On February 26, 1997, the Official Committee of Unsecured Creditors of 
FoxMeyer Corporation ("FoxMeyer") and FoxMeyer Drug Company (the "Committee") 
filed a lawsuit against the Corporation in the Delaware Bankruptcy Court 
under Adversary No. 97-20.  In the Delaware lawsuit, the Committee seeks a 
declaration that the claims asserted by the Corporation in the McKesson 
Litigation are property of the FoxMeyer bankruptcy estate, and an injunction 
barring the Corporation from continuing to prosecute the McKesson Litigation. 
On March 19, 1997, McKesson intervened in the Committee's lawsuit and filed 
its own complaint, in which McKesson asserts that (a) as of the commencement 
of the FoxMeyer Chapter 11 case in August 1996, the claims asserted in the 
McKesson Litigation were property of the bankruptcy estate, and (b) as of 
November 1996, when McKesson purchased substantially all of the assets of 
FoxMeyer Drug Company, the claims were transferred to McKesson.  On May 30,

                                       4
<PAGE>

1997, McKesson filed a motion for partial summary judgment in the Delaware 
lawsuit and, on November 5, 1997, filed a second motion for summary judgment, 
both of which remain pending.

On August 27, 1997, the Dallas Bankruptcy Court entered an order denying the 
defendants' motion to transfer the McKesson Litigation to the Delaware 
Bankruptcy Court, and deferred ruling on the Corporation's motion to remand 
the case back to Texas State Court.  The Dallas Bankruptcy Court further 
indicated that if the Corporation owns the claims asserted in the McKesson 
Litigation, the Dallas Bankruptcy Court will grant the Corporation's motion 
to remand.  On March 6, 1998, following the retirement of the Delaware 
Bankruptcy Judge, the Corporation moved to transfer the Delaware lawsuit to 
the Dallas Bankruptcy Court on the ground that it is now the court with the 
most familiarity with all of the McKesson related litigation.  On March 27, 
1998, the Chief Judge of the Delaware Bankruptcy Court referred the pending 
transfer motion to a bankruptcy judge in the Western District of 
Pennsylvania, who has set a hearing on McKesson's first motion for partial 
summary judgment on June 23, 1998.

1994 MERGER LITIGATION

On March 1, 1994, the Corporation and FoxMeyer announced that the Corporation 
had proposed a merger in which a wholly-owned subsidiary of the Corporation 
would be merged with and into FoxMeyer, making FoxMeyer a wholly-owned 
subsidiary of the Corporation.  Shortly after the announcement, class action 
lawsuits were filed against the Corporation, FoxMeyer and certain of 
FoxMeyer's officers and directors.  Following a number of procedural matters, 
and the execution (and subsequent withdrawal) of a Memorandum of 
Understanding dated June 30, 1994 under which the litigation would be 
dismissed, the litigation was consolidated and an amended complaint was filed 
on February 13, 1996 in IN RE: FOXMEYER CORPORATION SHAREHOLDER LITIGATION, 
No. 13391 in the Court of Chancery in Delaware (the "Delaware Chancery 
Court").  The amended complaint alleges that the defendants breached their 
fiduciary duties to FoxMeyer's shareholders by agreeing to the merger at an 
unfair price and at a time designed so that the Corporation could take 
advantage of, among other things, an alleged substantial growth in the 
business of FoxMeyer.  The complaint also alleges that the proxy statement 
issued in connection with the merger failed to disclose certain matters 
relating to the proposed merger.  No schedule has been set for the completion 
of discovery in the case, the briefing of plaintiffs' class certification 
motion or any other proceedings.

1996 SHAREHOLDER LITIGATION

The Corporation and certain of its current and former officers and directors 
have been named in a series of purported class action lawsuits that were 
filed and subsequently consolidated under  ZUCKERMAN, ET AL. V. FOXMEYER 
HEALTH CORPORATION, ET AL., in the United States District Court for the 
Northern District of Texas, Dallas Division, Case No. 396-CV-2258-T.  The 
lawsuit purports to be brought on behalf of purchasers of the Corporation's 
common and its Series A and convertible preferred stocks during the period 
July 19, 1995 through August 27, 1996.  On May 1, 1997, plaintiffs in the 
lawsuit filed a consolidated amended class action complaint, which alleges 
that the Corporation and the defendant officers and directors made 
misrepresentations of material facts in public statements or omitted material 
facts from public statements, including the failure to disclose purportedly 
negative information concerning its National Distribution Center and Delta 
computer systems and the resulting impact on the Corporation's existing and 
future business and financial condition.  On March 31, 1998, the Court denied 
the Corporation's motion to dismiss the amended complaint in the lawsuit.  
The Corporation intends to continue to vigorously defend itself in the 
lawsuit.

The Corporation and its Co-Chairmen and Co-Chief Executive Officers have also 
been named as defendants in GROSSMAN V. FOXMEYER HEALTH CORP., ET AL., Cause 
No. 96-10866-J, in the 191st Judicial Court of Dallas County, Texas.  The 
lawsuit purports to be brought on behalf of all holders of the Corporation's 
common stock during the period October 30, 1995 through July 1, 1996, and 
seeks unspecified money damages.  Plaintiff asserts claims of common law 
fraud and negligent misrepresentation, based on allegations that she was 
induced not to sell her shares by supposed misrepresentations and omissions 
that are substantially the same as those alleged in the ZUCKERMAN action 
described above. On September 28, 1997, the Court denied the Corporation's 
motion for summary judgment in the lawsuit. The Corporation intends to 
continue to vigorously defend itself in the lawsuit.

                                       5

<PAGE>

NATIONAL ALUMINUM CORPORATION

During the fiscal year ended March 31, 1990, the Corporation disposed of the 
operating assets of its subsidiary, National Aluminum Corporation ("NAC").  
In connection with the disposition of such assets, the Corporation retained 
responsibility for certain environmental matters, as described in paragraphs 
(a) through (h) below:

(a) DIAZ.  In June 1988, NAC received notification that it was considered to 
be one of several hundred potentially responsible parties ("PRPs") for the 
clean-up of a site known as the Diaz Refinery located in Diaz, Arkansas.  In 
September 1989, a complaint was filed against NAC and others in the Chancery 
Court of Jackson County, Arkansas, styled GRANTORS TO THE DIAZ REFINERY PRP 
COMMITTEE SITE TRUST, ET AL. V. RHEEM MANUFACTURING COMPANY, ET AL., in which 
a PRP steering committee sought a declaratory judgment relating to cleanup 
liability and cost recovery at the site.  In January 1990, NAC was dismissed 
as a defendant and realigned as a plaintiff, and thereby joined the PRP 
steering committee that is participating in site remediation activities.  NAC 
is awaiting final approval of the cleanup by the State of Arkansas and, 
assuming such approval, does not anticipate any additional material costs at 
the site.

(b) FISHER-CALO.  In December 1988, NAC received notification that it was 
considered to be one of a number of PRPs for wastes present at the 
Fisher-Calo Chemical and Solvent Recovery Site located in Kingsbury, Indiana. 
The United States Environmental Protection Agency (the "EPA") ordered 23 
entities, including NAC, to undertake and complete emergency removal 
activities at the site, which has been substantially completed.  In October 
1990, the EPA sent a Special Notice Letter to approximately 350 PRPs, 
including NAC, requesting their voluntary participation in performing or 
financing the remedial design/remedial action at the site and demanding 
payment of the EPA's past costs at the site. In August 1991, approximately 52 
PRPs, including NAC, executed a Consent Decree to perform the remedial 
design/remedial action and, in January 1992, approximately 45 PRPs, including 
NAC, agreed to file a contribution action for the recovery of response costs 
from non-participating PRPs.  Under the Consent Decree and Cost Sharing 
Agreement among the PRPs, NAC paid its allocated share of approximately 
$890,000 of the estimated $31 to $47 million total cost of the cleanup.  
Excluding any potential cost overruns, funding of the contribution action 
against the non-participating PRPs and annual administrative fees of $4,000, 
NAC does not anticipate any additional material costs at the site.

(c) GRANVILLE SOLVENTS.  In May 1995, a complaint was filed against NAC and 
others in the United States District Court for the Southern District of Ohio 
styled AT&T GLOBAL V. UNION TANK CAR CO., in which a PRP group seeks to 
recover costs incurred relating to the Granville Solvents site located in 
Granville, Ohio.  In August 1995, NAC was dismissed as a defendant following 
its payment of approximately $18,000 for its allocated share of past costs 
and agreement to join the PRP group and participate in funding the remedial 
work at the site. NAC also signed an Administrative Order on Consent with the 
EPA.  The total cost of the remedial work at the site is estimated to be in 
the range of $5.7 to $8 million, and NAC's allocated share is approximately 
0.4%, or approximately $32,000, of the total.

(d) GREEN RIVER.  In January 1992, the EPA notified NAC that it was 
considered to be one of a number of PRPs with respect to the disposal of 
allegedly hazardous substances at the Green River Disposal Site located in 
Davies County, Kentucky.  With respect to costs associated with the 
investigation and remediation of the site, including but not limited to the 
remedial investigation/feasibility study ("RI/FS") and the remedial action, 
NAC has paid a total of approximately $245,000 of the total estimated costs, 
and expects to pay in the future approximately $10,000 each year for operating 
and maintenance costs. In 1997, NAC and a number of other parties received a 
demand from the EPA to recover certain of its costs incurred at the site, 
estimated at $1.2 million. NAC is supporting efforts of the PRPs that 
previously paid the costs to investigate and remediate the site to have the 
EPA's costs paid by non-participating PRPs.  In any event, NAC believes that 
its share of such costs is unlikely to exceed $60,000 based on a volumetric 
allocation.  In addition, at the direction of the EPA, the PRPs have agreed to
undertake limited groundwater monitoring in an attempt to establish that
groundwater remediation is unnecessary.  Should groundwater remediation be 
required, NAC would allegedly be responsible for its volumetric share of the
costs, which costs cannot be estimated at this time.

(e) HASTINGS/AMERIMARK.  In April 1992, the United States District Court for 
the Western District of Michigan ruled in favor of Amerimark Building 
Products, the successor to Hastings Building Products, Inc., that NAC was 
liable for 50% of all future costs of removal or remedial action related to 
the mask wash contamination of soil and groundwater in the vicinity of a 
former NAC plant located in Hastings, Michigan.  Thereafter, the Court 
entered an amended ruling that NAC was liable for 75% of response costs 
incurred to date and any further response costs related to mask wash 
contamination that are not inconsistent with the national contingency plan.  
NAC has paid 
                                       6
<PAGE>

approximately $440,000 of response costs incurred to date at the site.  NAC 
is awaiting final approval with respect to the ongoing water treatment plan 
at the site, after which NAC will continue to be obligated to pay operating 
and maintenance costs at the site.

(f) HELEN KRAMER.  In October 1989, the United States filed a complaint in 
the United States District Court for the District of New Jersey entitled 
UNITED STATES V. HELEN KRAMER, ET AL., seeking reimbursement of the EPA's 
response costs as well as a declaratory judgment as to liability for future 
response costs with respect to the Helen Kramer Landfill Site located in 
Mantua Township, New Jersey.  Thirteen of the 26 named defendants 
subsequently filed a third-party complaint for contribution against 264 
third-party defendants, including NAC's predecessor in interest, Denny 
Corporation.  In April 1998, NAC executed a settlement agreement and paid a 
confidential amount with respect to its liability at the site.  NAC does not 
anticipate any additional material costs at the site.

(g) NORTHEAST GRAVEL.  NAC is one of 25 PRPs participating in a RI/FS at the 
Northeast Gravel Site located in Plainfield, Michigan.  NAC had paid its $955 
share of the $300,000 total cost of the RI/FS, and NAC's share of the total 
response costs within the PRP group is 0.19%.  No cost estimates are 
available for the design and remedial action, and NAC cannot estimate its 
future costs at the site. 

(h) ORGANIC CHEMICAL.  In March 1991, NAC received notification that its 
former Hastings Aluminum Products division was considered to be one of a 
number of PRPs for wastes present at the Organic Chemical Site located near 
Grandville, Michigan.  In the notice, the EPA requested NAC's voluntary 
participation in certain remedial actions and, in January 1992, issued an 
Administrative Order requiring NAC and approximately 150 other PRPs to 
perform the first phase of the remediation at the site.  A group of PRPs, 
including NAC, is performing the first phase of the $6 million remediation 
and have brought a cost recovery action against non-participating PRPs.  
NAC's share of the first phase remediation is anticipated to be approximately 
$90,000, less what is recovered from non-participating PRPs.  The EPA has 
also issued a Record of Decision with respect to the second phase of the 
remediation which is estimated to cost between $3.7 million and $7.2 million. 
Certain PRPs, including NAC, believe, however, that the second phase relates 
only to contamination that was caused by the site's former owner and 
operator.  NAC cannot estimate its future costs at the site. 

BULL MOOSE TUBE COMPANY

In August 1988, the Corporation sold all of the outstanding stock of Bull 
Moose Tube Company ("Bull Moose") to Caparo, Inc. ("Caparo").  Bull Moose and 
Caparo have indicated that they will seek indemnification from the 
Corporation for the costs of removing dioxin contaminated soil at a facility 
located in Gerald, Missouri, at which plant roads were allegedly sprayed with 
dioxin contaminated oil in 1973 and 1977.  The contamination has been 
remediated under an EPA plan. The EPA may seek recovery of removal and 
transportation (but not incineration) costs from Bull Moose, which may then 
seek recovery of such costs, along with defense costs, from the Corporation.  
Bull Moose and Caparo have provided the Corporation with certain initial cost 
information totaling approximately $305,000.  The information is an estimate 
only, and the Corporation believes that it has certain defenses available to 
it under the original stock purchase agreement.

FOXMEYER CORPORATION

In April 1998, FoxMeyer's Chapter 7 trustee (the "Trustee") filed a lawsuit 
against the five former directors of FoxMeyer, in which the Trustee alleges 
that the defendants breached their fiduciary duty in connection with the June 
19, 1996 dividend of certain assets to the Corporation.  In October 1997, in 
connection with the settlement of a separate lawsuit brought by the Trustee 
against the Corporation, the Corporation was released by the Trustee from all 
liability and the director-defendants in this lawsuit received covenants not 
to execute from the Trustee.  The Corporation has agreed to pay the initial 
defense costs of the individuals who are named as defendants in the lawsuit 
by reason of the fact that they may have been serving at the request of the 
Corporation as a director or officer of FoxMeyer.

BEN FRANKLIN RETAIL STORES, INC.

In 1997, the bankruptcy trustee and certain creditors of the Corporation's 
17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben Franklin"), filed 
lawsuits against certain former officers and directors of Ben Franklin, the 

                                       7
<PAGE>

Corporation and certain current and former officers and directors of the 
Corporation.  The Corporation and its officers and directors have since been 
dropped as defendants in the lawsuits.  In connection with paying its own 
defense costs and those of its officers and directors, the Corporation also 
initially paid a portion of the defense costs of certain individuals who are 
named as defendants in these lawsuits by reason of the fact that they may 
have been serving at the request of the Corporation as a director or officer 
of Ben Franklin.  In accordance with Delaware law, the Corporation may, if 
appropriate, agree at a future date to indemnify certain of the remaining 
defendants in the lawsuit.

PREFERRED STOCKHOLDER LITIGATION 

In April 1998, three substantially similar complaints were filed by preferred 
stockholders of the Corporation in the Delaware Chancery Court.  Two of the 
complaints raise identical claims on behalf of a putative class consisting of 
all holders of the Corporation's preferred stock and are styled HARBOR FINANCE 
PARTNERS LTD., ET. AL. V. BUTLER, ET. AL., C.A. No. 16334, and STROUGO V. 
BUTLER, ET. AL., C.A. No. 16345.  The third complaint is styled as ELLIOTT 
ASSOCIATES, L.P. ("ELLIOTT") V. AVATEX CORPORATION, ET. AL., C.A. No. 16336. 
The defendants in all three complaints include the Corporation and the 
following directors of the Corporation: Abbey J. Butler, Melvyn J. Estrin, 
Hyman H. Frankel, Fred S. Katz, Charles C. Pecarro, William A. Lemer, and 
John L. Wineapple.  The Elliott complaint also names Xetava Corporation 
("Xetava") as a defendant.  All three actions challenge the merger of the 
Corporation with and into Xetava, a transaction which has been approved by 
the Corporation's Board of Directors and is subject to the approval of a 
majority of the holders of the Corporation's common stock.  Specifically, 
plaintiffs contend that, under the Corporation's Certificate of 
Incorporation, the merger is subject to a separate class vote by the holders 
of the Corporation's preferred stock.  Plaintiffs further allege that the 
exchange ratios for the merger are unfair to the preferred stockholders.  
Plaintiffs seek the following relief: a declaration that the defendant 
directors have breached their fiduciary duties, a declaration that the merger 
cannot proceed without the consent of the preferred stockholders, injunctive 
relief preventing the consummation of the merger and damages and costs.  In 
May 1998, the Delaware Chancery Court consolidated the Elliott, Harbor 
Finance and Strougo actions under the caption IN RE: AVATEX CORPORATION 
SHAREHOLDERS LITIGATION, C.A. No. 16334.  On June 3, 1998, the court granted 
defendants' motion for partial judgment on the pleadings and held that the 
preferred stockholders are not entitled under the Corporation's Certificate 
of Incorporation to vote separately as a class on the proposed merger.  On 
June 8, 1998, the Corporation advised the Delaware Chancery Court that its 
Board of Directors will meet to determine whether it would be appropriate to 
reconsider and/or modify the terms of the proposed merger based on a number 
of events that had occurred since the Board of Directors had approved the 
merger.  These events include the commencement of lawsuits and the June 3, 
1998 court decision discussed above and potential changes in the value of 
certain of the Corporation's assets.  As a result, the Delaware Chancery 
Court postponed the hearing originally scheduled for June 8, 1998, on the 
request of certain preferred stockholders to enjoin the proposed merger.

In addition to the foregoing preferred shareholder lawsuits, on April 23, 
1998, a complaint was filed with the Delaware Chancery Court pursuant to 
Section 220 and 225 of the Delaware Corporation Code, styled INTRIERI, ET. 
AL. V. AVATEX CORPORATION, C.A. No. 16335.  The complaint was brought by four 
individuals, Vincent Intrieri, Daniel Gropper, Ralph DellaCamera and Brian 
Miller, who claim to have been elected to the Corporation's Board of 
Directors on April 20, 1998 by the written consent of the holders of a 
majority of the Corporation's preferred stock.  The only defendant in the 
action is the Corporation.  Relying on the terms of the Corporation's 
Certificate of Incorporation, plaintiffs contend that the holders of the 
convertible preferred stock and the Series A preferred stock have the right 
to elect two directors each upon the failure of the Corporation to pay 
dividends on such preferred stock for six consecutive quarters, and that the 
aforementioned individuals were validly elected to the Corporation's Board of 
Directors.  Additionally, in their purported capacity as directors, 
plaintiffs sought an inspection of certain of the Corporation's records.  In 
order to secure a prompt hearing on the preferred stockholders' class voting 
claim in the merger litigation described above, on May 1, 1998, the 
Corporation consented to the election of Vincent Intrieri and Daniel Gropper 
to the Corporation's Board of Directors by the holders of the Corporation's 
Series A preferred stock.  On June 8, 1998, the Delaware Chancery Court ruled 
that Ralph DellaCamera and Brian Miller were validly elected to the 
Corporation's Board of Directors by the written consent of a majority of 
holders of its convertible and Series A preferred stocks.  The size of the 
Corporation's Board of Directors has thereby been increased to eleven 
directors, four of whom have been elected by the Corporation's preferred 
stockholders. 

                                       8
<PAGE>

DERIVATIVE ACTION

On June 5, 1998, Steven Mizel IRA and Anvil Investments Partners, L.P. filed 
a lawsuit, allegedly on behalf of the Corporation, against seven of the 
current directors of the Corporation and three of its former directors who 
were members of the Corporation's Personnel and Compensation Committee.  The 
lawsuit is styled STEPHEN MIZEL IRA, ET. AL. V. BUTLER, ET. AL., No. 
602773198, in the Supreme Court of the State of New York, County of New York. 
The plaintiffs are holders of the Corporation's Series A preferred stock, 
and the lawsuit relates primarily to agreements and transactions between the 
Corporation and its Co-Chairmen and Co-Chief Executive Officers, Abbey J. 
Butler and Melvyn J. Estrin. The plaintiffs allege that, in connection with 
such agreements and transactions, (i) the defendants have breached their 
fiduciary duty to the Corporation's stockholders, (ii) the compensation 
arrangements between the Corporation and Messrs. Butler and Estrin constitute 
corporate waste and (iii) the defendants caused the Corporation's 
subsidiaries and affiliates to improperly purchase the Corporation's stock 
based upon confidential non-public information.  The plaintiffs seek damages, 
injunctive relief and an accounting.  The plaintiffs did not make a demand on 
the Corporation before filing their suit.  The Corporation has not yet fully 
analyzed its position with respect to the lawsuit or the Corporation's 
obligations to the defendants under its Certificate of Incorporation, 
by-laws, indemnification agreements with the defendants or Delaware law.

The Corporation also is a party to various other lawsuits arising in the 
ordinary course of business.  The Corporation, however, does not believe that 
the outcome of these lawsuits, individually or in the aggregate, will have a 
material adverse effect on its business or financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

                                       9
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER 
MATTERS

The Corporation's common stock is listed for trading on the New York Stock 
Exchange ("NYSE").  At May 31, 1998, the Corporation had 5,873 holders of 
record. Information concerning the high and low market prices of the 
Corporation's common and preferred stock and dividends declared on such stock 
for each quarter in the last two fiscal years are shown below:

STOCK PRICES FOR FISCAL 1998 AND 1997

<TABLE>
<CAPTION>
                                                             Market Price Range               Dividends Declared
                                                ------------------------------------------         Per Share
                                                    Fiscal 1998            Fiscal 1997       ---------------------
                                                -------------------   --------------------     Fiscal     Fiscal
                                                  High       Low         High        Low        1998       1997
                                                --------  ---------   ---------   --------   ---------   ---------
<S>                                             <C>       <C>         <C>         <C>        <C>         <C>
Common Stock  (Symbol: AAV)
     1st Quarter                                 $1 1/2    $0 3/4      $20 7/8     $13 7/8     $  0       $  0
     2nd Quarter                                  2 1/8     0 15/16     15           2 3/4        0          0
     3rd Quarter                                  2 1/8     1 1/4        3 7/8       1 1/2        0          0
     4th Quarter                                  2 5/16    1 3/16       2           1            0          0
-------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock (Symbol: AAVPr)
     1st Quarter                                 10 3/8     9 3/4       53 1/2      49 5/8        0 **       1.25
     2nd Quarter                                 13 1/4    10           49 7/8      28 1/2        0 **       1.25
     3rd Quarter                                 16 1/2    12 1/16      31           9 5/8        0 **       0 **
     4th Quarter                                 15 1/2    13 15/16     10 1/2       7 3/8        0 **       0 **
-------------------------------------------------------------------------------------------------------------------
Preferred Stock  Series A  (Symbol: AAVA)
     1st Quarter                                  8 1/2     6 7/8       33 1/8      23 3/4        0 **       1.05*
     2nd Quarter                                 11         7 15/16     27 3/4      13            0 **       1.05*
     3rd Quarter                                 13 1/2     9 1/2       18           8            0 **       0 **
     4th Quarter                                 15        12 7/16       8 7/8       5 7/8        0 **       0 **
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>

   *  Paid in additional shares of Series A Preferred Stock.
  **  Dividends were not declared.  Both series of preferred stock provide for 
      cumulative dividends  which  have been accrued as if declared. For the 
      Convertible Preferred Stock, unpaid cumulative dividends due at 
      March 31, 1998 were $7.50 per share.  For the Preferred Stock Series A, 
      unpaid cumulative dividends due at March 31, 1998 were approximately 
      $6.73 per share.

Information with respect to restrictions on the payment of dividends on the 
common stock is incorporated herein by reference to Note I to the 
consolidated financial statements contained herein in Item 8.

The NYSE has advised the Corporation that it has fallen below the listing 
criteria for net tangible assets and average net income for the past three 
years and has requested the Corporation demonstrate when it will be able to 
return to the NYSE's original listing requirements.  The Corporation has been 
in discussions with the NYSE regarding continued listing of the securities on 
the NYSE and the effect of the Corporation's proposed merger with Xetava 
Corporation (see Note T to the consolidated financial statements) on those 
securities.  The NYSE has advised the Corporation that, if the merger is not 
consummated, the NYSE will proceed with efforts to suspend and/or delist the 
Corporation's securities from trading on the NYSE and, in any event, may 
proceed with efforts to suspend and/or delist the Corporation's securities 
from trading subject to the Corporation's ability to comply with the NYSE's 
original listing requirements.

                                      10
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following summary should be read in conjunction with the consolidated 
financial statements contained herein:

                    AVATEX CORPORATION AND SUBSIDIARIES
              FIVE-YEAR FINANCIAL SUMMARY AND RELATED DATA

<TABLE>
<CAPTION>
                                                                           For the years ended March 31,
(In millions of dollars,  except per share amounts)         1998          1997            1996           1995           1994
------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>             <C>            <C>           <C>
SUMMARY OF OPERATIONS
     Revenues                                            $   12.2      $    12.5       $   10.4       $    4.2      $    0.9 
     Operating costs                                         21.8           14.9           17.5           14.3          12.4 
     Operating loss                                          (9.6)          (2.4)          (7.1)         (10.1)        (11.5)
     Other income (expense)                                 (11.3)          19.2           21.8           47.4           1.0 
     Financing costs, net                                     3.5            4.7            3.6            1.5           1.6 
     National Steel Corporation                             (53.2)           9.6            3.3            5.4           5.3 
     Equity in income (loss) of affiliates                   (3.3)          (5.2)          (4.2)           0.8          (0.5)
     Income tax provision (benefit)                           0.1           29.9            3.0            0.3         (18.1)
     Minority interest in results of operations of
      consolidated subsidiaries                               0.2           (1.1)           2.1            2.3           0.4 
     Income (loss) from continuing operations               (81.2)         (12.3)           5.1           39.4          10.4 
     Discontinued operations                                  3.7         (267.1)         (68.8)           2.2          19.1 
     Net income (loss)                                   $  (77.5)     $  (279.4)      $  (63.7)      $   41.6      $   29.5 
------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
     Basic Earnings per share:
        Continuing operations                            $  (7.74)     $   (2.10)      $  (0.97)      $   1.38      $  (0.03)
        Discontinued operations                              0.27         (17.89)         (4.16)          0.15          1.13 
        Earnings (loss) per share                        $  (7.47)     $  (19.99)      $  (5.13)      $   1.53      $   1.10 
     Diluted Earnings per share:
        Continuing operations                            $  (7.74)     $   (2.10)      $  (0.97)      $   1.37      $  (0.03)
        Discontinued operations                              0.27         (17.89)         (4.16)          0.15          1.13 
        Earnings (loss) per share                        $  (7.47)     $  (19.99)      $  (5.13)      $   1.52      $   1.10 
     Cash dividends per share                                 -              -              -              -             -   
     Average number of  common shares outstanding 
      (in thousands):
        Basic                                              13,806         14,931         16,521         14,711        16,930 
        Diluted                                            13,806         14,931         16,521         14,821        16,930 
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
     Working capital                                     $   40.6      $    46.4       $  276.4       $  444.5      $  375.0 
     Total assets                                           119.3          167.2        1,577.1        1,777.0       1,525.5 
     Capital expenditures                                     5.6           34.7           40.8           59.1          56.3 
     Long-term debt                                          22.9           27.5          403.8          422.8         310.9 
     Redeemable preferred stock                             215.0          189.4          187.3          175.0         164.8 
     Stockholders' equity (deficit)                        (141.9)        (113.5)         202.5          304.2         224.8 
------------------------------------------------------------------------------------------------------------------------------
KEY FINANCIAL RATIOS
     Current ratio                                         5.36:1         4.80:1         1.38:1         1.57:1         1.59:1
     Long-term debt as a percent of total capitalization     23.9%          26.6%          50.9%          46.9%          44.4%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The comparability of the information presented above is affected by 
acquisitions, dispositions, and other transactions which are described in the 
accompanying footnotes to the consolidated financial statements which should 
be read in conjunction with this five-year financial summary. Securities and 
Exchange Commission regulations require that capitalization ratios also be 
shown with the redeemable preferred stock included in debt.  On this basis, 
long-term debt as a percentage of total capitalization would be 247.8%, 
209.8%, 74.5%, 66.3% and 67.9%, respectively, for each of the five years 
ended March 31, 1998.

                                      11
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

OVERVIEW

Avatex Corporation is a holding company that, along with its subsidiaries 
(collectively, the "Corporation"), owns interests in hotels and office 
buildings and in other corporations and partnerships.  Through Phar-Mor, Inc. 
("Phar-Mor"), its 38% owned affiliate, the Corporation is involved in 
operating a chain of discount retail drugstores. 

In connection with the FoxMeyer Corporation ("FoxMeyer") fiscal 1997 
bankruptcy, on October 9, 1997, the United States Bankruptcy Court for the 
District of Delaware approved a settlement (the "FoxMeyer Settlement") of 
certain litigation between the Corporation and FoxMeyer's Chapter 7 Trustee 
(the "Trustee").  The litigation concerned the validity of the transfer of 
certain property from FoxMeyer to the Corporation as a dividend on June 19, 
1996.  As a result, the Corporation recognized a $33.3 million charge, which 
was classified in "Unusual items" in the consolidated statements of 
operations.  

Under the FoxMeyer Settlement, (i) the pending litigation was dismissed 
against the Corporation, (ii) the Corporation paid the Trustee approximately 
$25.8 million from a previously established escrow account, and (iii) the 
Corporation executed a three year $8.0 million promissory note payable to the 
Trustee.  The promissory note is secured by (i) 1,132,500 shares of common 
stock of Phar-Mor owned by the Corporation and (ii) a 30% interest, up to the 
greater of $10.0 million or the amount owed under the promissory note, in the 
net proceeds of certain litigation that may be brought by the Trustee against 
specified third parties.  

On September 19, 1997, the Corporation completed a transaction relating to 
its 69.8% owned subsidiary, Hamilton Morgan LLC ("Hamilton Morgan").  Under 
an agreement among Hamilton Morgan, Robert Haft (Hamilton Morgan's other 
major investor) and certain other parties, the Corporation acquired from 
Hamilton Morgan 3,750,000 shares of Phar-Mor common stock in exchange for (i) 
the redemption of the Corporation's ownership interest in Hamilton Morgan, 
(ii) the satisfaction of a promissory note from Hamilton Morgan and (iii) the 
transfer of approximately $6.1 million in other assets to Hamilton Morgan. 
The transaction was treated as a purchase of the minority interest in 
Hamilton Morgan.  The acquisition price was approximately equal to the book 
value of the minority interest acquired.  The Corporation, at March 31, 1998, 
owned directly, including shares of Phar-Mor common stock which it had 
previously owned and were not involved in this transaction, approximately 
38.4% of Phar-Mor's common stock compared to 29.4%, net of minority interest, 
at March 31, 1997.  

On June 5, 1997, a partnership in which the Corporation holds a 50% 
controlling interest (the "Partnership") acquired the remaining 65.5% of 
certain improved real property not already owned by the Partnership for 
approximately $7.4 million, net of cash acquired in the acquisition.  The 
Partnership accounted for the acquisition using the purchase method of 
accounting.  On March 31, 1998, the Corporation sold its interest in the 
Partnership for $1.8 million recognizing a gain of $0.7 million.

On November 19, 1997, the Corporation sold substantially all the assets of US 
HealthData Interchange, Inc. ("USHDI") for $4.0 million in cash, subject to 
certain adjustments.  USHDI had been treated as a discontinued operation 
since March 1997.  The Corporation recognized a $3.7 million gain on the 
disposal of discontinued operations as a result of the sale.

On November 25, 1997, National Steel Corporation ("NSC"), certain of its 
affiliates and the Corporation entered into an agreement whereby the 
Corporation received $59.0 million in cash and a non-interest bearing $10.0 
million note in exchange for the redemption of the NSC preferred stock owned 
by the Corporation and NSC's release of the Corporation from various related 
liabilities (the "NSC Settlement").  The Corporation was released from its 
indemnification of NSC for all pension, life insurance, health insurance and 
other benefit obligations for the current and former employees of NSC's 
former Weirton Steel operations ("Weirton"), as well as various environmental 
liabilities related to NSC and Weirton sites.  The note received as part of 
the NSC Settlement is to be paid in installments over the twelve months 
following the NSC Settlement and had an estimated discounted value of $9.4 
million at November 25, 1997.  If the Corporation does not comply with 
certain financial covenants, $5.0 million of the amount due on the note is 
subject to forfeiture.  In addition, the Corporation (i) assigned to NSC all 
of the 

                                     12
<PAGE>

Corporation's rights to assert pre-1987 environmental claims against insurers 
of both NSC and the Corporation and (ii) released its share of any settlement 
proceeds relating to such claims as well as all amounts remaining of the 
fiscal 1994 $10.0 million prepayment to NSC to indemnify NSC from certain 
environmental liabilities.  As a result of the NSC Settlement, the 
Corporation recognized a $59.0 million loss.  However, because $79.7 million 
in minimum pension liability reserves related to the Weirton pension plan had 
been charged to the accumulated deficit in prior periods and were reversed in 
connection with the NSC Settlement, the Corporation's accumulated deficit 
improved $20.7 million as a result of this transaction.

