<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 JUNE 30, 2001

                                       OR

              [ ] 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 July 31, 2001: 19,637,360
shares before deducting 2,364,382 shares which represent the Corporation's 47.8%
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 LOSS
                                   (UNAUDITED)

<Table>
<Caption>

                                                                          For the three months
                                                                            ended June 30,

(in thousands, except per share amounts)                                 2001            2000
-------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>
OPERATING COSTS
   Operating costs, including general and administrative costs           $ 1,185           $  914
   Depreciation and amortization                                               6                6
-------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS                                                     (1,191)            (920)
OTHER INCOME                                                               1,352                4
INTEREST AND DIVIDEND INCOME                                                 253              466
INTEREST EXPENSE                                                            (746)          (1,220)
-------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN LOSS
   OF AFFILIATES                                                            (332)          (1,670)
Equity in loss of affiliates                                              (3,821)          (5,121)
-------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS                                           (4,153)          (6,791)
EXTRAORDINARY ITEMS:
   Gain on extinguishment of debt                                          2,476              172
   Equity in extraordinary item of affiliates                                  -              172
-------------------------------------------------------------------------------------------------
NET LOSS                                                                 $(1,677)        $ (6,447)
-------------------------------------------------------------------------------------------------

BASIC AND DILUTED INCOME (LOSS) PER SHARE
   Loss before extraordinary items                                       $ (0.24)         $ (0.38)
   Extraordinary items                                                      0.14             0.02
-------------------------------------------------------------------------------------------------
NET LOSS PER SHARE                                                        $(0.10)         $ (0.36)
=================================================================================================

Average number of common shares outstanding - basic and diluted           17,297           17,737
-------------------------------------------------------------------------------------------------

COMPREHENSIVE LOSS                                                      $ (1,661)        $ (6,230)
=================================================================================================

</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       1

<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<Table>
<Caption>

                                                                      June 30,              March 31,
(in thousands of dollars)                                               2001                  2001
---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                   <C>
ASSETS
CURRENT ASSETS
   Cash and short-term investments                                          $ 7,218               $13,666
   Receivables - net                                                            162                   364
   Other current assets                                                       1,002                 2,459
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                          8,382                16,489

INVESTMENT IN AFFILIATES                                                     10,833                14,037

PROPERTY AND EQUIPMENT                                                          163                   163
   Less accumulated depreciation and amortization                               118                   112
---------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT                                                       45                    51

OTHER ASSETS                                                                 22,143                22,251
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                $41,403               $52,828
=========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                          $  874                $  960
   Other accrued liabilities                                                  1,267                 1,804
   Long-term debt due within one year                                             -                     -
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                     2,141                 2,764
LONG-TERM DEBT                                                               11,824                20,915
OTHER LONG-TERM LIABILITIES                                                   8,418                 8,418
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 loss                                         (45)                  (61)
   Accumulated deficit                                                     (169,196)             (167,519)
---------------------------------------------------------------------------------------------------------
                                                                             24,125                25,786
   Less: equity in cost of common stock of the Corporation
           held by Phar-Mor, Inc.                                            (5,105)               (5,055)
---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                                   19,020                20,731
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $41,403               $52,828
=========================================================================================================

</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.





                                       2

<Page>

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

<Table>
<Caption>

                                                              For the three months
                                                                 ended June 30,
(in thousands of dollars)                                   2001              2000
---------------------------------------------------------------------------------------
<S>                                                        <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                   $ (1,677)          $ (6,447)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
  PROVIDED (USED) BY OPERATING ACTIVITIES:
  Equity in loss of affiliates                                3,821              4,949
  Depreciation and amortization                                   6                  6
  Gain on investments                                        (1,345)                 -
  Other non-cash expense items, net                             162                261
  Gain on extinguishment of debt                             (2,476)              (172)
  Cash provided (used) by working capital items:
   Receivables                                                  206                541
   Other assets                                                 (66)            11,688
   Accounts payable and accrued liabilities                    (713)            (2,100)
--------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES             (2,082)             8,726
--------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of investments                                      (671)            (1,165)
  Proceeds from investments                                   3,360                  -
--------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES              2,689             (1,165)
--------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Debt repurchases                                           (7,055)              (815)
--------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES                        (7,055)              (815)
--------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS   (6,448)             6,746
   Cash and short-term investments, beginning of period      13,666             10,754
--------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD              $ 7,218            $17,500
======================================================================================

</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.






