<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, 1998
                                       
             [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                       
                                       
                                       
                         COMMISSION FILE NUMBER 1-8549
                                       
                                       
                               AVATEX CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)




          DELAWARE                                              25-1425889
-----------------------------------------------------       -------------------
(STATE OR OTHER JURISDICTION OF                              (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 August  11, 1998: 13,806,375
                                                                    ------------
<PAGE>
                                       
                         PART 1. FINANCIAL INFORMATION

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

<TABLE>
                                                                               For the three months
                                                                                   ended June 30,
(in thousands, except per share amounts)                                         1998         1997
---------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>
REVENUES                                                                       $ 2,576     $  3,163
OPERATING COSTS
 Operating costs, including general and administrative costs                     3,583        3,141
 Depreciation and amortization                                                     192          202
 Unusual item                                                                        -       33,292
---------------------------------------------------------------------------------------------------
OPERATING LOSS                                                                  (1,199)     (33,472)
Other expense                                                                   (1,612)      (4,980)
Interest income                                                                    565          593
Interest expense                                                                   505        1,362
---------------------------------------------------------------------------------------------------
LOSS BEFORE NATIONAL STEEL CORPORATION, EQUITY IN INCOME OF
 AFFILIATES, INCOME TAX PROVISION AND MINORITY INTEREST                         (2,751)     (39,221)
National Steel Corporation net preferred dividend income                             -        2,258
Equity in income of affiliates                                                     256          318
---------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX PROVISION AND MINORITY INTEREST                          (2,495)     (36,645)
Income tax provision                                                                18            -
---------------------------------------------------------------------------------------------------
LOSS BEFORE MINORITY INTEREST                                                   (2,513)     (36,645)
Minority interest in results of operations of consolidated subsidiaries             69          301
---------------------------------------------------------------------------------------------------
NET LOSS                                                                        (2,582)     (36,946)
Preferred stock dividends                                                        6,792        6,175
---------------------------------------------------------------------------------------------------
LOSS APPLICABLE TO COMMON STOCKHOLDERS                                         $(9,374)    $(43,121)
---------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE                                               $ (0.68)    $  (3.12)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Average number of common shares outstanding                                     13,806       13,806
---------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                             $(3,827)    $(39,078)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       1
<PAGE>

                      AVATEX CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<TABLE>
                                                         June 30,     March 31,
(in thousands of dollars)                                  1998          1998
-------------------------------------------------------------------------------
<S>                                                     <C>           <C>
ASSETS
CURRENT ASSETS
 Cash and short-term investments                        $  30,085     $  34,193
 Receivables - net                                          7,991        11,783
 Other current assets                                       2,908         3,971
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                       40,984        49,947

INVESTMENTS IN AFFILIATES                                  23,987        25,343

PROPERTY AND EQUIPMENT                                     27,228        20,657
 Less accumulated depreciation and amortization             1,795         1,630
-------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT                                 25,433        19,027

DEFERRED TAX ASSET, NET OF VALUATION ALLOWANCE                  -             -
MISCELLANEOUS ASSETS                                       25,108        24,986
-------------------------------------------------------------------------------
TOTAL ASSETS                                            $ 115,512     $ 119,303
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
 Accounts payable                                       $   2,904     $   2,665
 Other accrued liabilities                                  4,396         6,169
 Long-term debt due within one year                           505           492
-------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                   7,805         9,326
LONG-TERM DEBT                                             27,299        22,923
OTHER LONG-TERM LIABILITIES                                12,258        13,402
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                620           558
COMMITMENTS AND CONTINGENCIES                                   -             -
REDEEMABLE PREFERRED STOCK                                221,787       214,996
STOCKHOLDERS' DEFICIT
 Common stock $5.00 par value; authorized 50,000,000
   shares; issued: 13,806,375 shares                       69,032        69,032
 Capital in excess of par value                           119,100       119,100
 Accumulated other comprehensive income (loss)                (77)        1,168
 Accumulated deficit                                     (342,312)     (331,202)
-------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT                              (154,257)     (141,902)
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT             $ 115,512     $ 119,303
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       2
<PAGE>
                                       