In November 1997, the Corporation entered into lump sum payment agreements 
with certain former officers and employees who were receiving supplemental 
pension and other payments from the Corporation or its subsidiaries.  As a 
result of the agreements, the Corporation paid approximately $2.1 million to 
these individuals for the termination of the Corporation's payment 
obligations and recognized a gain of approximately $5.6 million which was 
included in "Unusual items" in the consolidated statements of operations. 

In March 1998, one inactive subsidiary of the Corporation, which had no 
ongoing operations since 1990, exercised its right to terminate coverage of 
its retiree healthcare and life insurance plans, as provided in the plan 
documents.  In addition, another subsidiary of the Corporation, which had no 
ongoing operations since 1983 and no resources to pay its liabilities, was 
dissolved in March 1998. As a consequence, this subsidiary's retiree 
healthcare and life insurance plans were effectively discontinued.  Most 
retirees covered by these plans elected to participate in a transition 
assistance payment plan and executed releases in favor of the applicable 
subsidiary and its affiliates.  A gain of approximately $21.3 million, net of 
such payments and certain remaining claim reserves, was included in "Unusual 
items" in the consolidated statements of operations as a result of the 
termination or discontinuance of these plans.

On April 14, 1998, the Corporation announced that it would merge with and 
into its wholly-owned subsidiary, Xetava Corporation ("Xetava").  Under the 
proposed merger, the Corporation's existing common and preferred stockholders 
will receive new common stock of Xetava, which upon consummation of the 
merger will be renamed Avatex.  Pursuant to the merger agreement, (i) each 
share of the Corporation's common stock will be converted into one-half share 
of  Xetava common stock, (ii) each share of the Corporation's convertible 
preferred stock will be converted into 4.1249 shares of Xetava common stock 
and (iii) each share of  the Corporation's Series A Preferred Stock will be 
converted into 3.7271 shares of Xetava common stock.  Following the 
consummation of the merger, the common stockholders of the Corporation will 
own approximately 26.9%, and preferred stockholders of the Corporation will 
own approximately 73.1%, of Xetava's outstanding common stock (exclusive of 
options previously granted under the Corporation's existing stock option plan 
which will be assumed by Xetava in the merger).  While the merger has been 
approved by the Board of Directors, consummation of the merger is conditioned 
upon the (i) approval of the transaction by the holders of a majority of the 
Corporation's outstanding common stock, (ii) effectiveness of a registration 
statement to be filed with the Securities and Exchange Commission with 
respect to shares of Xetava common stock that will be issued in the merger, 
and (iii) approval of the listing of such shares on the New York Stock 
Exchange.  On June 8, 1998, the Corporation announced that its Board of 
Directors will meet to determine whether it would be appropriate to 
reconsider and/or modify the terms of the proposed merger based on a number 
of events that have occurred since the Board of Directors approved the 
merger. These events include the commencement of lawsuits filed in connection 
with the proposed merger (see Item 3 above and Note T to the consolidated 
financial statements included in Item 8 below) and potential changes in the 
values of certain of the Corporation's assets.

RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998 COMPARED
TO YEAR ENDED MARCH 31, 1997

Operating Loss

Revenues from real estate operations decreased $0.3 million to $12.2 million 
for the year ended March 31, 1998, compared to $12.5 million for the year 
ended March 31, 1997.  The decrease was the result of the disposal of several 
properties in fiscal 1997 ($4.9 million) partially offset by increased 
revenues at the remaining properties ($0.7 million) and the purchase of an 
additional interest in a property as described above ($3.9 million).  The 
sale of 

                                     13
<PAGE>

property at the end of  fiscal 1998, as discussed above, will result in a 
$3.9 million decrease in revenues in fiscal 1999.  This anticipated decline 
may be somewhat offset by the fiscal 1999 opening of a hotel currently being 
renovated.

Total operating costs including depreciation and amortization increased $2.2 
million to $17.1 million for the year ended March 31, 1998 compared to $14.9 
million for the year ended March 31, 1997.  Real estate operating costs 
increased $0.5 million.  Such increase is primarily attributable to an 
increase in operating costs at existing properties ($0.7 million), as well as 
incremental costs for the property purchased in fiscal 1998 ($3.5 million), 
somewhat offset by a decline in operating costs associated with properties 
sold in fiscal 1997 ($3.7 million).  An increase in corporate operating costs 
of $1.7 million related primarily to increased compensation, pension, legal 
and insurance costs during the current fiscal year as compared to the prior 
year.

Unusual items for the year ended March 31, 1998 consisted of  $33.3 million 
in charges incurred in connection with the FoxMeyer Settlement reached in 
litigation with the Trustee, as discussed above, partially offset by $1.7 
million in income from the settlement of litigation, principally from 
payments received from insurance carriers related to the settlement of 
environmental liability claims, and $26.9 million in gains in connection with 
the settlement of certain pension and other postretirement benefit 
obligations of former officers and employees.

Other Income (Expense)

Other income (expense) was an expense of $11.3 million for the year ended 
March 31, 1998, compared to income of $19.2 million for the year ended March 
31, 1997. In fiscal 1998, the loss was primarily related to a $12.9 million 
charge for the year from the Corporation's adjustment in the carrying value 
of its investment in Imagyn Technologies, Inc. ("Imagyn") to its market value 
partially offset by $1.6 million in gains principally from the sale of other 
assets.  In fiscal 1997, the Corporation recognized gains of $34.0 million 
from the sale of FoxMeyer Canada Inc. ("FoxMeyer Canada") and $7.3 million 
from the sale of real estate properties and the early collection of a real 
estate note receivable. The gains were partially offset by the write-down of 
the Corporation's investment in Phar-Mor of $13.4 million, the write-off of 
the Corporation's investment in Ben Franklin Retail Stores, Inc. ("Ben 
Franklin") of $2.0 million and $6.7 million in other losses primarily from 
marketable securities (including $4.8 million in losses related to Imagyn).  

Net Financing Costs

Net financing costs decreased $1.2 million to $3.5 million for the year ended 
March 31, 1998, compared to $4.7 million for the year ended March 31, 1997.  
Interest income was approximately the same for both periods.  A decrease in 
interest income earned from real estate operations was offset by increased 
income from excess cash invested by the Corporation primarily from proceeds 
from the NSC Settlement and the USHDI sale and from funds previously held in 
escrow that were used in the FoxMeyer Settlement.  Interest expense decreased 
$1.2 million.  Such decrease was attributable to repayments of the secured 
and revolving debt of the Corporation from proceeds of asset sales and the 
NSC Settlement, somewhat offset by interest expense on the note payable 
incurred in connection with the FoxMeyer Settlement.

National Steel Corporation Results

The net preferred income for NSC was $5.9 million for the year ended March 
31, 1998, compared to $9.6 million for the prior period.  The decrease was 
primarily due to the redemption of the preferred stock in November 1997 as 
part of the NSC Settlement compared to a full year of net preferred income in 
the prior year. For a discussion of the $59.0 million loss in connection with 
the NSC Settlement, see the "Overview" section above.

Equity in Loss of Affiliates

The equity in loss of affiliates decreased $1.9 million to a loss of $3.3 
million for the year ended March 31, 1998, compared to a loss of $5.2 million 
for the year ended March 31, 1997.  The decrease in the equity loss of 
affiliates resulted principally from the sale in the prior year of the 
Corporation's equity investment in FoxMeyer Canada, which had been incurring 
losses, and a decrease in the equity loss of Phar-Mor.  While Phar-Mor had a 
greater net loss in fiscal 1998 than in fiscal 1997, primarily as a result of 
severance costs to its former chief executive officer 

                                     14
<PAGE>

and the write-down of fixed assets, the fiscal 1997 amount also included a 
write-down of the Corporation's investment in Phar-Mor.

Income Taxes

The Corporation recorded an income tax provision for the current year for 
state taxes incurred by subsidiaries, net of a federal income tax refund 
received. The Corporation recorded an income tax provision of $29.9 million 
for the year ended March 31, 1997.  The provision for fiscal 1997 was 
primarily due to an increase in the deferred tax asset valuation allowance 
resulting from the loss of FoxMeyer's anticipated taxable income in future 
years due to FoxMeyer's bankruptcy filing.  

Minority Interest in Results of Operations of Consolidated Subsidiaries

The minority interest in net income of consolidated subsidiaries was $0.2 
million for the year ended March 31, 1998, compared to a minority interest in 
net loss of $1.1 million for the year ended March 31, 1997.  The minority 
interest related to real estate partnerships and the Corporation's investment 
in Hamilton Morgan.   The increase in the minority interest resulted from the 
purchase of the minority interest in Hamilton Morgan in the current fiscal 
year, eliminating the impact of the Phar-Mor losses subsequent to the 
purchase, partially offset by a decrease in the minority interest in real 
estate partnerships in the current year primarily as a result of earnings 
recognized in the prior fiscal year from properties sold during fiscal 1997.

Discontinued Operations

The loss from discontinued operations for fiscal 1997 was $21.1 million.  The 
loss represented FoxMeyer's operating loss to June 30, 1996, the effective 
date for treating FoxMeyer as a discontinued operation, of $17.5 million, and 
USHDI's loss from operations through March 31, 1997, the effective date for 
treating USHDI as a discontinued operations, of $3.6 million.

The gain on disposal of discontinued operations for the year ended March 31, 
1998 represented the gain on the sale of USHDI.  The loss on disposal of 
discontinued operations for the year ended March 31, 1997, represented 
estimated losses related to discontinuing the operations of FoxMeyer ($254.5 
million) and USHDI ($4.9 million) partially offset by a gain on the sale of 
the Corporation's pharmacy benefit management operations ($13.3 million).

Preferred Stock Dividends

Preferred stock dividends increased to $25.6 million for the year ended March 
31, 1998, compared to $19.1 million for the year ended March 31, 1997.  The 
increase for the year was primarily due to the Series A preferred stock's 
current year charge to equity based on the cash dividend that would have been 
paid if declared being substantially higher than the prior year charge based 
on the market value of the additional preferred stock issued as a pay-in-kind 
dividend (see Note I to the consolidated financial statements).

RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997 COMPARED
TO YEAR ENDED MARCH 31, 1996

Operating Loss

Revenues from real estate operations increased $2.1 million to $12.5 million 
for the year ended March 31, 1997, compared to $10.4 million for the year 
ended March 31, 1996.   The increase was principally related to revenues from 
an additional hotel operated beginning in late fiscal 1996 ($3.1 million) and 
incremental revenues from the completion of renovations at certain sites 
($0.6 million), partially offset by the sale of several properties during 
fiscal 1997 ($1.6 million).  Revenues in future years will be adversely 
affected by the fiscal 1997 sales.

Total operating costs including depreciation and amortization decreased $2.6 
million to $14.9 million for the year ended March 31, 1997, compared to $17.5 
million for the year ended March 31, 1996.  Such decrease was primarily 

                                     15
<PAGE>

the result of the disposition of FoxMeyer and related costs.  The decrease 
was partially offset by an increase of $0.4 million in real estate operating 
costs. Included in the increase of $0.4 million was an increase in operating 
costs of $3.2 million related to the additional hotel operated beginning in 
late fiscal 1996 and to other properties following completion of renovations 
at those sites partially offset by a $2.8 million decrease in operating costs 
related to properties sold.

Other Income (Expense)

Other income decreased $2.6 million to $19.2 million for the year ended March 
31, 1997, compared to $21.8 million for the year ended March 31, 1996.  In 
fiscal 1997, the Corporation recognized gains of $34.0 million from the sale 
of FoxMeyer Canada and $7.3 million from the sale of real estate properties 
and the early collection of a real estate note receivable.  The gains were 
partially offset by the write-down of its investment in Phar-Mor of $13.4 
million, the write-off of the Corporation's investment in Ben Franklin of 
$2.0 million and $6.7 million in other losses primarily from marketable 
securities (including $4.8 million in losses related to Imagyn).  In fiscal 
1996, the Corporation realized gains of $19.6 million on the settlement of 
certain unresolved issues related to the fiscal 1992 sale of The Permian 
Corporation and other contingencies, $14.3 million on its investment in 
Imagyn and $1.6 million on the early collection of real estate notes 
receivable.  The gains were partially offset by a write-down of $3.4 million 
in the value of the Corporation's investment in Ben Franklin to its market 
value and $10.3 million in losses on trading securities and other investments.

Net Financing Costs

Net financing costs increased $1.1 million to $4.7 million for the year ended 
March 31, 1997, compared to $3.6 million for the year ended March 31, 1996.  
Interest income decreased $1.1 million primarily as a result of the early 
collection of certain real estate notes receivable in fiscal 1996 and early 
fiscal 1997.  Interest expense was $6.4 million for both years.  Interest 
related to real estate operations increased $1.0 million, due principally to 
additional borrowings during the fiscal year in partnerships that were not 
sold, offset by a reduction in connection with the retirement of the 
Corporation's revolving credit facility in August 1996.

National Steel Corporation Results

The net preferred income for NSC was $9.6 million for the year ended March 
31, 1997, compared to $3.3 million for the prior period.  The increase was 
primarily due to a decrease in the expense related to the Weirton pension 
obligation for the year ended March 31, 1997.

Equity in Loss of Affiliates

The equity in loss of affiliates increased $1.0 million to a loss of $5.2 
million for the year ended March 31, 1997, compared to a loss of $4.2 million 
in the prior fiscal year.  The Corporation's equity in Phar-Mor was $6.3 
million lower than in the prior fiscal year as a result of Phar-Mor losses 
and losses related to the write-down of the investment in Phar-Mor in fiscal 
1997.  This was substantially offset by the decrease in the equity loss 
associated with Ben Franklin and FoxMeyer Canada.  No equity loss in Ben 
Franklin was recorded during fiscal 1997, as a result of the write-off of the 
Corporation's investment in Ben Franklin, compared to an equity loss of $5.0 
million in fiscal 1996.  

Income Taxes

The Corporation recorded an income tax provision of $29.9 million for the 
year ended March 31, 1997, compared to $3.0 million for the year ended March 
31, 1996.  The provision for fiscal 1997 was primarily due to an increase in 
the deferred tax asset valuation allowance resulting from the loss of 
FoxMeyer's anticipated taxable income in future years due to FoxMeyer's 
bankruptcy filing. The slightly lower than statutory effective income tax 
rate in fiscal 1996 was primarily due to permanent differences between book 
and tax income partially offset by an increase in the deferred tax asset 
valuation allowance.

                                     16
<PAGE>

Minority Interest in Results of Operations of Consolidated Subsidiaries

The minority interest in the net loss of consolidated subsidiaries was $1.1 
million for the year ended March 31, 1997, compared to a minority interest in 
net income of $2.1 million for the year ended March 31, 1996.  The minority 
interest related to real estate partnerships and the Corporation's investment 
in Hamilton Morgan.  The decrease was primarily due to the decrease in income 
of Hamilton Morgan as a result of lower earnings from its equity investment 
in Phar-Mor as discussed above.  

Discontinued Operations

The loss from discontinued operations for fiscal 1997 was $21.1 million 
compared to $61.7 million in fiscal 1996.  Both years reflect the loss from 
the discontinued operations of FoxMeyer and USHDI.  The loss for fiscal 1997 
represented FoxMeyer's operating loss to June 30, 1996, the effective date 
for treating FoxMeyer as a discontinued operation, of $17.5 million and 
USHDI's loss from operations through March 31, 1997, the effective date for 
treating USHDI as a discontinued operation, of $3.6 million.  The fiscal 1996 
loss consisted of a $58.0 million loss on FoxMeyer's operations and a loss of 
$3.7 million from USHDI's operations.  FoxMeyer's loss was principally the 
result of unusual charges aggregating $47.4 million relating to the 
write-down of assets, facility closings and employee severance and $34.0 
million in operating expenses attributable to the opening of a new 
distribution facility, implementation of new systems and facility closings.

The loss on disposal of discontinued operations was $246.1 million in fiscal 
1997 compared to $7.1 million for the prior fiscal year.  The loss on 
disposal in fiscal 1997 represented losses related to discontinuing the 
operations of FoxMeyer ($254.5 million) and USHDI ($4.9 million) partially 
offset by the gain on the sale of Corporation's pharmacy benefit management 
operations ($13.3 million).  In the prior fiscal year, the loss represented 
the estimated loss from disposal of FoxMeyer's managed care and information 
service operations.

Preferred Stock Dividends

Preferred stock dividends were $19.1 million for the year ended March 31, 
1997, compared to $21.1 million for the year ended March 31, 1996.  The 
decrease of $2.0 million was primarily due to the payment of 
dividends-in-kind on the outstanding Series A preferred stock during the 
first two quarters of fiscal 1997.  The amount of the dividend-in-kind 
charged against operations when the dividends were paid was based on the 
market value of the Series A preferred stock which had decreased when 
compared to the prior fiscal year.  The decrease was partially offset in the 
last two quarters of fiscal 1997 when the dividends were based on the cash 
payments due.  In addition, the number of shares of both series of preferred 
stock decreased due to share repurchases.

                          LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1998, the Corporation had cash and short-term investments of 
approximately $34.2 million. This represents a significant increase over the 
prior year due primarily to the cash proceeds from the NSC Settlement and the 
sale of USHDI, partially offset by the repayment of the Corporation's $14.9 
million secured loan and the funding of certain equity investments.  

The debt of the Corporation consists of the note payable to the Trustee 
described above and the debt of real estate partnerships controlled by the 
Corporation.  The Corporation has two issues of redeemable preferred stock 
outstanding.  Beginning with the quarterly payments due January 15, 1997, the 
Corporation has not declared nor paid any cash dividends on its Series A 
preferred stock or its convertible preferred stock.  The Corporation also did 
not make the annual sinking fund payment on the convertible preferred stock 
due January 1998.  

See the "Overview" section above for a discussion of a proposed merger of the 
Corporation with its Xetava subsidiary.  If the proposed merger is approved, 
the preferred stockholders would receive common stock of  Xetava in exchange 
for their preferred stock.  

                                     17
<PAGE>

The Corporation believes that its real estate operations will provide 
adequate cash flow to fund recurring real estate operating expenses, 
including required payments on related debt.  Cash required for necessary 
real estate capital improvements may be funded from excess cash flow from 
real estate operations, additional borrowings, or contributions from the 
Corporation or minority interests.  For corporate operations other than real 
estate, cash requirements include the funding of monthly operating 
activities, the payment of benefit obligations, and the funding of 
environmental liabilities of previously owned businesses, the amounts and 
timing of which are uncertain. While the NSC Settlement does relieve the 
Corporation of existing and potential environmental liabilities at a 
considerable number of sites, the Corporation still remains liable for 
environmental liabilities related to other previously owned businesses.

The Corporation continuously evaluates current and potential investments in 
connection with an ongoing review of its investment strategies, and will 
continue to invest in real estate and other publicly and privately held 
companies as opportunities arise which the Corporation believes would be 
strategic fits.  In addition, the Corporation may pursue the acquisition of 
an operating company.

The Corporation will rely on cash on hand, any excess cash from its real 
estate operations and, if necessary, the sale of real estate or other 
investments to meet its future obligations.  For a discussion of current 
litigation which, if the Corporation were to lose, would have a material 
impact on the Corporation's financial condition, liquidity and results of 
operations, see Note N to the consolidated financial statements.

The Corporation's financial statements have been prepared on a going concern 
basis which contemplates the realization of assets and the settlement of 
liabilities and commitments in the normal course of business.  The financial 
statements do not reflect any adjustments that might ultimately result from 
the resolution of the uncertainties discussed in Note S to the consolidated 
financial statements.

                                   OTHER

The Corporation has approximately $1.8 million in reserves in connection with 
environmental claims relating to businesses that were disposed of or 
discontinued (see Note N to the consolidated financial statements). The 
Corporation received $1.6 million during fiscal 1998 from the settlement of 
certain claims against its insurance carriers for coverage of environmental 
liabilities.  During fiscal 1998, the Corporation paid approximately $0.4 
million with respect to environmental claims and related legal fees.  In 
addition, the Corporation assigned to NSC its rights to additional recoveries 
for pre-1987 environmental claims from its insurance carriers and the balance 
of a prepayment to NSC to cover future environmental claims as part of the NSC 
Settlement discussed above.  As a result of the NSC Settlement, the 
Corporation was relieved from future contractual liability for environmental 
claims at NSC and Weirton sites (see Note G to the consolidated financial 
statements).

In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 131 
"Disclosure about Segments of an Enterprise and Related Information" was 
issued. SFAS No. 131 is effective for fiscal years beginning after December 
15, 1997; accordingly, the Corporation plans to adopt SFAS No. 131 with the 
fiscal year beginning April 1, 1998.  SFAS No. 131 does not have any impact 
on the financial results or financial condition of the Corporation, but will 
result in certain changes in required disclosures of segment information.

What is commonly referred to as the "Year 2000" issue relates, in part, to 
many hardware and software systems, that use only two digits to represent the 
year, being unable to recognize dates beyond 1999.  The Corporation's 
internal systems are Year 2000 compliant.  However, the Year 2000 readiness 
of the Corporation's vendors and companies in which the Corporation has 
invested may vary.  At this time, it is uncertain to what extent the 
Corporation may be affected by such matters at these other entities.  The 
Corporation is currently trying to ascertain and monitor the Year 2000 
readiness of these companies.

                                     18
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        Index to Financial Statements

<TABLE>
                                                                           Page
<S>                                                                        <C>
Independent Auditors' Report                                                20

Consolidated Statements of Operations - For the Three Years Ended 
 March 31, 1998                                                             21

Consolidated Statements of Comprehensive Loss - For the Three Years 
 Ended March 31, 1998                                                       22

Consolidated Balance Sheets - March 31, 1998 and 1997                       23

Consolidated Statements of Stockholders' Equity (Deficit) - For the
 Three Years Ended March 31, 1998                                           24

Consolidated Statements of Cash Flows - For the Three Years Ended 
 March 31, 1998                                                             25

Notes to Consolidated Financial Statements - For the Three Years 
 Ended March 31, 1998                                                       26
</TABLE>

                                     19
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Avatex Corporation
Dallas, Texas


     We have audited the accompanying consolidated balance sheets of Avatex 
Corporation and subsidiaries as of March 31, 1998 and 1997, and the related 
consolidated statements of operations, comprehensive loss, stockholders' 
equity (deficit) and cash flows for each of the three years in the period then 
ended.  Our audits also included the financial statement schedules listed in 
the Index at Item 14. These financial statements and financial statement 
schedules are the responsibility of the Corporation's management.  Our 
responsibility is to express an opinion on these financial statements and 
financial statement schedules based on our audits.

     We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, 
in all material respects, the financial position of Avatex Corporation and 
subsidiaries at March 31, 1998 and 1997, and the results of their operations 
and their cash flows for each of the three years in the period then ended, in 
conformity with generally accepted accounting principles.  Also, in our 
opinion, such financial statement schedules, when considered in relation to 
the basic financial statements taken as whole, present fairly in all material 
respects the information set forth therein.

     The accompanying financial statements have been prepared assuming that 
the Corporation will continue as a going concern.  As discussed in Note S to 
the financial statements, the Corporation's recurring losses from operations, 
pending litigation and stockholders' deficiency raise substantial doubt about 
its ability to continue as a going concern.  Management's plans concerning 
these matters are also discussed in Note S.  The financial statements do not 
include any adjustments that might result from the outcome of this 
uncertainty.



Deloitte & Touche LLP
Dallas, Texas
April 30, 1998
(except the fourteenth paragraph of Note N and
the last paragraph of Note T, which are as of June 8, 1998)


                                     20

<PAGE>

                         AVATEX CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            For the years ended March 31, 
(in thousands, except per share amounts)                                      1998         1997        1996
-------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>         <C>      
REVENUES                                                                 $  12,228    $  12,463   $  10,439
OPERATING COSTS
    Operating costs, including general and administrative costs             16,102       13,386      16,534
    Depreciation and amortization                                              958        1,468       1,034
    Unusual items                                                            4,746            -         -  
-------------------------------------------------------------------------------------------------------------
OPERATING LOSS                                                              (9,578)      (2,391)     (7,129)
OTHER INCOME (EXPENSE)                                                     (11,337)      19,228      21,779
FINANCING COSTS
    Interest income                                                          1,709        1,678       2,822
    Interest expense                                                         5,233        6,416       6,391
-------------------------------------------------------------------------------------------------------------
Financing costs, net                                                         3,524        4,738       3,569
-------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE NATIONAL STEEL
    CORPORATION, EQUITY IN LOSS OF AFFILIATES, INCOME
    TAX PROVISION AND MINORITY INTEREST                                    (24,439)      12,099      11,081
NATIONAL STEEL CORPORATION
    National Steel Corporation net preferred dividend income                 5,854        9,620       3,329
    Loss on National Steel Corporation settlement                          (59,038)           -         -  
Equity in loss of affiliates                                                (3,336)      (5,199)     (4,168)
-------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX
    PROVISION AND MINORITY INTEREST                                        (80,959)      16,520      10,242
Income tax provision                                                            40       29,870       2,977
-------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST          (80,999)     (13,350)      7,265
Minority interest in results of operations of consolidated subsidiaries        220       (1,106)      2,117
-------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS                               (81,219)     (12,244)      5,148
Discontinued operations
    Loss from discontinued operations, net of tax                                -      (21,057)    (61,728)
    Gain (loss) on disposal of discontinued operations, net of tax           3,719     (246,055)     (7,081)
-------------------------------------------------------------------------------------------------------------
NET LOSS                                                                   (77,500)    (279,356)    (63,661)
Preferred stock dividends                                                   25,604       19,081      21,108
-------------------------------------------------------------------------------------------------------------
LOSS APPLICABLE TO COMMON STOCKHOLDERS                                   $(103,104)   $(298,437)   $(84,769)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------

BASIC AND DILUTED LOSS PER SHARE
    Loss from continuing operations                                      $   (7.74)   $   (2.10)   $  (0.97)
    Discontinued operations                                                   0.27       (17.89)      (4.16)
-------------------------------------------------------------------------------------------------------------
LOSS PER SHARE                                                           $   (7.47)   $  (19.99)   $  (5.13)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                 13,806       14,931      16,521
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                     21
<PAGE>

                    AVATEX CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                             For the years ended March 31, 
(in thousands of dollars)                                                1998           1997          1996
----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>            <C>
NET LOSS                                                              $  (77,500)   $  (279,356)   $   (63,661)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
    Foreign currency translation adjustment                                    -             17            (40)
    Reclassification adjustment for losses included in net loss                -             21            -  
----------------------------------------------------------------------------------------------------------------
          Net foreign currency translation adjustment                          -             38            (40)

    Unrealized gains (losses) on securities                                1,168           (854)        (4,211)
    Reclassification adjustment for losses included in net loss                -            871          1,820
----------------------------------------------------------------------------------------------------------------
          Net unrealized gains (losses)                                    1,168             17         (2,391)

    Minimum pension liability adjustment                                  (6,187)        (8,897)        10,794
    Loss on plan termination from National Steel
      Corporation settlement included in net loss                         79,718              -            -  
----------------------------------------------------------------------------------------------------------------
          Net minimum pension liability adjustment                        73,531         (8,897)        10,794
----------------------------------------------------------------------------------------------------------------
          TOTAL OTHER COMPREHENSIVE INCOME (LOSS)                         74,699         (8,842)         8,363
----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                   $    (2,801)   $  (288,198)    $  (55,298)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                     22
<PAGE>


                  AVATEX  CORPORATION  AND  SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                                March 31,
(in thousands of dollars)                                                                  1998           1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
ASSETS
CURRENT ASSETS
    Cash and short-term investments                                                   $  34,193      $   7,173
    Restricted cash and investments                                                         287         33,115
    Receivables, less allowance for possible losses of $27
     in 1998 and $539 in 1997                                                            11,783          3,059
    Other current assets                                                                  3,684         15,293
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                     49,947         58,640
INVESTMENT IN NATIONAL STEEL CORPORATION                                                    -           44,961
INVESTMENT IN AFFILIATES                                                                 25,343         28,711
PROPERTY AND EQUIPMENT                                                                   20,657         19,414
    Less accumulated depreciation and amortization                                        1,630          1,024
----------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT                                                               19,027         18,390
OTHER ASSETS
    Deferred tax asset, net of valuation allowance                                          -              -  
    Miscellaneous assets                                                                 24,986         16,465
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                          $ 119,303      $ 167,167
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
    Accounts payable                                                                  $   2,665      $   1,501
    Other accrued liabilities                                                             2,368          4,604
    Salaries, wages and employee benefits                                                 3,801          3,148
    Long-term debt due within one year                                                      492          2,969
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                                 9,326         12,222
LONG-TERM DEBT                                                                           22,923         27,482
OTHER LONG-TERM LIABILITIES                                                              13,402         44,715
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                              558          6,853
COMMITMENTS AND CONTINGENCIES                                                               -              -  
REDEEMABLE PREFERRED STOCK                                                              214,996        189,402
STOCKHOLDERS' DEFICIT
    Common stock $5.00 par value; authorized 50,000,000 shares; issued:
     13,806,375 shares in 1998 and 13,805,988 shares in 1997                             69,032         69,030
    Capital in excess of par value                                                      119,100        119,092
    Accumulated other comprehensive income (loss)                                         1,168        (73,531)
    Accumulated deficit                                                                (331,202)      (228,098)
----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT                                                            (141,902)      (113,507)
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                           $ 119,303      $ 167,167
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      23

<PAGE>

                  AVATEX CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                        Accumulated 
                                                                           Capital in      other    
                                                                            excess of  comprehensive    Accumulated
                                                                Common         par         income         earnings        Treasury
(in thousands of dollars)                                        stock        value        (loss)        (deficit)          stock 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>         <C>              <C>              <C>
BALANCE AT MARCH 31, 1995                                   $  120,836     $  209,110     $  (73,052)    $  184,947      $(137,691)
   Net loss                                                                                                 (63,661)
   Dividend paid in Ben Franklin Retail Stores, Inc.
     common stock                                                                                           (29,709)
   Dividends declared - Convertible Preferred -
     $5.00 per share                                                                                         (4,061)
   Dividends declared - Series A Preferred -
     paid in additional stock                                                                               (15,319)
   Amortization of discount on Series A Preferred                                                            (1,728)
   Conversion of preferred stock                                   104            434
   Net unrealized holding loss on securities                                                  (2,391)
   Reduction in additional minimum
     pension liability                                                                        10,794
   Stock options exercised                                                         69                                        3,821
   Foreign currency translation adjustment                                                       (40)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996                                      120,940        209,613        (64,689)        70,469       (133,870)
   Net loss                                                                                                (279,356)
   Dividends declared - Convertible Preferred -
     $5.00 per share                                                                                         (1,771)
   Dividends declared - Series A Preferred -
     paid in additional stock                                                                                (4,354)
   Dividends in arrears on Convertible Preferred
     and Series A Preferred                                                                                 (10,806)
   Amortization of discount on Series A Preferred                                                            (2,150)
   Purchase and cancellation of preferred stock                                 6,355
   Purchase of treasury stock                                                                                              (16,726)
   Cancellation of treasury stock                              (51,910)       (96,807)                                     148,717
   Net unrealized holding gain on securities                                                      17
   Recognition of additional minimum
     pension liability                                                                        (8,897)
   Stock options exercised                                                        (69)                         (130)         1,879
   Foreign currency translation adjustment                                                        38
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1997                                       69,030        119,092        (73,531)      (228,098)           -  
   Net loss                                                                                                 (77,500)
   Dividends in arrears on Convertible Preferred
     and Series A Preferred                                                                                 (23,101)
   Amortization of discount on Series A Preferred                                                            (2,503)
   Conversion of preferred stock                                     2              8
   Net unrealized holding gain on securities                                                   1,168
   Reduction in additional minimum
     pension liability                                                                        73,531
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998                                    $  69,032     $  119,100       $  1,168    $  (331,202)      $    -  
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      24

<PAGE>


                      AVATEX CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                 For the years ended March 31,
(in thousands of dollars)                                                      1998           1997           1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                   $  (77,500)   $  (279,356)   $   (63,661)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED)
   BY OPERATING ACTIVITIES:
   Minority interest in results of operations of consolidated subsidiaries        220         (1,106)         2,117
   Equity in loss of affiliates                                                 3,336          5,199          4,168
   Depreciation and amortization                                                  958          1,468          1,034
   Net preferred income from National Steel Corporation                        (5,854)        (9,620)        (3,329)
   Loss on National Steel Corporation settlement                               59,038            -              -  
   Loss (gain) on disposal of discontinued operations                          (3,719)       246,055          7,081
   Loss (gain) on investments                                                  11,368        (21,141)        (6,951)
   Other non-cash charges (credits)                                           (25,952)         2,167        (16,644)
   Deferred income tax provision                                                  -           29,836          2,938
   Depreciation and amortization,  provision for losses on accounts
     receivable and other items related to discontinued operations                -           86,333         69,796
   Cash provided (used) by working capital items, net of acquisitions:
     Receivables                                                                2,468         20,802        (55,314)
     Inventories                                                                  -           26,018        104,627
     Other assets and restricted cash                                          32,883        (37,146)          (160)
     Accounts payable and accrued liabilities                                  (8,545)       (14,687)        (8,803)
   Other                                                                           20            110           (182)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                              (11,279)        54,932         36,717
---------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Reduction in cash from reclassification to discontinued operations
     or change to equity method of accounting                                     -          (24,366)        (9,108)
   Purchase of property, plant and equipment                                   (5,593)       (34,748)       (40,789)
   Purchase of investments                                                    (15,315)        (6,366)       (84,354)
   Proceeds from the disposition of investments                                64,149        104,355         33,178
   Acquisitions, net of cash acquired                                          (7,399)           -           (6,215)
   Other                                                                        2,192            250            718
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                               38,034         39,125       (106,570)
---------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings under revolving credit facilities                                   -          447,492      1,444,880
   Repayments under revolving credit facilities                                   -         (326,883)    (1,396,880)
   Proceeds from the issuance of long-term debt                                18,613         14,520         23,603
   Debt repayments                                                            (18,660)      (212,486)        (2,418)
   Debt issuance costs                                                           (388)        (8,140)        (1,055)
   Purchase of treasury stock                                                     -          (16,726)           -  
   Purchase of preferred stock                                                    -           (8,845)        (4,236)
   Investment by minority interest                                                800              -            -
   Dividends paid on redeemable preferred stock                                   -           (2,697)        (4,180)
   Dividends paid to minority interest                                           (100)        (1,786)        (1,555)
   Exercise of stock options                                                      -            1,680          3,449
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                  265       (113,871)        61,608
---------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS                     27,020        (19,814)        (8,245)
   Cash and short-term investments, beginning of year                           7,173         26,987         35,232
---------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR                               $   34,193    $     7,173    $    26,987
---------------------------------------------------------------------------------------------------------------------
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                  25

<PAGE>

                        AVATEX CORPORATION AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE THREE YEARS ENDED MARCH 31, 1998




NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

DESCRIPTION OF BUSINESS: Avatex Corporation is a holding company that, along 
with its subsidiaries (collectively, the "Corporation"), owns interests in 
hotels and office buildings and in other corporations and partnerships.  
Through Phar-Mor, Inc. ("Phar-Mor"), its 38% owned affiliate, the Corporation 
is involved in operating a chain of discount retail drugstores.

