<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000

             [ ]  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                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)


  5910 N. Central Expressway, Suite 1780, Dallas, Texas             75206
---------------------------------------------------------     ------------------
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)


  Registrant's Telephone Number, Including Area Code             214-365-7450
                                                              ------------------



Indicate by check mark whether the registrant (1) had 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.
                         ---     ---

Number of shares of Common Stock outstanding as of January 31, 2001: 19,637,360
shares before deducting 2,295,853 shares which represent the Corporation's 46.4%
equity interest in common stock of the Corporation owned by Phar-Mor, Inc.

<PAGE>

                          PART 1. FINANCIAL INFORMATION

                       AVATEX CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             For the three months
                                                                              ended December 31,
                                                                            ----------------------
(in thousands, except per share amounts)                                      2000          1999
                                                                            -------      --------
<S>                                                                         <C>          <C>
OPERATING COSTS
   Operating costs, including general and administrative costs              $   285      $  2,328
   Depreciation and amortization                                                  7             9
                                                                            -------      --------
TOTAL OPERATING COSTS                                                          (292)       (2,337)
OTHER INCOME                                                                      8           206
INTEREST AND DIVIDEND INCOME                                                    547           616
INTEREST EXPENSE                                                             (1,284)         (481)
                                                                            -------      --------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME (LOSS)
   OF AFFILIATES                                                             (1,021)       (1,996)
Equity in income (loss) of affiliates                                        (3,874)        3,057
                                                                            -------      --------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                     (4,895)        1,061
DISCONTINUED OPERATIONS
   Loss on disposal of discontinued operations, net of tax                      -             (63)
                                                                            -------      --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                      (4,895)          998
   Extraordinary item, gain on extinguishment of debt                           100          -
   Equity in extraordinary item of affiliate                                  7,491          -
                                                                            -------      --------
NET INCOME                                                                    2,696           998
Preferred stock dividends                                                       -           5,762
Gain on exchange of preferred stock in connection with merger
   with Xetava Corporation                                                      -         225,008
                                                                            -------      --------
INCOME APPLICABLE TO COMMON STOCKHOLDERS                                    $ 2,696      $220,244
                                                                            =======      ========

BASIC AND DILUTED INCOME (LOSS) PER SHARE
   Income (loss) from continuing operations                                 $ (0.28)     $  15.42
   Discontinued operations                                                      -           (0.01)
   Extraordinary item                                                          0.43          -
                                                                            -------      --------
INCOME PER SHARE                                                            $  0.15      $  15.41
                                                                            =======      ========
Average number of common shares outstanding                                  17,533        14,291
                                                                            -------      --------
COMPREHENSIVE INCOME                                                        $ 2,678      $  1,648
                                                                            =======      ========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       1
<PAGE>

                       AVATEX CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             For the nine months
                                                                              ended December 31,
                                                                            ---------------------
(in thousands, except per share amounts)                                      2000          1999
                                                                            --------     --------
<S>                                                                         <C>          <C>
OPERATING COSTS
   Operating costs, including general and administrative costs              $  2,841     $  6,582
   Depreciation and amortization                                                  19           30
                                                                            --------     --------
TOTAL OPERATING COSTS                                                         (2,860)      (6,612)
OTHER INCOME (EXPENSE)                                                             7          (87)
INTEREST AND DIVIDEND INCOME                                                   1,531        1,700
INTEREST EXPENSE                                                              (3,785)        (860)
                                                                            --------     --------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME (LOSS)
   OF AFFILIATES                                                              (5,107)      (5,859)
Equity in income (loss) of affiliates                                        (12,746)         167
                                                                            --------     --------
LOSS FROM CONTINUING OPERATIONS                                              (17,853)      (5,692)
DISCONTINUED OPERATIONS
   Income from discontinued operations, net of tax                               -            259
   Gain on disposal of discontinued operations, net of tax                       -          7,872
                                                                            --------     --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                      (17,853)       2,439
   Extraordinary item, gain on extinguishment of debt                            384          -
   Equity in extraordinary item of affiliate                                   7,663          -
                                                                            --------     --------
NET INCOME (LOSS)                                                             (9,806)       2,439
Preferred stock dividends                                                        -         20,912
Gain on exchange of preferred stock in connection with merger
   with Xetava Corporation                                                       -        225,008
                                                                            --------     --------
INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS                             $ (9,806)    $206,535
                                                                            ========     ========

BASIC AND DILUTED INCOME (LOSS) PER SHARE
   Income (loss) from continuing operations                                 $  (1.02)    $  14.77
   Discontinued operations                                                       -           0.60
   Extraordinary item                                                           0.46          -
                                                                            --------     --------
INCOME (LOSS) PER SHARE                                                     $  (0.56)    $  15.37
                                                                            ========     ========

Average number of common shares outstanding                                   17,649       13,436
                                                                            --------     --------
COMPREHENSIVE INCOME (LOSS)                                                 $(11,871)    $    654
                                                                            ========     ========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       2
<PAGE>

                       AVATEX CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    December 31,     March 31,
(in thousands of dollars)                                               2000           2000
                                                                    ------------    ----------
<S>                                                                 <C>             <C>
ASSETS
CURRENT ASSETS
   Cash and short-term investments                                   $  21,550      $  10,754
   Receivables - net                                                     1,988          2,374
   Other current assets                                                    517         20,614
                                                                     ---------      ---------
TOTAL CURRENT ASSETS                                                    24,055         33,742

INVESTMENT IN AFFILIATES                                                16,372         24,577

PROPERTY AND EQUIPMENT                                                     163            172
   Less accumulated depreciation and amortization                          106             96
                                                                     ---------      ---------
NET PROPERTY AND EQUIPMENT                                                  57             76