                                       3

<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (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 48%-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%, and control 50%, of
the membership interests of Chemlink Laboratories, LLC ("Chemlink"). Chemlink is
primarily engaged in the development, manufacture and distribution of
effervescent tablet and granule formulations for consumers and businesses for
use in cleaning, disinfecting and sterilization applications.

EQUITY IN LOSS OF AFFILIATES: The results of operations for Phar-Mor for the
quarter ended June 30, 2001 (its fourth quarter and year end) were not finalized
as of the date of this report. We have recorded our equity in Phar-Mor's
quarterly results based on Phar-Mor's most recent estimate. Phar-Mor's actual
results could be different from their most recent estimate. If Phar-Mor's
actual operating results are different, we will file an amended Quarterly
Report on Form 10-Q reflecting our equity in the revised results.

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.

         Our condensed consolidated balance sheet as of June 30, 2001, the
condensed consolidated statements of operations and comprehensive loss for the
three months ended June 30, 2001 and 2000, and the condensed consolidated
statements of cash flows for the three months ended June 30, 2001 and 2000, 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 months ended June 30, 2001 are
not necessarily indicative of the results that may be expected for the entire
year. The condensed consolidated balance sheet as of March 31, 2001 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, 2001, and should be read in
conjunction with this quarterly report.

EXTRAORDINARY ITEMS: The extraordinary item for the three months ended June 30,
2001 represents gains realized on the early extinguishment of approximately
$11.7 million face value of the 6.75% notes issued by our subsidiary, Avatex
Funding, Inc. ("Avatex Funding"), which were purchased by us in the open market.
The extraordinary item for the three months ended June 30, 2000 represents gains
realized on the early extinguishment of approximately $1.4 million face value of
the 6.75% notes. See Note 5. Equity in extraordinary item of affiliates
represents our equity in Phar-Mor's gain on the early extinguishment of its
debt.

                                       4

<Page>

DERIVATIVES: We adopted Statement of Financial Accounting Standards ("SFAS") No.
133 "Accounting for Derivative Instruments and Hedging Activities", as amended,
on April 1, 2001. The adoption of SFAS No. 133 did not impact our results of
operations or financial condition.

COMPREHENSIVE INCOME (LOSS): The difference in comprehensive income (loss) and
net income (loss) is due to the change in the components of other comprehensive
income (loss), the details of which follow (in thousands of dollars):

<Table>
<Caption>

                                                                 For the three months ended
                                                                          June 30,
                                                                       2001         2000
      -------------------------------------------------------------------------------------
      <S>                                                        <C>                <C>
      Unrealized gains on securities                                   $ 16          $ 252
      Reclassification adjustment for gains included in net
      loss                                                                -              -
      -------------------------------------------------------------------------------------
      Net unrealized gain                                                16            252
      -------------------------------------------------------------------------------------

      Minimum pension liability adjustment                                -            (35)
      -------------------------------------------------------------------------------------
      Total other comprehensive income                                 $ 16          $ 217
      =====================================================================================

</Table>

NEWLY ISSUED ACCOUNTING STANDARDS: In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141 "Business Combinations" and SFAS
No.142 "Goodwill and Other Intangible Assets" which make purchase accounting the
only acceptable method of accounting for business combinations and also define
intangible assets other than goodwill to be recognized as part of a business
combination. The new standards also eliminate the amortization of goodwill,
substituting instead a valuation methodology which requires that goodwill be
tested for impairment at least annually. SFAS 141 is generally effective for all
business combinations after June 30, 2001. For business combinations prior to
July 1, 2001 and for SFAS 142, the effective date of these statements is our
fiscal year beginning after December 15, 2001. We cannot estimate, at this time,
the impact on our financial condition or results of operations from the adoption
of these statements.