BASIS OF PRESENTATION: The preparation of the consolidated financial 
statements, in conformity with generally  accepted  accounting  principles, 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities, and the disclosure of contingent 
assets and liabilities, at the dates of the financial statements and the 
reported amounts of revenues and expenses during such reporting periods.  
Actual results could differ from these estimates.  

The consolidated financial statements include the accounts of all 
majority-owned subsidiaries and partnerships in which the Corporation has a 
controlling interest.  See Note B for a discussion of the Corporation's basis 
for determining controlling interest.  Investments in other companies and 
partnerships in which the Corporation has significant influence but does not 
have a controlling interest are accounted for on the equity basis.  All 
significant intercompany balances and transactions have been eliminated.

CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments consist 
principally of amounts held in demand deposit accounts and amounts invested 
in other instruments having a maturity of three months or less at the time of 
purchase and are recorded at cost.  Use of approximately $0.3 million of cash 
and short-term investments at March 31, 1998 was restricted, principally in 
connection with real estate loans (see Note H).  At March 31, 1997, 
approximately $33.1 million was restricted principally in connection with 
prior litigation (see Notes B and N).  

INVESTMENTS: The Corporation's investments in debt securities and equity 
securities that have a readily determinable fair value are classified as 
either "available for sale" or "trading" and are carried at fair value.  The 
classification of the security is determined at the acquisition date and 
reviewed periodically.  The unrealized gains or losses, resulting from the 
difference in the fair value and the cost of securities, for securities 
available for sale are shown as a component of the stockholders' deficit, and 
for trading securities are reported in the results of operations.  The 
Corporation periodically reviews its investments for which fair value is less 
than cost to determine if the decline in value is other than temporary.  If 
the decline in value is judged to be other than temporary, the cost basis of 
the security is written down to fair value.  The amount of any write-down 
would be included in the results of operations as a realized loss.  Realized 
gains and losses resulting from the sale of securities are determined using 
the average cost method.  See Note F.

PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.  
Differences between amounts received and the net carrying values of 
properties retired or disposed of are included in results of operations.  The 
cost of maintenance and repairs is charged against results of operations as 
incurred.  Depreciation of property and equipment is provided using the 
straight-line method at rates designed to distribute the cost of properties 
over their estimated service lives of 5 to 40 years for buildings and 
building improvements and 3 to 10 years for equipment and furniture.   
Amortization of leasehold improvements is included in depreciation and 
amortization and is based on the lesser of the minimum term of the lease or 
the asset's estimated useful life. Depreciation for income tax purposes is 
computed using both the straight-line and accelerated methods.  


                                    26

<PAGE>

Property and equipment consisted of the following  (in thousands of dollars):

<TABLE>
<CAPTION>

                                                               March 31,
                                                           1998        1997
        -----------------------------------------------------------------------
        <S>                                             <C>         <C>
         Land                                           $   5,631   $   5,804
         Buildings and building improvements               10,677       8,967
         Leasehold improvements                                61          28
         Equipment and furniture                              697         720
         Construction in progress                           3,591       3,895
        -----------------------------------------------------------------------
                                                        $  20,657   $  19,414
        -----------------------------------------------------------------------
</TABLE>

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: Minority interest in results 
of operations of consolidated subsidiaries represents the minority 
shareholders' or partners' proportionate share of the net income (loss) of 
various consolidated subsidiaries (see Note B).  The minority interest in the 
consolidated balance sheets reflects the proportionate interest in the equity 
of consolidated subsidiaries. 

REVENUE RECOGNITION:   Revenues, consisting of receipts from hotels and 
related operations as well as lease income from office rentals, are recorded 
when earned.  No one customer accounted for over 10% of revenues.  All real 
estate operations are located in the Washington D.C. and surrounding area.   

INCOME TAXES: Deferred tax assets and liabilities are established for 
temporary differences between financial statement carrying amounts and the 
taxable basis of assets and liabilities using rates currently in effect.  A 
valuation allowance is established for any portion of the deferred tax asset 
for which realization is not likely.  The valuation allowance is reviewed 
periodically to determine the amount of deferred tax asset considered 
realizable.  

STOCK-BASED COMPENSATION: As permitted by Statement of Financial Accounting 
Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation", the 
Corporation continued to apply the recognition and measurement provisions of 
Accounting Principles Board Opinion No. 25 ("APB 25") "Accounting for Stock 
Issued to Employees" and adopted only the disclosure requirements of SFAS No. 
123.  Accordingly, no compensation costs were recognized in connection with 
the Corporation's stock option plans (see Note J).

COMPREHENSIVE INCOME (LOSS):  The Corporation elected to adopt SFAS No. 130 
"Reporting Comprehensive Income" in the current year.  Comprehensive income 
is the change in equity of a business enterprise during a period from 
transactions and other events from nonowner sources.  Changes in balances of 
items that are reported directly in a separate component of stockholders' 
equity (foreign currency translation adjustments, unrealized gains and losses 
and minimum pension liability adjustments) are added or subtracted from net 
income (loss) to arrive at comprehensive income (loss).  See Note C.

RECLASSIFICATIONS: Certain previously reported amounts were reclassified to 
conform to current year presentations.


                                     27

<PAGE>

EARNINGS (LOSS) PER SHARE:  In February 1997, SFAS No. 128 "Earnings per 
Share" was issued.  SFAS No. 128 requires a presentation of "basic" and 
"diluted" earnings per share effective for periods ending after December 15, 
1997. Earnings per share for all prior periods must be restated to conform 
with the provisions of SFAS No. 128.  The amounts used in the calculation of 
earnings per share from continuing operations were as follows (amounts in 
thousands, except per share amounts):

<TABLE>
<CAPTION>


                                                                             For the years ended March 31,
                                                                          1998           1997           1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>            <C>
 Income (loss) from continuing operations                             $   (81,219)    $  (12,244)    $    5,148
 Deduct dividends on preferred shares                                      25,604         19,081         21,108
-----------------------------------------------------------------------------------------------------------------
 Loss from continuing operations applicable to common
    stockholders for BASIC earnings per share                            (106,823)       (31,325)       (15,960)
 Effect of dilutive securities:
    Dividends on convertible preferred shares, unless anti-dilutive             -              -              -
---------------------------------------------------------------------------------------------------------------
 Loss from continuing operations applicable to common
    stockholders for DILUTED earnings per share                       $  (106,823)    $  (31,325)    $  (15,960)
-----------------------------------------------------------------------------------------------------------------

 Shares
 Weighted average number of common shares outstanding
    for calculation of BASIC earnings per share                            13,806         14,931         16,521
 Conversion of preferred stock, unless anti-dilutive                            -              -              -
 Outstanding options, unless anti-dilutive                                      -              -              -
-----------------------------------------------------------------------------------------------------------------
 Weighted average number of common shares outstanding
    for calculation of DILUTED earnings per share                          13,806         14,931         16,521
-----------------------------------------------------------------------------------------------------------------

 Income (loss) from continuing operations
    Basic                                                              $    (7.74)     $   (2.10)    $    (0.97)
    Diluted                                                            $    (7.74)     $   (2.10)    $    (0.97)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Options to purchase approximately 3.9 million, 2.2 million and 3.2 million 
shares were outstanding at March 31, 1998, 1997 and 1996, respectively (see 
Note J).  The options were not included in the computation of diluted 
earnings per share because the effect of including the options in the 
calculation would be anti-dilutive.  Conversion of the convertible preferred 
stock outstanding was also not included in the calculation of diluted 
earnings per share as it would also have been anti-dilutive.  

NOTE B - ACQUISITIONS AND DISPOSITIONS

FOXMEYER CORPORATION

In 1997, the Board of Directors of the Corporation approved a plan to divest 
its drug distribution subsidiary, FoxMeyer Drug Company ("FoxMeyer Drug"), 
the primary operating unit of the Corporation.  The subsidiary and its 
parent, FoxMeyer Corporation ("FoxMeyer"), were treated as a discontinued 
operation as of the measurement date of June 30, 1996.  The Corporation 
recognized a loss from discontinued operations of FoxMeyer of $17.5 million, 
net of taxes, for the three months ended June 30, 1996.  In addition, the 
Corporation recognized a loss of $254.5 million from the write-off of its 
investment in FoxMeyer. Revenues included in results of discontinued 
operations were $1.4 billion for the three months ended June 30, 1996 and 
$5.5 billion for the year ended March 31, 1996.  The loss from discontinued 
operations was net of applicable income tax benefit of $4.6 million in 1997 
and $28.9 million for the year ended March 31, 1996.


                                     28

<PAGE>
The unaudited balance sheet of FoxMeyer at June 30, 1996, the date of 
disposition, was as follows ( in thousands of dollars):
<TABLE>
<CAPTION>
        <S>                                                       <C>
         Current assets                                           $   828,784
         Property, plant and equipment                                144,746
         Goodwill and other intangibles                               209,699
         Deferred tax asset                                            52,252
         Miscellaneous assets                                          20,672
        -----------------------------------------------------------------------
         Total assets                                             $ 1,256,153
        -----------------------------------------------------------------------

         Current liabilities                                      $   679,912
         Long-term debt                                               318,954
         Other long-term liabilities                                    4,605
         Stockholder's equity                                         252,682
        -----------------------------------------------------------------------
         Total liabilities and stockholder's equity               $ 1,256,153
        -----------------------------------------------------------------------
</TABLE>
Commencing in mid-July 1996, a group of FoxMeyer Drug's most significant 
vendors began reducing their credit lines.  Despite positive cash flow 
projections, the liquidity offered by a new credit facility and FoxMeyer 
Drug's history of timely debt payments, the group of vendors eliminated 
approximately $100 million of liquidity from FoxMeyer Drug's operations over 
a forty-five day period by shortening repayment terms or requiring prepayment 
for inventory purchases.  In addition, during July and August 1996, FoxMeyer 
Drug made certain prepayments to its suppliers for shipments of critical 
orders where, after receiving payment, the vendors refused to release the 
product.  In August 1996, FoxMeyer Drug met with certain key vendors 
requesting a reinstatement of credit lines to previous levels, however, an 
agreement could not be reached.  As a result of these events, FoxMeyer and 
most of its subsidiaries filed for protection under Chapter 11 of the 
Bankruptcy Code on August 27, 1996.  On November 8, 1996, the U.S. Bankruptcy 
Court for the District of Delaware approved a sale of the principal assets of 
FoxMeyer and FoxMeyer Drug to McKesson Corporation ("McKesson").  On March 
18, 1997, the Chapter 11 cases were converted into Chapter 7 liquidation 
cases.

In connection with McKesson's purchase of FoxMeyer's and FoxMeyer Drug's 
assets, McKesson paid approximately $23 million in cash to debtors, paid off 
approximately $500 million in secured debt and assumed an additional $75 
million in other liabilities.  The Corporation received no proceeds from the 
sale of FoxMeyer's and FoxMeyer Drug's assets to McKesson.

BEN FRANKLIN RETAIL STORES, INC.

On September 29, 1995, each shareholder of record of the Corporation received 
one share of Ben Franklin Retail Stores, Inc. ("Ben Franklin") common stock 
for every six shares of the Corporation's common stock.  The dividend of Ben 
Franklin common stock resulted in a charge of $29.7 million to stockholders' 
equity.  The amount of the dividend was based on the book value of the shares 
at the time of the distribution.  As a result of the distribution, the 
Corporation's ownership in Ben Franklin decreased from 67.7% to 17.4%.

Subsequent to the distribution, the Corporation accounted for Ben Franklin on 
an equity basis.  The carrying value of Ben Franklin was reduced by $3.4 
million in 1996 to recognize an impairment of the value of the investment. 
The Corporation wrote off the remaining book value of its investment in Ben 
Franklin of approximately $2.0 million at June 30, 1996.  The write-off 
resulted from the bankruptcy filing by Ben Franklin on July 26, 1996.   Ben 
Franklin's assets were subsequently liquidated under Chapter 7 of the 
Bankruptcy Code.

OTHER DISCONTINUED OPERATIONS

In July 1995, the Corporation adopted a plan to dispose of certain of 
FoxMeyer's managed care and information service operations and recognized a 
$0.5 million after-tax loss from discontinued operations and a $7.1 million 
after-tax loss on the disposal of these discontinued operations.  The $7.1 
million after-tax loss was based on management's best estimate at the time of 
the amounts of future operating losses and proceeds to be realized on the 
sale or other disposition of the discontinued operations. Certain of the 
operations were sold during fiscal year

                                     29

<PAGE>

1996.  On August 2, 1996, the remaining operation was sold for $30.5 million 
with an additional minimum payment of $2.5 million due and payable at any 
time subsequent to August 2, 1997.  The additional payment may increase to a 
maximum of $5.0 million based on certain criteria.  The August 1996 
transaction resulted in a gain on disposal of discontinued operations of 
approximately $13.3 million.

In April 1997, the Corporation adopted a plan to dispose of US HealthData 
Interchange, Inc. ("USHDI"), its medical claims processing operation.  As a 
result, a $3.6 million loss from discontinued operations was recognized to 
the measurement date of March 31, 1997.  The Corporation also recorded a $4.9 
million loss on disposal of discontinued operations.  The $4.9 million loss 
was based on management's best estimate of the amounts of future operating 
losses and proceeds to be realized on the sale or other disposition of this 
operation. On November 19, 1997, the Corporation sold substantially all of 
the assets of USHDI for $4.0 million in cash, subject to certain adjustments. 
The Corporation recognized a $3.7 million gain on discontinued operations as 
a result of the sale.

Sales for the years ended March 31, 1997 and 1996 for these discontinued 
operations were $1.5 million and $15.7 million, respectively.  The loss from 
discontinued operations was net of tax benefits of $0.3 million and $2.4 
million, respectively, for the years ended March 31, 1997 and 1996.

PHAR-MOR, INC.

During fiscal year 1996, the Corporation acquired a 69.8% interest in 
Hamilton Morgan LLC, a Delaware limited liability company ("Hamilton 
Morgan").  The acquisition of Hamilton Morgan was accounted for using the 
purchase method of accounting resulting in goodwill of approximately $7.8 
million.  Hamilton Morgan subsequently acquired an approximate 30.9% common 
stock interest in Phar-Mor, which operates a chain of discount retail 
drugstores devoted to the sale of prescription and over-the-counter drugs, 
health and beauty care products and other general merchandise and grocery 
items.  At that time, the Corporation also owned common stock of Phar-Mor 
which represented an additional 7.8% interest.

The Corporation accounts for its investment in Phar-Mor on an equity basis.  
At March 31, 1997, the Corporation determined that there was a decline in the 
value of its investment in Phar-Mor that was other than temporary and 
recorded a charge to earnings of $13.6 million (net of minority interest in 
Hamilton Morgan) including the write-off of the goodwill related to the 
acquisition of Hamilton Morgan.  The reduction in value was based on 
management's best estimate of the fair value of its investment in Phar-Mor at 
March 31, 1997.

On September 19, 1997, the Corporation completed a transaction with Hamilton 
Morgan, Robert Haft (Hamilton Morgan's other major investor) and certain 
other parties, under which it acquired from Hamilton Morgan 3,750,000 shares 
of Phar-Mor common stock in exchange for (i) the redemption of the 
Corporation's ownership interest in Hamilton Morgan, (ii) the satisfaction of 
a promissory note from Hamilton Morgan and (iii) the transfer of 
approximately $6.1 million in other assets to Hamilton Morgan.  The 
transaction was treated as a purchase of the minority interest in Hamilton 
Morgan.  The acquisition price was approximately equal to the book value of 
the minority interest acquired.  The Corporation at March 31, 1998 owns 
directly, including shares of Phar-Mor common stock it had previously owned 
and were not involved in this transaction, approximately 38.4% of Phar-Mor's 
common stock compared to 29.4%, net of minority interest, at March 31, 1997.  
At March 31, 1998, the carrying value of the investment in Phar-Mor was $24.7 
million with a market value of approximately $55.3 million.


                                     30


<PAGE>

Summarized unaudited financial information for Phar-Mor was as follows for 
the periods from September 1995, the acquisition date (the date Phar-Mor 
emerged from bankruptcy), to March 31, 1998 (in thousands of dollars):

<TABLE>
<CAPTION>

                                                        52 Weeks       52 Weeks       30 Weeks 
                                                         Ended          Ended          Ended   
                                                        March 28,      March 29,      March 30,
    Condensed Statements of Operations                    1998           1997           1996   
-----------------------------------------------------------------------------------------------
    <S>                                               <C>            <C>              <C>
    Net sales                                         $ 1,081,164    $ 1,084,325      $ 609,486
    Operating earnings                                      3,712          4,901         11,632
    Net income (loss)                                      (9,092)        (5,378)         5,210
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                        March 28,      March 29,
         Condensed Balance Sheets                         1998           1997
         -----------------------------------------------------------------------
         <S>                                           <C>            <C>
         Current assets                                $  266,626     $  270,883
         Property and equipment                            74,407         72,366
         Other assets                                      13,629         13,391
         -----------------------------------------------------------------------
         Total assets                                  $  354,662     $  356,640
         -----------------------------------------------------------------------

         Current liabilities                           $  116,892     $  104,043
         Long-term obligations                            155,714        163,258
         Stockholders' equity                              82,056         89,339
         -----------------------------------------------------------------------
         Total liabilities and stockholders' equity    $  354,662     $  356,640
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
</TABLE>

DEVELOPMENT

Certain subsidiaries of the Corporation (collectively, "Development") are 
controlling partners in various real estate limited partnerships engaged in 
the buying, holding, operating and disposing of real estate and real estate 
loans. These partnerships are consolidated in the accompanying financial 
statements. Development controls these partnerships pursuant to rights 
granted by the partnership agreements which specify that the partnership's 
business shall be managed, and its business controlled, exclusively by 
Development.  Development will lose its right to exclusively manage the 
partnerships if (i) the current co-chief executive officers cease to be 
officers or directors of the Corporation or (ii) there has been at least a 
50% aggregate return to the Corporation on the capital invested by 
Development.  Additionally, Development was a general partner or a limited 
partner in other real estate partnerships in which it had significant 
influence but did not have a controlling interest that were generally 
accounted for using the equity method.  Development's partnerships are 
generally obligated to return Development's initial investment together with 
a preferred rate of return on the undistributed investment before other 
partners may receive distributions.  Such preferred returns were accounted 
for as liquidating dividends. Development invested, before dividends and 
return of capital, approximately $1.4 million in 1998, $4.0 million in 1997 
and $5.9 million in 1996 in various real estate partnerships.  

During 1997, the Corporation sold its ownership interest in certain real 
estate limited partnerships for $9.9 million.  The transactions resulted in a 
gain of approximately $6.0 million which was included in "Other income 
(expense)" in the consolidated statements of operations.

On June 5, 1997, one of the consolidated partnerships acquired the remaining 
65.5% of certain improved real property not already owned by the partnership 
for approximately $7.4 million, net of cash acquired in the acquisition.   
The partnership accounted for the acquisition using the purchase method of 
accounting.  If the property had been acquired at the beginning of the 
current or prior fiscal year, revenues for the years ended March 31, 1998 
and 1997, respectively, would have been approximately $1.2 million and $5.1 
million greater than reported.  The pro forma impact on the Corporation's 
loss from continuing operations if the acquisition had taken place at the 
beginning of the current or prior fiscal year was not material.  On March 31, 
1998, the Corporation sold its 50% interest in the partnership for $1.8 
million, including $0.4 million in cash and a $1.4 million short-term note 
receivable, resulting in a gain of $0.7 million which was included in "Other 
income (expense)" in the consolidated statements of operations.

                                      31

<PAGE>

FOXMEYER CANADA INC.

On October 7, 1996, the Corporation sold all of its interest in FoxMeyer 
Canada Inc. ("FoxMeyer Canada").  The net proceeds from the sale were $37.4 
million. In connection with the sale, the Corporation recognized a gain of 
approximately $34.0 million which was included in "Other income (expense)" in 
the consolidated statements of operations.  FoxMeyer Canada was a 39% owned 
affiliate of the Corporation at the time of its sale and was accounted for on 
the equity basis.  

The Corporation's direct interest in FoxMeyer Canada was received as a 
dividend from FoxMeyer on June 19, 1996.  The Corporation was restricted from 
using all but $5.0 million of the proceeds received until the settlement of 
certain FoxMeyer bankruptcy litigation in October 1997 (see Note N).  The 
restricted funds were included in "Restricted cash and investments" in the 
consolidated balance sheet at March 31, 1997.


NOTE C - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AND SUPPLEMENTAL
COMPREHENSIVE INCOME (LOSS) INFORMATION

Accumulated other comprehensive income (loss) in the consolidated statements 
of stockholders' equity (deficit) included the following components (in 
thousands of dollars):

<TABLE>
<CAPTION>
                                                                                         March 31,
                                                                                1998       1997         1996
    ----------------------------------------------------------------------------------------------------------
    <S>                                                                      <C>        <C>          <C>
    Foreign currency translation adjustment                                  $      -   $       -    $     (38)
    Unrealized gains (losses) on securities                                     1,168           -          (17)
    Minimum pension liability adjustment                                            -     (73,531)     (64,634)
    ----------------------------------------------------------------------------------------------------------
    Total accumulated other comprehensive income (loss)                      $  1,168   $ (73,531)   $ (64,689)
    ----------------------------------------------------------------------------------------------------------
    ----------------------------------------------------------------------------------------------------------
</TABLE>

Amounts charged to the minimum pension liability in prior periods were 
reversed upon the termination of the Corporation's liability with respect to 
the Weirton pension plan as a result of the settlement with National Steel 
Corporation (see Note G) and were shown in the caption "Loss on plan 
termination from National Steel Corporation settlement included in net loss" 
in the consolidated statement of comprehensive loss for the year ended March 
31, 1998.  

As a result of the Corporation's income tax environment (see Note M), income 
tax provisions (benefits) were not allocated to any of the components of 
other comprehensive income (loss) for the three years ended March 31, 1998.


NOTE D - SUPPLEMENTAL CASH FLOW AND BALANCE SHEET INFORMATION

The following supplemental cash flow information is provided for interest and 
income taxes paid and for non-cash transactions (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                               For the years ended March 31,
                                                                               1998        1997         1996
    ----------------------------------------------------------------------------------------------------------
    <S>                                                                      <C>        <C>          <C>
    Interest paid                                                            $  3,179   $  18,738    $  33,486
    Income taxes paid                                                              40          34          191
    Non-cash transactions:
       Note received as part of National Steel Corporation settlement           9,442           -            -
       Notes received on sale of other investments                              1,350       2,315            -
       Ben Franklin common stock distributed as a dividend                          -           -       29,697
       Payment of dividends in kind on Series A Preferred Stock                     -       4,354       15,319
       Cumulative dividends accrued but not paid                               23,101      10,806            -
    ----------------------------------------------------------------------------------------------------------
    ----------------------------------------------------------------------------------------------------------

</TABLE>
                                      32
<PAGE>

The following supplemental information is provided for miscellaneous assets 
and other long-term liabilities (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                                     March 31,
                                                                                 1998        1997
    ---------------------------------------------------------------------------------------------
    <S>                                                                     <C>         <C>
    Miscellaneous assets:
      Prepaid pension cost                                                  $   9,440   $   8,730
      Securities available for sale                                             7,212           -
      Other investments, at cost                                                6,028       5,673
      Other                                                                     2,306       2,062
    ---------------------------------------------------------------------------------------------
        Total                                                               $  24,986   $  16,465
    ---------------------------------------------------------------------------------------------
    ---------------------------------------------------------------------------------------------
    

    Other long-term liabilities:
      Pension and postretirement benefits                                   $   5,290   $  34,743
      Environmental liabilities                                                 1,417       2,093
      Liabilities related to discontinued operations                            4,334       4,602
      Other                                                                     2,361       3,277
    ---------------------------------------------------------------------------------------------
        Total                                                               $  13,402   $  44,715
    ---------------------------------------------------------------------------------------------
    ---------------------------------------------------------------------------------------------
</TABLE>

NOTE E - OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Corporation's receivables at March 31, 1998 represented a concentration 
of credit risk.  Receivables consisted of a $7.2 million receivable from 
National Steel Corporation (see Note G), a $2.5 million receivable from the 
purchaser of a discontinued operation (see Note B), a $1.9 million receivable 
from the minority partner in the Corporation's real estate partnerships and 
$0.2 million in other accounts receivable primarily related to real estate 
operations.  The accounts receivable valuation allowance at March 31, 1998 
represented management's best estimate of potential credit losses.  Actual 
credit losses may differ from these estimated amounts.  In addition, 
temporary cash investments may also subject the Corporation to a 
concentration of credit risk.  The Corporation placed substantially all of 
its temporary cash investments with major financial institutions and 
diversified money market mutual funds.


NOTE F - INVESTMENTS IN MARKETABLE SECURITIES

The Corporation's investments in equity securities that have a readily 
determinable market value were classified as either "available for sale" or 
"trading".  The carrying value and gross unrealized gains and losses for 
available for sale securities were as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                        March 31,
                                                 1998            1997
    -----------------------------------------------------------------
    <S>                                        <C>               <C>
    Carrying value                             $  7,212          $  -
    Unrealized gains                              1,168             -
    Unrealized losses                                 -             -
    -----------------------------------------------------------------
    -----------------------------------------------------------------
</TABLE>

Available for sale securities are included in "Miscellaneous assets".  
Trading securities of $2.9 million and $13.6 million were included in "Other 
current assets" at March 31, 1998 and 1997, respectively.

                                      33

<PAGE>

The gross proceeds and realized gains and losses from the sale of available 
for sale securities and the change in unrealized gains (losses) on available 
for sale and trading securities were as follows (in thousands of dollars):

<TABLE>
<CAPTION>


                                                                   For the years ended March 31, 
                                                                 1998           1997        1996
   --------------------------------------------------------------------------------------------------
    <S>                                                        <C>             <C>         <C>
    Available for sale securities:
      Proceeds from sales                                      $    --         $    6      $  13,523
      Realized gains                                                --             --          1,103
      Realized losses                                               --            871            892
      Net unrealized gains (losses)                              1,168             17         (2,391)
    Trading securities:
      Net unrealized gains (losses) included in net income     (11,856)        (6,552)         1,952
   --------------------------------------------------------------------------------------------------
</TABLE>

During 1996, approximately $2.0 million of unrealized losses were charged to 
operations as a result of changing the classification of certain securities 
from available for sale to trading ($5.8 million in unrealized losses less 
$3.8 million in unrealized gains).

NOTE G - INVESTMENT IN NATIONAL STEEL CORPORATION

In January 1984, the Corporation, through its then wholly-owned subsidiary 
National Steel Corporation ("NSC"), sold substantially all of the assets of 
the Weirton Steel Division ("Weirton") to Weirton Steel Corporation.  In 
connection with the sale, NSC retained certain liabilities arising out of the 
operation of Weirton prior to May 1, 1983, including certain environmental 
liabilities, a note payable to the NSC pension trust (the "NSC Note") and 
employee benefits for Weirton employees, which consisted principally of 
pension benefits for active employees based on service prior to May 1, 1983, 
and pension, life and health insurance benefits for retired employees (the 
"Weirton Liabilities").   As a result of transactions which occurred in 
August 1984 and June 1990, the Corporation sold all but 13% of its common 
stock investment in NSC to NKK Corporation.  As part of the 1984 transaction, 
the Corporation agreed to provide NSC sufficient funds for payment of, and to 
indemnify NSC against, all Weirton Liabilities and for certain environmental 
liabilities related to the former operations of NSC.  As part of the 1990 
transaction, the Corporation received newly issued NSC redeemable Series B 
preferred stock (the "NSC Preferred Stock") and $146.6 million in cash.  The 
cash was transferred to NSC in exchange for NSC releasing the Corporation 
from an equivalent amount of its indemnification liability with respect to 
the Weirton Liabilities (the "Released Liabilities"). The NSC Preferred Stock 
was valued at fair market value at the date of the transaction, with the 
resulting premium in excess of the minimum redemption value being amortized 
on an effective yield basis over the life of the NSC Preferred Stock.

In addition, under the terms of the 1990 transaction agreement, the 
Corporation committed that all NSC Preferred Stock dividends and redemption 
amounts were to be used to satisfy the Weirton Liabilities, excluding the 
Released Liabilities (the "Remaining Liabilities"), before any funds were 
available to the Corporation for general corporate purposes.  As a result, 
the Corporation reflected its dividend income from the NSC Preferred Stock, 
interest accretion and pension charges on the Remaining Liabilities and 
premium amortization of the NSC Preferred Stock as a single net amount in its 
consolidated statements of operations.  In addition, the Remaining 
Liabilities were presented in the Corporation's consolidated balance sheet as 
a reduction in the carrying value of the NSC Preferred Stock.  At March 31, 
1997, there were $19.0 million of Remaining Liabilities offset against the 
carrying value of the NSC Preferred Stock.

In connection with a January 1994 disposition of its remaining investment in 
NSC common stock, the Corporation was required to pay to NSC $10.0 million as 
a prepayment for potential environmental liabilities for which the 
Corporation had previously agreed to indemnify NSC (the "Prepayment 
Account"). 