OTHER ASSETS                                                            21,736         18,151
                                                                     ---------      ---------
TOTAL ASSETS                                                         $  62,220      $  76,546
                                                                     =========      =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                  $   1,283      $   1,698
   Other accrued liabilities                                             1,406          3,017
   Long-term debt due within one year                                   10,427          9,745
                                                                     ---------      ---------
TOTAL CURRENT LIABILITIES                                               13,116         14,460
LONG-TERM DEBT                                                          20,295         20,577
OTHER LONG-TERM LIABILITIES                                             10,613         10,667
COMMITMENTS AND CONTINGENCIES                                              -              -
STOCKHOLDERS' EQUITY
   Common stock $0.01 par value; authorized 50,000,000 shares;
     issued: 19,637,360 shares                                             196            196
   Capital in excess of par value                                      193,170        193,170
   Accumulated other comprehensive income (loss)                           (83)         1,982
   Accumulated deficit                                                (170,191)      (160,385)
                                                                     ---------      ---------
                                                                        23,092         34,963
    Less: equity in cost of common stock of the Corporation
            held by Phar-Mor, Inc.                                      (4,896)        (4,121)
                                                                     ---------      ---------
TOTAL STOCKHOLDERS' EQUITY                                              18,196         30,842
                                                                     ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $  62,220      $  76,546
                                                                     =========      =========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>


                       AVATEX CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           For the nine months
                                                                            ended December 31,
                                                                         -----------------------
(in thousands of dollars)                                                  2000           1999
<S>                                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                        $ (9,806)      $  2,439
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
   PROVIDED (USED) BY OPERATING ACTIVITIES:
   Equity in loss (income) of affiliates                                    5,083           (167)
   Depreciation and amortization                                               19             30
   Loss on investments                                                        340            451
   Other non-cash expense (income) items                                      906           (434)
   Gain on extraordinary item                                                (384)           -
   Gain on disposal of discontinued operations                                -           (7,872)
   Cash provided (used) by working capital items:
      Receivables                                                             400          3,613
      Other assets                                                         11,700         (7,242)
      Accounts payable and accrued liabilities                             (2,376)          (997)
      Other                                                                   -                8
                                                                         --------       --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                            5,882        (10,171)
                                                                         --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                         -               (7)
   Purchase of investments                                                 (2,504)           -
   Proceeds from sale of investments                                        9,005         14,246
                                                                         --------       --------
NET CASH PROVIDED BY INVESTING ACTIVITIES                                   6,501         14,239
                                                                         --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash paid to preferred stockholders and certain other parties in
      the merger with Xetava Corporation                                      -          (13,920)
   Debt repurchases                                                        (1,587)           -
                                                                         --------       --------
NET CASH USED BY FINANCING ACTIVITIES                                      (1,587)       (13,920)
                                                                         --------       --------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS                 10,796         (9,852)
   Cash and short-term investments, beginning of period                    10,754         27,159
                                                                         --------       --------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD                           $ 21,550       $ 17,307
                                                                         ========       ========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>

                       AVATEX CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS: Avatex Corporation is a holding company that, along
with its subsidiaries, owns interests in other corporations and partnerships.
Through Phar-Mor, Inc. ("Phar-Mor"), our 46%-owned affiliate, we are involved
in operating a chain of discount retail drugstores. Through Phar-Mor and
Chemlink Acquisition Company, LLC ("CLAC"), we own approximately 38% of
Chemlink Laboratories, LLC ("Chemlink"). Chemlink is primarily engaged in the
development, manufacture and distribution of effervescent tablet formulations
for consumers and businesses for use in cleaning, disinfectant and
sterilization applications.

BASIS OF PRESENTATION: The preparation of the consolidated financial
statements, in conformity with generally accepted accounting principles,
requires us 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.

         These financial statements have been prepared on a going concern
basis that contemplates the realization of our assets and the settlement of
our liabilities and commitments in the normal course of business. See Note 7
for a discussion of our ability to continue as a going concern and our plans
for addressing those issues.

         We sold our real estate operations in May 1999 and have presented our
real estate segment as a discontinued operation in our fiscal 2000 financial
statements.

         Our condensed consolidated balance sheet as of December 31, 2000, the
condensed consolidated statements of operations and comprehensive income
(loss) for the three and nine months ended December 31, 2000 and 1999, and the
condensed consolidated statements of cash flows for the nine months ended
December 31, 2000 and 1999, are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited consolidated
financial statements, and include all adjustments necessary for the fair
presentation of financial position, results of operations and cash flows. Such
adjustments were of a normal recurring nature. The results of operations for
the three and nine months ended December 31, 2000 are not necessarily
indicative of the results that may be expected for the entire year. The
condensed consolidated balance sheet as of March 31, 2000 was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. Additional information is contained
in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended March 31, 2000, and should be read in
conjunction with this quarterly report.

EXTRAORDINARY ITEM: The extraordinary item for the three and nine months ended
December 31, 2000 represents gains realized on the early extinguishment of
approximately $0.6 million face value and $2.7 million face value,
respectively, of the 6.75% Notes issued by our subsidiary, Avatex Funding,
Inc. ("Avatex Funding"), which were purchased by us in the open market. See
Note 5. Equity in extraordinary item of affiliate represents our equity in
Phar-Mor's gain on the early extinguishment of its debt.