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 $5.1 million at June 30, 2001 (the equivalent of
2,355,281 shares of our common stock) and $5.1 million at March 31, 2001 (the
equivalent of 2,332,241 shares of our common stock). The reduction was equal to
our 47.6% ownership interest at June 30, 2001 and our 47.1% ownership interest
at March 31, 2001 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 2,340,747 and 1,900,263 for the
three months ended June 30, 2001 and 2000, 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 loss per share before extraordinary items for basic and diluted
earnings per share was calculated by dividing the loss before extraordinary
items for the three month period ended June 30, 2001 and 2000, respectively, 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.

                                       5

<Page>

         Options to purchase approximately 3.9 million shares of common stock
outstanding during the three month periods ended June 30, 2001 and 2000 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. Warrants to purchase approximately 2.3 million shares of our
Class A common stock at $2.25 per share were outstanding at June 30, 2001 and
2000. These warrants 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 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 three months ended
                                                                                     June 30,
                                                                                2001           2000
   ---------------------------------------------------------------------------------------------------
   <S>                                                                      <C>                <C>
   Interest paid                                                                $ 764            $ 993
   Income taxes paid                                                                -                -
   Non-cash transactions:
        Stock of WD-40 Company received on sale of an investment                   45                -
   ---------------------------------------------------------------------------------------------------

</Table>

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

<Table>
<Caption>

                                                                    June 30,        March 31,
                                                                      2001            2001
          -----------------------------------------------------------------------------------
          <C>                                                       <C>            <C>
          Other assets:
               Prepaid pension cost                                 $  14,386      $  14,183
               Securities available for sale                            4,365          4,304
               Other investments, at cost                               1,288          1,288
               Other                                                    2,104          2,476
          -----------------------------------------------------------------------------------
                    Total                                           $  22,143      $  22,251
          ===================================================================================

          Other accrued liabilities:
               Accrued interest payable                             $      43      $     517
               Liabilities related to discontinued operations             446            428
               Salaries, wages and employee benefits                      499            608
               Other                                                      279            251
          -----------------------------------------------------------------------------------
                    Total                                           $   1,267      $   1,804
          ===================================================================================

          Other long-term liabilities:
               Pension and postretirement benefits                  $   4,792      $   4,812
               Environmental liabilities                                1,173          1,153
               Liabilities related to discontinued operations             453            453
               Other                                                    2,000          2,000
          -----------------------------------------------------------------------------------
                    Total                                            $  8,418       $  8,418
          ===================================================================================

</Table>



                                       6

<Page>

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.

         At June 30, 2001, 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 formerly outstanding
preferred stocks during the period July 19, 1995 through August 27, 1996. In May
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. In March 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, which 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. The bankruptcy trustee and creditors of Ben Franklin are still
litigating these cases against the remaining defendants. If liability is ever
imposed in any of the lawsuits, we may, if appropriate, agree at a future date
to indemnify certain of the remaining defendants in the lawsuit in accordance
with Delaware law. We are unable to estimate the possible loss, if any, which
may accrue from these lawsuits.

                                       7

<Page>

         In April 1998, the trustee of the FoxMeyer Corporation ("FoxMeyer")
bankruptcy proceeding (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 have 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 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.