On November 25, 1997, NSC, certain of its affiliates and the Corporation 
entered into an agreement whereby the Corporation received $59.0 million in 
cash and a non-interest bearing $10.0 million note in exchange for the 
redemption of the NSC Preferred Stock owned by the Corporation and NSC's 
release of the Corporation from the Weirton Liabilities as well as various 
environmental liabilities related to NSC and Weirton sites (the "NSC 
Settlement").  The note received is to be paid in installments over the 
twelve months following the NSC Settlement 


                                       34

<PAGE>

and had an estimated discounted value of $9.4 million at November 25, 1997.  
The discount is being amortized on an effective yield basis of 8.5% over the 
term of the note.  If the Corporation does not have a minimum net worth, 
including the book value of the redeemable preferred stock, of at least $15.0 
million, $5.0 million of the amount due on the note is subject to forfeiture. 
At March 31, 1998, the note receivable had a book value of $7.2 million and 
was included in "Receivables" in the consolidated balance sheet.  In 
addition, the Corporation (i) assigned to NSC all of the Corporation's rights 
to assert pre-1987 environmental claims against insurers of both NSC and the 
Corporation and (ii) released its share of any settlement proceeds related to 
such claims as well as all amounts remaining in the Prepayment Account.  As a 
result of the NSC Settlement, the Corporation recognized a $59.0 million 
loss.  However, in connection with the Corporation's contractual obligation 
to NSC relating to the Weirton Retirement Program, the Corporation had 
previously recorded a $79.7 million charge as of November 1997 to the 
accumulated deficit to recognize the minimum pension liability adjustment 
associated with the pension obligation.  As a result of the NSC Settlement, 
the Corporation reversed the charge.  The reversal of the minimum pension 
liability, net of the loss on the NSC Settlement, resulted in an improvement 
in the Corporation's accumulated deficit of $20.7 million.

NOTE H - LONG-TERM DEBT

Long-term debt was as follows (in thousands of dollars):

<TABLE>
<CAPTION>

                                                             March 31,
                                                        1998           1997
   -------------------------------------------------------------------------
    <S>                                            <C>            <C>
    Trustee note                                   $   8,322      $       -
    Secured loan                                           -         14,900
    Development notes with various maturities         15,093         15,551
   -------------------------------------------------------------------------
                                                      23,415         30,451
    Long-term debt due within one year                   492          2,969
   -------------------------------------------------------------------------
    Total                                          $  22,923      $  27,482
   -------------------------------------------------------------------------
   -------------------------------------------------------------------------

</TABLE>

To fund the Corporation's purchase of a majority interest in Hamilton Morgan 
(see Note B), the Corporation entered into a $20.0 million secured loan with 
a bank (the "Hamilton Facility").  The $14.9 million balance on the Hamilton 
Facility was repaid in November 1997 from proceeds of the NSC Settlement.  
All collateral securing the loan was released.

In connection with the settlement of certain litigation with the FoxMeyer 
Chapter 7 Trustee (the "Trustee") (see Note N), on October 9, 1997, the 
Corporation executed an $8.0 million three year note payable to the Trustee. 
The note is secured by 1,132,500 shares of Phar-Mor common stock and a 30% 
interest, up to the greater of $10.0 million or the amount owed under the 
note, in the net proceeds from certain litigation that may be brought by the 
Trustee against specified third parties.  Interest accrues at the prime rate 
and is compounded annually.  The accrued interest and the principal balance 
of the note are due at maturity on October 8, 2000; however, proceeds from 
any sale of the Phar-Mor stock held as collateral, or the successful 
resolution of the litigation that may be brought by the Trustee against third 
parties, must first be used to satisfy the note.

The limited partnerships controlled by Development, and included in the 
consolidated financial statements, have incurred certain indebtedness in 
connection with the acquisition of real estate (the "Development Notes").  
The Development Notes generally require (i) monthly payments of principal and 
interest and (ii) that a percentage of revenues be escrowed which may later 
be used to reimburse the partnership for capital expenditures or maintenance 
of the property.  The escrowed funds are included in restricted cash in the 
consolidated balance sheets.  The indebtedness is typically non-recourse and 
secured by the underlying assets; however, certain Development Notes may also 
be guaranteed by entities related to the minority partners, or Development 
subsidiaries.  The Development Notes, with maturities ranging from 2000 to 
2022, bear interest at fixed rates of from 9.25% to 10.19% except for a 
construction loan which bears interest at 1.75% over LIBOR with an initial 
term of one year from January 1998. Since the partnership has already secured 
permanent loan financing to replace the construction loan upon completion of 
the project, this loan was treated as long-term.  One of the Development 
Notes has a balloon payment of $6.3 million in 2004.  The Development Notes 
also limit the amount of dividends or other distributions to the partners.  


                                       35

<PAGE>

Maturity and approximate sinking fund requirements on all long-term debt of 
the Corporation by fiscal year were as follows: $0.5 million in 1999; $2.6 
million in 2000; $8.6 million in 2001; $0.3 million in 2002: $0.3 million in 
2003 and $11.1 million thereafter.

NOTE I - CAPITAL STOCK

COMMON STOCK SHARE REPURCHASE:  Under various share repurchase programs 
approved by the Corporation's Board of Directors, 2,966,800 shares of common 
stock were purchased by the Corporation during the period from July 1996 to 
September 1996 when the last repurchase program was suspended. The 
Corporation canceled these and all other previously acquired treasury shares 
in September 1996 with a corresponding reduction in common stock and capital 
in excess of par value of $148.7 million.

REDEEMABLE PREFERRED STOCK:  The Corporation is authorized to issue 
10,000,000 shares of preferred stock.  At March 31, 1998, there were two 
series of redeemable preferred stock outstanding.

At March 31, 1998 and 1997, the Corporation had 652,331 and 652,531 shares of 
cumulative convertible preferred stock outstanding, respectively, at a stated 
price of $50.00 per share.  Each share of this preferred stock is entitled to 
a cumulative annual dividend of $5.00 and is convertible into common stock of 
the Corporation at a conversion price of $25.80 per share.  The Corporation 
has reserved 1,264,207 shares of its common stock for issuance upon the 
conversion of this preferred stock.  The shares are redeemable at a price of 
$50.00 per share.  The Corporation is required to make sinking fund payments 
in each year to 2002 in an amount sufficient to redeem 88,000 shares annually 
and 220,000 shares in 2003.  The Corporation did not make the required 
sinking fund payment in January 1998.  The Corporation did not declare, nor 
did it pay, any of the dividends due since October 15, 1996.  Cumulative 
dividends unpaid for the convertible preferred stock at March 31, 1998 were 
$4.9 million or $7.50 per share.  As a result of the failure to pay dividends 
on the other series of preferred stock as discussed below, the Corporation 
may not redeem, and has not redeemed, any additional shares of this series of 
preferred stock as long as any cumulative dividends remain unpaid.

At March 31, 1998 and 1997, the Corporation had 4,312,351 shares of $4.20 
Cumulative Exchangeable Series A Preferred Stock, par value $5 per share, 
with a liquidation preference of $40 (the "Series A Preferred Stock") 
outstanding.  The Series A Preferred Stock is redeemable at $40 per share on 
November 30, 2003. The Series A Preferred Stock may be redeemed at the option 
of the Corporation, in whole or in part, at any time after October 15, 1998, 
at its liquidation preference plus unpaid dividends thereon.  The Corporation 
had the option, through October 15, 1996, of issuing either additional shares 
of Series A Preferred Stock or paying the dividend in cash.  The Corporation 
issued 338,527 additional shares of Series A Preferred Stock in lieu of cash 
dividends in 1997. In addition, 317,000 shares of Series A Preferred Stock 
were repurchased during 1997 on the open market, as part of a share 
repurchase program announced in August 1996, at a cost of $6.0 million.  
Dividends due since October 15, 1996 have not been declared or paid.  The 
amount of cumulative dividends unpaid for the Series A Preferred Stock at 
March 31, 1998 was $29.0 million or $6.73 per share.  The amount of the 
cumulative dividend accrued each quarter, if any dividends remain unpaid, 
increases as if additional shares of the Series A Preferred Stock had been 
issued in lieu of the cash dividend and such additional shares were 
outstanding on each succeeding dividend date until such unpaid dividends have 
been declared and paid in cash.

For those dividends paid in stock, the charge to retained earnings was based 
on the closing market price of the Series A Preferred Stock on the 
ex-dividend date.  The difference in the Series A Preferred Stock's 
liquidation preference and its market value on the ex-dividend date is being 
amortized on an effective yield basis as additional preferred stock dividends 
and charged to retained earnings over the remaining life of the Series A 
Preferred Stock.

In addition, if all cumulative unpaid dividends have been paid, the Series A 
Preferred Stock is exchangeable, at the option of the Corporation, in whole 
but not in part, and on any dividend payment date, for the Corporation's 
10.5% Subordinated Notes due 2003 (the  "Exchange  Notes") with a principal 
amount equal to the aggregate liquidation value of the outstanding Series A 
Preferred Stock.  The Exchange Notes will mature on November 30, 2003.  The 
Exchange Notes may be redeemed, at the option of the Corporation, in whole or 
in part, at any time on or after October 15, 1998, at a redemption price 
equal to the principal amount plus any unpaid interest thereon.  The 

                                       36
<PAGE>

payments of principal and interest on the Exchange Notes will be subordinated 
to all senior indebtedness of the Corporation.

The amount of cumulative unpaid dividends accrued are reflected in the 1998 
and 1997 consolidated statements of operations as if they had been declared 
with a corresponding charge to retained earnings.  The liability for the 
cumulative unpaid dividends has been added to the carrying value of the 
redeemable preferred stock in the consolidated balance sheets.

Because dividends on the convertible preferred stock and the Series A 
Preferred Stock were in arrears for six full quarterly dividend periods as of 
April 15, 1998, the holders of preferred stock have the ability to elect a 
specified number of new directors until such cumulative dividends have been 
paid in full. The voting rights and the term of office of these directors 
shall cease at such time as all dividends in arrears have been paid in full, 
or at such time as such dividends have been declared and an amount sufficient 
to pay the full amount of such dividends has been irrevocably set aside for 
payment.  Four directors representing the preferred stockholders were elected 
since the end of the fiscal year (see Note T).

See Note T for a discussion of a proposed merger of the Corporation with one 
of its wholly-owned subsidiaries which would result in the conversion of the 
outstanding preferred stock into common stock of the subsidiary.

COMMON STOCK:  At March 31, 1998 and 1997, respectively, the Corporation had 
13,806,375 and 13,805,988 shares of common stock outstanding.  The 
Corporation has also reserved 3,953,192 shares of its common stock for 
issuance under its stock option and performance award plans (see Note J).  As 
long as there are cumulative unpaid dividends on the preferred stock, as 
discussed above, no dividends may be paid on the common stock.

The New York Stock Exchange ("NYSE") has advised the Corporation that it has 
fallen below the listing criteria for net tangible assets and average net 
income for the past three years and has requested the Corporation demonstrate 
when it will be able to return to the NYSE's original listing requirements.  
The Corporation has been in discussions with the NYSE regarding continued 
listing of the securities on the NYSE and the effect of the Corporation's 
proposed merger with Xetava Corporation (see Note T) on those securities.  
The NYSE has advised the Corporation that, if the merger is not consummated, 
the NYSE will proceed with efforts to suspend and/or delist the Corporation's 
securities from trading on the NYSE and, in any event, may proceed with 
efforts to suspend and/or delist the Corporation's securities from trading 
subject to the Corporation's ability to comply with the NYSE's original 
listing requirements.

NOTE J- EMPLOYEE COMPENSATION PLANS

The Corporation maintains the 1993 Restated Stock Option and Performance 
Award Plan (the "Plan").  The Plan provides for the granting of incentive 
options and non-qualified options to purchase shares of the common stock of 
the Corporation to certain officers and key employees of the Corporation and 
its subsidiaries and for the granting of non-qualified stock options to the 
outside directors on an automatic basis.  The Plan also permits the granting 
of performance shares, restricted shares and performance units to 
participants (other than outside directors).  Under the Plan, the Finance and 
Personnel Committee of the Board of Directors of the Corporation determines 
the price at which options are to be granted, the period over which options 
are exercisable, the duration of performance or restriction periods and 
performance targets over which performance shares shall be earned.  Options 
for an aggregate of 4,000,000 shares of the Corporation's common stock may be 
granted under the Plan.  At March 31, 1998, options for 100,078 shares were 
still available for grant under the Plan.

Effective January 1, 1997, the Corporation instituted a Performance Incentive 
Plan, as approved by the Board of Directors, that covers approximately eight 
employees.  The participants are entitled to share in a fund, the amount of 
which shall be based on 17.5% of the Corporation's net income before the 
charge for the incentive plan, the settlement with the FoxMeyer Trustee, the 
NSC Settlement and the NSC net preferred dividend determined as of March 31st 
of each year.  Approximately $1.9 million was earned under the plan for the 
year ending March 31, 1998.  No amounts were earned for the period ending 
March 31, 1997.


                                       37

<PAGE>

The following table summarizes the information with respect to stock options 
for the three years ended March 31, 1998.  All options granted were at least 
at the published market price of the Corporation's common stock on the date 
of grant.

<TABLE>
<CAPTION>
                                                            Outstanding
                                                   ---------------------------------
                                                                      Weighted
                                                                       Average
                               Exercisable Shares      Shares       Exercise Price
    --------------------------------------------------------------------------------
    <S>                       <C>                     <C>           <C>
     March 31, 1995                    1,003,807      3,372,988       $  17.50
     1996:
     Granted                                            527,500          19.78
     Exercised                                          278,002          16.20
     Canceled or forfeited                              457,189          20.73
    --------------------------------------------------------------------------------
     March 31, 1996                    1,329,669      3,165,297          17.52
     1997:
     Granted                                          4,932,786           7.13
     Exercised                                          105,586          15.91
     Canceled or forfeited                            5,753,591          14.90
    --------------------------------------------------------------------------------
     March 31, 1997                       40,792      2,238,906           1.45
     1998:
     Granted                                          1,655,000           1.13
     Exercised                                                -              -
     Canceled or forfeited                               40,792          15.11
    --------------------------------------------------------------------------------
     March 31, 1998                    1,452,909      3,853,114           1.16
    --------------------------------------------------------------------------------
    --------------------------------------------------------------------------------
</TABLE>

The Corporation accounts for stock-based compensation using the intrinsic 
value method of APB 25 (see Note A).  Accordingly, no compensation expense 
was recognized.  If the Corporation had used the fair value of options at the 
grant dates, as defined by SFAS No. 123, to recognize compensation cost for 
the three years ended March 31, 1998, the Corporation's net income (loss) and 
loss per common share would have been as follows on a pro forma basis (in 
thousands of dollars, except per share amounts):

<TABLE>
<CAPTION>

                                                                     1998           1997           1996
   -------------------------------------------------------------------------------------------------------
   <S>                                                           <C>            <C>              <C>
    As reported
       Net income (loss) from continuing operations              $  (81,219)    $  (12,244)      $  5,148
       Net loss                                                     (77,500)      (279,356)       (63,661)
    Pro forma
       Net income (loss) from continuing operations              $  (82,412)    $  (12,006)      $  4,781
       Net loss                                                     (78,693)      (279,118)       (64,028)
   -------------------------------------------------------------------------------------------------------
    As reported for both basic and diluted earnings per share
       Net loss per share from continuing operations             $    (7.74)    $    (2.10)      $  (0.97)
       Net loss per share                                             (7.47)        (19.99)         (5.13)
    Pro forma for both basic and diluted earnings per share
       Net loss per share from continuing operations             $    (7.82)    $    (2.08)      $  (0.99)
       Net loss per share                                             (7.55)        (19.97)         (5.15)
   -------------------------------------------------------------------------------------------------------
   -------------------------------------------------------------------------------------------------------

</TABLE>

The fair value of each option grant was estimated on the date of grant by 
using the Black-Scholes option-pricing model.  The following weighted average 
assumptions were used for grants during the three years ended March 31, 1998:

<TABLE>
<CAPTION>

                                                                       1998           1997           1996
       ---------------------------------------------------------------------------------------------------
       <S>                                                             <C>            <C>            <C>
        Expected dividend yield (%)                                     0.0            0.0            0.0
        Expected volatility (%)                                        60.8           43.7           28.9
        Risk-free interest rates (%)                                    6.2            6.3            5.9
        Expected option lives (years)                                   4.0            4.5            3.1
       ---------------------------------------------------------------------------------------------------
       ---------------------------------------------------------------------------------------------------

</TABLE>


                                     38

<PAGE>

The weighted-average fair values of options granted during 1998, 1997 and 
1996 were $0.58, $1.57 and $5.47, respectively.

The following table summarizes information about significant option groups 
outstanding and exercisable as of March 31, 1998 and related weighted-average 
exercise price and weighted-average contractual life remaining:

<TABLE>
<CAPTION>

      Options with Exercise Prices      Outstanding         Exercisable    Remaining
      Ranging from:                   Shares    Price     Shares    Price     Life
     --------------------------------------------------------------------------------
     <S>                            <C>         <C>      <C>        <C>    <C>
      $1.125 to $1.3125             3,853,114   $ 1.16   1,452,909  $ 1.19     4.0
     --------------------------------------------------------------------------------
     --------------------------------------------------------------------------------
</TABLE>

NOTE K - RETIREMENT PLANS

The Corporation and its subsidiaries have retirement plans consisting of both 
defined benefit and defined contribution plans.  Pension benefits under the 
defined benefit plans are generally based upon years of service or a 
combination of remuneration and years of service.  No current employees of 
the Corporation are covered under the defined benefit plans.  The 
Corporation's funding policy for defined benefit plans is to make payments to 
the pension trusts in accordance with the funding requirements of federal 
laws and regulations.  The outside directors of the Corporation are covered 
under a non-qualified and unfunded defined benefit plan.

The Corporation has maintained an employees' savings plan under Section 
401(k) of the Internal Revenue Code for all employees since April 1997.  
Under the plan, employees generally may elect to exclude up to 15% of their 
compensation from amounts subject to income tax as a salary deferral 
contribution.  The Corporation makes a matching contribution to each 
employee, which immediately vests, in an amount equal to 50% of the first 6% 
of the employee's contribution. For 1997 and 1996, a subsidiary of the 
Corporation, FoxMeyer, maintained an employees' savings and profit sharing 
plan under Section 401(k) which covered substantially all the Corporation's 
employees prior to the acquisition of FoxMeyer's assets by McKesson in 
November 1996 (see Note B).  

Pension income for continuing operations under the Corporation's retirement 
plans for the three years ended March 31, 1998, are presented in the table 
below (in thousands of dollars):

<TABLE>
<CAPTION>

                                                               For the years ended March 31,
                                                            1998           1997           1996
   ---------------------------------------------------------------------------------------------
   <S>                                                    <C>          <C>              <C>
    Net periodic pension cost (income) for defined
      benefit plans:
    Service cost - benefits earned for the year           $    78      $      44        $    27
    Interest cost on projected benefit obligation           4,098          4,364          4,539
    Expected return on plan assets                         (4,387)        (5,681)        (5,239)
    Net amortization and deferral                             (57)          (100)          (142)
   ---------------------------------------------------------------------------------------------
    Net periodic pension cost (income)                       (268)        (1,373)          (815)
    Pension cost for defined contribution plans                39             20             22
   ---------------------------------------------------------------------------------------------
    Total pension cost (income)                           $  (229)     $  (1,353)       $  (793)
   ---------------------------------------------------------------------------------------------
   ---------------------------------------------------------------------------------------------

</TABLE>

The net periodic pension income for defined benefit plans was determined by 
assuming a weighted average expected long-term rate of return on plan assets 
of 8.5% for the year ended March 31, 1998 and 10.0% for the years ended March 
31, 1997 and 1996.

As a result of agreements with certain former officers and employees who 
elected lump sum payments in lieu of continuing payments from certain 
unfunded plans, two plans were terminated and a third plan was partially 
settled (see Note N).


                                    39

<PAGE>

The following table sets forth the funded status of the Corporation's defined 
benefit pension plans and amounts recognized in the Corporation's 
consolidated balance sheets at March 31, 1998 and 1997 utilizing a weighted 
average discount rate of 7.0% in 1998 and 7.8% in 1997 (in thousands of 
dollars):

<TABLE>
<CAPTION>

                                                                     March 31,
                                                                1998           1997
    ----------------------------------------------------------------------------------
    <S>                                                      <C>            <C>
     Change in benefit obligation:
       Projected benefit obligation, beginning of year       $  56,231      $  57,706
        Service cost                                                78             44
        Interest cost                                            4,098          4,364
        Actuarial losses (gains)                                 2,816           (151)
        Curtailment gain                                        (3,202)          (282)
        Benefits paid                                           (6,241)        (5,450)
    ----------------------------------------------------------------------------------
       Projected benefit obligation, end of year                53,780         56,231
    ----------------------------------------------------------------------------------
     Change in plan assets:
       Fair value of plan assets, beginning of year             53,911         59,128
        Actual return on plan assets                            14,705           (679)
        Benefits paid                                           (4,437)        (4,538)
    ----------------------------------------------------------------------------------
       Fair value of plan assets, end of year                   64,179         53,911
    ----------------------------------------------------------------------------------
     Funded status                                              10,399         (2,320)
     Unrecognized transition asset                                (724)          (907)
     Unrecognized net actuarial loss (gain)                     (1,267)         6,210
    ----------------------------------------------------------------------------------
     Net prepaid pension cost                                 $  8,408       $  2,983
    ----------------------------------------------------------------------------------
    ----------------------------------------------------------------------------------

</TABLE>

At March 31, 1998, the assets of the Corporation's defined benefit pension 
plans were comprised of approximately 23% bonds, 65% stocks and 12% other.  
Included in pension plans assets were approximately 1.4 million shares of the 
Corporation's common stock with a market value of $2.8 million at March 31, 
1998.

NOTE L - POSTRETIREMENT  BENEFITS  OTHER THAN PENSIONS

The Corporation or certain inactive subsidiaries have plans relating to 
retired employees that provide for postretirement health care and life 
insurance benefits.  Health benefits include major medical insurance with 
deductible and coinsurance provisions.  Life insurance benefits are usually 
for a flat benefit that decreases to age 65.  Certain plans provide that 
retirees pay for a portion of their coverage.  The plans are not funded.  The 
Corporation pays all benefits on a current basis.  No current employees are 
covered under these plans.

In March 1998, one inactive subsidiary of the Corporation, which had no 
ongoing operations since 1990, exercised its right to terminate coverage of 
its retiree healthcare and life insurance plans, as provided in the plan 
documents.  In addition, another subsidiary of the Corporation, which had no 
ongoing operations since 1983 and no resources to pay its liabilities, was 
dissolved in March 1998. As a consequence, this subsidiary's retiree 
healthcare and life insurance plans were effectively discontinued.  Most 
retirees covered by these plans elected to participate in a transition 
assistance payment plan and executed releases in favor of the applicable 
subsidiary and its affiliates.  A gain of approximately $21.3 million, net of 
such payments and certain remaining claim reserves, was included in "Unusual 
items" in the consolidated statements of operations as a result of the 
termination or discontinuance of these plans.

The net periodic postretirement benefit cost for continuing operations for 
the three years ended March 31, 1998 was as follows (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                For the years ended March 31,
                                                            1998           1997           1996
    --------------------------------------------------------------------------------------------
    <S>                                                  <C>            <C>            <C>
     Service cost - benefits earned for the year         $      -       $      -       $      -
     Interest cost                                          1,501          1,565          1,969
     Amortization of prior service cost and net gain         (464)          (440)          (259)
    --------------------------------------------------------------------------------------------
     Total postretirement benefit cost                   $  1,037       $  1,125       $  1,710
    --------------------------------------------------------------------------------------------
    --------------------------------------------------------------------------------------------
</TABLE>


                                      40

<PAGE>

The following table sets forth the funded status of the postretirement health 
care and life insurance plans and amounts recognized in the consolidated 
balance sheets at March 31, 1998 and 1997 utilizing a weighted average 
discount rate of 7.0% for 1998 and 7.75% for 1997 (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                                                March 31,
                                                                                         1998           1997
    -----------------------------------------------------------------------------------------------------------
    <S>                                                                               <C>            <C>
     Accumulated postretirement benefit obligation, beginning of year                 $  19,871      $  24,242
        Service cost                                                                          -              -
        Interest cost                                                                     1,501          1,565
        Plan participants' contributions                                                    489            517
        Benefits paid                                                                    (1,749)        (1,784)
        Actuarial loss (gain)                                                               286         (4,669)
        Settlement gain                                                                 (18,068)             -
    -----------------------------------------------------------------------------------------------------------
     Accumulated postretirement benefit obligation, end of year                           2,330         19,871
     Unrecognized prior service cost                                                          -          2,979
     Unrecognized net gain                                                                1,278          4,634
    -----------------------------------------------------------------------------------------------------------
     Amount of postretirement benefit obligation included in the 
       consolidated balance sheet                                                     $   3,608      $  27,484
    -----------------------------------------------------------------------------------------------------------
    -----------------------------------------------------------------------------------------------------------
</TABLE>

The 1998 reduction in plan liabilities reflects the plan settlements 
discussed above.  The 1997 reduction in plan liabilities reflects the 
actuarial gain from the adjustment of expected future medical inflation rates 
to reflect current medical cost trends.

Medical costs were assumed to increase at a rate of 9% during 1998 and then 
to decline over a period of nine years to a rate of 5%.  To demonstrate the 
volatility of the valuation results based on this assumption, the impact of a 
1% increase or a 1% decrease in the cost of health care would result in a 
8.9% increase or a 7.6% decrease, respectively, in the postretirement benefit 
obligation and a 15.4% increase or a 13.8% decrease, respectively, in 
postretirement benefit cost for the remaining plan.

NOTE M - INCOME TAXES

The provision (benefit) for income taxes consisted of the following for the 
three years ended March 31, 1998 (in thousands of dollars):

<TABLE>
<CAPTION>

                                    For the years ended March 31,
                                    1998        1997         1996
    --------------------------------------------------------------
    <S>                           <C>      <C>           <C>
     Federal
       Current                    $  (40)  $       -     $      -
       Deferred                        -      24,557        2,938
     State
       Current                        80          34           39
       Deferred                        -       5,279            -
    --------------------------------------------------------------
     Income tax provision         $   40   $  29,870     $  2,977
    --------------------------------------------------------------
    --------------------------------------------------------------
</TABLE>

The Corporation recorded a benefit for federal income tax purposes in 1998 
relating to a tax refund.  Because the Corporation believes it may not be 
able to realize its deferred tax assets, the Corporation has adjusted its 
valuation allowance to maintain a full valuation allowance against its net 
deferred tax assets.

The Corporation recorded a federal tax provision of $24.6 million in 1997.  
The federal income tax provision was primarily attributable to the 
establishment of a full valuation allowance against its net deferred tax 
assets in recognition of the impact of the FoxMeyer bankruptcy filing (see 
Note B).  

The reasons for the difference between the total tax provision and the amount 
computed by applying the statutory federal income tax rate to income (loss) 
from continuing operations before income taxes and minority interest were as 
follows (in thousands of dollars):


                                     41

<PAGE>

<TABLE>
<CAPTION>

                                                            For the years ended March 31,
                                                            1998        1997         1996
--------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>           <C>
 Statutory rate applied to pre-tax income (loss)        $  (28,336)  $   5,782     $  3,585
 Change in deferred tax asset valuation allowance           (6,621)     26,702        2,654
 Corporate dividend-received deduction                      (1,520)     (1,976)      (2,197)
 State income taxes (net of federal tax effect)                 52       3,453           25
 Weirton interest expense                                        -      (1,063)        (498)
 Capital losses                                               (296)    (14,299)        (175)
 NSC Settlement                                             20,995           -            -
 FoxMeyer bankruptcy settlement                             11,652           -            -
 Market adjustments to investments                           4,528       7,569            -
 Equity in affiliates                                        1,168       1,820        1,459
 Other items                                                (1,582)      1,882       (1,876)
--------------------------------------------------------------------------------------------
 Total tax provision                                    $       40   $  29,870     $  2,977
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>


The Corporation's current and noncurrent deferred taxes, which net to a zero 
balance as of March 31,1998 and 1997 consisted of the following temporary 
differences and net operating losses, at the statutory rate, tax credits, and 
valuation allowance (in thousands of dollars):

<TABLE>
<CAPTION>

                                                               March 31
                                                           1998        1997
        ----------------------------------------------------------------------
        <S>                                             <C>         <C>
         Tax net operating losses                       $  79,005   $  73,690
         Other liabilities                                    613      11,860
         Tax credits                                        7,595       8,284
        ----------------------------------------------------------------------
         Total deferred tax assets                         87,213      93,834
         Valuation allowance on deferred tax assets       (87,213)    (93,834)
        ----------------------------------------------------------------------
         Deferred tax asset                                     -           -
         Deferred tax liability                                 -           -
        ----------------------------------------------------------------------
         Deferred tax asset, net                        $       -   $       -
        ----------------------------------------------------------------------
        ----------------------------------------------------------------------
</TABLE>

The net change in the valuation allowance for 1998 was a decrease of 
approximately $6.6 million.

At March 31, 1998, the Corporation had, for federal income tax purposes, 
operating loss, capital loss, and investment credit carryforwards of 
approximately $225.8 million, $87.0 million, and $0.6 million, respectively, 
subject to the limits discussed below.  Operating loss carryforwards 
available for utilization in the Corporation's consolidated income tax return 
expire as follows: 2003 -$15.8 million, 2004 - $58.3 million, 2006 - $94.0 
million, 2008 -$0.5 million, 2009 - $1.0 million, 2011 - $31.6 million, 2012 
- $12.6 million and 2013 - $12.0 million.  The capital loss carryforwards 
available for utilization in the Corporation's consolidated income tax return 
will expire as follows: 1999 - $56.6 million and 2003 - $30.4 million.  
Investment credit carryforwards will expire during the years 1999 through 
2002.  The Corporation also has alternative minimum tax credit carryforwards 
of $7.0 million, which are available to offset the future regular income tax 
liability of the Corporation. Alternative minimum tax credit carryforwards do 
not expire.  

The losses and tax credits referred to in the preceding paragraph have not 
been examined by the U.S. Internal Revenue Service and, therefore, may be 
subject to adjustment.  The availability of such loss and tax credit 
carryforwards to reduce the Corporation's future consolidated federal income 
tax liability are subject to various limitations under the Internal Revenue 
Code of 1986, as amended (the "Code"), including limitations upon the 
utilization of loss and tax credit carryforwards in the event of an ownership 
change (as defined in the Code) of the Corporation.  The Corporation believes 
that an ownership change occurred in 1995 and that another ownership change 
occurred between January and April 1998.  Consequently, except in connection 
with the disposition of certain assets occurring in the next five years, 
utilization of loss and tax credit carryforwards incurred prior to the latest 
ownership change will be severely limited.  The amount of the limitation is 
not known at this time, however, the Corporation believes that it will 
prevent the utilization of a significant amount of its operating and capital 
loss and tax credit carryforwards.


                                     42

<PAGE>

NOTE N - COMMITMENTS AND CONTINGENCIES

The Corporation leases various types of properties, primarily corporate 
office space and equipment, through noncancelable operating leases.  Rental 
expense for continuing operations under operating leases totaled $0.1 million 
in 1998, $1.1 million in 1997 and $2.5 million in 1996.  Minimum rental 
payments under operating leases with initial or remaining terms of one year 
or more at March 31, 1998 total $0.4 million with payments due of $0.1 
million in 1999, $0.1 million in 2000, $0.1 in million in 2001 and $0.1 
million in 2002.

On October 9, 1997, the United States Bankruptcy Court for the District of 
Delaware approved a settlement (the "FoxMeyer Settlement") of certain 
litigation between the Corporation and the Chapter 7 Trustee of FoxMeyer and 
certain of its subsidiaries (see Note B).  The litigation concerned the 
validity of the transfer of certain property from FoxMeyer to the Corporation 
as a dividend on June 19, 1996.  Under the FoxMeyer Settlement, (i) the pending
litigation was dismissed against the Corporation, (ii) the Corporation paid the
Trustee approximately $25.8 million from a previously established escrow 
account, and (iii) the Corporation executed a three year $8.0 million 
promissory note payable to the Trustee (see Note H).  As a result of the 
FoxMeyer Settlement, the Corporation recognized a $33.3 million charge which is
included in "Unusual items" in the consolidated statements of operations.

The Corporation has retained responsibility for certain potential 
environmental liabilities attributable to former operating units.  As a 
result of the NSC Settlement, the Corporation has been released from 
responsibility for claims resulting from its prior ownership of NSC or 
Weirton (see Note G).  The Corporation is still subject to federal, state and 
local environmental laws, rules and regulations, including the Comprehensive 
Environmental Response Compensation and Liability Act of 1980, as amended, 
and similar state superfund statutes related to sites of other former 
operating units.  These statutes generally impose joint and several liability 
on present and former owners and operators, transporters and generators for 
remediation of contaminated properties regardless of fault.  The Corporation 
and its subsidiaries received various claims and demands from governmental 
agencies relating to investigations and remedial actions to address 
environmental clean-up costs and in some instances have been designated as a 
potentially responsible party by the Environmental Protection Agency.