COMPREHENSIVE INCOME (LOSS): The difference in comprehensive income (loss) and
net income (loss) is due to unrealized gains or losses on marketable
securities for the three and nine months ended December 31, 2000 and December
31, 1999, and to a minimum pension liability adjustment for the nine months
ended December 31, 2000. The details of other comprehensive income (loss) for
these periods are as follows (in thousands of dollars):

                                       5

<PAGE>


<TABLE>
<CAPTION>

                                               For the three months ended     For the nine months ended
                                                        December 31,                December 31,
                                                    2000           1999         2000           1999
--------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>        <C>            <C>
Unrealized gains (losses) on  securities         $ (18)           $ 650      $  1,381       $ (1,209)
Reclassification adjustment for gains
included in net income (loss)                        -                -        (3,411)          (576)
--------------------------------------------------------------------------------------------------------
Net unrealized gain (loss)                         (18)             650        (2,030)        (1,785)
--------------------------------------------------------------------------------------------------------

Minimum pension liability adjustment                 -                -           (35)             -
--------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss)          $ (18)           $ 650      $ (2,065)      $ (1,785)
========================================================================================================


</TABLE>

NEWLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which, as amended, is effective for fiscal years beginning after
June 15, 2000. Therefore, we will be required to adopt SFAS No. 133 for our
fiscal year beginning April 1, 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments that require every derivative
to be recorded on the balance sheet as an asset or liability measured at its
fair value. The statement also defines the accounting for the change in the
fair value of derivatives depending on their intended use. We believe that the
adoption of SFAS No. 133 will not have a material impact on our financial
condition or results of operations.

COMMON STOCK OF AVATEX CORPORATION HELD BY AN AFFILIATE: Phar-Mor currently
owns 4,948,600 shares or 25.2% of our issued Class A common stock. We account
for our investment in Phar-Mor on an equity basis and treat Phar-Mor's
investment in our common stock similar to treasury stock, with a reduction in
our stockholders' equity of approximately $4.9 million at December 31, 2000
(the equivalent of 2,259,471 shares of our common stock) and $4.1 million at
March 31, 2000 (the equivalent of 1,900,263 shares of our stock). The
reduction was equal to our 45.7% ownership interest at December 31, 2000 and
our 38.4% ownership interest at March 31, 2000 in the cost and number of
shares of our common stock held by Phar-Mor.

         In addition, the weighted average number of shares outstanding used
in calculating earnings per share was reduced by 2,104,334 and 1,988,260 for
the three and nine months ended December 31, 2000, respectively, and 1,099,786
and 901,024 for the three and nine months ended December 31, 1999,
respectively. The reduction was equal to our ownership interest in our common
stock since its acquisition by Phar-Mor.


NOTE 2 - INCOME (LOSS) PER SHARE OF COMMON STOCK

         The income (loss) per share from continuing operations for basic and
diluted earnings per share was calculated by dividing the income (loss) from
continuing operations for each of the three and nine month periods ended
December 31, 2000 and 1999, respectively, after deducting any dividends on
preferred stock and adding back the gain on the exchange of preferred stock in
connection with the Xetava Corporation ("Xetava") merger, by the weighted
average number of common shares outstanding. The weighted average number of
shares outstanding was reduced by our equity in the number of shares of our
stock held by Phar-Mor as explained in Note 1.

         Options to purchase approximately 3.9 million shares of common stock
outstanding during the three and nine month periods ended December 31, 2000
and 1999, respectively, were not included in the computation of diluted
earnings per share because the average market price of our common stock was
less than the exercise price of the options or the effect of including the
options in the calculation would be anti-dilutive. Conversion of our former
convertible preferred stock, until its cancellation on December 7, 1999, was
also not included in the calculation of diluted earnings per share for the
three and nine months ended December 31, 1999 as it would have been
anti-dilutive. Warrants to purchase approximately 2.3 million

                                       6

<PAGE>

shares of our Class A common stock at $2.25 per share were issued on December
7, 1999. These warrants were not included in the computation of diluted
earnings per share at December 31, 2000 or 1999 because the average market
price of our common stock was less than the exercise price of the warrants.


NOTE 3 - 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 nine months ended
                                                                                    December 31,
                                                                               2000             1999
 --------------------------------------------------------------------------------------------------------
 <S>                                                                         <C>             <C>
   Interest paid                                                             $ 1,896         $     349
   Income taxes paid                                                               -               466
   Non-cash transactions:
        Note received on sale of investments                                       -               600
        Reduction in book value of redeemable preferred stock                      -           264,081
        Value of common stock and warrants issued in Xetava merger                 -             5,231
        Value of long-term debt issued in Xetava merger                            -            19,922
        Cumulative dividends in arrears accrued                                    -            18,649
 ========================================================================================================

</TABLE>

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


<TABLE>
<CAPTION>

                                                                  December 31,     March 31,
                                                                     2000           2000
        -------------------------------------------------------------------------------------
        <S>                                                        <C>           <C>
          Other assets:
               Prepaid pension cost                                $  13,727     $   12,358
               Securities available for sale                           4,145          2,880
               Other investments, at cost                              1,288          1,288
               Other                                                   2,576          1,625
        -------------------------------------------------------------------------------------
                    Total                                          $  21,736     $   18,151
        =====================================================================================

          Other long-term liabilities:
               Pension and postretirement benefits                 $   4,902     $    4,862
               Environmental liabilities                               1,100          1,134
               Liabilities related to discontinued operations          2,611          2,611
               Other                                                   2,000          2,060
        -------------------------------------------------------------------------------------
                    Total                                          $  10,613     $   10,667
        =====================================================================================

</TABLE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

         We have retained responsibility for certain potential environmental
liabilities attributable to former operating units. We are 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 these
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. We
and our 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.

                                       7



<PAGE>

         At December 31, 2000, we had reserves of approximately $1.2 million
for environmental assessments, remediation activities, penalties or fines at
seven 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. Our
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 amount of reserves for environmental liabilities is 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 us, the
unknown extent of our probable liability in proportion to the probable
liability of other parties. Moreover, we may have environmental liabilities
that we cannot, in our judgment, estimate at this time and losses attributable
to remediation costs may arise at other sites. We recognize that additional
work may need to be performed to ascertain the ultimate liability for such
sites, and further information could ultimately change our current assessment.
A change in the estimated liability could have a material impact on our
financial condition and results of operations.