         In June 2001, we received a copy of an order entered by a Pennsylvania
state court with respect to Reliance Insurance Company ("Reliance"). Our primary
directors and officers' liability insurance carrier for the three-year period
ending on or about April 25, 1998 was United Pacific Insurance Company ("UPIC"),
which is a subsidiary of Reliance. The May 21, 2001 order stated, among other
things, that Reliance is being placed into "Rehabilitation" under Pennsylvania's
Insurance Department Act, and that all actions pending against Reliance and/or
UPIC, such as the lawsuit filed by UPIC against us and the lawsuit filed by the
Trustee against UPIC and us, are stayed. The May 21, 2001 order also stated
that all actions pending against an insured of Reliance and/or UPIC, such as
the Zuckerman lawsuit, are stayed for at least 60 days. On August 2, 2001, the
Pennsylvania state court entered an order stating that all actions and
proceedings in certain specified cases, including the Zuckerman lawsuit, should
be stayed for 180 days from the date of the order, and that the order
constituted the court's request for comity in the extension of the stay by
courts outside of Pennsylvania and the federal courts. We cannot estimate at
this time the impact, if any, which might result from Reliance being placed
into Rehabilitation on any of our litigation.

         There are various other pending claims and lawsuits arising out of the
normal conduct of our businesses. In the opinion of management, 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

         The extraordinary item for the three months ended June 30, 2001 and
2000, represents gains realized on the early extinguishment of approximately
$11.7 million and $1.4 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 $7.1 million and $0.8
million, respectively. The gains of $2.5 million and $0.2 million, respectively,
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 $14.3 million.

NOTE 6 - INVESTMENTS

         We purchased an additional 57,000 shares of Phar-Mor common stock in
the open market during the three month period ended June 30, 2001 for less than
$0.1 million, which brings our ownership percentage to approximately 47.6% at
June 30, 2001 from 47.1% at March 31, 2001. 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).

         The carrying value of Phar-Mor on our books at June 30, 2001 was $7.9
million or $1.35 per share of Phar-Mor common stock we owned. This amount is
less than our estimate of Phar-Mor's tangible book value at June 30, 2001, 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 June
29, 2001, of $0.90 on the NASDAQ National Market, is $5.2 million.

         During the three months ended June 30, 2001, we also invested an
additional $0.6 million in CLAC in exchange for a Series B membership in CLAC
that entitles us to a preferred return. CLAC in turn invested $0.8 million in
Chemlink in exchange for a Series B membership in Chemlink which entitles CLAC
to a preferred return. We also disposed of our interest in HPD Holding Corp.
("HPD") for $2.6 mil-

                                       8

<Page>

lion, including the value of the shares of WD-40 Company we received,
resulting in a gain of approximately $0.6 million which is included in "Other
income" for the three months ended June 30, 2001.

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 O to the consolidated
financial statements at March 31, 2001. 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.
However, there is no assurance that we will be able to settle these lawsuits in
a favorable manner. In addition, there is no assurance that any of our
investments will produce adequate returns to overcome our operating losses and
provide adequate funds for our debt repayments or for future operations. We will
continue to manage our investments and look for additional opportunities to try
to successfully return to profitability. Finally, there is no assurance that we
will be able to continue to buy back our debt at substantial discounts to face
value.

         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.











                                       9

<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  JUNE 30, 2001
                             (DOLLARS IN THOUSANDS)

OVERVIEW

         Avatex Corporation is a holding company that, along with its
subsidiaries, owns interests in other corporations and partnerships. Through
Phar-Mor, our 48%-owned affiliate, we are involved in operating a chain of
discount retail drugstores. Through Phar-Mor and CLAC, we own approximately 38%,
and control 50%, of the membership interests of Chemlink. Chemlink is primarily
engaged in the development, manufacture and distribution of effervescent tablet
and granule formulations for consumers and businesses for use in cleaning,
disinfecting and sterilization applications.

         The extraordinary item for the three months ended June 30, 2001
represents gains realized on the early extinguishment of approximately $11,744
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 $7,055. The gain of $2,476 represents the difference in the
purchase price and the discounted carrying value of the notes at the time of
purchase. This purchase reduced the outstanding face value of the 6.75% notes to
$14,281. In addition, two of our pension plans also purchased a total of $5,256
face amount of the 6.75% notes for $3,154.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000

OPERATING COSTS

         Total operating costs increased $271 to $1,191 for the three months
ended June 30, 2001 compared to $920 for the three months ended June 30, 2000.
Operating costs increased primarily as a result of increased expenses related to
our pension plans of $263 and increased expenses and fees for legal matters of
$39. These increases were partially offset by decreases in other operating
expenses, particularly travel and insurance.