At March 31, 1998, the Corporation had reserves of $1.8 million for 
environmental assessments, remediation activities, penalties or fines at nine 
sites that may be imposed for non-compliance with such laws or regulations. 
Reserves are established when it is probable that liability for such costs 
will be incurred and the amount can be reasonably estimated.  The 
Corporation's estimates of these costs are based upon currently available 
facts, existing technology, presently enacted laws and regulations and the 
professional judgment of consultants and counsel. Where the available 
information is sufficient to estimate the amount of the liability, that 
estimate has been used.  Where the information is only sufficient to 
establish a range of probable liability and no point within the range is more 
likely than the other, the lower end of the range was used.

The amounts of reserves for environmental liabilities are difficult to 
estimate due to such factors as the unknown extent of the remedial actions 
that may be required and, in the case of sites not formerly owned by the 
Corporation, the unknown extent of the Corporation's probable liability in 
proportion to the probable liability of other parties. Moreover, the 
Corporation may have environmental liabilities that the Corporation cannot in 
its judgment estimate at this time and losses attributable to remediation 
costs may arise at other sites.  Management recognizes that additional work 
may need to be performed to ascertain the ultimate liability for such sites, 
and further information could ultimately change management's current 
assessment.  A change in the estimated liability could have a material impact 
on the financial condition and results of operations of the Corporation.

In connection with litigation claims by the Corporation and certain other 
plaintiffs against various insurance carriers for coverage of certain 
environmental liabilities, the Corporation received a $1.6 million cash 
settlement in 1998 for certain of these claims which was included in the 
consolidated statements of operations in "Unusual items".  In connection with 
the NSC Settlement in November 1997, the Corporation assigned to NSC its 
right to assert pre-1987 environmental claims against the insurance carriers 
and released to NSC its share of any settlement proceeds related to such 
claims.

In November 1997, the Corporation entered into lump sum payment agreements 
with certain former officers and employees who were receiving supplemental 
pension and other payments from the Corporation or its subsidiaries.

                                     43
<PAGE>

As a result of the agreements, the Corporation paid approximately $2.1 
million to these individuals for the termination of the Corporation's payment 
obligations and recognized a gain of approximately $5.6 million, including 
$3.2 million associated with certain retirement plans discussed in Note K, 
which was included in "Unusual items" in the consolidated statements of 
operations.

The Corporation entered into certain agreements in 1996 with Ashland Oil, 
Inc. ("Ashland") settling unresolved  issues relating to the sale of The 
Permian Corporation ("TPC") to Ashland in 1992.  As a result of the 
agreements, the Corporation settled all outstanding claims and was released 
from any additional claims in connection with the sale of TPC to Ashland.  
Previously established liabilities of $19.6 million related to these claims 
by Ashland, and to other contingencies settled during the year, were released 
and were included in "Other income" in 1996 in the consolidated statements of 
operations.

On March 1, 1994, the Corporation and FoxMeyer announced that the Corporation 
had proposed a merger in which a wholly-owned subsidiary of the Corporation 
would be merged with and into FoxMeyer, making FoxMeyer a wholly-owned 
subsidiary of the Corporation.  Shortly after the announcement, class action 
lawsuits were filed against the Corporation, FoxMeyer and certain of 
FoxMeyer's officers and directors.  Following a number of procedural matters, 
and the execution (and subsequent withdrawal) of a Memorandum of 
Understanding dated June 30, 1994 under which the litigation would be 
dismissed, the litigation was consolidated and an amended complaint was filed 
on February 13, 1996 in IN RE: FOXMEYER CORPORATION SHAREHOLDER LITIGATION, 
No. 13391, in the Court of Chancery in Delaware.  The amended complaint 
alleges that the defendants breached their fiduciary duties to FoxMeyer's 
shareholders by agreeing to the merger at an unfair price and at a time 
designed so that the Corporation could take advantage of, among other things, 
an alleged substantial growth in the business of FoxMeyer.  The complaint 
also alleges that the proxy statement issued in connection with the merger 
failed to disclose certain matters relating to the proposed merger.  No 
schedule has been set for the completion of discovery in the case, the 
briefing of plaintiffs' class certification motion or any other proceedings.  
The Corporation is unable at this time to estimate the possible loss, if any, 
which may accrue from this lawsuit.

The Corporation and certain of its current and former officers and directors 
have been named in a series of purported class action lawsuits that were 
filed and subsequently consolidated under  ZUCKERMAN, ET AL. V. FOXMEYER 
HEALTH CORPORATION, ET AL., in the United States District Court for the 
Northern District of Texas, Dallas Division, Case No. 396-CV-2258-T.  The 
lawsuit purports to be brought on behalf of purchasers of the Corporation's 
common and its Series A and convertible preferred stocks during the period 
July 19, 1995 through August 27, 1996.  On May 1, 1997, plaintiffs in the 
lawsuit filed a consolidated amended class action complaint, which alleges 
that the Corporation and the defendant officers and directors made 
misrepresentations of material facts in public statements or omitted material 
facts from public statements, including the failure to disclose purportedly 
negative information concerning its National Distribution Center and Delta 
computer systems and the resulting impact on the Corporation's existing and 
future business and financial condition.  On March 31, 1998, the court denied 
the Corporation's motion to dismiss the amended complaint in the lawsuit.  
The Corporation intends to continue to vigorously defend itself in the 
lawsuit. The Corporation is unable at this time to estimate the possible 
loss, if any, which may accrue from this lawsuit.

The Corporation and its Co-Chairmen and Co-Chief Executive Officers have also 
been named as defendants in GROSSMAN V. FOXMEYER HEALTH CORP., ET AL., Cause 
No. 96-10866-J, in the 191st Judicial Court of Dallas County, Texas.  The 
lawsuit purports to be brought on behalf of all holders of the Corporation's 
common stock during the period October 30, 1995 through July 1, 1996, and 
seeks unspecified money damages.  Plaintiff asserts claims of common law 
fraud and negligent misrepresentation, based on allegations that she was 
induced not to sell her shares by supposed misrepresentations and omissions 
that are substantially the same as those alleged in the ZUCKERMAN action 
described above. On September 28, 1997, the court denied the Corporation's 
motion for summary judgment in the lawsuit. The Corporation intends to 
continue to vigorously defend itself in the lawsuit. The Corporation is 
unable at this time to estimate the possible loss, if any, which may accrue 
from this lawsuit.

In 1997, the bankruptcy trustee and certain creditors of the Corporation's 
17%-owned subsidiary, Ben Franklin, filed lawsuits against certain former 
officers and directors of Ben Franklin, the Corporation and certain current 
and former officers and directors of the Corporation.  The Corporation and 
its officers and directors have since been dropped as defendants in the 
lawsuits.  In connection with paying its own defense costs and those of its 
officers and directors, the Corporation also initially paid a portion of the 
defense costs of certain individuals who are named as


                                    44

<PAGE>

defendants in these lawsuits by reason of the fact that they may have been 
serving at the request of the Corporation as a director or officer of Ben 
Franklin.  In accordance with Delaware law, the Corporation may, if 
appropriate, agree at a future date to indemnify certain of the remaining 
defendants in the lawsuit.

In April 1998, the Trustee filed a lawsuit against the five former directors 
of FoxMeyer, in which the Trustee alleges that the defendants breached their 
fiduciary duty in connection with the June 19, 1996 dividend of certain 
assets to the Corporation.  In October 1997, in connection with the 
settlement of a separate lawsuit brought by the Trustee against the 
Corporation, the Corporation was released by the Trustee from all liability 
and the director-defendants in this lawsuit received covenants not to execute 
from the Trustee.  The Corporation has agreed to pay the initial defense 
costs of the individuals who are named as defendants in the lawsuit by reason 
of the fact that they may have been serving at the request of the Corporation 
as a director or officer of FoxMeyer.

In June 1998, Steven Mizel IRA and Anvil Investment Partners, L.P. filed a 
lawsuit, allegedly on behalf of the Corporation, against seven of the 
directors of the Corporation and three of its former directors who were 
members of the Corporation's Personnel and Compensation Committee.  The 
lawsuit is styled STEPHEN MIZEL IRA ET. AL. V. BUTLER, ET. AL., No. 
602773198, in the Supreme Court of the State of New York, County of New York. 
The plaintiffs are holders of the Corporation's Series A Preferred Stock, 
and the lawsuit relates primarily to agreements and transactions between the 
Corporation and its Co-Chairmen and Co-Chief Executive Officers, Abbey J. 
Butler and Melvyn J. Estrin.  The Corporation has not yet fully analyzed its 
position with respect to the lawsuit or the Corporation's obligations to the 
defendants under its Certificate of Incorporation, by-laws, indemnification 
agreements with the defendants or Delaware law.

See Note T for a discussion of lawsuits filed by preferred stockholders 
concerning a proposed merger of the Corporation with and into one of its 
subsidiaries.

There are various other pending claims and lawsuits arising out of the normal 
conduct of the Corporation's  businesses.  In the opinion of management, the 
ultimate outcome of these claims and lawsuits will not have a material effect 
on the consolidated financial condition or results of operations of the 
Corporation.

NOTE O - UNUSUAL ITEMS AND OTHER INCOME (EXPENSE)

In 1998, unusual items consisted of a $33.3 million charge from the 
settlement of certain litigation with the FoxMeyer Trustee (see 
Note N), a gain of $1.7 million from the settlement of litigation, 
principally from payments received from insurance carriers related to the 
settlement of environmental liabilities (see Note N), and a gain of $26.9 
million for the settlement or termination of certain pension and other 
postretirement benefits of former officers and employees (see Notes L and N).

In 1998, other expenses consisted of a loss of $12.9 million during the year 
from the adjustment in the carrying value of Imagyn Medical Technologies, 
Inc. ("Imagyn") to its market value, partially offset by $1.6 million in 
gains primarily from the sale of other investments.  In 1997, other income 
consisted of a gain of $34.0 million on the sale of FoxMeyer Canada and $7.3 
million from the sale of real estate properties and the early collection of a 
real estate note receivable.  The gains were partially offset by the 
write-down of the Corporation's investment in Phar-Mor of $13.4 million, the 
write-off of the investment in Ben Franklin of $2.0 million and $6.7 million 
in other losses primarily from marketable securities (including $4.8 million 
in losses related to Imagyn).  In 1996, other income consisted of a gain of 
$19.6 million related to the settlement of certain unresolved issues in 
connection with the 1992 sale of The Permian Corporation and other 
contingencies, a gain of $14.3 million on the Corporation's investment in 
Imagyn and $1.6 million in gains on the early collection of real estate notes 
receivable.  The gains were partially offset by a $3.4 million write-down of 
the value of Ben Franklin and losses of $10.3 million on trading securities 
and other investments.

                                      45
<PAGE>

NOTE P - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments was determined by the 
Corporation based on available market information and appropriate valuation 
methodologies.  However, considerable judgment is necessarily required in 
interpreting market data to develop the estimates of fair value.  
Accordingly, the estimates are not necessarily indicative of the amounts that 
the Corporation might realize in a current market exchange.  The use of 
different market assumptions and/or estimation methodologies might have had a 
material effect on the estimated fair value at March 31, 1998 or 1997, 
respectively.  

The carrying amounts of cash and short-term investments, accounts and notes 
receivable, accounts payable and other accrued liabilities were reasonable 
estimates of their fair value.

The carrying value of long-term debt was $23.4 million and $30.5 million at 
March 31, 1998 and 1997, respectively, while the estimated fair value was 
$23.4 million and $30.1 million, respectively, based upon interest rates 
available to the Corporation for issuance of similar debt with similar terms 
and remaining maturities.

Equity securities classified as "available for sale" or "trading" were 
carried at their estimated fair value (see Notes A and F).  The carrying 
value of the investment in NSC Preferred Stock in 1997 was net of the 
Remaining Liabilities (see Note G).  The carrying value of the NSC Preferred 
Stock was $62.8 million at March 31, 1997.  The estimated fair market value 
of the NSC Preferred Stock was approximately $67.1 million based on NSC's 
other outstanding debt with similar terms and remaining maturity.  The 
carrying value of the Remaining Liabilities at March 31, 1997 consisted 
principally of pension liabilities and the NSC Note bearing interest at 8.5% 
with an 11 year remaining amortization. The carrying value of the NSC Note 
approximated its fair value at March 31, 1997.

The fair value of the Corporation's redeemable preferred stock, based on 
quoted market prices at March 31, 1998 and 1997, was $69.3 million and $41.7 
million, respectively.

The fair value of certain warrants with a carrying value of $1.1 million at 
March 31, 1997 was estimated to be $2.2 million based upon the underlying 
market value of the securities into which the warrants could be converted.  
An investment in a partnership, with a book value of $3.0 million, held 
publicly traded securities with a market value of $12.7 million and $14.2 
million at March 31, 1998 and 1997, respectively.

The carrying value of other investments was estimated to be at fair value, or 
it was not practicable to estimate their fair value without incurring 
substantial costs.  The carrying value of these investments at March 31, 1998 
and 1997 was $3.0 million and $1.6 million, respectively.

The fair value estimates were based on pertinent information available to 
management as of March 31, 1998 and 1997.  Such amounts have not been 
comprehensively revalued for purposes of these financial statements since 
those dates, and current estimates of fair value may differ significantly 
from the amounts presented herein.

                                       46

<PAGE>

NOTE Q - SEGMENT INFORMATION

The Corporation's principal operations are its real estate investments.  In
addition, the Corporation performs certain corporate office and investment
activities ("Corporate").  Balance sheet related disclosures also include
information for discontinued operations (see Note B) where necessary.  The
following table includes segment information for the three years ended March 31,
1998 (in thousands of dollars):

<TABLE>
<CAPTION>

           
                                                     Real                            Discontinued 
                                                    Estate          Corporate         Operations        Consolidated
----------------------------------------------------------------------------------------------------------------------------
         <S>                                     <C>               <C>              <C>                 <C>        
         1998:
         Revenues                                  $  12,228       $       -        $        -          $   12,228
         Operating income (loss)                       1,855         (11,433)                -              (9,578)
         Depreciation and amortization                   917              41                 -                 958
         Identifiable assets                          23,479          95,824                 -             119,303
         Capital expenditures                          5,583              10                 -               5,593
----------------------------------------------------------------------------------------------------------------------------
         1997:
         Revenues                                  $  12,463       $       -        $        -          $   12,463
         Operating income (loss)                       2,608          (4,999)                -              (2,391)
         Depreciation and amortization                   934             534                 -               1,468
         Identifiable assets                          26,665         140,502                 -             167,167
         Capital expenditures                          6,707             186            27,855              34,748
----------------------------------------------------------------------------------------------------------------------------
         1996:
         Revenues                                  $  10,439       $       -        $        -          $   10,439
         Operating income (loss)                         940          (8,069)                -              (7,129)
         Depreciation and amortization                   723             311                 -               1,034
         Identifiable assets                          29,403         167,075         1,380,592           1,577,070
         Capital expenditures                          2,017               -            38,772              40,789
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE R - QUARTERLY DATA  (UNAUDITED)

The following is a tabulation of the unaudited quarterly results of continuing 
operations for the two years ended March 31, 1998 (in thousands of dollars, 
except per share amounts):

<TABLE>
<CAPTION>

                                                                       Quarter
---------------------------------------------------------------------------------------------------
                                                      First      Second        Third       Fourth 
---------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>          <C>         <C>
1998:
Revenues                                            $  3,163    $  3,660     $  2,974    $  2,431
Operating income (loss)                              (33,472)        850        3,777      19,267
Net income (loss) from continuing operations         (36,946)     (1,585)     (59,176)     16,488
Earnings (loss) per common share from continuing
   operations after preferred stock dividends:
   Basic                                               (3.12)      (0.57)       (4.76)       0.71
   Diluted                                             (3.12)      (0.57)       (4.76)       0.66
---------------------------------------------------------------------------------------------------
1997:
Revenues                                            $  3,705    $  4,101     $  3,234    $   1,423
Operating income (loss)                                 (903)     (1,378)         229        (339)
Net income (loss) from continuing operations         (31,627)     (3,613)      32,164      (9,168)
Earnings (loss) per common share from continuing
   operations after preferred stock dividends:
   Basic                                               (2.13)      (0.43)        1.90       (1.10)
   Diluted                                             (2.13)      (0.43)        1.79       (1.10)
--------------------------------------------------------------------------------------------------
</TABLE>

                                       47

<PAGE>

In addition to those items discussed below, the Corporation's quarterly results
were significantly affected by the realized and unrealized gains or losses on
securities and other investments.

During the fourth quarter of 1998, the Corporation recognized a gain of $21.3 
million on the termination and settlement of retiree healthcare and life 
insurance benefits (Note L).  In the third quarter of 1998, the Corporation 
recognized a loss of $59.0 million on the NSC Settlement (Note G) and a gain 
of $5.6 million on the settlement of certain pension and other postretirement 
benefit claims of former officers and employees (Note N).  In the second 
quarter of 1998, the Corporation recognized $1.7 million in gains on 
settlement of litigation, primarily the settlement of certain environmental 
liability claims (see Note N).  In the first quarter of 1998, the Corporation 
recognized a $33.3 million charge related to the FoxMeyer Settlement with the 
Trustee (see Note N). 
 
In the fourth quarter of 1997, a $13.6 million charge, net of minority 
interest, was recorded in connection with the reduction in the carrying value 
of Phar-Mor (see Note B).  During the third quarter of 1997, the Corporation 
sold FoxMeyer Canada and certain real estate operations resulting in a gain 
of approximately $40.0 million (see Note B).  During the first quarter of 
1997, the net loss reflected the increase in the valuation allowance for the 
deferred tax asset as a result of the FoxMeyer bankruptcy filing (see Note M).

Per share amounts were computed independently for each quarter based on the 
average number of shares outstanding during that quarter. Therefore, the sum 
of the quarterly per share amounts may not equal the total for the fiscal 
year because of stock or other transactions that occurred during such years 
(see Note I).

NOTE S - GOING CONCERN

During the year ended March 31, 1998, the Corporation has had significant 
success in resolving a number of matters which threatened its existence 
including: (i) a significant reduction in operating cash outflows; (ii) the 
settlement with the FoxMeyer Trustee of certain claims against the 
Corporation and the release of the Corporation's assets from a temporary 
restraining order and injunction; (iii) the restoration of the Corporation's 
liquidity and the elimination of substantial healthcare, environmental and 
other liabilities through an aggressively negotiated settlement of the 
Corporation's preferred stock investment in NSC; and (iv) the elimination of 
certain other material benefit obligations owed by the Corporation or its 
subsidiaries.  Nevertheless, the Corporation will likely continue to report 
operating losses, which together with a continuing common stockholders' 
deficiency and various pending claims and litigation as described in Note N, 
raise doubt as to the Corporation's ability to continue as a going concern.  

Building on the successes of 1998, management has turned its full attention 
to the remaining issues.  The following specific actions are planned: (a) to 
overcome the operating losses, management will (i) continue current efforts 
to identify and acquire an operating company and (ii) continually review and 
assess its investment portfolio in order to identify those investments which 
should be liquidated and those which merit new or additional investment; (b) 
to correct its common stockholders' deficiency, the Corporation's Board of 
Directors has approved a merger with Xetava Corporation which would eliminate 
the preferred stock obligation (see Note T); and (c) to address its pending 
litigation, management remains firm in its belief that such claims are 
without merit and will continue its vigorous defense of the matters.

The Corporation's financial statements have been prepared on a going concern 
basis which contemplates the realization of assets and the settlement of 
liabilities and commitments in the normal course of business.  The financial 
statements do not reflect any adjustments that might ultimately result from 
the resolution of these uncertainties.

NOTE T - SUBSEQUENT EVENT

On April 14, 1998, the Corporation announced that it would merge with and into
its wholly-owned subsidiary, Xetava Corporation ("Xetava"). Under the proposed
merger, the Corporation's existing common and preferred stockholders will
receive new common stock of Xetava, which upon consummation of the merger will
be renamed 

                                       48

<PAGE>

Avatex.  Pursuant to the merger agreement, (i) each share of the 
Corporation's common stock will be converted into one-half share of Xetava 
common stock, (ii) each share of the Corporation's convertible preferred 
stock will be converted into 4.1249 shares of Xetava common stock and (iii) 
each share of the Corporation's Series A Preferred Stock will be converted 
into 3.7271 shares of Xetava common stock.  Following the consummation of the 
merger, the common stockholders of the Corporation will own approximately 
26.9%, and preferred stockholders of the Corporation will own approximately 
73.1%, of Xetava's outstanding common stock (exclusive of options previously 
granted under the Corporation's existing stock option plan which will be 
assumed by Xetava in the merger).  While the merger has been approved by the 
Board of Directors, consummation of the merger is conditioned upon the (i) 
approval of the transaction by the holders of a majority of the Corporation's 
outstanding common stock, (ii) effectiveness of a registration statement to 
be filed with the Securities and Exchange Commission with respect to shares 
of Xetava common stock that will be issued in the merger, and (iii) approval 
of the listing of such shares on the New York Stock Exchange.   

The following three lawsuits were filed by preferred shareholders in April 
1998. First, on April 23, 1998, Elliott Associates, L.P. ("Elliott") filed a 
lawsuit against the Corporation, Xetava and seven of the Corporation's 
directors in the Court of Chancery in Delaware (the "Delaware Chancery Court"). 
Elliott is a private investment partnership that, along with an affiliate, 
holds preferred and common stock of the Corporation.  In the lawsuit, Elliott 
seeks to enjoin the proposed merger of the Corporation with and into its 
wholly owned subsidiary, Xetava, by alleging that (i) the proposed merger 
requires the consent of the holders of the Corporation's preferred stock, 
(ii) the individual defendants' actions in approving the merger breached 
their fiduciary duties of care and loyalty, and (iii) the individual 
defendants further breached their fiduciary duties by structuring the merger 
in a manner calculated to entrench themselves in office. Second, on April 23, 
1998, Harbor Finance Partners, Ltd. and Anvil Investment Partners, L.P. 
(collectively, "Harbor") filed a purported class action lawsuit, allegedly on 
behalf of the holders of the Corporation's two series of preferred stock, 
against the Corporation and the same seven individual defendants in the 
Delaware Chancery Court.  In this lawsuit, Harbor alleges the same 
allegations contained in the first two counts of the Elliott lawsuit, and 
further alleges that (i) the defendants have breached the implied covenant of 
good faith in the "organic corporate documents" applicable to the preferred 
stock and (ii) the defendants' actions constitute an anticipatory breach of 
such documents.  Third, on April 29, 1998, Robert Strougo filed a lawsuit 
against the Corporation and the seven individual defendants in the Delaware 
Chancery Court, which is substantially identical to the Harbor lawsuit.

In addition to the foregoing preferred shareholder lawsuits, on April 23, 
1998, the same date that Elliott filed its lawsuit, Vincent Intrieri, Daniel 
Gropper, Ralph DellaCamera and Brian Miller filed a separate lawsuit against 
the Corporation in the Delaware Chancery Court.  In this lawsuit, the 
plaintiffs seek a determination under Sections 220 and 225 of the Delaware 
Corporation Code that (i) Messrs. Intrieri and Gropper have been duly elected 
as directors of the Corporation by a majority of holders of the Corporation's 
Series A Preferred Stock and (ii) Messrs. DellaCamera and Miller have been 
duly elected as directors of the Corporation by a majority of holders of the 
Corporation's convertible preferred stock.  The plaintiffs also seek an order 
recognizing the purported directors' right to examine the Corporation's books 
and records.

On May 1, 1998, the Corporation consented to the election by a majority of 
the holders of its Series A Preferred Stock of Messrs. Intrieri and Gropper 
to the Corporation's Board of Directors in order to obtain an expedited 
hearing on May 14, 1998 before the Delaware Chancery Court.  Following the 
May 14th hearing, on June 3, 1998, the Delaware Chancery Court ruled in the 
Corporation's favor that its preferred shareholders are not entitled under 
the Corporation's Certificate of Incorporation to vote separately as a class 
on the proposed merger.  On June 8, 1998, the Corporation advised the 
Delaware Chancery Court that its Board of Directors will meet to determine 
whether it would be appropriate to reconsider and/or modify the terms of the 
proposed merger based on a number of events that have occurred since the 
Board of Directors approved the merger.  These events include the 
commencement of lawsuits, the June 3, 1998 court decision and potential 
changes in the values of certain of the Corporation's assets.  As a result, 
the Delaware Chancery Court postponed a hearing originally scheduled for that 
date on the request of the preferred stockholders to enjoin the proposed 
merger.  In addition, the Delaware Chancery Court on June 8, 1998 ruled that 
Messrs. DellaCamera and Miller were validly elected to the Corporation's 
Board of Directors by the written consent of the majority of holders of the 
convertible preferred stock and the Series A Preferred Stock.  

                                       49
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

     None

                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Board of Directors of Avatex Corporation (the "Corporation") consists of 
eleven members.  The following sets forth, with respect to each member of the 
Corporation's Board of Directors, his name, age, period served as director, 
present position, if any, with the Corporation and other business experience.

                               THE BOARD OF DIRECTORS

ABBEY J. BUTLER, age 60, has served as a director of the Corporation since 1990.
Mr. Butler has also served as Co-Chairman of the Board of the Corporation since
March 1991 and was appointed Co-Chief Executive Officer of the Corporation in
October 1991.  He has also served as a director of Phar-Mor, Inc. ("Phar-Mor")
since September 1995, and as its Co-Chairman of the Board and Co-Chief Executive
Officer since October 1, 1997.  Mr. Butler also serves as managing partner of
Centaur Partners, L.P., an investment partnership with ownership interests in
the Corporation, as well as the President and a director of C.B. Equities Corp.,
a private investment company.  Mr. Butler presently serves as a director and a
member of the Executive Committee of GrandBanc, Inc. ("GrandBanc"), the holding
company of Grand Bank, Maryland, and, in connection with investments by the
Corporation and its subsidiaries, as a director of Imagyn Medical Technologies,
Inc. ("Imagyn"), Carson, Inc. ("Carson"), AM Cosmetics, Inc. ("AM") and Cyclone,
Incorporated ("Cyclone").  Mr. Butler is a trustee and a member of the Executive
Committee of the Board of Trustees of The American University, and a director of
the Starlight Foundation, a charitable organization.  He was appointed by
President George Bush to serve on the President's Advisory Committee on the
Arts, and he now serves as President and Chief Executive Officer of the National
Committee for the Performing Arts, John F. Kennedy Center, Washington, D.C.  Mr.
Butler also served as Co-Chairman of the Board of FoxMeyer Corporation
("FoxMeyer") since March 1991 and was Co-Chief Executive Officer of FoxMeyer
from May 1993 to November 1996, and also served as Co-Chairman of the Board of
Ben Franklin Retail Stores, Inc. ("Ben Franklin") from November 1991 until March
1997.  FoxMeyer, FoxMeyer Drug Company and Ben Franklin each filed for relief
under the Bankruptcy Code in 1996.

MELVYN J. ESTRIN, age 55, has served as a director of the Corporation since
1990.  Mr. Estrin has also served as Co-Chairman of the Board of the Corporation
since March 1991 and was appointed Co-Chief Executive Officer of the Corporation
in October 1991.  He has also served as a director of Phar-Mor since September
1995, and as its Co-Chairman of the Board and Co-Chief Executive Officer since
October 1, 1997.  Mr. Estrin also serves as managing partner of Centaur
Partners, L.P., an investment partnership, and has served as Chairman of the
Board and Chief Executive Officer of Human Service Group, Inc., a private
management and investment firm, since 1983.  Mr. Estrin presently serves as a
director and a member of the Executive Committee of GrandBanc, as a director of
Washington Gas Light Company and, in connection with investments by the
Corporation and its subsidiaries, as a director of Imagyn, Carson, AM and Caring
Technologies, Inc. ("CareTech").  Mr. Estrin also served as a Trustee of the
University of Pennsylvania and was appointed by President George Bush to serve
as Commissioner of the National Capital Planning Commission.  Mr. Estrin also
served as Co-Chairman of the Board of FoxMeyer since March 1991 and was Co-Chief
Executive Officer of FoxMeyer from May 1993 to November 1996, and also served as
Co-Chairman of the Board of Ben Franklin from November 1991 until March 1997. 
FoxMeyer, FoxMeyer Drug Company and Ben Franklin each filed for relief under the
Bankruptcy Code in 1996.

HYMAN H. FRANKEL, PhD., age 77, has served as a director of the Corporation
since February 1997.  Dr. Frankel holds a PhD. in Sociology, and has served as a
consultant to the Corporation since 1992.  See "COMPENSATION OF DIRECTORS"
below.  He has served as President and a director of Human Service Group, Inc.,
a private management and investment firm, and was also a founder and has served
as an executive officer and a director of University Research Corporation since
1965.  Both of these companies are controlled by Mr. Estrin.  Dr. Frankel has
also served as Chairman of the Board of The Center for Human Service, Inc., a
non-profit health and education research organization, and as Vice President and
a director of American Health Services, an operator of general and psychiatric
hospitals and nursing homes.  Dr. Frankel has held teaching and research
positions in social sciences at a number of universities

                                      50
<PAGE>

throughout the United States during the past 35 years, and has served in 
various capacities in connection with a number of government commissions and 
other programs.

FRED S. KATZ, age 59, has served as a director of the Corporation since February
1997.  Mr. Katz is President of First Taconic Capital Corporation ("First
Taconic"), a private merchant banking and consulting firm, since 1996.  Mr. Katz
has also served as a Managing Director of Whale Securities, L.P., a registered
broker-dealer and member of the National Association of Securities Dealers,
Inc., since June 1991, and as Chairman of the Board of Cyclone, a former
business unit of USX Corporation, since 1994.  In 1995, a subsidiary of the
Corporation, M & A Investments, Inc. ("M&A"), invested in Cyclone.  See
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" below.  Mr. Katz
has over 30 years of diversified investment and merchant banking experience
specializing in investments in emerging growth companies and industries through
private placements or public offerings of securities.

WILLIAM A. LEMER, age 57, has served as a director of the Corporation since
February 1997.  Mr. Lemer is a private investor and real estate developer.  He
has served as President of Bethesda Avenue Photo, Inc. and Pentagon Concourse
Photo, Inc., franchisees of One Hour Moto Photo, since June 1992.  Since April
1988, he has been the general partner of Metro Associates Limited Partnership,
which owns a shopping center in Woodbridge, Virginia.  Until March 1997, Mr.
Lemer also served as a Director of Ben Franklin, which filed for protection
under the Bankruptcy Code in July 1996.  Mr. Lemer is the brother-in-law of Mr.
Estrin.

CHARLES C. PECARRO, age 60, has served as a director of the Corporation since
February 1997.  Mr. Pecarro is the Chief Financial Officer of Human Service
Group, Inc. and University Research Corporation, both of which are companies
controlled by Mr. Estrin.  Mr. Pecarro has worked for the companies since 1972,
and he has been a certified public accountant since 1968.  Mr. Pecarro also
serves on the Board of Directors of the Center for Technical Cooperation, a
private non-profit corporation.

JOHN L. WINEAPPLE, age 58, has served as a director of the Corporation since
February 1997.  Mr. Wineapple is a consultant to First Taconic, a private
merchant banking and consulting firm, and has been the principal of John
Wineapple Associates, Inc., a marketing and business development consulting firm
that has advised such clients as Regent International, Inc., Fleet Street, Ltd.,
Moretz, Inc., Sara Lee Corporation and Wal-Mart Stores, Inc., since 1995.  Mr.
Wineapple is also the Chairman and Chief Executive Officer of Visual Effect,
LLC, a strategic planning and consulting firm to the retail and manufacturing
industries specializing in visual and merchandise display, since 1996.  From
1989 to 1995, he served as Senior Vice President and Partner of ScotchMaid,
Inc., a division of Sara Lee Corporation engaged in mass market distribution to
large retailers.  Mr. Wineapple also served as an independent director of
FoxMeyer Funding, Inc., a subsidiary of FoxMeyer, during a portion of fiscal
1997.

DANIEL GROPPER, age 27, has served as a director of the Corporation since April
1998.  Mr. Gropper has been an Analyst with Stonington Management Corp.
("Stonington") since 1995, and has worked on a variety of projects including
bankruptcies, restructurings, liquidations, activist positions, distressed high
yield situations, structured convertibles and private transactions.  Prior to
joining Stonington, Mr. Gropper was an Associate in the Investment Banking
Department of Interstate/Johnson Lane, where he worked on public offerings and
merger transactions.  Prior to his position with Interstate/Johnson Lane, Mr.
Gropper was an Analyst in the Financial Institutions Group of the Investment
Banking Division of Goldman, Sachs & Co.  Mr. Gropper has a Bachelor of Science
in Commerce with Distinction from the University of Virginia.