         We and certain of our 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 our common and our formerly
outstanding 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 we 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 our National
Distribution Center and Delta computer systems and the resulting impact on our
existing and future business and financial condition. On March 31, 1998, the
court denied our motion to dismiss the amended complaint in the lawsuit. We
intend to continue to vigorously defend ourselves in the lawsuit. We are
unable at this time to estimate the possible loss, if any, that may accrue
from this lawsuit.

         In 1997, the bankruptcy trustee and certain creditors of our former
17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben Franklin"), filed
lawsuits against us, certain former officers and directors of Ben Franklin and
certain of our current and former officers and directors. We along with our
officers and directors have since been dropped as defendants in the lawsuits.
In connection with paying our own defense costs and those of our officers and
directors, we 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 our request as a director or officer
of Ben Franklin. In October 1998, the United States Bankruptcy Court for the
Northern District of Illinois issued Memorandum Opinions that dismissed two of
the lawsuits against all but one defendant. In January 2000, the United States
District Court for the Northern District of Illinois entered an amended order
in the bankruptcy trustee's lawsuit, which found that the Bankruptcy Court's
conclusions of law were correct with the exception of the trustee's failure to
state a cognizable claim. The same order also affirmed the Bankruptcy Court's
dismissal of the lawsuit brought by certain of Ben Franklin's lenders. In June
2000, the Bankruptcy Court entered two more orders; in the trustee's lawsuit,
the Court denied the trustee's motion to amend his complaint and re-entered
Recommendations Upon Remand, which recommended that the case be dismissed. In
the lenders' lawsuit, the Court denied the plaintiffs' motion to amend their
complaint and re-entered Recommendations Upon Remand, which recommended that
the case be dismissed against all defendants, save counts I and II against a
former Ben Franklin employee. The plaintiffs in these cases have filed
objections to the Recommendations with the District Court. In the third
lawsuit, pending in Illinois state court, the court dismissed the plaintiffs'
third amended complaint without prejudice, and the plaintiffs filed a fourth
amended petition in December 1999. The court has dismissed the plaintiff's
fourth amended petition with prejudice, and the plaintiffs have appealed the
court's ruling. If liability is ever imposed in any of the lawsuits, we may,
if appropriate,

                                       8

<PAGE>

agree at a future date to indemnify certain of the remaining defendants in the
lawsuit in accordance with Delaware law.

         In April 1998, the FoxMeyer Corporation ("FoxMeyer") Bankruptcy
Trustee (the "Trustee") filed a lawsuit against 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 us. In October 1997, in connection with the settlement of a separate
lawsuit brought by the Trustee against us, the Trustee released us from all
liability and provided the director-defendants in this lawsuit with covenants
not to execute. We are paying 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 our request as a director or officer of FoxMeyer. In
September 1999, the Delaware Bankruptcy Court entered an order establishing
procedures for a joint insolvency trial in the lawsuit and in certain other
lawsuits brought by the Trustee against other persons and entities related to
the FoxMeyer bankruptcy cases.

         On June 5, 1998, Steven Mizel IRA and Anvil Investment Partners, L.P.
filed a lawsuit, allegedly on our behalf, against seven of our current
directors and three of our former directors who were members of our Board's
Personnel and Compensation Committee, under Case No. 602773198 in the Supreme
Court of New York, County of New York. The plaintiffs were holders of our
formerly outstanding Series A Preferred Stock, and the lawsuit related
primarily to agreements and transactions between us and our Co-Chairmen and
Co-Chief Executive Officers, Abbey J. Butler and Melvyn J. Estrin. In January
1999, a stipulation was executed providing that the litigation, insofar as it
was brought by Stephen Mizel IRA, was voluntarily discontinued with prejudice.
In April 1999, the court denied the remaining plaintiff's motion to amend its
complaint to allege additional claims and, in December 2000, the court granted
the defendants' motion for summary judgment.

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

NOTE 5 - DEBT

         Under the terms of our 1997 settlement with the Trustee, we were
obligated to pay to the Trustee under a promissory note (the "Trustee Note")
$8.0 million plus interest which was to be accrued at the prime rate,
compounded annually and paid at maturity. The original maturity date of the
Trustee Note was October 8, 2000, which was extended to December 8, 2000. The
Trustee Note was secured by 1,132,500 shares of Phar-Mor common stock and our
30% interest, up to the greater of $10.0 million or the amount owed under the
Trustee Note, in any net recovery in certain litigation filed by the Trustee.
On December 5, 2000, we entered into a settlement agreement with the Trustee
under which we agreed to pay to the Trustee $6.0 million in cash, and assign
our 30% interest in the litigation to the Trustee, in full satisfaction of
the Trustee Note. The maturity date of the Trustee Note was extended pending
approval of the settlement by the Bankruptcy Court with jurisdiction over the
FoxMeyer bankruptcy case. In January 2001, the Bankruptcy Court approved the
settlement. Pending receipt of evidence of the docketing of the approval
order, we will pay $6.0 million and transfer the 30% litigation interest to
the Trustee. Pursuant to the settlement and the Subrogation Agreement dated
December 7, 1999, among the Trustee, the indenture trustee of the Avatex
Funding 6.75% notes and us, the Trustee will deliver the 1,132,500 shares of
Phar-Mor common stock to the indenture trustee. These shares will represent
additional collateral securing the 6.75% notes. The amount due under the
Trustee Note as of December 31, 2000 is shown as long-term debt due within
one year. Assuming we pay $6.0 million to the Trustee, the difference in the
carrying value of the Trustee Note and the $6.0 million payment will be gain
from the extinguishment of debt and will be classified as an extraordinary
item in the statement of operations for fiscal 2001.