                    AVATEX CORPORATION AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
                                                                                For the three months
                                                                                   ended June 30,
(in thousands of dollars)                                                        1998         1997
----------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                      $(2,582)      $(36,946)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED)
 BY OPERATING ACTIVITIES:
 Minority interest in results of operations of consolidated subsidiaries           69            301
 Equity in income of affiliates                                                  (256)          (318)
 Depreciation and amortization                                                    192            202
 Net preferred income from National Steel Corporation                               -         (2,258)
 Unusual item                                                                       -         33,292
 Loss on investments                                                            1,678          4,991
 Other non-cash charges (credits)                                                (277)           431
 Cash provided (used) by working capital items, net of acquisitions:
   Receivables                                                                  3,927            183
   Other assets and restricted cash                                              (908)          (550)
   Accounts payable and accrued liabilities                                    (3,227)        (1,508)
----------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES                                          (1,384)        (2,180)
----------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition, net of cash acquired                                                  -         (7,387)
 Purchase of property and equipment                                            (6,066)          (599)
 Purchase of investments                                                       (1,842)          (150)
 Proceeds from investments                                                      1,037            282
 Sale of property and equipment                                                     -             18
----------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES                                          (6,871)        (7,836)
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from the issuance of long-term debt                                   4,281          7,500
 Debt repayments                                                                 (127)          (190)
 Debt issuance costs                                                                -           (184)
 Dividends paid to minority interest                                               (7)             -
----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                       4,147          7,126
----------------------------------------------------------------------------------------------------

NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS                                (4,108)        (2,890)
 Cash and short-term investments, beginning of period                          34,193          7,173
----------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD                                $30,085       $  4,283
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>
                                       
                      AVATEX CORPORATION AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1998
                                  (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

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

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

The accompanying condensed consolidated balance sheet of the Corporation as 
of June 30, 1998, the condensed consolidated statements of operations and 
comprehensive loss for the three months ended June 30, 1998 and 1997, and the 
condensed consolidated statements of cash flows for the three months ended 
June 30, 1998 and 1997, 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, 1998, are not necessarily 
indicative of the results that may be expected for the entire year.  The 
condensed consolidated balance sheet as of March 31, 1998 was derived from 
audited financial statements but does not include all disclosures required by 
generally accepted accounting principles.  Additional information is 
contained in the Corporation's Annual Report on Form 10-K filed with the 
Securities and Exchange Commission for the fiscal year ended March 31, 1998, 
and should be read in conjunction with this quarterly report.

RESTRICTED CASH:  Use of approximately $0.3 million of cash included in 
"Other current assets" at June 30, 1998 and March 31, 1998 was restricted in 
connection with real estate loans.

COMPREHENSIVE LOSS:  The difference in comprehensive loss and net loss is due 
to unrealized losses on marketable securities for the three months ended June 
30, 1998 and to an increase in the minimum pension liability adjustment for 
the three months ended June 30, 1997.

UNUSUAL ITEM:  The unusual item charge for the three months ended June 30, 
1997 related to the settlement of litigation between the Corporation and the 
Chapter 7 Bankruptcy Trustee (the "Trustee") of FoxMeyer Corporation 
("FoxMeyer") and certain of its subsidiaries.  The litigation concerned the 
validity of the transfer of certain property from FoxMeyer to the Corporation 
as a dividend on June 19, 1996.

COMMON STOCK OF AVATEX CORPORATION HELD BY AN AFFILIATE:  As of June 30, 
1998, Phar-Mor had acquired 1,842,200 shares of the Corporation's common 
stock through open market transactions at a cost of approximately $4.5 
million.  The Corporation accounts for its investment in Phar-Mor on an 
equity basis and treats Phar-Mor's investment in the Corporation's common 
stock similar to treasury stock, with a charge to the accumulated deficit on 
June 30, 1998 of $1.7 million.  The charge is equal to the Corporation's 
38.4% ownership in the cost of its common stock held by Phar-Mor.