VINCENT INTRIERI, age 41, has served as a director of the Corporation since
April 1998.  Mr. Intrieri has been a Portfolio Manager with Stonington since
1995, where he analyzes investments and manages a portfolio of stocks and high
yield bonds in a variety of industries.  He performs fundamental analysis and
workouts of distressed securities, special situations and turnarounds.  Prior to
joining Stonington, Mr. Intrieri was a Partner in the Corporate Recovery
Services Group in the Chicago office of Arthur Anderson & Co., where he had
extensive experience in accounting, finance and consulting services for major
Fortune 500 corporations.  Prior to Arthur Anderson & Co., Mr. Intrieri was a
Director in the Bankruptcy and Reorganization Services Group of Price
Waterhouse.  Mr. Intrieri has a Bachelor of Science in Accounting with
Distinction from Pennsylvania State University, and is a director of Australian
Food and Fiber Limited, Marvel Holdings, Inc. and Marvel (Parent) Holding, Inc.

                                      51
<PAGE>

RALPH DELLACAMERA, JR., age 44, has served as a director of the Corporation
since June 1998.  Mr. DellaCamera joined Stonington as a convertible arbitrage
trader in 1986 and is currently Head Trader and Senior Risk Manager. Mr.
DellaCamera is responsible for managing investments in distressed securities,
equities, commodities and currencies.  Prior to joining Stonington, Mr.
DellaCamera was employed by various Wall Street firms for the past 21 years he
has been in the finance business.  Mr. DellaCamera holds a Bachelor of Science
in Business Administration from the University of New Haven.

BRIAN MILLER, age 32, has served as a director of the Corporation since June
1998.  Mr. Miller joined Stonington as a trader in 1991 and is currently a
Portfolio Manager specializing in equity arbitrage strategies.  Prior to joining
Stonington, Mr. Miller was employed by Yamaichi International as a derivatives
trader.  Mr. Miller has a Bachelor of Science in Economics with Honors from
Albany State University.
                                          
                                 EXECUTIVE OFFICERS

A brief biography of each executive officer of the Corporation (other than the
Co-Chairmen of the Board and Co-Chief Executive Officers, whose biographies are
set forth above) who served during fiscal 1998 is provided below.  Executive
officers are typically elected by the Board of Directors at its annual meeting
and hold office until the next annual meeting of the Board of Directors or until
their successors have been duly elected and qualified.  All of these individuals
were also formerly officers of FoxMeyer and FoxMeyer Drug Company, which filed
for relief under Chapter 11 of the Bankruptcy Code in 1996.

EDWARD L. MASSMAN, age 39, has served as Senior Vice President and Chief
Financial Officer of the Corporation since May 1996.  Prior thereto, he served
the Corporation as Senior Vice President of Finance and Controller since
February 1996, as Vice President and Controller since July 1994 and as
Controller since July 1993.  He also served as Senior Vice President and Chief
Financial Officer of FoxMeyer and FoxMeyer Drug Company from May 1996 to
September 1996 and, prior thereto, as Vice President and Controller from
September 1994 to February 1996 and as Director of Accounting since September
1990.  Mr. Massman was employed by Deloitte & Touche LLP from January 1983 to
September 1990, serving most recently as Senior Audit Manager.

JOHN G. MURRAY, age 43, has served as Vice President - Finance of the
Corporation since July 1997.  Prior thereto, he was a consultant to the
Corporation from July 1996 to July 1997 and served as Vice President and
Assistant Treasurer of the Corporation from April 1996 to July 1996 and as
Director of Special Projects and Assistant Treasurer from August 1993 to March
1996.  He also served as Vice President and Assistant Treasurer of FoxMeyer and
FoxMeyer Drug Company from April 1996 to November 1996, and as Director of
Special Projects and Assistant Treasurer from August 1993 to March 1996. 
Mr. Murray was Senior Vice President and Treasurer of Phoenix Ventures, Inc., a
venture capital firm, from April 1989 to August 1993.

GRADY E. SCHLEIER, age 46, has served as Vice President and Treasurer of the
Corporation since November 1995.  He also served as Vice President and Treasurer
of FoxMeyer and FoxMeyer Drug Company from November 1995 to November 1996 and,
prior thereto, as Director of Project Finance since June 1993.  He also served
as Treasurer of FoxMeyer Canada Inc., a former subsidiary of the Corporation,
until October 1996.  Mr. Schleier was the Chief Financial Officer and a director
of American EnviroTech, Inc., a hazardous waste management company, from
February 1988 to September 1992.

SCOTT E PETERSON, age 46, has served as Vice President - Finance and Controller
of the Corporation since November 1996.  He served as Vice President and
Controller of FoxMeyer and FoxMeyer Drug Company from March 1996 to November
1996 and, prior thereto, as Assistant Controller since May 1995.  Mr. Peterson
served in various capacities, most recently Vice President, Controller,
Assistant Secretary and Treasurer, for Tom Thumb Food & Drugs, Inc. from
February 1993 to July 1994.  Prior thereto, he was Vice President and Treasurer
of Tom Thumb Stores, Inc. from September 1989 to January 1993.

ROBERT H. STONE, age 38, has served as Vice President, General Counsel and
Secretary of the Corporation since November 1996.  From November 1994 to
November 1996, he served as Associate General Counsel and Assistant Secretary of
the Corporation, FoxMeyer and FoxMeyer Drug Company.  Mr. Stone was an attorney
with the law firm of Jones, Day, Reavis & Pogue from 1986 to November 1994.


                                      52

<PAGE>

        COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Corporation's directors,
executive officers and persons who beneficially own more than 10 percent of a
registered class of the Corporation's equity securities ("10% Owners") to file
reports of beneficial ownership of the Corporation's securities and changes in
such beneficial ownership with the Securities and Exchange Commission (the
"Commission").  Directors, executive officers and 10% Owners are also required
by rules promulgated by the Commission to furnish the Corporation with copies of
all forms they file pursuant to Section 16(a).

Based solely upon a review of the copies of the forms filed pursuant to Section
16(a) furnished to the Corporation, or written representations that no year-end
Form 5 filings were required for transactions occurring during fiscal 1998, the
Corporation believes that its directors, executive officers and 10% Owners
complied with Section 16(a) filing requirements applicable to them during fiscal
1998 and prior fiscal years, except as follows.  United Equities Commodities
Company, Momar Corporation and Moses Marx (collectively, "United") filed an
Amendment to Schedule 13D, dated as of July 15, 1997, in which United stated
that it beneficially owned a total of 10% of the Corporation's common stock. 
These shares were in addition to its ownership of 8% of the Corporation's Series
A preferred stock and 30% of its convertible preferred stock, the latter which
is convertible into the Corporation's common stock, as stated in the Schedule
13D filed on May 30, 1997.  Neither United Equities Commodities Company, Momar
Corporation nor Moses Marx furnished the Corporation with a Form 3 with respect
to their status as a 10% Owner.

Thereafter, United filed another Amendment to Schedule 13D on July 30,1997, 
at which time United stated that it had increased its beneficial ownership
of the Corporation's common stock to 14% and of the Corporation's Series A
preferred stock to 10%.  In addition, pursuant to Written Consents, United had
further increased its beneficial ownership of the Series A preferred stock and
convertible preferred stock as of April 1998.  Neither United Equities
Commodities Company, Momar Corporation nor Moses Marx furnished the Corporation
with a Form 4 with respect to the acquisition of additional securities after
becoming a 10% Owner.

                                      
                                      53

f<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation for the three fiscal years ended
March 31, 1998 received by the Corporation's Co-Chief Executive Officers and the
next three most highly compensated executive officers of the Corporation for
fiscal 1998:

<TABLE>
<CAPTION>
                                                                                              Long-Term
                                                  Annual Compensation                      Compensation (A)
                                         ---------------------------------------     ---------------------------
                                                                                       Awards          Payouts
                                                                                     ----------      -----------
                                                                         Other       Securities               
                                                                        Annual       Underlying          LTIP      All Other 
Name and Principal           Fiscal                        Bonus      Compensa-       Options/         Payouts     Compensa- 
     Position                 Year       Salary($)         ($)(B)     tion($)(C)       SARs(#)           ($)       tion($)(D)
-----------------------------------------------------------------------------------------------------------------------------
<S>                          <C>         <C>              <C>         <C>            <C>               <C>         <C>
Abbey J. Butler (E)            1998        583,333        750,000          (I)          600,000        451,404        136,732
Co-Chairman of the             1997        649,765           0             (I)          994,640           0            17,773
Board and Co-Chief             1996        858,000           0           195,071         50,000           0             8,527
Executive Officer

Melvyn J. Estrin (E)           1998        583,333        750,000          (I)          600,000        451,404        104,432
Co-Chairman of the             1997        649,765           0             (I)          994,640           0             7,274
Board and Co-Chief             1996        858,000           0           200,328         50,000           0             5,468
Executive Officer

Edward L. Massman (F)          1998        237,500        600,000          (I)          400,000        341,973          6,553
Senior Vice President and      1997        203,364        500,000          (I)           52,000           0             4,184
Chief Financial Officer        1996        162,711           0             (I)           30,000           0             4,620

Robert H. Stone (G)            1998        158,333        300,000          (I)          100,000        177,826          6,163
Vice President, General        1997        129,200         80,400          (I)           21,834           0             2,360
Counsel and Secretary          1996         97,137          6,000          (I)            2,000           0               790

Grady E. Schleier (H)          1998        158,333        200,000          (I)          100,000        177,826          6,192
Vice President and             1997        153,168         82,500          (I)           20,000           0             3,199
Treasurer                      1996        113,230          8,958          (I)            3,000           0             3,608

</TABLE>

(A)  The Corporation made no awards of restricted stock during the three fiscal
years ended March 31, 1998.  "LTIP Payouts" consists of amounts paid by the
Corporation under its Performance Incentive Plan, as amended (the "Incentive
Plan").

(B)  "Bonus" consists of amounts paid (i) in November 1997 and January 1998 by
the Corporation as a bonus to the named executive officers, (ii) in November
1996 by the Corporation in respect of the officers' agreements to be employed by
the Corporation and thereby forego additional compensation and severance
benefits to which they were entitled under their Employment Agreements with
FoxMeyer which had been assumed by McKesson Corporation ("McKesson"), and (iii)
in November 1996 by FoxMeyer Drug Company pursuant to two orders entered by the
United States Bankruptcy Court in its Chapter 11 case that approved a Stay Pay
Program ("Stay Pay").

(C)  "Other Annual Compensation" consists of (i) amounts paid by the Corporation
or FoxMeyer before January 1, 1996 under FoxMeyer's non-qualified Supplemental
Savings Plan, and by Phar-Mor after October 1, 1997 under its

                                      54

<PAGE>

non-qualified Deferred Compensation Plan, (ii) any personal use of corporate 
property by the executive officer, and (iii) other personal benefits.

(D)  "All Other Compensation" consists of amounts (i) contributed by the
Corporation to each executive officer's account under the Corporation's 401(k)
plan during fiscal 1998, (ii) contributed by the Corporation  to each of Messrs.
Butler's and Estrin's account or by FoxMeyer to each of Messrs. Massman's,
Stone's and Schleier's account under FoxMeyer's 401(k) plan during fiscal 1997
and fiscal 1996, and (iii) paid by the Corporation or Phar-Mor to or on behalf
of Mr. Butler and Mr. Estrin for certain life insurance benefits, as described
in Note E below (which amounts were reflected in the column entitled "Other
Annual Compensation" in the Corporation's fiscal 1997 and fiscal 1996 Proxy
Statements).  This column does not include de minimis amounts paid for group
term life insurance provided to all the Corporation and FoxMeyer employees as
part of their standard company benefit package.

(E)  In fiscal 1998, Mr. Butler and Mr. Estrin each received $370,833 in salary
and a $750,000 bonus from the Corporation for serving as its Co-Chairman of the
Board and Co-Chief Executive Officer, and $212,500 from Phar-Mor for serving as
its Co-Chairman of the Board and Co-Chief Executive Officer since October 1,
1997.  "All Other Compensation" for Mr. Butler consisted of (i) $17,897 paid by
the Corporation for certain term life insurance for the benefit of Mr. Butler,
(ii) $7,586 contributed by the Corporation to Mr. Butler's 401(k) plan account,
and (iii) $111,249 paid by Phar-Mor on a tax reimbursed "grossed-up" basis for a
$1.5 million whole life insurance policy on Mr. Butler's life.  "All Other
Compensation" for Mr. Estrin consisted of (i) $5,796 paid by the Corporation for
certain term life insurance for the benefit of Mr. Estrin and (ii) $98,636 paid
by Phar-Mor on a tax reimbursed "grossed up" basis for a $1.5 million whole life
insurance policy on Mr. Estrin's life.  Mr. Butler and Mr. Estrin may earn
additional compensation applicable to the Corporation's fiscal year ended March
31, 1998 under Phar-Mor's bonus plans, which will not be determined until the
end of Phar-Mor's fiscal year on June 30, 1998.

In fiscal 1997, Mr. Butler and Mr. Estrin each received $350,000 from the
Corporation for serving as its Co-Chairman of the Board and Co-Chief Executive
Officer, $231,314 from FoxMeyer for serving until November 1996 as its Co-Chief
Executive Officer, and $68,451 from Ben Franklin for serving until March 1997 as
its Co-Chairman of the Board.  "All Other Compensation" for Mr. Butler consisted
of (i) $13,619 paid by the Corporation for certain term life insurance for the
benefit of Mr. Butler and (ii) $4,154 contributed by the Corporation to Mr.
Butler's 401(k) plan.  "All Other Compensation" for Mr. Estrin consisted of (i)
$3,120 paid by the Corporation for certain term life insurance for the benefit
of Mr. Estrin and (ii) $4,154 contributed by the Corporation to Mr. Estrin's
401(k) plan.  In addition to the amounts set forth in the Summary Compensation
Table, in fiscal 1997, Mr. Butler and Mr. Estrin received severance payments
from McKesson, which assumed FoxMeyer's obligations under their respective
employment agreements with FoxMeyer in connection with McKesson's acquisition of
substantially all of the assets of FoxMeyer and FoxMeyer Drug Company.

In fiscal 1996, Mr. Butler and Mr. Estrin each received $350,000 from the
Corporation for serving as its Co-Chairman of the Board and Co-Chief Executive
Officer, $400,000 from FoxMeyer for serving as its Co-Chairman of the Board and
Co-Chief Executive Officer, and $108,000 from Ben Franklin for serving as its
Co-Chairman of the Board.  Mr. Butler received $174,736, and Mr. Estrin received
$181,281, under FoxMeyer's Supplemental Savings Plan, which amounts exceeded 25%
of the total "Other Annual Compensation" received by each of them in fiscal
1996.  "All Other Compensation" for Mr. Butler consisted of (i) $3,907 paid by
the Corporation for certain term life insurance for the benefit of Mr. Butler
and (ii) $4,620 contributed by the Corporation to Mr. Butler's 401(k) plan. 
"All Other Compensation" for Mr. Estrin consisted of (i) $848 paid by the
Corporation for certain term life insurance for the benefit of Mr. Estrin and
(ii) $4,620 contributed by the Corporation to Mr. Estrin's 401(k) plan.

In fiscal 1998, in connection with their serving as Co-Chairman of the Board and
Co-Chief Executive Officer of the Corporation and Phar-Mor, Mr. Butler and Mr.
Estrin were each granted options to purchase 400,000 shares of the Corporation's
common stock and options to purchase 200,000 shares of Phar-Mor common stock. 
In fiscal 1997, all of the options to purchase 994,640 shares of the
Corporation's common stock that were previously granted to each of Mr. Butler
and Mr. Estrin, including options to purchase 99,440 shares of the Corporation's
common stock that expired in fiscal 1997, were repriced and/or replaced by the
Corporation.  In fiscal 1996, Mr. Butler and Mr. Estrin were each granted
options to purchase 50,000 shares of the Corporation's common stock, and Ben
Franklin canceled and then granted replacement options to purchase 118,000
shares of Ben Franklin common stock that were previously granted to Mr. Butler
and Mr. Estrin.

                                      55
<PAGE>

In addition to the amounts set forth in the Summary Compensation Table above, 
Mr. Butler and Mr. Estrin each received compensation in fiscal 1998 for 
serving as outside directors of certain companies in which the Corporation 
holds less than majority ownership interests and which are not consolidated 
subsidiaries of the Corporation, as follows: (i) in their capacity as outside 
directors of Phar-Mor until September 30, 1997, Mr. Butler and Mr. Estrin 
were each paid $12,500 as their pro rata portion of annual director fees, 
plus per meeting fees, and were each granted options to purchase 10,000 
shares of Phar-Mor common stock and credited with 7,703 shares of Phar-Mor 
common stock under its Phantom Stock Plan, (ii) in their capacity as outside 
directors of Imagyn, Mr. Butler and Mr. Estrin were each paid $21,000 in 
director fees and were each granted options to purchase 7,500 shares of 
Imagyn common stock, (iii) in their capacity as outside directors of Carson, 
Mr. Butler and Mr. Estrin were each awarded 2,710 shares of Carson restricted 
stock and options to purchase 5,000 shares of Carson common stock and (iv) in 
his capacity as an outside director of CareTech, Mr. Estrin was granted 
options to purchase 10,000 shares of CareTech common stock.

In fiscal 1997, (i) in their capacity as outside directors of Phar-Mor, Mr.
Butler and Mr. Estrin were each paid $25,000 in annual director fees, plus per
meeting fees, and were each granted options to purchase 5,000 shares of Phar-Mor
common stock and credited with 4,050 shares of Phar-Mor common stock under its
Phantom Stock Plan, (ii) in their capacity as outside directors of Imagyn, Mr.
Butler and Mr. Estrin were paid $11,000 and $10,000 in director fees,
respectively, and were each granted options to purchase 7,500 shares of Imagyn
common stock, and (iii) in their capacity as outside directors of Carson, Mr.
Butler and Mr. Estrin were each granted options to purchase 1,500 shares of
Carson common stock.  In addition, during a portion of fiscal 1997, Mr. Butler
served as an outside director of CST Entertainment, Inc. ("CST"), and the
Corporation has been unable to obtain any information from CST regarding
director fees because it liquidated its assets and filed for relief under
Chapter 7 of the Bankruptcy Code during fiscal 1997.

In fiscal 1996, (i) in their capacity as outside directors of Phar-Mor, Mr.
Butler and Mr. Estrin were each paid $25,000 in annual director fees, plus per
meeting fees, and were each granted options to purchase 5,000 shares of Phar-Mor
common stock, (ii) in their capacity as outside directors of Imagyn, Mr. Butler
and Mr. Estrin were each paid $1,000 in director fees and were each granted
options to purchase 7,500 shares of Imagyn common stock and (iii) in his
capacity as an outside director of CST, Mr. Butler was granted warrants to
purchase 50,000 shares of CST common stock during CST's fiscal year ended June
30, 1996.

(F)  Mr. Massman also served until September 1996 as Senior Vice President of 
FoxMeyer and FoxMeyer Drug Company, which paid all of his compensation for 
services rendered in fiscal 1997 and fiscal 1996.  In fiscal 1997, Mr. 
Massman was paid $100,000 pursuant to an August 8, 1996 incentive agreement 
relating to the sale of the assets of FoxMeyer and FoxMeyer Drug Company.  In 
addition, as a retention bonus and for coordinating the separation and 
relocation of the Corporation from FoxMeyer, the Corporation, pursuant to the 
terms of his Employment Agreement, paid Mr. Massman $300,000 and assigned to 
him a 50% interest in all amounts received by the Corporation from the 
proceeds of any sale of any assets of or its interests in Alumet Partnership. 
 As of the date of the assignment, its fair market value was estimated to be 
$100,000.  Certain mineral rights of the Partnership were subsequently sold 
in fiscal 1998, thereby increasing the value of the assignment.  Options to 
purchase 52,000 shares of the Corporation's common stock that were previously 
granted to Mr. Massman in fiscal 1996 and fiscal 1995 were repriced by the 
Corporation in fiscal 1997.

(G)  Mr. Stone also served until November 1996 as Associate General Counsel and
Assistant Secretary of FoxMeyer and FoxMeyer Drug Company, which paid all of his
compensation for services rendered in fiscal 1997 through November 1996 and all
of fiscal 1996, including $5,400 in Stay Pay in fiscal 1997.  Options to
purchase 21,834 shares of the Corporation's common stock that were previously
granted to Mr. Stone earlier in fiscal 1997 and in fiscal 1996 and fiscal 1995
were repriced by the Corporation in fiscal 1997.

(H)  Mr. Schleier also served until November 1996 as Vice President and
Treasurer of FoxMeyer and FoxMeyer Drug Company, which paid all of his
compensation for services rendered in fiscal 1997 through November 1996 and all
of fiscal 1996, including $7,500 in Stay Pay in fiscal 1997.  Options to
purchase 20,000 shares of the Corporation's common stock that were previously
granted to Mr. Schleier earlier in fiscal 1997 and in fiscal 1996 and fiscal
1995 were repriced by the Corporation in fiscal 1997.

(I)  Other annual compensation to this executive officer did not exceed the 
lesser of $50,000 or 10 percent of such executive officer's total salary and 
bonus for such fiscal year.

                                      56
<PAGE>

          OPTION/SAR GRANTS IN FISCAL YEAR 1998 TO EXECUTIVE OFFICERS

The following table provides information regarding options granted during 
fiscal 1998 to the Corporation's executive officers named in the Summary 
Compensation Table.

<TABLE>
<CAPTION>


                                                       Individual Grants
                                   ---------------------------------------------------------
                                                 Percent of
                                                    Total   
                                                   Options/ 
                                    Number of        SARs   
                                   Securities      Granted  
                                   Underlying         to                                        Potential Realizable Value
                                    Options/      Employees     Exercise or                       at Assumed Annual Rates 
                                     SARs         in Fiscal     Base Price      Expiration      of Stock Price Appreciation
             Name                  Granted(#)        Year         ($/Sh)           Date             for Option Term(A)
----------------------------------------------------------------------------------------------------------------------------
                                                                                                 5%($)             10%($)
                                                                                            -------------      -------------
<S>                                <C>           <C>            <C>             <C>         <C>                <C>
  Abbey J. Butler(B)(C)             400,000         24.24%         $1.125       07-01-02     $  124,326          $  274,729

  Melvyn J. Estrin(B)(C)(D)         400,000         24.24%         $1.125       07-01-02     $  124,326          $  274,729

  Edward L. Massman(B)              400,000         24.24%         $1.125       07-01-02     $  124,326          $  274,729

  Robert H. Stone(B)                100,000          6.06%         $1.125       07-01-02     $   31,081          $   68,682

  Grady E. Schleier(B)              100,000          6.06%         $1.125       07-01-02     $   31,081          $   68,682

</TABLE>

    (A)  The potential realizable values set forth under these columns result 
    from calculations assuming 5% and 10% growth rates as set by the 
    Commission and are not intended to forecast future price appreciation of 
    the stock indicated.  The amounts reflect potential future value based 
    upon growth at these prescribed rates.  The Corporation did not use an 
    alternative formula for a grant date valuation, an approach which would 
    state gains at present, and therefore lower, value.  The Corporation is 
    not aware of any formula which will determine with reasonable accuracy a 
    present value based on future unknown or volatile factors. Actual gains, 
    if any, on stock option exercises are dependent on the future performance 
    of the stock indicated.  There can be no assurance that the amounts 
    reflected in this table will be achieved.
    
    (B)  One-third (1/3) of each of these options will become exercisable on 
    each anniversary of the grant date, commencing on July 1, 1998.
    
    (C)  Mr. Butler and Mr. Estrin also have been granted options to acquire 
    common stock of Phar-Mor, Imagyn and Carson.
    
    (D)  Mr. Estrin also has been granted options to acquire common stock of 
    CareTech.


                                       57

<PAGE>

AGGREGATE OPTIONS/SAR EXERCISES IN FISCAL 1998 BY EXECUTIVE OFFICERS AND FISCAL
                             YEAR-END OPTION/SAR VALUES

There were no options to purchase the Corporation's, Phar-Mor, Imagyn, Carson 
or CareTech common stock exercised during fiscal 1998 by any of the executive 
officers named in the Summary Compensation Table.  The following table 
provides information as to the value of options for the Corporation's common 
stock held by such executives at fiscal 1998 year end measured in terms of 
the last reported sale price for shares of such common stock on March 31, 
1998.

<TABLE>
<CAPTION>
                                             
                                 Number of Securities Underlying      Value of Unexercised In-the-Money
                             Unexercised Options/SAR's at FY-End(#)       Options March 31, 1998 ($)
                            ------------------------------------------------------------------------------
        Name                      Exercisable       Unexercisable       Exercisable      Unexercisable
----------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>                 <C>              <C>
   Abbey J. Butler                  663,093            731,547            580,206            665,104

   Melvyn J. Estrin                 663,093            731,547            580,206            665,104

   Edward L. Massman                 34,667            417,333             30,334            390,166

   Robert H. Stone                   14,556            107,278             12,737            100,118

   Grady E. Schleier                 13,333            106,667             11,666             99,584

</TABLE>

                            LONG-TERM INCENTIVE PLANS -- AWARDS
                                  IN LAST FISCAL YEAR (A)

<TABLE>
<CAPTION>
                                                   Performance 
                                   Number of         or Other     
                                 Shares, Units     Period Until
                                   or Other         Maturation     Estimated Future Payouts Under Non-Stock
     Name                          Rights(B)        of Payout                  Price-Based Plans              
-----------------------------------------------------------------------------------------------------------
                                                                  Threshold       Target(C)         Maximum
                                                                  -----------------------------------------
<S>                              <C>               <C>            <C>             <C>               <C>
 Abbey J. Butler                  4.38%/3.78%        04-1-99              0        451,404           None

 Melvyn J. Estrin                 4.38%/3.78%        04-1-99              0        451,404           None

 Edward L. Massman                2.98%/2.86%        04-1-99              0        341,973           None

 Robert H. Stone                  1.44%/1.49%        04-1-99              0        177,826           None

 Grady E. Schleier                1.44%/1.49%        04-1-99              0        177,826           None

</TABLE>

(A)  The Corporation has adopted the Incentive Plan to motivate and reward high
performing executives, focus executive attention on achieving key objectives for
each fiscal year, and be a material component of a total competitive pay
structure.  The participants in the Incentive Plan presently consist of the
Corporation's executive officers and certain key employees.  Under the Incentive
Plan, amounts are distributed to participants based on specified percentages of
(i) the Corporation's net income, which is calculated in accordance with
generally accepted accounting principles, after all applicable taxes but before
accrual of any dividends on the Corporation preferred stock, and exclusive of
any activities relating to the Corporation's relationship with National Steel
Corporation and its settlement with the FoxMeyer Chapter 7 Trustee, and (ii)
Litigation Income, which consists of net income generated in connection with the
McKesson lawsuit (see Item 3).  Although Incentive Plan distributions may be
made on an annual basis, the Incentive Plan is intended to serve as an incentive
for performance to occur over a period longer than one fiscal year, particularly
with respect to Litigation Income.  The total percentage of net income and of
Litigation Income available under the Incentive Plan for the fiscal year ending
March 31, 1999 for all officers and key employees is 17.5%.

                                      58
<PAGE>

(B)  "Number of Shares, Units or Other Rights" lists the percentages awarded 
in the last fiscal year of net income and Litigation Income, respectively, 
that each named executive officer is entitled to receive under the Incentive 
Plan for fiscal 1999 performance.

(C)  The amount set forth under "Target" is a representative amount based on 
the Corporation's net income, as defined in the Incentive Plan, in fiscal 
1998. There was no Litigation Income in fiscal 1998.

                           COMPENSATION OF DIRECTORS 

Directors who are not officers or employees of the Corporation or one of its 
subsidiaries or members of the Executive and Nominating Committee receive an 
annual fee of $22,500.  They also receive $1,000 for each meeting of the 
Board of Directors or of a committee of the Board of Directors (other than 
the Executive and Nominating Committee) they attend.  The Chairman of each of 
the committees receive an additional $1,000 for each meeting of the committee 
they attend.  Directors are reimbursed for travel and lodging expenses in 
connection with board and committee meetings.

Under the terms of the 1993 Restated Stock Option and Performance Award Plan, 
directors who are not officers or employees of the Corporation or one of its 
subsidiaries are automatically granted options to purchase 15,000 shares of 
the Corporation's common stock when first elected to serve on the Board of 
Directors and, in each year each director continues to serve as a member of 
the Board of Directors, options to purchase 1,000 shares of common stock on 
the third trading date following the later of (i) the date on which the 
annual meeting of the Corporation's stockholders, or any adjournment thereof, 
is held each year or (ii) the date on which the Corporation's earnings for 
the fiscal quarter immediately preceding the date of such annual meeting are 
released to the public.

The Corporation also maintains a Director's Retirement Plan that provides for 
the payment of retirement benefits to directors who have a minimum number of 
years of service, other than directors who are, or at any time subsequent to 
December 31, 1975 have been, officers of the Corporation or any affiliated 
corporation.  Each qualifying director is entitled, at the later of 
retirement or age 60, to receive a monthly benefit for a period equal to his 
years of service or 15 years, whichever is less.  Such monthly benefit is 
equal to one-twelfth (1/12) of the highest annual fee in effect for directors 
during such director's years of service on the Board of Directors.

One of the outside directors of the Corporation, Hyman H. Frankel, is 
presently a party to a consulting agreement with the Corporation which is 
terminable by either party on 30 days' prior written notice.  Under the 
consulting agreement, the Corporation pays Dr. Frankel a monthly consulting 
fee of $7,500.

                    EMPLOYMENT AND INDEMNIFICATION AGREEMENTS 

THE CORPORATION.

Abbey J. Butler and Melvyn J. Estrin, the Co-Chairmen and Co-Chief Executive 
Officers of the Corporation, each has an employment agreement with the 
Corporation dated as of February 27, 1995, and amended effective as of 
February 1, 1998.  The agreements are each for a rolling three year term at a 
minimum annual base salary of $475,000, subject to periodic increases by the 
Corporation's Board of Directors.  Mr. Butler and Mr. Estrin are also 
entitled to participate in the benefits generally available to senior 
executives of the Corporation, and are permitted to engage in activities with 
other companies, ventures or investments, provided that such activities do 
not unreasonably impede the performance of his duties for the Corporation, 
and to retain any compensation and other benefits he may receive in such 
capacity.  If either Mr. Butler's or Mr. Estrin's employment with the 
Corporation is terminated "Without Just Cause" (as such term is defined in 
the agreements, including but not limited to in the event of a change of 
control of the Corporation), Mr. Butler or Mr. Estrin, as the case may be, 
will be entitled to receive a one-time lump sum payment equal to one hundred 
fifty percent (150%) times the full amount of his monthly base salary and 
cash bonus awards that otherwise would have been earned by him during the 
full term of his agreement, plus



                                    59
<PAGE>

payment of certain allocated office overhead expenses, payment of premiums 
payable by the Corporation for life insurance policies applicable to Mr. 
Butler or Mr. Estrin, as the case may be, and certain tax adjustment payments 
in respect of any amounts that constitute excess parachute payments under 
federal tax laws.  In addition, the Butler and Estrin employment agreements 
provide that if (i) any "person" (as such term is defined in Section 13(d) of 
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, 
of either (x) thirty-five percent (35%) of the outstanding shares of the 
Corporation's common stock or (y) securities of the Corporation representing 
thirty-five percent (35%) of the combined voting power of the Corporation's 
then outstanding voting securities, or (ii) during any period of two 
consecutive years, individuals who at the beginning of such period constitute 
the Board of Directors of the Corporation cease, at any time after the 
beginning of such period, for any reason to constitute a majority of the 
Board of Directors of the Corporation, unless each new director was 
nominated, or the election of such director was ratified, by at least 
two-thirds of the directors still in office who were directors at the 
beginning of such two-year period, then Mr. Butler or Mr. Estrin shall have 
the right to elect to treat such event as constituting a termination "Without 
Just Cause" under their respective employment agreements.