         The extraordinary item for the three and nine months ended December
31, 2000, represents gains realized on the early extinguishment of
approximately $0.6 million and $2.7 million face value, respectively, of the
6.75% Notes issued by our subsidiary, Avatex Funding, which were purchased by
us in the open market. The notes were purchased for approximately $0.3 million
and $1.6 million, respectively. The gain of $0.1 million for the three months
and $0.4 million for the nine months ended December 31,

                                       9

<PAGE>

2000, represent the difference in the purchase price and the discounted
carrying value of the notes at the time of purchase. The remaining principal
amount of the notes is approximately $26.0 million.

NOTE 6 - INVESTMENTS

         We purchased an additional 885,000 shares of Phar-Mor common stock in
the open market during the nine month period ended December 31, 2000 for
approximately $1.1 million, which brings our ownership percentage to
approximately 45.7% at December 31, 2000 from 38.4% at March 31, 2000. As a
result of the increase in our equity ownership, the amount and number of
shares of our common stock held by Phar-Mor that are considered treasury stock
has also increased (see Note 1).

         At September 30, 2000, as a result of continuing operating losses at
Phar-Mor, the significant reduction in the value of its internet investments,
and the continuing decline in its per share market price, we reviewed the
carrying value of our investment in Phar-Mor to determine if there has been an
other than temporary decline in the value of that investment. Based on
information available to us about Phar-Mor's current and future operations and
information gathered about similar companies, management believed that there
was such a decline in value during the three months ended September 30, 2000
and arrived at an estimated fair value for our investment in Phar-Mor of $9.9
million as of September 30, 2000. We recognized a loss of $3.8 million in
"Other income (expense)" in the condensed consolidated statements of
operations for that quarter to reduce our carrying value to $9.9 million. With
the results of operations and additional investments made in Phar-Mor's common
stock since September 30, 2000, the carrying value of Phar-Mor on our books at
December 31, 2000 was $13.8 million or $2.47 per share of Phar-Mor common
stock we owned. This amount is less than our estimate of Phar-Mor's tangible
book value at December 31, 2000, and management believes, therefore, that the
carrying value approximates fair value. The market value of our investment,
based on Phar-Mor's closing price at December 29, 2000, of $0.96875 on the
NASDAQ National Market, is $5.4 million.

         During the current fiscal year through December 31, 2000, we also
made the following investments: (i) purchased $1.0 million of Series B
Preferred Stock of RAS Holding Corp. ("RAS") through the exercise of our
warrants and from a purchase from another stockholder, (ii) purchased an
equity investment for approximately $0.2 million in a limited partnership that
acquired the rights to the "Cyclone Fence" name, (iii) invested $0.1 million
in a debenture issued by HPD Holdings Corp. ("HPD") and (iv) invested an
additional $0.2 million in CLAC as part of a $0.5 million additional
investment by CLAC in Chemlink. Our equity interest in CLAC and CLAC's equity
interest in Chemlink did not change as a result of the additional investment.
We also disposed of our 11.4% interest in Carson, Inc. ("Carson") in August
2000 and recognized a gain on the sale of our investment of $3.4 million in
"Other income (expense)".

NOTE 7 - GOING CONCERN

         We believe we have resolved many of the issues that resulted in
doubts about our continuing as a going concern as noted in Note R to the
consolidated financial statements at March 31, 2000. Nevertheless, we will
likely continue to report operating losses, which together with the remaining
pending litigation, as discussed in Note 4, continue to raise substantial
doubt as to our ability to continue as a going concern.

         To overcome these remaining matters, we will continue our vigorous
defense of our remaining litigation until these matters are finally resolved.
In addition, the companies in which we have invested also need additional time
to continue the development of their business plans. Until then, there is no
assurance that any of these investments will produce adequate returns to
overcome our operating losses and provide adequate funds for our future
growth. We will continue to manage our investments and look for additional
opportunities to try to successfully return to profitability.

                                      10

<PAGE>

         Our 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.






























                                      11

<PAGE>

                       AVATEX CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                DECEMBER 31, 2000
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



OVERVIEW

         Avatex Corporation is a holding company that, along with its
subsidiaries, owns interests in other corporations and partnerships. Through
Phar-Mor, our 46%-owned affiliate, we are involved in operating a chain of
discount retail drugstores. Through Phar-Mor and CLAC, we own approximately
38% of Chemlink. Chemlink is primarily engaged in the development, manufacture
and distribution of effervescent tablet formulations for consumers and
businesses for use in cleaning, disinfectant and sterilization applications.

         Under the terms of our 1997 settlement with the Trustee, we were
obligated to pay to the Trustee under the Trustee Note $8,000 plus interest
which was to be accrued at the prime rate, compounded annually and paid at
maturity. The original maturity date of the Trustee Note was October 8, 2000,
which was extended to December 8, 2000. The Trustee Note was secured by
1,132,500 shares of Phar-Mor common stock and our 30% interest, up to the
greater of $10,000 or the amount owed under the Trustee Note, in any net
recovery in certain litigation filed by the Trustee. On December 5, 2000, we
entered into a settlement agreement with the Trustee under which we agreed to
pay to the Trustee $6,000 in cash, and assign our 30% interest in the
litigation to the Trustee, in full satisfaction of the Trustee Note. The
maturity date of the Trustee Note was extended pending approval of the
settlement by the Bankruptcy Court with jurisdiction over the FoxMeyer
bankruptcy case. In January 2001, the Bankruptcy Court approved the
settlement. Pending receipt of evidence of the docketing of the approval
order, we will pay $6,000 and transfer the 30% litigation interest to the
Trustee. Pursuant to the settlement and the Subrogation Agreement dated
December 7, 1999, among the Trustee, the indenture trustee of the Avatex
Funding 6.75% notes and us, the Trustee will deliver the 1,132,500 shares of
Phar-Mor common stock to the indenture trustee. These shares will represent
additional collateral securing the 6.75% notes. The amount due under the
Trustee Note as of December 31, 2000 is shown as long-term debt due within
one year. Assuming we pay $6,000 to the Trustee, the difference in the
carrying value of the Trustee Note and the $6,000 payment will be gain from
the extinguishment of debt and will be classified as an extraordinary item in
the statement of operations for fiscal 2001.