                                       4
<PAGE>

NOTE 2 - NET LOSS PER SHARE OF COMMON STOCK

The amounts used in the calculation of the net loss per share were as follows 
(amounts in thousands, except per share amounts):

<TABLE>
                                                      For the three months ended 
                                                                June 30,
                                                           1998          1997
-------------------------------------------------------------------------------
<S>                                                   <C>              <C>
Net loss                                                 $(2,582)      $(36,946)
Deduct dividends on preferred shares                       6,792          6,175
-------------------------------------------------------------------------------
Loss applicable to common stockholders
     for BASIC earnings per share                         (9,374)       (43,121)
Effect of dilutive securities:
     Dividends on convertible preferred shares, 
      unless anti-dilutive                                     -              -
-------------------------------------------------------------------------------
Loss applicable to common stockholders
     for DILUTED earnings per share                      $(9,374)      $(43,121)
-------------------------------------------------------------------------------

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

Loss applicable to common stockholders
     Basic                                               $ (0.68)      $  (3.12)
     Diluted                                             $ (0.68)      $  (3.12)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

Options to purchase approximately 3.9 million and 2.2 million shares were 
outstanding at June 30, 1998 and 1997, respectively.  These options were not 
included in the computation of diluted earnings per share because the effect 
of including the options in the calculation would be anti-dilutive.  
Conversion of the convertible preferred stock outstanding was also not 
included in the calculation of diluted earnings per share as it would also 
have been anti-dilutive.

NOTE 3 - LONG-TERM DEBT

One of the Corporation's consolidated real estate partnerships borrowed $4.3 
million during the quarter ended June 30, 1998, under a construction loan for 
the renovation of an office building into a hotel.  The total balance 
outstanding under the loan is currently $6.5 million at an interest rate of 
1.75% over LIBOR.  The loan has been treated as long-term in the condensed 
consolidated balance sheet as the partnership has already secured permanent 
financing to replace the construction loan upon completion of the project.  
In order to complete the project, the Corporation expects to contribute 
approximately $0.8 million in addition to the remaining $7.0 million of funds 
available under the construction loan.

NOTE 4 - CAPITAL STOCK

The Corporation has not declared or paid any dividends on its preferred stock 
since October 15, 1996.  The two issues of preferred stock are cumulative. 
Therefore, the dividends that would have been paid if declared have been 
shown in the condensed consolidated statements of operations as if they had 
been declared, with a corresponding charge to the accumulated deficit.  The 
liability for the cumulative unpaid dividends has been added to the carrying 
amount of the redeemable preferred stock in the condensed consolidated 
balance sheets.  The cumulative dividends accrued but not paid were $5.7 
million ($8.75 per share) and $34.3 million ($7.95 per share) on the 
convertible preferred stock and Series A preferred stock, respectively.

                                       5
<PAGE>

NOTE 5 - 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>
                                                           For the three months
                                                              ended June 30,
                                                           1998           1997
      -------------------------------------------------------------------------
<S>                                                       <C>            <C>
      Interest paid                                       $  360         $  794
      Income taxes paid                                       67              -
      Non-cash transactions:
        Cumulative dividends in arrears accrued            6,105          5,584
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
</TABLE>

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

<TABLE>
                                                      June 30,      March 31,
                                                        1998           1998
      ----------------------------------------------------------------------
<S>                                                   <C>           <C>
      Miscellaneous assets:
        Prepaid pension cost                          $ 9,805        $ 9,440
        Securities available for sale                   5,967          7,212
        Other investments, at cost                      6,989          6,028
        Other                                           2,347          2,306
      ----------------------------------------------------------------------
             Total                                    $25,108        $24,986
      ----------------------------------------------------------------------
      ----------------------------------------------------------------------
      
      Other long-term liabilities:
        Pension and postretirement benefits           $ 5,233        $ 5,290
        Environmental liabilities                       1,325          1,417
        Liabilities related to discontinued operations  3,379          4,334
        Other                                           2,321          2,361
      ----------------------------------------------------------------------
             Total                                    $12,258        $13,402
      ----------------------------------------------------------------------
      ----------------------------------------------------------------------
</TABLE>