Edward L. Massman, the Senior Vice President and Chief Financial Officer of 
the Corporation, has an employment agreement with the Corporation dated as of 
November 7, 1996, and amended effective as of February 1, 1998.  The 
agreement expires on January 31, 2000, subject to automatic renewal for 
successive one year terms unless the Corporation provides Mr. Massman with 
six months' prior notice of its intent not to renew.  Under the agreement, 
Mr. Massman's minimum annual base salary is $300,000, plus a minimum annual 
bonus in the amount of $100,000 payable no later than November of each year.  
Mr. Massman is also entitled to participate in the benefits generally 
available to senior executives of the Corporation.  If upon expiration, Mr. 
Massman's employment agreement is not renewed on terms at least as favorable 
as the terms and conditions of his existing agreement, or his employment with 
the Corporation is terminated "Without Cause" (as such term is defined in the 
agreement, including but not limited to in the event of a change of control 
of the Corporation), he would be entitled to receive a one-time lump sum 
payment equal to the full amount of his monthly base salary and cash bonus 
awards that otherwise would have been earned by him for a twenty-four month 
period, plus certain tax adjustment payments in respect of any amounts that 
constitute excess parachute payments under federal tax laws.  In addition, 
under the agreement, in 1996 the Corporation paid Mr. Massman $300,000 and 
assigned to him a fifty percent (50%) interest in all amounts received by the 
Corporation from the proceeds of any sale of any assets of or its interests 
in Alumet Partnership, in respect of his agreement to be employed by the 
Corporation (and thereby forego additional compensation and severance 
benefits to which he was entitled under his Employment Agreement with 
FoxMeyer, which had been assumed by McKesson), and for coordinating the 
separation and relocation of the Corporation from FoxMeyer.

Robert H. Stone, the Vice President, General Counsel and Secretary of the 
Corporation, has an employment agreement with the Corporation dated as of 
November 12, 1996, and amended effective as of February 1, 1998.  Under the 
agreement, which expires on January 31, 2000, Mr. Stone's minimum annual base 
salary is $200,000, and he is also entitled to participate in the benefits 
generally available to senior executives of the Corporation.  If Mr. Stone's 
employment with the Corporation is terminated "Without Cause" (as such term 
is defined in the agreement), he would be entitled to receive, at his option 
(i) a single lump sum severance payment equal to the amount of total 
compensation that would otherwise have been paid during the forthcoming nine 
months or (ii) monthly severance payments for a period of eighteen months.  
In addition, under the agreement, in 1996 the Corporation paid Mr. Stone 
$75,000 in respect of his agreement to be employed by the Corporation and 
thereby forego additional compensation and severance benefits to which he was 
entitled under his Employment Agreement with FoxMeyer, which had been assumed 
by McKesson.

Grady E. Schleier, the Vice President and Treasurer of the Corporation, Scott 
E Peterson, the Vice President - Finance and Controller of the Corporation, 
and John G. Murray, the Vice President - Finance of the Corporation, each has 
an employment agreement with the Corporation that is substantively identical 
to the employment agreement described above between the Corporation and Mr. 
Stone.  In addition, the Corporation has entered into an Indemnification 
Agreement with each of its executive officers.

Each executive officer has entered into an indemnification agreement with the 
Corporation dated as of October 23, 1997.  Each agreement terminates upon the 
later of (i) ten years following the date that such officer ceases to serve 
in his capacity with the Corporation, any majority-owned subsidiary, other 
enterprise of the Corporation or an employee benefit plan or trust related 
thereto which such officer served at the Corporation's request and (ii) the 
final termination of any proceeding to which indemnification or advancement 
of expenses relates pursuant to such

                                       60
<PAGE>

agreements.  Under each indemnification agreement, the executive officer is 
entitled to indemnification for damages and expenses in any proceeding 
involving the Corporation (whether or not brought by or in the right of the 
Corporation) subject to certain conditions and limitations depending on the 
circumstances of the proceeding and conduct of such officer.  In addition, 
each executive officer is entitled to be advanced expenses in connection with 
any such proceeding upon request by such executive officer and subject to 
certain conditions.

If there is a change of control (as defined in each indemnification 
agreement), upon the request of any executive officer in connection with any 
proceedings for which indemnification or advancement of expenses is provided, 
the Corporation is required to create a trust and fund such trust in an 
amount sufficient to cover any expenses (as determined by an independent 
counsel appointed in accordance with the terms of the indemnification 
agreement) incurred by such executive officer relating to such proceeding.

PHAR-MOR.

Mr. Butler and Mr. Estrin each has an employment agreement with Phar-Mor.  
The agreements are each for a rolling three-year term commencing on October 
1, 1997 and provide for Messrs. Butler and Estrin to serve as Co-Chief 
Executive Officers and Co-Chairmen of the Board.  The initial annual base 
salary of each of Messrs. Butler and Estrin is $425,000, subject to annual 
increases of 8%. The agreements provide for an annual incentive bonus under a 
company-sponsored bonus plan (if a bonus plan is approved, or otherwise as 
provided under a separate agreement between Phar-Mor and each of Messrs. 
Butler and Estrin), if reasonable performance objectives approved by the 
Board are achieved, with a maximum bonus of 60% and a minimum bonus of 21% of 
annual base salary, commencing in Phar-Mor's fiscal year ending June 30, 
1998, with the exception that if the performance objectives are exceeded, 
such bonus will be increased to a level commensurate with the amount of 
bonuses payable to senior officers of Phar-Mor who are situated similarly to 
Messrs. Butler and Estrin.  Each of Messrs. Butler and Estrin has also been 
granted options to purchase 200,000 shares of common stock of Phar-Mor at an 
exercise price of $6.84375 per share under the Phar-Mor Stock Incentive Plan.

Pursuant to their respective employment agreements, Messrs. Butler and Estrin 
are permitted to engage in activities (except certain activities that are 
competitive with Phar-Mor's business), in addition to serving as Co-Chief 
Executive Officers and Co-Chairmen of the Board, and pursue other investments 
(except ownership of more than a 10% interest in an entity that derives more 
than 50% of its gross revenues from the retail sale, at a discount, of 
pharmaceuticals, unless Messrs. Butler and Estrin or their respective 
immediate families owned or controlled, directly or indirectly, an ownership 
interest of at least 1% in the entity as of October 1, 1997).  The agreements 
do not require Messrs. Butler and Estrin to provide services at Phar-Mor's 
principal locations.

The employment agreements with Messrs. Butler and Estrin also provide for 
long-term performance payouts to each of them, commencing with the three-year 
period ending September 30, 2000 and each third year thereafter during the 
term of the employment agreement, in an amount (subject to the offset 
referred to in the last sentence of this paragraph) equal to 1.5% of any 
excess of (i) the aggregate market value of the publicly-traded shares of 
common stock of Phar-Mor based on the average closing price for the thirty 
(30)-day period ending on the last day of the subject period (less the sum of 
(a) the proceeds from the exercise during such period of any options or 
warrants plus (b) any cash or property consideration actually received by 
Phar-Mor during such period from the issuance of any shares of its common 
stock) over (ii) the aggregate market value of the publicly traded shares of 
common stock of Phar-Mor based on the average closing price for the thirty 
(30)-day period ending on the last day of the immediately prior subject 
period (provided that for the first day of the period ending on September 30, 
2000, such average closing price shall be deemed to be $6.84375 per share).  
One-half of the aggregate annual bonuses paid or payable in respect of the 
applicable three-year period will be offset against the long-term payout 
amount.

The employment agreements with Messrs. Butler and Estrin further provide for 
various employee benefits and perquisites, including but not limited to 
payment, on a tax reimbursed, "grossed-up" basis, for a $1.5 million whole 
life insurance policy on Messrs. Butler and Estrin's lives or, at the 
election of either of them, a term policy requiring an equivalent premium; 
disability insurance adequate to pay Messrs. Butler and Estrin 60% of their 
respective base salaries until age 75; reimbursement of all medical, 
hospitalization and dental costs for Messrs. Butler and Estrin and their 
families; the use of a car owned or leased by Phar-Mor and the provision of 
other transportation for Messrs. Butler's and Estrin's travel requirements 
such as the lease of an aircraft; and business expenses at locations other 
than Phar-Mor's headquarters.

                                       61
<PAGE>

Each of the agreements with Messrs. Butler and Estrin provides that, if it is
terminated without cause (as defined in each agreement), such officer will be
entitled to the present value of his base salary, discounted at 5%, for the
remaining contract term, annual and long-term incentive payments payable for the
remainder of the term, all compensation, benefits, stock options, health and
disability benefits accruing under the agreement for the remainder of the term
(or, at their option, the value of such stock options determined in accordance
with "Black Scholes Formula"), tax reimbursement in respect of any termination
payments that constitute excess parachute payments under Federal income tax
laws, and the accelerated vesting (and extended post-termination exercise
periods) of all stock options.  Under each agreement, termination with cause by
Phar-Mor is limited to the entry of a felony conviction, voluntary resignation,
death, or permanent disability (as defined in each agreement).

                          COMPENSATION COMMITTEE INTERLOCKS
                              AND INSIDER PARTICIPATION

The Finance and Personnel Committee (the "Finance Committee") of the
Corporation's Board of Directors performs the functions of a compensation
committee.  The Finance Committee is comprised of three directors: Mr. John L.
Wineapple, who is the Chairman, and Messrs. Fred S. Katz and William A. Lemer. 
Mr. Katz also serves as Chairman and is a shareholder of the Board of Cyclone. 
Abbey J. Butler, is the Co-Chairman and Co-Chief Executive Officer of the
Corporation and of a subsidiary of the Corporation, M&A, and is also a director
of Cyclone.

In March 1995, M&A invested $700,000 in Cyclone in exchange for a promissory
note and a warrant to purchase 218,750 shares of common stock of Cyclone.  In
October 1997, as part of a recapitalization of Cyclone, (i) M&A converted its
note and warrant into 883,638 shares of Cyclone common stock and (ii) Mr. Katz
converted his note, warrant and common stock into a total of 355,558 shares of
Cyclone common stock.  In addition, immediately before the recapitalization,
First Taconic, of which Mr. Katz is the Chairman and Mr. Wineapple is a
consultant, acquired another investor's note and common stock for $450,000 and
converted them into 495,117 shares of Cyclone common stock.  In connection with
M&A's original investment in Cyclone in 1995, Mr. Katz and Bradford G. Corbett,
who are shareholders of Cyclone, agreed to transfer 175,000 shares of his or
their Cyclone shares to M&A and, so long as M&A owns such shares, to nominate
and support a designated representative of M&A to sit on Cyclone's Board of
Directors.  As part of the October 1997 recapitalization, the obligation to
deliver these shares was deemed satisfied.

                  REPORT OF THE FINANCE AND PERSONNEL COMMITTEE

The Finance Committee is comprised of three directors:  Mr. John L. Wineapple,
who is the Chairman, and Messrs. Fred S. Katz and William A. Lemer.

EXECUTIVE COMPENSATION

Compensation for the Corporation's executive officers is comprised of base
salary, annual performance incentive payments, long-term incentive awards, stock
option grants, and employee health and welfare benefits.  Executive officers are
also eligible to receive discretionary bonuses as an incentive for superior
performance.  The goals of the Corporation's executive compensation policy are
to motivate and reward its executive officers for overseeing and managing the
Corporation's operations and investments, contributing towards long-term
strategic planning and improving long-term stockholder value, and to attract and
retain high-quality executive talent.

The Finance Committee's philosophy regarding executive compensation also
recognizes the unique factors applicable to the roles of the Corporation's
executive officers in the future success of the Corporation.  In particular, the
Finance Committee recognizes that the Corporation's executive officers have
extensive and critical knowledge of the Corporation's history and operations
that would be impossible to re-create and that, absent their continued
employment by the Corporation, it would be extremely difficult for the
Corporation to continue to move forward on its most critical strategies and
initiatives, including but not limited to the following matters:

                                       62
<PAGE>

     a.   Prosecuting the litigation commenced by the Corporation against
          McKesson and numerous pharmaceutical manufacturers, which is currently
          pending in Texas State Court and is the subject of various other
          pending proceedings in Delaware;

     b.   Providing assistance to the Chapter 7 Trustee of FoxMeyer and FoxMeyer
          Drug Company in connection with the investigation and prosecution of
          lawsuits against persons and entities that significantly harmed the
          FoxMeyer entities, which lawsuits and actions are critically important
          to the Corporation because it holds a 30% interest in the proceeds of
          the lawsuits and has pledged such interest as collateral to secure the
          Corporation's $8 million obligation to the Trustee;

     c.   Providing assistance in defending the Corporation in the consolidated
          class action shareholder lawsuits pending in federal and state court
          in Dallas, which relate to actions of the Corporation that occurred in
          1995 and 1996; and

     d.   Maximizing the Corporation's return on its investments.
     
The Finance Committee also reviewed and considered the role of each of the
Corporation's executive officers in a number of specific transactions that were
consummated during fiscal 1998.  These items included (i) negotiating and
entering into a definitive agreement with National Steel Corporation in 
November 1997, under which the Corporation received a $59 million cash payment 
and would receive an additional $10 million payment over the course of the next
year, plus a release of various environmental and other previously indemnified 
liabilities, (ii) negotiating and entering into a settlement agreement with the
Chapter 7 Trustee of FoxMeyer, under which the Corporation settled all of its 
obligations arising out of the dividend of certain assets by FoxMeyer to the 
Corporation in June 1996 and which was approved by the Federal Bankruptcy Court
and closed in October 1997, and (iii) acquiring 3,750,000 shares of Phar-Mor 
from Hamilton Morgan in September 1997.

Based on all of the foregoing factors, the Finance Committee determined the 
appropriate compensation levels for each of the Corporation's executive 
officers with respect to both increases in base salary, which were reflected 
in amendments to the executive officers' employment agreements executed near 
the end of fiscal 1998, and discretionary bonus awards during fiscal year 
1998.

CO-CHIEF EXECUTIVE OFFICERS

The Finance Committee makes decisions with respect to the compensation of 
Abbey J. Butler and Melvyn J. Estrin, the Co-Chief Executive Officers of the 
Corporation.  During fiscal 1998, in accordance with their respective 
employment agreements with the Corporation (see above), the Corporation 
initially paid each of Messrs. Butler and Estrin a salary based on an annual 
rate of $350,000.  This base salary was approved by the Board of Directors in 
January 1995, based upon the recommendation of the then-existing Personnel 
and Compensation Committee. Effective as of February 1, 1998, the Finance 
Committee approved amendments to the employment agreements with Messrs. 
Butler and Estrin that included, among other things, an increase in each of 
their base salaries to an annual rate of $475,000.  Messrs. Butler and Estrin 
were also awarded bonuses as determined by the Finance Committee based on the 
factors set forth above.

Section 162(m) of the Code limits the deductibility on the Corporation's tax 
return of compensation over $1 million to any of its named executive officers 
unless, in general, the compensation is paid pursuant to a plan that is 
performance related, non-discriminatory and has been approved by 
shareholders. Because the compensation of certain executive officers of the 
Corporation exceeded $1 million in fiscal 1998, the provisions of Section 
162(m) will likely limit the deductibility of such compensation.  In 
addition, the Corporation and each of Messrs. Butler, Estrin and Massman have 
entered into amendments to their respective employment agreements that 
contain certain severance provisions applicable in the event of a change of 
control of the Corporation.  To the extent benefits received by Messrs. 
Butler, Estrin or Massman pursuant to such severance provisions equal or 
exceed 300% of his average annual taxable compensation (as defined in the 
applicable regulations), the full amount of such excess ("parachute 
payments") will not be deductible by the Corporation and the amount of the 
parachute payments will reduce the $1 million limit under Section 162(m).

                                       63
<PAGE>

                              JOHN L. WINEAPPLE (CHAIRMAN)
                              FRED S. KATZ
                              WILLIAM A. LEMER

The foregoing report is not incorporated by reference in any prior or future
filings of the Corporation under the Securities Act or under the Exchange Act
directly or by reference to the incorporation of proxy statements of the
Corporation, unless the Corporation specifically incorporates the report by
reference, and the report shall not otherwise be deemed filed under such Acts.

                             PERFORMANCE GRAPH

In its 1997 fiscal year, the Corporation determined that it would not be
appropriate to continue to compare the performance of the Corporation's common
stock with the same peer companies used in prior years and that it would be more
appropriate to compare the performance of the Corporation's common stock with
the Standard & Poor's SmallCap 600 Index.  This index is a market-value weighted
index consisting of 600 domestic stocks chosen for market size, liquidity and
industry group representation.  Consistent with its Proxy Statement for its 1997
fiscal year, the following graph compares the performance of the Corporation's
common stock, the Standard & Poor's 500 Index and the Standard & Poor's SmallCap
600 Index for the Corporation's last five fiscal years.  The graph assumes that
the value of the investment in the Corporation's common stock and in each index
was $100 on April 1, 1993, and that all dividends were reinvested.

                                   [GRAPHIC]
<TABLE>
<CAPTION>
                                       FISCAL YEAR ENDED MARCH 31,
                             -----------------------------------------------
                    4/1/93    1994      1995      1996      1997      1998
----------------------------------------------------------------------------
 <S>                <C>       <C>       <C>       <C>       <C>       <C>
 The Corporation    100.00    123.08    149.04    139.42      7.69     15.86

 S&P 500 Index      100.00    101.47    117.27    154.92    185.63    274.73

 S&P SmallCap 600   100.00    108.65    114.38    150.05    162.64    240.19
</TABLE>

The foregoing graph is not incorporated in any prior or future filings of the
Corporation under the Securities Act or the Exchange Act, directly or by
reference to the incorporation of proxy statements of the Corporation, unless
the Corporation specifically incorporates the graph by reference, and the graph
shall not otherwise be deemed filed under such Acts.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of June 19, 1998 with
respect to the beneficial ownership of the Corporation's common stock by (i)
persons believed by the Corporation to be the beneficial owners of more than 5%
of the outstanding shares of the Corporation's common stock, (ii) all directors
and nominees for election as

                                       64
<PAGE>

directors of the Corporation, (iii) each of the named executive officers of 
the Corporation, and (iv) all directors and named executive officers as a 
group.

The number of shares of the Corporation's common stock beneficially owned by 
each individual set forth below is determined under rules of the Commission 
and the information is not necessarily indicative of beneficial ownership for 
any other purpose.  Under such rules, beneficial ownership includes any 
shares as to which an individual has sole or shared voting power or 
investment power and any shares that an individual presently, or within 60 
days of the date of June 29, 1998 (the date on which this report is due at 
the Commission, the "Due Date"), has the right to acquire through the 
exercise of any stock option or other right.  Unless otherwise indicated, 
each individual has sole voting and investment power (or shares such powers 
with his spouse) with respect to the shares of the Corporation's common stock 
set forth in the following table.

<TABLE>
<CAPTION>
                                            Number of Shares
                                          of the Corporation's         Percentage of
Name and Address (1)                          Common Stock           Outstanding Shares
of Beneficial Owner                        Beneficially Owned               (10)
---------------------------------------------------------------------------------------
<S>                                       <C>                        <C>
The Centaur Group
c/o Centaur Partners IV                         1,504,055 (2)                9.17%
17 Battery Place, Suite 709
New York, New York  10004

Directors and Nominees for Directors
(including those who are also
Executive Officers):

  Abbey J. Butler                               2,632,028 (2)(3)            16.05%

  Melvyn J. Estrin                              2,635,784 (2)(4)            16.08%

  Ralph DellaCamera                                     0 (15)                (11)

  Hyman H. Frankel                                  8,000 (5)                 (11)

  Daniel Gropper                                        0 (15)                (11)

  Vincent Intrieri                                      0 (15)                (11)

  Fred S. Katz                                      8,000 (5)                 (11)

  William A. Lemer                                  8,000 (5)                 (11)

  Brian Miller                                          0 (15)                (11)

  Charles C. Pecarro                                8,000 (5)                 (11)

  John L. Wineapple                                13,000 (6)                 (11)

NAMED EXECUTIVE OFFICERS:                              

  Edward L. Massman                               185,333 (7)                1.13%

  Robert H. Stone                                  55,167 (8)                 (11)

  Grady E. Schleier                                53,333 (9)                 (11)

All Directors and Named Executive
Officers as a Group (14 persons)                4,102,590              25.02% (12)

  BEA Associates                                  712,000               4.34% (13)

                                      65
<PAGE>

<CAPTION>
                                            Number of Shares
                                          of the Corporation's         Percentage of   
Name and Address (1)                          Common Stock           Outstanding Shares
of Beneficial Owner                        Beneficially Owned               (10)       
---------------------------------------------------------------------------------------
<S>                                       <C>                        <C>
  Dimensional Fund Advisors, Inc.                 697,393               4.25% (14)

  Elliott Associates, L.P., et al.              1,050,251               6.41% (15)

  National Intergroup, Inc. Retirement
  Program and Davenport, Inc. Pension Plan      1,361,500               8.30% (16)

  Phar-Mor, Inc.                                1,547,600               9.44% (17)

  United Equities Commodities Company, et al.   1,917,000              11.69% (18)
</TABLE>

(1)  The business address of each of the directors and executive officers 
listed above is c/o Avatex Corporation, 5910 North Central Expressway, Suite 
1780, Dallas, Texas 75206.

(2)  The Centaur Group is comprised of Messrs. Butler and Estrin, Centaur 
Partners IV, a New York general partnership ("Centaur IV"), Estrin Equities 
Limited Partnership, a Maryland limited partnership ("Estrin Equities"), and 
Butler Equities II, L.P., a Delaware limited partnership ("Butler Equities"). 
The general partners of Centaur IV are Estrin Equities and Butler Equities.  
AB Acquisition Corp. is the sole general partner of Butler Equities, and Mr. 
Butler owns all of the outstanding capital stock of AB Acquisition Corp.  HSG 
Acquisition Co. is the general partner, and Human Service Group, Inc. is the 
largest limited partner, of Estrin Equities, and Mr. Estrin owns all of the 
outstanding capital stock of HSG Acquisition Co. and Human Service Group, Inc.

The Centaur Group in the aggregate holds 1,504,055 shares of the 
Corporation's common stock, which are held directly by the persons and 
entities described above as follows: Centaur IV, 1,000 shares; Mr. Butler, 
1,185,600 shares; Mr. Estrin, 310,455 shares (including 18,080 shares held in 
two trusts for which Mr. Estrin is a co-trustee, the beneficial ownership of 
which he disclaims), and Estrin Equities, 7,000 shares.  Pursuant to the 
terms of the Centaur IV partnership agreement, neither Estrin Equities nor 
Butler Equities may acquire or dispose of shares of the Corporation's common 
stock without the consent of Centaur IV.  In addition, pursuant to the 
Centaur IV partnership agreement, Estrin Equities and Butler Equities must 
vote all shares of the Corporation's common stock owned by each such entity 
as directed by Centaur IV.  Accordingly, Centaur IV, which directly holds 
1,000 shares, may be deemed to share the power to direct the voting and 
disposition of the 7,000 shares held by Estrin Equities.

Estrin Equities has designated Mr. Estrin and Butler Equities has designated 
Mr. Butler to act as a "Coordinating Person" pursuant to the Centaur IV 
partnership agreement.  Messrs. Estrin and Butler, acting together, manage 
the affairs of Centaur IV and have the authority to make all decisions 
concerning Centaur IV's interest in the Corporation's common stock.

Estrin Equities disclaims beneficial ownership of the shares of the 
Corporation's common stock owned by Mr. Butler individually, and Butler 
Equities disclaims beneficial ownership of the shares of the Corporation's 
common stock owned by Estrin Equities and Mr. Estrin individually.

(3)  Includes (a) Mr. Butler's beneficial ownership of the Corporation's 
common stock through The Centaur Group and (b) options to purchase 1,127,973 
shares of the Corporation's common stock that are exercisable within 60 days 
of the Due Date.

(4)  Includes (a) Mr. Estrin's beneficial ownership of the Corporation's 
common stock through The Centaur Group, (b) 3,756 shares of the Corporation's 
common stock through his prior participation in the FoxMeyer 401(k) Plan, and 
(c) options to purchase 1,127,973 shares of the Corporation's common stock 
that are exercisable within 60 days of the Due Date.

(5)  Mr. Frankel, Mr. Katz, Mr. Lemer and Mr. Pecarro each holds options to 
purchase 8,000 shares of the Corporation's common stock that are exercisable 
within 60 days of the Due Date.

                                      66
<PAGE>

(6)  Mr. Wineapple owns 5,000 shares of the Corporation's common stock and 
holds options to purchase 8,000 shares of the Corporation's common stock that 
are exercisable within 60 days of the Due Date.

(7)  Mr. Massman holds options to purchase 185,333 shares of the 
Corporation's common stock that are exercisable within 60 days of the Due 
Date.

(8)  Mr. Stone holds options to purchase 55,167 shares of the Corporation's 
common stock that are exercisable within 60 days of the Due Date.

(9)  Mr. Schleier holds options to purchase 53,333 shares of the 
Corporation's common stock that are exercisable within 60 days of the Due 
Date.

(10)  Percentages are based on a total of 16,396,154 shares of the 
Corporation's common stock, which consists of 13,806,375 shares outstanding 
as of June 19, 1998, plus 2,589,779 shares underlying options that are 
exercisable within 60 days of the Due Date held by all directors and named 
executive officers of the Corporation as a group under the Corporation's 1993 
Stock Option Plan.

(11)  Indicates less than 1%.

(12)  Includes (a) 1,504,055 shares of the Corporation's common stock owned 
by members of The Centaur Group, (b) 8,756 additional shares of the 
Corporation's common stock owned by directors and the named executive 
officers of the Corporation, and (c) 2,589,779 shares of the Corporation's 
common stock underlying options that are exercisable within 60 days of the 
Due Date held by directors and the named executive officers of the 
Corporation.

(13)  BEA Associates provided information regarding its stock ownership in 
the Corporation by filing a Schedule 13G on February 3, 1998, which stated 
that it beneficially owned 5.16% of the Corporation's outstanding common 
stock (exclusive of shares underlying options that are exercisable within 60 
days of the Due Date held by directors and named executive officers of the 
Corporation). The stated address of BEA Associates was 153 East 53rd Street, 
New York, New York 10022.

(14)  Dimensional Fund Advisors, Inc. provided information regarding its 
stock ownership in the Corporation by filing a Schedule 13G on February 12, 
1997, which stated that it beneficially owned 5.05% of the Corporation's 
outstanding common stock (exclusive of shares underlying options that are 
exercisable within 60 days of the Due Date held by directors and named 
executive officers of the Corporation).  The stated address of Dimensional 
Fund Advisors is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 
90401.

(15)  Elliott Associates, L.P. and Westport International, L.P. 
(collectively, "Elliott") provided information regarding their stock 
ownership in the Corporation most recently by filing an Amendment No. 3 to 
Schedule 13D on June 16, 1998, which stated that they beneficially owned 
7.49% of the Corporation's outstanding common stock (including 111,637 shares 
of convertible preferred stock that are allegedly convertible into 216,351 
shares of the Corporation's common stock, but exclusive of shares underlying 
options that are exercisable within 60 days of the Due Date held by directors 
and named executive officers of the Corporation).  Elliott has stated in 
filings with the Commission that Elliott also owns 1,209,410 shares of the 
Corporation's Series A preferred stock, that Paul E. Singer ("Singer") and 
Braxton Associates, L.P., which is controlled by Singer, are the general 
partners of Elliott Associates, L.P., and that Hambledon, Inc. is the sole 
general partner of Westport International, L.P. The stated address of Elliott 
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.  In addition, 
Messrs. DellaCamera, Gropper, Intrieri and Miller, who are directors of the 
Corporation, are employees of Stonington, which is controlled by Singer.  

(16)  The Corporation believes that the National Intergroup, Inc. Retirement 
Program and the Davenport, Inc. Pension Plan beneficially own 1,361,500 
shares of the Corporation's common stock.

(17)  Phar-Mor provided information regarding its stock ownership in the 
Corporation most recently by filing an Amendment No. 3 to Schedule 13D on 
June 16, 1998, which stated that it beneficially owned 11.2% of the 
outstanding common stock of the Corporation (exclusive of shares underlying 
options that are exercisable within 60 days of the Due Date held by directors 
and named executive officers of the Corporation).  The stated address of 
Phar-Mor was c/o Morris F. DeFeo, Jr., Swidler & Berlin, Chartered, 3000 K 
Street, N.W., Washington D.C. 20007.

                                      67

<PAGE>

(18)  United Equities Commodities Company ("United Equities"), Momar 
Corporation ("Momar") and Moses Marx (collectively, "United") provided 
information regarding their stock ownership in the Corporation most recently 
by filing an Amendment to Schedule 13D on July 30, 1997, at which time they 
stated that they beneficially owned 14% of the Corporation's outstanding 
common stock (exclusive of shares underlying options that are exercisable 
within 60 days of the Due Date held by directors and the named executive 
officers of the Corporation).  United has also stated in filings with the 
Commission that they beneficially owned 10% of the Corporation's Series A 
preferred stock and 30% of the Corporation's convertible preferred stock, the 
latter of which is convertible into the Corporation's common stock, and that 
Mr. Moses Marx, as a result of his position with and ownership interest in 
United Equities and Momar could be deemed to have voting and/or investment 
power with respect to shares of the Corporation beneficially owned by United 
Equities and Momar.   The stated address of United was c/o James E. Spiotto, 
Chapman & Cutler, 111 West Monroe Street, Chicago, Illinois 60603. As of July 
30, 1997, United's filings with the Commission reflected that it owned 
1,917,000 shares of the Corporation's common stock, 438,000 shares of its 
Series A preferred stock and 200,900 shares of its convertible preferred 
stock. Although United has not filed any subsequent amendments to its 
Schedule 13D filings to reflect any increase in holdings of the Corporation's 
common and preferred stock, the Corporation received certain Written Consents 
dated April 20, 1998 (the "Consents") executed by Cede & Co., the nominee of 
The Depository Trust Company ("DTC").  The Consents stated that DTC was 
informed that United beneficially owned 1,917,000 shares of the Corporation's 
common stock, 852,900 shares of the Series A preferred stock and 204,300 
shares of the convertible preferred stock.

In addition to the beneficial owners listed above, Warburg, Pincus 
Counsellors, Inc. previously provided information regarding its stock 
ownership in the Corporation by filing a Schedule 13G dated January 22, 1996, 
at which time it stated that it owned 7.41% of the Corporation's outstanding 
common stock.  Based on conversations with Warburg, Pincus Counsellors, Inc., 
the Corporation does not believe that such entity currently owns any of the 
Corporation's common stock, although it has not filed an amendment to a 
previously filed Schedule 13G to reflect disposition of such common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

With respect to Hyman H. Frankel, PhD., who is a director of the Corporation, 
see "COMPENSATION OF DIRECTORS" above.

With respect to Fred S. Katz and John H. Wineapple, who are directors of the 
Corporation, see "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER 
PARTICIPATION" above.

Ralph DellaCamera, Daniel Gropper, Vincent Intrieri and Brian Miller, who are 
directors of the Corporation, are plaintiffs in a lawsuit against the 
Corporation.  See Item 3: "Preferred Stockholder Litigation" above.  Messrs. 
DellaCamera, Gropper, Intrieri and Miller have also identified themselves as 
"associated" with Elliott, which is a plaintiff in a separate lawsuit against 
the Corporation, Xetava Corporation and the Corporation's directors other 
than Messrs. DellaCamera, Gropper, Intrieri and Miller.

The Corporation, through a number of wholly-owned subsidiaries (the 
"Development Subsidiaries"), engages in the buying, holding, operating and 
disposing of real estate, notes secured by real estate and other similar 
investments.  These activities are typically conducted through limited 
partnerships (the "Partnerships") in which one of the Development 
Subsidiaries holds a general partner's interest.  The other partner in each 
of the Partnerships is an affiliate of The Bernstein Companies, a real estate 
development firm based in Washington, D.C.  Melvyn J. Estrin, Co-Chairman and 
the Co-Chief Executive Officer of the Corporation, is a director of each of 
the Development Subsidiaries.  Mr. Estrin is the brother of Wilma E. 
Bernstein and the brother-in-law of Stuart A. Bernstein, owners of The 
Bernstein Companies.  As of March 31, 1998, the Development Subsidiaries 
continued to have approximately $4.8 million invested in the remaining 
Partnerships, and $200,000 was invested in one non-real estate venture 
affiliated with The Bernstein Companies.

On March 31, 1998, one of the Development Subsidiaries, National Intergroup 
Realty Arlington, Inc. ("NIRA"), sold its general partnership interest in one 
of the Partnerships to Bernstein Millbank, Inc. ("BMI"), the other general 
partner in the Partnership.  The total consideration received by NIRA for the 
sale was $1,800,000, of which $450,000 was paid 

                                      68
<PAGE>

in cash and $1,350,000 was evidenced by a secured promissory note which was 
paid on June 1, 1998.  The transaction was approved by the Board of Directors 
of NIRA and approved by the Corporation, in its capacity as the sole 
shareholder of NIRA.

In May 1997, seven entities purchased a total of $3.5 million of partnership 
interests of JeffPro Investors I L.P.  These entities included M&A, two 
designees of Mr. Butler or Mr. Estrin and two parties related to, or referred 
by, Messrs. Butler or Estrin.  Of the total amount invested, M&A's share was 
approximately 4.3%, the designees' share was approximately 4.3%, and the 
related parties' share was approximately 5.7%.