         The extraordinary item for the nine months ended December 31, 2000
represents gains realized on the early extinguishment of approximately $2,651
face value of the 6.75% Notes issued by our subsidiary, Avatex Funding, which
were purchased by us in the open market. The notes were purchased for
approximately $1,587. The gain of $384 represents the difference in the
purchase price and the discounted carrying value of the notes at the time of
purchase. Equity in extraordinary item of affiliate represents our equity in
Phar-Mor's gain on the early extinguishment of its debt.


RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE AND NINE
MONTHS ENDED DECEMBER 31, 1999


OPERATING COSTS

         Total operating costs decreased $2,045 to $292 for the three months
ended December 31, 2000 compared to $2,337 for the three months ended December
31, 1999. Operating costs decreased primarily as a result of $1,879 of
expenses related to our merger with Xetava incurred in the prior fiscal year
and settlement payments received by us from certain defendants in our ongoing
lawsuit against McKesson

                                      12

<PAGE>

HBOC, Inc. ("McKesson") which were $400 greater in the current fiscal year
than in the prior year. There were also decreases of $88 in pension charges
and $56 in insurance expense when compared to the prior year. These decreases
were partially offset by $333 in increased legal expense. The increase in
legal expense related primarily to our defense costs in the Trustee's lawsuit
against the former directors of FoxMeyer (see Note 4 to the condensed
consolidated financial statements) and our continuing prosecution of our
lawsuit against McKesson. We were also reimbursed by an insurance carrier in
the prior year for certain amounts we had paid in prior periods in the
derivative lawsuit. The increase in legal expense was partially offset by
decreased costs related primarily to the Zuckerman lawsuit discussed in Note 4.

         Total operating costs decreased $3,752 to $2,860 for the nine months
ended December 31, 2000 compared to $6,612 for the nine months ended December
31, 1999. Salaries and benefits were $380 less than in the prior year
primarily due to the separation of two of our officers at the end of June
1999. In addition, expenses of $2,780 related to our merger with Xetava were
incurred in the prior fiscal year. There were also decreases of $326 in
pension charges and $166 in insurance expense when compared to the prior year.
Settlement payments received by us from certain defendants in our lawsuit
against McKesson were $450 greater than in the prior fiscal year. These
decreases were partially offset by $430 in increased legal expense. The
increase in legal expense related primarily to our payment of defense costs in
the Trustee's lawsuit against the former directors of FoxMeyer (see Note 4 to
the condensed consolidated financial statements) and our continuing
prosecution of our lawsuit against McKesson. The increase was partially offset
by decreased legal expense related primarily to the Zuckerman lawsuit and
derivative lawsuit also discussed in Note 4.

OTHER INCOME (EXPENSE)

         Other income was $8 and $7 for the three and nine months ended
December 31, 2000, respectively. Other income for the nine months related
primarily to gains on the sale of our investment in Carson of $3,411 and on a
payment received on an asset sold in a prior fiscal year of $325, offset
primarily by the $3,751 write-down of our investment in Phar-Mor to its
estimated fair value during the quarter ended September 30, 2000.

         Other income of $206 for the three months ended December 31, 1999
related primarily to a $200 recovery on an investment that had been written
off in a prior fiscal year. Other expense of $87 for the nine months ended
December 31, 1999 related to a $1,077 reduction in the carrying value of our
investment in Imagyn Medical Technologies, Inc. to its market value and a
write-down of $150 in the carrying value of an investment in a non-public
company. The losses were partially offset by $1,140 in other income consisting
primarily of $576 in gains on the sale of securities sold during the period, a
$350 gain related to a payment received on an asset sold in a prior fiscal
year and a $200 recovery on an investment written off in a prior fiscal year.

INTEREST AND DIVIDEND INCOME

         Interest and dividend income decreased $69 to $547 for the three
months ended December 31, 2000 compared to $616 for the three months ended
December 31, 1999. In addition, interest and dividend income decreased $169 to
$1,531 for the nine months ended December 31, 2000 compared to $1,700 for the
nine months ended December 31, 1999. The decrease for both periods was due
primarily to a decline of $129 and $349 for the three and nine months ended
December 31, 2000, respectively, in interest income as a result of lower cash
balances in the current versus prior fiscal year. The decrease in interest
income was partially offset by a $26 and $97 increase, respectively, in
interest accrued on investments, consisting primarily of the note receivable
from iLife Systems, Inc. which had a higher principal balance in the current
fiscal year. Dividend income increased $34 and $83 for the three and nine
months ended December 31, 2000, respectively, as compared to the prior year
from additional investments in preferred stock of RAS and HPD.

                                      13

<PAGE>

INTEREST EXPENSE

         Interest expense increased $803 to $1,284 for the three months ended
December 31, 2000 and $2,925 to $3,785 for the nine months ended December 31,
2000 compared to the prior year principally due to the issuance of the Avatex
Funding 6.75% Notes in December 1999.