NOTE 6 - COMMITMENTS AND CONTINGENCIES

On April 14, 1998, the Corporation announced that it would merge with and 
into its wholly-owned subsidiary, Xetava Corporation ("Xetava"). Under the 
proposed merger, the Corporation's existing common and preferred stockholders 
would receive new common stock of Xetava, which upon consummation of the 
merger will be renamed Avatex.  Following the consummation of the merger, the 
common stockholders of the Corporation would own approximately 26.9%, and 
preferred stockholders of the Corporation would own approximately 73.1%, of 
Xetava's outstanding common stock (exclusive of options previously granted 
under the Corporation's existing stock option plan which would be assumed by 
Xetava in the merger).  While the merger has been approved by the Board of 
Directors, consummation of the merger is conditioned, in part, upon (i) the 
approval of the transaction by the holders of a majority of the Corporation's 
outstanding common stock and (ii) the effectiveness of a registration 
statement to be filed with the Securities and Exchange Commission with 
respect to shares of Xetava common stock that will be issued in the merger.

In April 1998, three substantially similar complaints were filed by preferred 
stockholders of the Corporation in the Delaware Court of Chancery (the 
"Delaware Court").  Two of the complaints raise identical claims on behalf of 
a putative class consisting of all holders of the Corporation's preferred 
stock and are styled HARBOR FINANCE PARTNERS LTD., ET. AL. V. BUTLER, ET. 
AL., C.A. No. 16334, and STROUGO V. BUTLER, ET. AL., C.A. No. 16345.  The 
third complaint is styled as ELLIOTT ASSOCIATES, L.P. ("ELLIOTT") V. AVATEX 
CORPORATION, ET. AL., C.A. No. 16336.  The defendants in all three complaints 
include the Corporation and the following directors of the Corporation: Abbey 
J. Butler, Melvyn J. Estrin, Hyman H. Frankel, Fred S. Katz, Charles C. 
Pecarro, William A. Lemer, and John L. Wineapple.  The Elliott complaint also 
names 

                                       6
<PAGE>

Xetava as a defendant.  All three actions challenge the merger of the 
Corporation with and into Xetava, a transaction which has been approved by 
the Corporation's Board of Directors and is subject to the approval of a 
majority of the holders of the Corporation's common stock.  Specifically, 
plaintiffs contend that, under the Corporation's Certificate of 
Incorporation, the merger is subject to a separate class vote by the holders 
of the Corporation's preferred stock.  Plaintiffs further allege that the 
exchange ratios for the merger are unfair to the preferred stockholders.  
Plaintiffs seek the following relief: a declaration that the defendant 
directors have breached their fiduciary duties, a declaration that the merger 
cannot proceed without the consent of the preferred stockholders, injunctive 
relief preventing the consummation of the merger and damages and costs.  In 
May 1998, the Delaware Court consolidated the Elliott, Harbor Finance and 
Strougo actions under the caption IN RE: AVATEX CORPORATION SHAREHOLDERS 
LITIGATION, C.A. No. 16334.  On June 3, 1998, the Delaware Court granted 
defendants' motion for partial judgment on the pleadings and held that the 
preferred stockholders are not entitled under the Corporation's Certificate 
of Incorporation to vote separately as a class on the proposed merger.  On 
June 8, 1998, the Corporation advised the Delaware Court that its Board of 
Directors will meet to determine whether it would be appropriate to 
reconsider and/or modify the terms of the proposed merger based on a number 
of events that had occurred since the Board of Directors had approved the 
merger.  These events include the commencement of lawsuits and the June 3, 
1998 court decision discussed above and potential changes in the value of 
certain of the Corporation's assets.  As a result, the Delaware Court 
postponed the hearing originally scheduled for June 8, 1998, on the request 
of certain preferred stockholders to enjoin the proposed merger.  The 
preferred stockholders have appealed the decision of the Delaware Court that 
the preferred stockholders do not have the right to vote separately as a 
class on the proposed merger between the Corporation and Xetava.  The 
Delaware Supreme Court heard oral arguments in the appeal on July 14 and 21, 
1998.

The Corporation has retained responsibility for certain potential 
environmental liabilities attributable to former operating units.  As a 
result, the Corporation is 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.  These statutes generally impose joint and several 
liability on present and former owners and operators, transporters and 
generators for remediation of contaminated properties regardless of fault.  
The Corporation and its subsidiaries have 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.