OTHER INCOME

         Other income was $1,352 and $4 for the three months ended June 30, 2001
and 2000, respectively. Other income for the three months ended June 30, 2001
consisted primarily of a gain on the sale of our investment in HPD of $555 and a
$790 recovery on an asset written off in a prior year.

INTEREST AND DIVIDEND INCOME

         Interest and dividend income decreased $213 to $253 for the three
months ended June 30, 2001 compared to $466 for the three months ended June
30, 2000. The decrease was due primarily to a decline of $257 in interest
income as a result of lower cash balances and lower interest rates in the
current versus prior fiscal year. Dividend income increased $44 as compared
to the prior year from additional investments in the preferred stock of RAS
Holding Corp. and iLife Systems, Inc. less the impact of the sale of the
preferred stock of HPD.

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INTEREST EXPENSE

         Interest expense decreased $474 to $746 for the three months ended June
30, 2001 from $1,220 for the three months ended June 30, 2000 principally due to
the payoff of the note to the Trustee in February 2001 and to the purchase and
subsequent cancellation of $13,039 face value of the 6.75% notes of Avatex
Funding since the first quarter of the prior year.

EQUITY IN LOSS OF AFFILIATES

         Equity in loss of affiliates was $3,821 for the three months ended
June 30, 2001 compared to equity in loss of $5,121 for the three months ended
June 30, 2000. The $1,300 decrease in our equity loss of affiliates was
primarily due to our equity in Phar-Mor's loss being $1,350 less than in the
prior year. Our equity in investment income earned by Phar-Mor for the three
months ended June 30, 2001 was $5,612 better than in the prior year primarily
due to a substantial write-down of Phar-Mor's investments in the prior year.
Our equity in Phar-Mor's operating loss was $4,262 worse than in the prior
year due primarily to Phar-Mor reporting lower sales revenue and lower profit
margins in the current year partially offset by lower interest expense as a
result of Phar-Mor's retirement of a portion of their debt.

         The results of operations for Phar-Mor for the quarter ended June 30,
2001 (its fourth quarter and year end) were not finalized as of the date of this
report. We have recorded our equity in Phar-Mor's quarterly results based on
Phar-Mor's most recent estimate. Phar-Mor's actual results could be different
from their most recent estimate. If Phar-Mor's actual operating results are
different, we will file an amended Quarterly Report on Form 10-Q reflecting our
equity in the revised results.

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.

EXTRAORDINARY ITEMS

         We recognized a gain of $2,476 on the purchase and subsequent
cancellation of $11,744 face value of the 6.75% notes of Avatex Funding during
the three months ended June 30, 2001. We recognized a gain of $172 on the
purchase and subsequent cancellation of $1,356 face value of the 6.75% notes
during the three months ended June 30, 2000. We also recognized our equity in
Phar-Mor's gain on the early extinguishment of its debt of $172 for the three
months ended June 30, 2000.

                        LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2001, we had cash and short-term investments of
approximately $7,218. During the three months ended June 30, 2001, we purchased
$615 of Series B membership interests in CLAC and purchased $56 in Phar-Mor
common stock raising our ownership from 47.1% to 47.6%. We also sold our
investment in HPD for $2,570 in cash and received $790 on an investment that was
written off in a prior year.

         Our debt consists of the 6.75% notes issued by Avatex Funding. The
6.75% notes issued by Avatex Funding require semi-annual cash interest payments
of approximately $482 with the remaining principal balance of approximately
$14,281 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.


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<Page>

         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, could 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 June 30, 2001 for a
discussion of our ability to continue as a going concern and management's plans
for addressing those issues.