EQUITY IN INCOME (LOSS) OF AFFILIATES

         Equity in loss of affiliates was $3,874 for the three months ended
December 31, 2000 compared to equity in income of $3,057 for the three months
ended December 31, 1999. For the nine month period, the equity in loss was
$12,746 in the current fiscal year compared to equity in income of $167 for
the prior fiscal year. The decrease in equity in income of affiliates for both
periods was due primarily to our equity in Phar-Mor's net losses, which net
losses were significantly higher than in the same period of the prior year due
to declines in operating and investment results when compared to the prior
year. Our equity in investment income earned by Phar-Mor for the three and
nine months ended December 31, 2000 were $3,491 and $9,371, respectively,
worse than for the prior fiscal year. The remainder of the decrease was due to
higher operating losses than in the prior fiscal year.

INCOME TAXES

         We recorded no federal income tax provision for the current or prior
year. Any income tax expense or benefit related to the current or prior year's
income (loss) was offset by a corresponding change in the deferred tax asset
valuation allowance.

DISCONTINUED OPERATIONS

         Income from discontinued operations was $259 for the nine months
ended December 31, 1999. This amount related only to the discontinued real
estate segment and represented two months of our equity interest in the
remaining properties until their sale in May 1999.

         The loss on disposal of discontinued operations for the three months
ended December 31, 1999 resulted from a fee paid in connection with the
contingent payment from the fiscal 1997 sale of a discontinued operation
received in the prior quarter. The gain of $7,872 for the nine months ended
December 31, 1999, relates to the $2,314 gain on the contingent payment and a
gain of $5,558 on the sale of our interest in our discontinued real estate
properties, net of taxes.

EXTRAORDINARY ITEM, GAIN ON EXTINGUISHMENT OF DEBT

         We recognized a gain of $100 and $384 for the three and nine months
ended December 31, 2000, respectively, on the purchase and subsequent
cancellation of $579 and $2,651 face value of the 6.75% Notes of Avatex
Funding during the three and nine months ended December 31, 2000,
respectively. We also recognized our equity in Phar-Mor's gain on the early
extinguishment of its debt of $7,491 for the three months and $7,663 for the
nine months ended December 31, 2000.

PREFERRED STOCK DIVIDENDS

         Preferred stock dividends were $5,762 and $20,912 for the three and
nine months ended December 31, 1999. There are no preferred stock dividends in
fiscal 2001 because our preferred stock was eliminated on December 7, 1999
upon our merger with Xetava. The Xetava merger also resulted in a $225,008
gain in connection with the exchange of preferred stock for either Class A
common stock or for cash, warrants, notes and other consideration.

                                      14

<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES


         As of December 31, 2000, we had cash and short-term investments of
approximately $21,550. During the nine months ended December 31, 2000, we
purchased preferred stock of RAS for $1,011, invested $150 for a 41% interest
in a new limited liability company that acquired the rights to the "Cyclone
Fence" name, made an additional investment in CLAC of $205, invested
approximately $81 in HPD and purchased $1,057 in Phar-Mor common stock raising
our ownership from 38.4% to 45.7%.

         Our debt consists of the Trustee Note and the 6.75% Notes issued by
Avatex Funding in connection with our merger with Xetava. The 6.75% Notes
issued by Avatex Funding require semi-annual cash interest payments of
approximately $878 with the remaining principal balance of approximately
$26,025 due in December 2002. Since we have guaranteed the 6.75% Notes and
Avatex Funding has no assets other than the Phar-Mor common stock securing the
notes, we have made and may make additional capital contributions to Avatex
Funding so it can satisfy its interest and principal obligations on the notes.
On December 5, 2000, we entered into a settlement agreement with the Trustee,
under which we agreed to pay the Trustee $6,000, and assign our 30% interest
in certain litigation to the Trustee, in full satisfaction of the Trustee
Note. See the discussion in "Overview" above.

         For corporate operations, 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 the cash requirements for environmental liabilities are
uncertain. We will likely be required to fund any cash to be paid by Avatex
Funding to its note holders. We expect to receive cash from the collection of
receivables and from interest and dividend income earned on our investments.
We continuously evaluate current and potential investments in connection with
an ongoing review of our investment strategies and, as opportunities arise,
may continue to invest in publicly and privately held companies.

         We will rely on cash on hand, any cash payments from our investments
and, if necessary, the sale of our investments to meet future obligations. We
are involved in litigation which, if we were to lose, would have a material
impact on our financial condition, liquidity and results of operations. These
financial statements have been prepared on a going concern basis which
contemplates the realization of our assets and the settlement of our
liabilities and commitments in the normal course of business. See Note 7 to
the condensed consolidated financial statements for the quarter ended December
31, 2000 for a discussion of our ability to continue as a going concern and
management's plans for addressing those issues.

                                      OTHER

         In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Therefore,
we will be required to adopt SFAS No. 133 for our fiscal year beginning April
1, 2001. We do not believe the impact, if any, from the adoption of SFAS No.
133 will be material.

         Cautionary Statement under the Private Securities Litigation Reform
Act of 1995: This Quarterly Report on Form 10-Q contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that are based on the assumptions, beliefs and
opinions of our management. When used in this document, the words
"anticipate," "believe," "continue," "estimate," "expect," "intend," "may,"
"should," and similar expressions are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks and uncertainties, including, but not
limited to, the risk that we may be unable to implement our strategies to
continue as a going concern. In industries in which we operate or invest, we
also face risks associated with competitive pressures; the ability of the
management of the companies in which we have invested to develop, implement
and market their products and services; and other such risks. These other
risks include decreased consumer spending, customer concentration issues and
the effects of general economic conditions. In addition, our business,
operations and financial condition are subject to the risks, uncertainties

                                      15

<PAGE>

and assumptions which are described in our reports and statements we have
filed from time to time with the Securities and Exchange Commission, including
this report. Should one or more of those risks or uncertainties materialize,
or should underlying assumptions prove incorrect, our actual results may vary
materially from those described herein. The forward-looking statements made in
this document speak only to the date on which such statements are made, and we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.