In October 1997, as part of a recapitalization of Cyclone, M&A converted its 
note and warrants into 883,638 shares of Cyclone common stock.  In September 
1997, Abbey J. Butler, and Melvyn J. Estrin and Suellen Estrin, as tenants by 
the entirety, acquired a third party investor's Cyclone shares for $150,000, 
which shares were converted into 324,000 shares of Cyclone common stock as 
part of the recapitalization.

In December 1997, 28 persons and entities purchased a total of $5.9 million 
of Series B Preferred Stock of CareTech.  These persons and entities included 
the Corporation; six of its officers, Abbey J. Butler, Melvyn J. Estrin, 
Edward L. Massman, John G. Murray, Grady E. Schleier and Robert H. Stone; 
seven additional parties related to, or referred to by, Abbey J. Butler, 
Melvyn J. Estrin or Edward L. Massman and various other unaffiliated 
investors.  Of the total amount invested, the Corporation's share was 
approximately 21.8%, the officers' share was approximately 5.6%, and the 
related parties' share was approximately 6.5%. The largest share invested by 
an officer of the Corporation was approximately 1.7% of the total amount 
invested.

In December 1997 and January 1998, NII Health Care Corporation, a wholly 
owned subsidiary of the Corporation, purchased a total of 372,000 shares of 
Carson Class A common stock in the open market for $2.6 million.  Messrs. 
Butler and Estrin are directors of Carson.  At the time of such purchases, 
Messrs. Butler and Estrin each held outside director stock options to purchase 
5,000 shares of Carson Class A common stock and owned 2,710 shares of outside 
director restricted shares of Carson Class A common stock and 11,541 shares 
of Carson Class C common stock.

In January 1998, the Corporation purchased a total of 500,000 shares of 
common stock of Imagyn in the open market for $1.1 million.  Messrs. Butler 
and Estrin are directors of Imagyn. At the time of such purchases, (a) Mr. 
Butler held outside director stock options to purchase 22,500 shares of 
Imagyn common stock and owned 50,000 shares of Imagyn common stock, and (b) 
Mr. Estrin held outside director stock options to purchase 22,500 shares of 
Imagyn common stock and Human Service Group, Inc., a corporation wholly owned 
by Mr. Estrin, owned 25,000 shares of Imagyn common stock.

In March 1998, 13 persons and entities purchased (or committed to purchase) a 
total of $2.2 million of Series A membership interests in Chemlink 
Acquisition Company, LLC, which in turn purchased a membership interest in 
Chemlink Laboratories, LLC.  These persons and entities included the 
Corporation; Phar-Mor; three of the Corporation's officers, Abbey J. Butler, 
Melvyn J. Estrin and Edward L. Massman (and/or their designees); one 
non-officer director of the Corporation, Charles C. Pecarro; and five 
additional parties related to, or referred to by, Abbey J. Butler or Melvyn 
J. Estrin.  Of the total amount invested, the Corporation's share was 
approximately 35.8%, Phar-Mor's share was approximately 35.8%, the 
officers/designees' share was approximately 14.8%, the non-officer director's 
share was approximately 1.1%, and the related parties' share was 
approximately 12.5%.  The largest share invested by a Corporation officer or 
director (or his designee) was approximately 6.8% of the total amount 
invested.

In April 1998, 13 persons and entities purchased (or committed to purchase) a 
total of $3 million of Series B Preferred Stock and warrants to purchase 
Series B Preferred Stock of RAS Holding Corp.  These persons and entities 
included the Corporation; a wholly-owned subsidiary of Phar-Mor, Cabot Noble, 
Inc. ("Cabot Noble"); all of the Corporation's executive officers and its 
Director of Accounting (and/or their designees); one non-officer director of 
the Corporation, Charles C. Pecarro; and two additional parties related to, 
or referred to by, Abbey J. Butler or Melvyn J. Estrin.  Of the total amount 
invested, the Corporation's share was approximately 46.7%, Cabot Noble's 
share was 25%, the officers/designees' share was 19.8%, the non-officer 
director's share was 1% and the related parties' share was approximately 
7.5%.  The largest share invested by an officer or director of the 
Corporation (or his designee) was 5% of the total amount invested.

                                      69
<PAGE>

In April 1998, the Corporation and Cabot Noble each purchased $1.25 million 
of preferred stock of HPD Holdings Corp. ("HPD") in connection with the 
acquisition by a HPD subsidiary of certain of the assets of Block Drug 
Company, Inc. ("Block") used in or related to the manufacture, sale or 
distribution of Block's household product lines.  In addition, the 
Corporation and Cabot Noble each acquired 2.5% of the common stock of HPD as 
part of the transaction.  The largest shareholder of HPD is HPD Partners, LP, 
a Delaware limited partnership and Abbey J. Butler and Melvyn J. Estrin are 
limited partners of HPD Partners, LP.

On December 9, 1997, the Corporation advanced a short-term loan to each of 
Messrs. Butler and Estrin.  The loan to Mr. Butler was in the amount of 
$100,000, and the loan to Mr. Estrin was in the amount of $350,000.  Both 
loans were paid in full, plus interest at the rate of 8% per year, on or 
before December 31, 1997.

                                  PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)(1)    FINANCIAL STATEMENTS

               Reference is made to the listing on page 72 of all financial
               statements filed as part of this report.

        (2)    FINANCIAL STATEMENT SCHEDULES

               Reference is made to the listing on page 72 of all financial
               statement schedules filed as part of this report.

        (3)    EXHIBITS

               Reference is made to the Exhibit Index beginning on page 81 for a
               list of all exhibits filed as part of this report.

     (b)       REPORTS ON FORM 8-K

               During the three months ended March 31, 1998, no Current Reports
               on Form 8-K were filed.

               The Corporation filed a Current Report on Form 8-K on April 15,
               1998 which announced the proposed merger of the Corporation with
               and into its wholly owned subsidiary, Xetava Corporation.

                                      70
<PAGE>

                                 SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       Avatex Corporation


                                       By  /s/ Edward L. Massman
                                           -----------------------------------
                                           Edward L. Massman
June 24, 1998                              Senior Vice President and 
                                            Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Corporation and in the capacities and on the dates indicated.

<TABLE>
<S>                        <C>                                    <C>
PRINCIPAL EXECUTIVE OFFICERS:


 /s/ Abbey J. Butler
-------------------------
 Abbey J. Butler           Co-Chairman of the Board and 
                             Co-Chief Executive Officer           June 24, 1998

 /s/ Melvyn J. Estrin
-------------------------
 Melvyn J. Estrin          Co-Chairman of the Board and
                             Co-Chief Executive Officer           June 24, 1998


 /s/ Edward L. Massman
-------------------------
 Edward L. Massman         Senior Vice President and Chief
                             Financial Officer                    June 24, 1998
                             (Principal Financial Officer)


 /s/ Scott E Peterson
-------------------------
 Scott E Peterson          Vice President Finance and Controller
                              (Principal Accounting Officer)      June 24, 1998


 ADDITIONAL DIRECTORS:


 /s/ Hyman H. Frankel
-------------------------
 Hyman H. Frankel          Director                               June 24, 1998


 /s/ Fred S. Katz
-------------------------
 Fred S. Katz              Director                               June 24, 1998


 /s/ William A. Lemer
-------------------------
 William A. Lemer          Director                               June 24, 1998


 /s/ Charles C. Pecarro
-------------------------
 Charles C. Pecarro        Director                               June 24, 1998


 /s/ John L. Wineapple
-------------------------
 John L. Wineapple         Director                               June 24, 1998
</TABLE>

                                       71
<PAGE>

ITEM 14(a) (1) AND (2) AND ITEM 14(d)

                      AVATEX CORPORATION AND SUBSIDIARIES
        LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following financial statements of Avatex Corporation and subsidiaries are 
included in Item 14(a)(1):

<TABLE>
<CAPTION>
                                                                                            Page No. in
                                                                                             Form 10-K
                                                                                           -------------
<S>                                                                                        <C>
Independent Auditors' Report                                                                     20

Consolidated Statements of Operations - For the Three Years Ended March 31, 1998                 21

Consolidated Statements of Comprehensive Loss - For the Three Years Ended March 31, 1998         22

Consolidated Balance Sheets - March 31, 1998 and 1997                                            23

Consolidated Statements of Stockholders' Equity (Deficit) - For the Three Years Ended 
   March 31, 1998                                                                                24

Consolidated Statements of Cash Flows - For the Three Years Ended March 31, 1998                 25

Notes to Consolidated Financial Statements - For the Three Years Ended March 31, 1998            26
</TABLE>

The following financial statement schedules of Avatex Corporation and 
subsidiaries are included in Item 14(d):

<TABLE>
                                                                                            Page No. in
                                                                                             Form 10-K
                                                                                           -------------
<S>                                                                                        <C>
Schedule I - Condensed Financial Information of Registrant                                       73

Schedule II - Valuation and Qualifying Accounts                                                  78

Schedule III - Real Estate and Accumulated Depreciation                                          79

Independent Auditors' Consent                                                                    80
</TABLE>

Financial statement schedules other than those listed above have been omitted 
because the required information is contained in the consolidated financial 
statements and notes thereto or such information is not applicable.

In accordance with Regulation S-X, audited financial statements of Phar-Mor, 
Inc. (a 38% owned affiliate) for the fiscal year ending June 27, 1998 will be 
filed as an amendment to the Corporation's Form 10-K within 90 days of 
Phar-Mor, Inc.'s fiscal year end.


                                       72
<PAGE>

             SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        AVATEX CORPORATION (PARENT COMPANY)
              CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                        For the years ended March 31, 
(in thousands of dollars)                                           1998           1997           1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>             <C>
OPERATING COSTS
    Administrative and general expenses                            $  7,317     $    5,792      $   8,585
    Depreciation and amortization                                        41              8            -  
    Unusual items                                                    26,096            -              -  
-----------------------------------------------------------------------------------------------------------
OPERATING LOSS                                                      (33,454)        (5,800)        (8,585)
OTHER INCOME (EXPENSE)                                              (12,310)        24,740         16,216
FINANCING COSTS
    Interest income                                                   1,598            788            947
    Interest expense                                                  2,108          3,173          3,695
-----------------------------------------------------------------------------------------------------------
Financing costs, net                                                    510          2,385          2,748
-----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE NATIONAL
    STEEL CORPORATION, EQUITY IN INCOME (LOSS) OF SUBSIDIARIES
    AND AFFILIATES AND INCOME TAX PROVISION (BENEFIT)               (46,274)        16,555          4,883
NATIONAL STEEL CORPORATION
    National Steel Corporation net preferred dividend income          5,854          9,620          3,329
    Loss on National Steel Corporation settlement                   (59,038)           -              -  
Equity in income (loss) of subsidiaries and affiliates               18,199         (8,556)        (3,064)
-----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
    TAX PROVISION (BENEFIT)                                         (81,259)        17,619          5,148
Income tax provision (benefit)                                          (40)        29,863            -  
-----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS                        (81,219)       (12,244)         5,148
DISCONTINUED OPERATIONS
    Equity in loss from discontinued operations                         -          (21,057)       (61,728)
    Equity in gain (loss) on disposal of discontinued operations      3,719          8,417         (7,081)
    Loss on disposal of discontinued operations                         -         (254,472)           -  
-----------------------------------------------------------------------------------------------------------
NET LOSS                                                            (77,500)      (279,356)       (63,661)
Other comprehensive income (loss), net of tax
    Foreign currency translation adjustment                             -               59            -  
    Reclassification adjustment for losses included in net loss         -               21            -  
    Equity in foreign currency translation adjustment                   -              (42)           (40)
-----------------------------------------------------------------------------------------------------------
        Net foreign currency translation adjustment                     -               38            (40)
-----------------------------------------------------------------------------------------------------------
    Unrealized gains on securities                                       19            -              -  
    Equity in unrealized gains (losses) on securities                 1,149             17         (2,391)
-----------------------------------------------------------------------------------------------------------
        Net unrealized gains (losses)                                 1,168             17         (2,391)
-----------------------------------------------------------------------------------------------------------
    Minimum pension liability adjustment                             (6,187)        (8,897)        10,794
    Loss on plan termination from National Steel
        Corporation settlement included in net loss                  79,718            -              -  
-----------------------------------------------------------------------------------------------------------
        Net minimum pension liability adjustment                     73,531         (8,897)        10,794
-----------------------------------------------------------------------------------------------------------
           Total other comprehensive income (loss)                   74,699         (8,842)         8,363
-----------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                 $ (2,801)    $ (288,198)     $ (55,298)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------

</TABLE>

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                       73
<PAGE>

          SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                      AVATEX CORPORATION (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          March 31,  
(in thousands of dollars)                                                           1998           1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>
ASSETS

CURRENT ASSETS
    Cash and short-term investments                                             $   32,926    $      520 
    Restricted cash and investments                                                    -          32,823 
    Receivables, less allowance for possible losses of $11 in 1998                   9,701            36 
    Other current assets                                                             3,532        15,185 
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                46,159        48,564 
INVESTMENT IN NATIONAL STEEL CORPORATION                                               -          44,961 
INVESTMENT IN SUBSIDIARIES AND AFFILIATES                                           68,597        62,674 
PROPERTY AND EQUIPMENT                                                                 196           186 
    Less accumulated depreciation and amortization                                      49             8 
-----------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT                                                             147           178 

OTHER ASSETS
    Deferred tax asset, net of valuation allowance                                     -             -   
    Other assets                                                                    12,016         7,716 
-----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS                                                                  12,016         7,716 
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                    $  126,919    $  164,093 
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Accounts payable                                                            $    1,273    $    1,060 
    Other accrued liabilities                                                        4,055         4,891 
    Long-term debt due within one year                                                 -           2,500 
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                            5,328         8,451 

INTERCOMPANY PAYABLES                                                               30,426        49,035 
LONG-TERM DEBT                                                                       8,322        12,400 
OTHER LONG-TERM LIABILITIES                                                          9,749        18,312 

REDEEMABLE PREFERRED STOCK                                                         214,996       189,402 

STOCKHOLDERS' DEFICIT
    Common stock $5.00 par value; authorized 50,000,000 shares; issued:
      13,806,375 shares in 1998 and 13,805,988 shares in 1997                       69,032        69,030 
    Capital in excess of par value                                                 119,100       119,092 
    Accumulated other comprehensive income (loss)                                    1,168        (73,531)
    Accumulated deficit                                                           (331,202)      (228,098)
-----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT                                                       (141,902)      (113,507)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                     $  126,919    $  164,093 
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                       74
<PAGE>

             SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        AVATEX CORPORATION (PARENT COMPANY)
                         CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       For the years ended March 31, 
(in thousands of dollars)                                                          1998            1997           1996 
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                        $  (77,500)     $(279,356)    $  (63,661)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED)
    BY OPERATING ACTIVITIES:
    Net preferred income from National Steel Corporation                            (5,854)        (9,620)        (3,329)
    Loss on National Steel Corporation settlement                                   59,038            -              -  
    Equity in loss (income) of subsidiaries and affiliates                         (21,918)        21,196         71,873
    Deferred income tax provision                                                      -           29,863            -  
    Other non-cash charges (credits)                                                (5,284)         2,018        (15,383)
    Loss (gain) on investments                                                      12,313        (26,435)           -  
    Loss on disposal of discontinued operations                                        -          254,472            -  
    Cash provided (used) by working capital items:
      Receivables and other current assets                                          35,368        (32,139)          (555)
      Accounts payable and accrued liabilities                                      (6,762)        (5,827)           (84)
    Net intercompany activity with subsidiaries                                      2,772         51,547         17,937
    Other                                                                               39             19           (520)
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                    (7,788)         5,738          6,278
--------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of investments, including subsidiaries and affiliates                 (12,571)           -          (29,329)
    Sale of affiliates and investments                                              59,675         37,442            -  
    Dividends received from subsidiaries and affiliates                                -              -           10,000
    Purchase of property and equipment                                                 (10)          (186)           -  
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                    47,094         37,256        (19,329)
--------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayments on revolving credit facilities                                          -          (15,000)           -  
    Proceeds from the issuance of long-term debt                                     8,000            -           20,000
    Repayment of long-term debt                                                    (14,900)        (5,100)           -  
    Note payable to FoxMeyer Corporation                                               -              -            2,300
    Debt issuance costs                                                                -             (178)          (367)
    Purchase of treasury stock                                                         -          (16,726)           -  
    Purchase of preferred stock                                                        -           (8,845)        (4,236)
    Dividends paid on redeemable preferred stock                                       -           (2,697)        (4,180)
    Exercise of stock options                                                          -            1,680          3,449
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                    (6,900)       (46,866)        16,966
--------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS                          32,406         (3,872)         3,915
    Cash and short-term investments, beginning of year                                 520          4,392            477
--------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR                                     $  32,926         $  520       $  4,392
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                       75
<PAGE>

            SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        AVATEX CORPORATION (PARENT COMPANY)
                      NOTES TO CONDENSED FINANCIAL STATEMENTS
                      FOR THE THREE YEARS ENDED MARCH 31, 1998


NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

The condensed financial statements of the registrant should be read in 
conjunction with the consolidated financial statements included in Item 8 
contained herein.  The notes for these condensed financial statements contain 
only the additional disclosure required for this schedule.  In particular, 
see Note N to the consolidated financial statements concerning various 
pending claims and lawsuits involving the registrant.

The preparation of the condensed financial statements, in conformity with 
generally accepted accounting principles, requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities, and the disclosure of contingent assets and liabilities, at the 
dates of the financial statements and reported amounts of revenues and 
expenses during such reporting periods.  Actual results could differ from 
these estimates.

The Parent Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of 
liabilities and commitments in the normal course of business.  The financial 
statements do not reflect any adjustments that might ultimately result from 
the resolution of the uncertainties discussed in Note S to the consolidated 
financial statements.

Cash and Short-Term Investments:  Cash and short-term investments consist 
principally of amounts held in demand deposit accounts and amounts invested 
in other instruments having a maturity of three months or less at the time of 
purchase and are recorded at cost.  Cash and short-term investments of $32.8 
million were restricted as to use by the Parent Company at March 31, 1997 in 
connection with the FoxMeyer Corporation ("FoxMeyer") bankruptcy filing.

Deferred Tax Asset:  The Parent Company's deferred tax asset consists almost 
entirely of tax net operating loss carryforwards and liabilities which were 
not deductible for federal income tax purposes when accrued.  The valuation 
allowance is equal to the deferred tax asset as the Parent Company believes 
it may not be able to realize its deferred tax asset.

Intercompany Payables:  The intercompany payables between the Parent Company 
and its subsidiaries are generally not evidenced by notes and do not bear 
interest.

Unusual items:  Unusual items consisted of a $33.3 million charge from the 
settlement of certain litigation with the FoxMeyer Bankruptcy Trustee, a gain 
of $1.6 million from the settlement of other litigation with insurance 
carriers related to environmental liabilities and a gain of $5.6 million 
related to the settlement or termination of certain pension and other 
postretirement liabilities.

Other income (expense):  In 1998, other expense consisted of a loss of $12.9 
million from the adjustment during the year in the carrying value of Imagyn 
Technologies, Inc. ("Imagyn") to its market value, partially offset by $0.6 
million in gains on other investments.  In 1997, other income consisted of a 
gain of $34.0 million on the sale of FoxMeyer Canada Inc. partially offset by 
the write-off of the Parent Company's investment in Ben Franklin Retail Stores, 
Inc. ("Ben Franklin") of $2.0 million and $7.3 million in other losses 
(including a $6.2 million trading loss on Imagyn).  In 1996, other income 
consisted of a gain of $19.6 million related to the settlement of certain 
unresolved issues in connection with the 1992 sale of The Permian Corporation 
and other contingencies partially offset by a $3.4 million write-down of the 
value of Ben Franklin.

NOTE B - DIVIDENDS RECEIVED

The Parent Company received a dividend of $105.9 million from FoxMeyer on 
June 19, 1996 consisting of marketable securities, certain subsidiaries of 
FoxMeyer and the forgiveness of a $30.0 million note receivable from 

                                       76
<PAGE>

the Parent Company plus any accrued interest thereon. The Parent Company 
received cash dividends of $10.0 million from FoxMeyer in the fiscal year 
ended March 31, 1996.

NOTE C - TAX SHARING PAYMENTS

Under the tax sharing agreements with its subsidiaries, the Parent Company 
received $1.7 million for the year ended March 31, 1996.  No tax sharing 
payments were received for the two years ended March 31, 1998.

NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental cash flow information is provided for interest and 
income taxes paid and for non-cash transactions (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                     For the years ended March 31,
                                                                      1998        1997         1996
-----------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>          <C>
Interest paid                                                      $  1,215    $  2,050     $  3,863
Income tax refund                                                       (40)          -            -
Non-cash transactions:
  Note received as part of National Steel Corporation      
  Settlement                                                          9,442           -            -
  Ben Franklin common stock distributed as a dividend                     -           -       29,697
  Payment of dividends-in-kind on Series A Preferred Stock                -       4,354       15,319
  Cumulative dividends accrued but not paid                          23,101      10,806            -
  Dividend received from FoxMeyer                                         -     105,888            -
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>

                                       77
<PAGE>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                       AVATEX CORPORATION AND SUBSIDIARIES
                           (in thousands of dollars)

<TABLE>
<CAPTION>
           COL A                               COL B                   COL C                COL D           COL E
---------------------------------------------------------------------------------------------------------------------
                                                                     Additions
                                                          -----------------------------
                                                                            Charged to
                                             Balance at     Charged to        Other                        Balance 
                                              Beginning      Costs and      Accounts-    Deductions-         at End
Description                                   of Period       Expenses       Describe       Describe      of Period
---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>              <C>          <C>              <C>
                                                 Year Ended March 31, 1998

Allowance for possible losses on notes
  and accounts receivable                     $     539   $      9          $    -      $    521 (2)     $      27 


                                                 Year Ended March 31, 1997

Allowance for possible losses on notes 
  and accounts receivable                     $  23,540   $  3,906 (1)      $    -      $ 26,907 (1)     $     539 
Reserve for inventory shrinkage                   5,036          -               -         5,036 (1)           -   


                                                 Year Ended March 31, 1996

Allowance for possible losses on notes
  and accounts receivable                     $   6,510   $ 21,885 (1)      $    -      $  4,855 (1)     $  23,540 
Allowance for possible losses on 
     pre-bankruptcy receivable from 
     Phar-Mor, Inc.                              62,795     (1,385)(1)           -        61,410 (1)           -   
Reserve for inventory shrinkage                   1,934      4,444 (1)           -         1,342 (1)         5,036 
</TABLE>

Notes:
  (1) Principally relates to discontinued operations.
  (2) Principally the collection and write-off of receivables retained on the 
      sale of discontinued operations.

                                       78
<PAGE>

              SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                        AVATEX CORPORATION AND SUBSIDIARIES
                                   March 31, 1998
                             (in thousands of dollars)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
      COL A                  COL B             COL C                          COL D                           COL E
-----------------------------------------------------------------------------------------------------------------------------------
                                                                        Cost capitalized                  Gross amount
                                           Initial cost                   subsequent                    at which carried
                                             to company                  to acquisition                at close of period
                                        -------------------------------------------------------------------------------------------
                             Encum-                 Buildings and                  Carrying             Buildings and
Description                 brances        Land      improvements   Improvements      costs     Land       improvements      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>          <C>          <C>             <C>            <C>        <C>       <C>               <C>
Office building and 
  hotel Annapolis MD.     $   5,209    $  1,079        $  3,402       $  1,029       $  -     $  1,079      $   4,431     $   5,510

Hotel Washington D.C.         7,714       4,000           2,310          2,935          -        4,000          5,245         9,245

Hotel Washington D.C.         2,170         552           1,001          3,591          -          552          4,592         5,144
                          ----------------------------------------------------------------------------------------------------------

Total                     $  15,093    $  5,631        $  6,713       $  7,555       $  -     $  5,631      $  14,268     $  19,899
                          ----------------------------------------------------------------------------------------------------------
                          ----------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------
       COL A                   COL F            COL G             COL H               COL I   
-----------------------------------------------------------------------------------------------
                                                                                     Life on  
                                                                                      which   
                                                 Date                             depreciation
                            Accumulated           of              Date                 is     
    Description             depreciation     construction       acquired            computed  
-----------------------------------------------------------------------------------------------
<S>                         <C>             <C>               <C>              <C>
Office building and                          Hotel - 1971
  hotel Annapolis MD.          $     588    Office - 1989     November 1993       5-39 years

Hotel Washington D.C.                629         1961          October 1994       5-20 years

Hotel Washington D.C.                  -         1955            May 1996      Under renovation
                               ----------
Total                          $  1,217 
                               ----------
                               ----------
</TABLE>

NOTES:    The cost of land and buildings and improvements for federal income tax
          purposes is approximately $17.5 million.
          The amounts for buildings and improvements include amounts classified
          as construction in progress.

          Reconciliation of real estate and accumulated depreciation for each of
          the last three fiscal years ended March 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                    Fiscal 1998                  Fiscal 1997                  Fiscal 1996
                                            ---------------------------------------------------------------------------------------
                                                           Accumulated                   Accumulated                   Accumulated
                                            Real estate   depreciation    Real estate   depreciation    Real estate   depreciation
                                            ---------------------------------------------------------------------------------------
<S>                                         <C>           <C>             <C>           <C>             <C>           <C>
Balance at beginning of period                $  18,667     $    727        $  18,172     $  1,023       $  15,260      $    336 
  Acquisitions during period:
    Acquisitions other than through 
      foreclosure                                 7,676            -            2,900            -               -           -   
    Improvements                                  5,450            -            4,052            -           1,116           -   
    Reclassification of asset held for 
      sale to operating                               -            -                -            -           1,796           103 
    Contribution of joint venture assets              -            -            4,000            -               -           -   
  Depreciation                                        -          613                -          397               -           584 
                                            ---------------------------------------------------------------------------------------
                                                 31,793        1,340           29,124        1,420          18,172         1,023 
  Deductions during period:
    Cost of real estate sold                     11,894          123           10,457          693               -           -   
                                            ---------------------------------------------------------------------------------------
Balance at end of period                      $  19,899     $  1,217        $  18,667     $    727       $  18,172      $  1,023 
                                            ---------------------------------------------------------------------------------------
                                            ---------------------------------------------------------------------------------------
</TABLE>

                                       79

<PAGE>

                         INDEPENDENT AUDITORS' CONSENT


We consent to the incorporation by reference in Registration Statement No. 
33-56097 on Form S-8 and No. 33-37531 on Form S-3 of Avatex Corporation  of 
our report dated April 30, 1998, except the fourteenth paragraph of Note N
and the last paragraph of Note T which are as of June 8, 1998, which report 
expresses an unqualified opinion and includes an explanatory paragraph 
regarding the Corporation's ability to continue as a going concern, appearing 
in and incorporated by reference in this Annual Report on Form 10-K of Avatex 
Corporation for the year ended March 31, 1998.



Deloitte & Touche LLP
Dallas, Texas
June 26, 1998



                                       80
<PAGE>

                        AVATEX CORPORATION AND SUBSIDIARIES

                                   EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                               Description
-------                              -----------
<S>      <C>
3-A      Restated Certificate of Incorporation of the Corporation and all
         subsequent amendments thereto.  (Filed as Exhibit 3-A to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended 
         March 31, 1993 and incorporated herein by reference.)

3-B      Certificate of Amendment of Restated Certificate of Incorporation of the
         Corporation dated October 12, 1994.  (Filed as Exhibit 3-A to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1995 and incorporated herein by reference.)

3-C      Certificate of Resolution relating to the Corporation's $5 Cumulative
         Convertible Preferred Stock.  (Filed as Exhibit 4-B to the Corporation's
         Registration Statement on Form 8-B (File No. 1-8549) and incorporated
         herein by reference.)  

3-D      Certificate of Designations, Rights and Preferences relating to the
         Corporation's $4.20 Cumulative Exchangeable Series A Preferred Stock. 
         (Filed as Exhibit 9(c)(1) to the Corporation's Schedule 13E-4 Issuer
         Tender Offer Statement dated October 6, 1993 and incorporated herein by
         reference.)

3-E      By-laws of the Corporation.  (Filed as Exhibit 3-D to the Corporation's
         Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and
         incorporated herein by reference.)

3-F      Certificate of Ownership and Merger Merging CareStream Holdings, Inc.
         into FoxMeyer Health Corporation.  (Filed as Exhibit 3-E to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1997 and incorporated herein by reference.)

10-A     National Intergroup, Inc. 1993 Stock Option and Performance Award Plan. 
         (Filed as Exhibit 10-A to the Corporation's Annual Report on Form 10-K
         for the fiscal year ended March 31, 1994 and incorporated herein by
         reference.)  

10-B     National Intergroup, Inc. Director's Retirement Plan dated December 1,
         1983.  (Filed as Exhibit 10-A to the Corporation's Annual Report on Form
         10-K for the fiscal year ended March 31, 1992 and incorporated herein by
         reference.)  

10-C     Amendment dated October 12, 1994 to the 1993 Stock Option and
         Performance Award Plan of the Corporation.  (Filed as Exhibit 10-D to
         the Corporation's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1994 and incorporated herein by reference.)

10-D     Performance Incentive Plan of the Corporation, effective January 1,
         1997.  (Filed as Exhibit 10-W to the Corporation's Annual Report on Form
         10-K for the fiscal year ended March 31, 1997 and incorporated herein by
         reference.)

10-E     Amendment No. 1 to the Performance Incentive Plan of the Corporation. 
         (Filed as Exhibit 10-A to the Corporation's Quarterly Report on Form 10-Q 
         for the quarter ended June 30, 1997 and incorporated herein by reference.)

10-F     Avatex Corporation Employees' Savings and Profit Sharing Plan, effective
         as of April 1, 1997.  (Filed as Exhibit 10-X to the Corporation's Annual
         Report on Form 10-K for the fiscal year ended March 31, 1997 and
         incorporated herein by reference.)

                                       81
<PAGE>

10-G     Agreement, dated as of November 25, 1997, among the Corporation,
         National Steel Corporation, NKK Corporation and NKK U.S.A. Corporation. 
         (Filed as Exhibit 2 to the Corporation's Current Report on Form 8-K
         filed December 5, 1997 and incorporated herein by reference.)

10-H     Employment Agreement, dated as of February 27, 1995, between the
         Corporation and Abbey J. Butler.  (Filed as Exhibit 10-AF to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1995 and incorporated herein by reference.)

10-I     Employment Agreement, dated as February 27, 1995, between the
         Corporation and Melvyn J. Estrin.  (Filed as Exhibit 10-AG to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1995 and incorporated herein by reference.)

10-J     Employment Agreement dated as of November 7, 1996 between the
         Corporation and Edward L. Massman.  (Filed as Exhibit 10-S to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1997 and incorporated herein by reference.)

10-K     Employment Agreement dated as of November 12, 1996 between the
         Corporation and Grady L. Schleier.  (Filed as Exhibit 10-T to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1997 and incorporated herein by reference.)

10-L     Employment Agreement dated as of November 12, 1996 between the
         Corporation and Robert H. Stone.  (Filed as Exhibit 10-U to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1997 and incorporated herein by reference.)

10-M     Employment Agreement dated as of November 20, 1996 between the
         Corporation and Scott E Peterson.  (Filed as Exhibit 10-V to the
         Corporation's Annual Report on Form 10-K for the fiscal year ended March
         31, 1997 and incorporated herein by reference.)

10-N     Amendment to Employment Agreement between the Corporation and Abbey J.
         Butler, effective as of February 1, 1998. *

10-O     Amendment to Employment Agreement between the Corporation and Melvyn J.
         Estrin, effective as of February 1, 1998. *

10-P     Amendment to Employment Agreement between the Corporation and Edward L.
         Massman, effective as of February 1, 1998. *

10-Q     Employment Agreement between the Corporation and John G. Murray,
         effective as of February 1, 1998. *

10-R     Amendment to Employment Agreement between the Corporation and Scott E
         Peterson, effective as of February 1, 1998. *

10-S     Amendment to Employment Agreement between the Corporation and Grady E.
         Schleier, effective as of February 1, 1998. *

10-T     Amendment to Employment Agreement between the Corporation and Robert H.
         Stone, effective as of February 1, 1998. *

10-U     Amendment No. 2 to the Performance Incentive Plan of the Corporation,
         effective as of June 23, 1997. *

10-V     Agreement and Plan of Merger, dated as of April 9, 1998, by and between
         the Corporation and Xetava Corporation.  (Filed as Exhibit 2 to the
         Corporation's Current Report on Form 8-K filed April 15, 1998 and
         incorporated herein by reference.)

                                       82
<PAGE>

21       Subsidiaries of the Corporation.*

23       Consent of Independent Auditors is included in the List of Financial
         Statements and Financial Statement Schedules.

27       Financial Data Schedule.*
</TABLE>

-------------------
*  Filed herewith 

                                       83