                                     OTHER

         In June 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No.142 "Goodwill and Other Intangible Assets" which make purchase
accounting the only acceptable method of accounting for business combinations
and also define intangible assets other than goodwill to be recognized as part
of a business combination. The new standards also eliminate the amortization of
goodwill, substituting instead a valuation methodology which requires that
goodwill be tested for impairment at least annually. SFAS 141 is generally
effective for all business combinations after June 30, 2001. For business
combinations prior to July 1, 2001 and for SFAS 142, the effective date of these
statements is our fiscal year beginning after December 15, 2001. We cannot
estimate, at this time, the impact on our financial condition or results of
operations from the adoption of these statements.

         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 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.




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           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There have been no material changes in the valuation of securities
available for sale from those amounts reported in Item 7A. of the Form 10-K for
the year ended March 31, 2001 except for the sale of our preferred stock and
debentures related to HPD. The sale had the effect of reducing the amount
outstanding for fixed rate securities available for sale with an expected
maturity date of fiscal year 2006 by $138 and of reducing the amount outstanding
with an expected maturity date after fiscal year 2006 by $1,644. The market
value of other available for sale equity securities increased to $65 from $4
primarily as a result of the shares of WD-40 Company received on the sale of
HPD.

         The carrying value of long-term debt maturing in fiscal year 2003
decreased to $11,824 as a result of the repurchase of $11,744 face value of
Avatex Funding 6.75% notes during the three months ended June 30, 2001 partially
offset by the amortization of the original issue discount on the notes.












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                           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, 2001, the following additional information
is provided:

FISHER-CALO. The group of potentially responsible parties ("PRPs") at the
Fisher-Calo Chemical and Solvent Recovery Site located in Kingsbury, Indiana,
has approved a structured financing arrangement with respect to the site. The
arrangement requires the PRPs to contribute funds to purchase an annuity, the
proceeds of which will be used to pay the remaining costs at the site, and to
acquire a cost-cap insurance policy. Because National Aluminum Corporation
previously prepaid its share of costs based on earlier cost estimates that were
significantly higher than the current estimate, it believes that it will receive
a refund once the structured financing arrangement is fully funded by the PRPs.

RELIANCE INSURANCE ISSUES. The May 21, 2001 order entered by a Pennsylvania
state court with respect to Reliance Insurance Company ("Reliance") and its
subsidiary, United Pacific Insurance Company ("UPIC"), stated, among other
things, that Reliance is being placed into "Rehabilitation" under Pennsylvania's
Insurance Department Act, and that all actions pending against Reliance and/or
UPIC, such as the lawsuit filed by UPIC against us and the lawsuit filed by the
FoxMeyer Corporation bankruptcy trustee against UPIC and us, are stayed. The
May 21, 2001 order also stated that all actions pending against an insured of
Reliance and/or UPIC, such as our 1996 Shareholder Litigation, are stayed for
at least 60 days. On August 2, 2001, the Pennsylvania state court entered an
order stating that all actions and proceedings in certain specified cases,
including our 1996 Shareholder Litigation, should be stayed for 180 days from
the date of the order, and that the order constituted the court's request for
comity in the extension of the stay by courts outside of Pennsylvania and the
federal courts. We cannot estimate at this time the impact, if any, which might
result from Reliance being placed into Rehabilitation on any of our litigation.

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 June 30, 2001:

                  Form 8-K dated April 24, 2001 which announced that we had
         purchased $11,744,000 principal amount of 6.75% Avatex Funding notes.
         We also announced that the National Intergroup, Inc. Retirement Program
         and the Davenport, Inc. Pension Plan purchased a total of $5,256,000
         principal amount of the same notes.






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                                   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

         August 13, 2001           By:  /s/ Grady E. Schleier
                                        --------------------------------------
                                        Grady E. Schleier
                                        Senior Vice President, Chief Financial
                                        Officer and Treasurer
                                        (Principal Financial and Accounting
                                        Officer)














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