           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There have been material changes in the valuation of securities
available for sale or long-term debt from those amounts reported in Item 7A.
of the Form 10-K for the year ended March 31, 2000 as follows:

         The value of securities available for sale with an expected maturity
date of 2005 is $2,355 at December 31, 2000. The increase represents
additional investments in the redeemable preferred stock of RAS. The
securities available for sale with expected maturities after 2005 increased to
approximately $1,782 primarily due to the receipt of additional shares of HPD
redeemable preferred stock as a result of the pay-in-kind dividend on the HPD
preferred stock we received. The value of the investments in other available
for sale equity securities was approximately $8 at December 31, 2000.

         The carrying value of long-term debt maturing in 2003 decreased to
$20,295 as a result of the repurchase of $2,651 face value of Avatex Funding
6.75% Notes during the nine months ended December 31, 2000 partially offset
by the amortization of the original issue discount on the notes. While the
carrying value of the Trustee Note that matures in fiscal 2001 has not
changed other than for the accrual of interest, the Trustee Note was repaid
not on October 8, 2000 but is expected to be paid in February 2001. At that
time, we will pay $6.0 million in full satisfaction of the Trustee Note as
discussed in Note 5 to the condensed consolidated financial statements.


















                                      16

<PAGE>

                           PART II - OTHER INFORMATION

                       AVATEX CORPORATION AND SUBSIDIARIES


ITEM 1.  LEGAL

         With respect to the matters reported in our Annual Report on Form
10-K for the fiscal year ended March 31, 2000, the following additional
information is provided:

         MCKESSON/VENDOR LITIGATION. With reference to the Texas lawsuit we
brought against McKesson and certain pharmaceutical manufacturers, (i) we have
entered into settlement agreements with all twelve of the manufacturer
defendants in the litigation, under which we received or will receive
confidential settlement payments, (ii) we have amended our petition to modify
our claims for relief and to include additional claims for relief against the
sole remaining defendant, McKesson, (iii) McKesson has amended its
counterclaims to allege additional facts, but has not added any additional
material claims for relief, and (iv) the court has set a trial date on June 4,
2001.

         DERIVATIVE LITIGATION. With reference to the derivative lawsuit filed
by Anvil Investment Partners, L.P. against seven of our current directors and
three of our former directors, in December 2000, the court granted the
defendants' motion for summary judgment.

         FOXMEYER CORPORATION. With reference to the lawsuit filed by the
Chapter 7 Trustee of FoxMeyer against the five former directors of FoxMeyer
(the "Directors"), we have recently learned that the United Pacific Insurance
Company has filed a Complaint in the United States District Court for the
Northern District of Texas against us and the Directors. The Complaint seeks a
declaration that the directors and officers liability insurance policy issued
by United Pacific does not provide coverage with respect to the Trustee's
lawsuit. We have not yet been served with the Complaint and have not yet
formed a position with respect to the Complaint.

         BEN FRANKLIN LITIGATION. With reference to the three lawsuits
relating to Ben Franklin, in June 2000, the United States Bankruptcy Court for
the Northern District of Illinois entered two more orders in two of the
lawsuits. In the lawsuit commenced by Ben Franklin's bankruptcy trustee, the
Court denied the trustee's motion to amend his complaint and re-entered
Recommendations Upon Remand, which recommended that the case be dismissed. In
the lawsuit commenced by certain of Ben Franklin's lenders, the Court denied
the plaintiffs' motion to amend their complaint and re-entered Recommendations
Upon Remand, which recommended that the case be dismissed against all
defendants, save counts I and II against David Brainard. The plaintiffs in
these cases have filed objections to the Recommendations with the District
Court. In the third lawsuit, pending in Illinois state court, the court has
dismissed the plaintiffs' fourth amended petition with prejudice, and the
plaintiffs have appealed the court's ruling.

         GREEN RIVER. With reference to the amended demand received from the
Environmental Protection Agency for payment of its past costs at the Green
River Disposal Site located in Davies County, Kentucky, National Aluminum
Corporation ("NAC") believes that the demand has been resolved in a manner
that will not require any additional funds to be paid by NAC. In addition, in
August 2000, the Environmental Protection Agency issued a record of decision
("ROD") regarding groundwater remediation at the site, which requires the
potentially responsible parties to put in place institutional controls to
prevent future use of the groundwater. NAC believes that its share of the cost
to implement the ROD will not be material. Periodic groundwater monitoring may
also be necessary to demonstrate that the remedial action at the site is
effective, and NAC will be responsible for its volumetric share of these
costs, which likely will be incurred as part of ongoing operation and
maintenance work at the site.



                                      17

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS

                None



         (b) REPORTS ON 8-K

                           The following Current Report on Form 8-K was filed by
         us during the three months ended December 31, 2000:

                           Form 8-K dated December 8, 2000 (filed December 11,
         2000) which announced the settlement of the note payable to the
         FoxMeyer Bankruptcy Trustee for $6.0 million subject to approval of the
         Bankruptcy Court of Delaware.


























                                      18

<PAGE>




                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, we have
duly caused this report to be signed on our behalf by the undersigned
thereunto duly authorized.




                                   AVATEX CORPORATION




February 13, 2000              By:  /s/ Grady E. Schleier
                                   --------------------------------------------
                                   Grady E. Schleier Senior Vice
                                   President, Chief Financial Officer
                                   and Treasurer
                                   (Principal Financial and Accounting Officer)


























                                      19