The Corporation's reserves for environmental assessments, remediation 
activities, penalties or fines that may be imposed for non-compliance with 
such laws or regulations have not changed materially since March 31, 1998.  
The Corporation's estimates of these costs are based upon currently available 
facts, existing technology, presently enacted laws and regulations and the 
professional judgment of consultants and counsel.

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

On March 1, 1994, the Corporation and FoxMeyer announced that the Corporation 
had proposed a merger in which a wholly-owned subsidiary of the Corporation 
would be merged with and into FoxMeyer, making FoxMeyer a wholly-owned 
subsidiary of the Corporation.  Shortly after the announcement, class action 
lawsuits were filed against the Corporation, FoxMeyer and certain of 
FoxMeyer's officers and directors.  Following a number of procedural matters, 
and the execution (and subsequent withdrawal) of a Memorandum of 
Understanding dated June 30, 1994 under which the litigation would be 
dismissed, the litigation was consolidated and an amended complaint was filed 
on February 13, 1996 in IN RE: FOXMEYER 

                                       7
<PAGE>

CORPORATION SHAREHOLDER LITIGATION, No. 13391, in the Delaware Court. The 
amended complaint alleges that the defendants breached their fiduciary duties 
to FoxMeyer's shareholders by agreeing to the merger at an unfair price and 
at a time designed so that the Corporation could take advantage of, among 
other things, an alleged substantial growth in the business of FoxMeyer.  The 
complaint also alleges that the proxy statement issued in connection with the 
merger failed to disclose certain matters relating to the proposed merger.  
No schedule has been set for the completion of discovery in the case, the 
briefing of plaintiffs' class certification motion or any other proceedings.  
The Corporation is unable at this time to estimate the possible loss, if any, 
which may accrue from this lawsuit.

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

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

In fiscal 1998, the bankruptcy trustee and certain creditors of the 
Corporation's 17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben 
Franklin"), filed lawsuits against certain former officers and directors of 
Ben Franklin, the Corporation and certain current and former officers and 
directors of the Corporation.  The Corporation and its officers and directors 
have since been dropped as defendants in the lawsuits.  In connection with 
paying its own defense costs and those of its officers and directors, the 
Corporation also initially paid a portion of the defense costs of certain 
individuals who are named as defendants in these lawsuits by reason of the 
fact that they may have been serving at the request of the Corporation as a 
director or officer of Ben Franklin.  In accordance with Delaware law, the 
Corporation may, if appropriate, agree at a future date to indemnify certain 
of the remaining defendants in the lawsuit.

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

                                       8
<PAGE>

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

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












                                       9
<PAGE>

                      AVATEX CORPORATION AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 JUNE 30, 1998
                           (IN THOUSANDS OF DOLLARS)


OVERVIEW

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

On April 14, 1998, the Corporation announced that it would merge with and 
into its wholly-owned subsidiary, Xetava Corporation ("Xetava").  Under the 
proposed merger, the Corporation's existing common and preferred stockholders 
would receive new common stock of Xetava, which upon consummation of the 
merger would be renamed Avatex.  Following the consummation of the merger, 
the common stockholders of the Corporation would own approximately 26.9%, and 
preferred stockholders of the Corporation would own approximately 73.1%, of 
Xetava's outstanding common stock (exclusive of options previously granted 
under the Corporation's existing stock option plan which would be assumed by 
Xetava in the merger).  While the merger was approved by the Board of 
Directors, consummation of the merger was conditioned, in part, upon (i) the 
approval of the transaction by the holders of a majority of the Corporation's 
outstanding common stock and (ii) the effectiveness of a registration 
statement to be filed with the Securities and Exchange Commission with 
respect to shares of Xetava common stock that would be issued in the merger.  
On June 8, 1998, the Corporation advised the Delaware Court of Chancery that 
its Board of Directors would meet to determine whether it would be 
appropriate to reconsider and/or modify the terms of the proposed merger 
based on a number of events that have occurred since the Board of Directors 
originally approved the merger. These events include the commencement of 
lawsuits filed in connection with the proposed merger and potential changes 
in the values of certain of the Corporation's assets.  The Board of Directors 
has not yet met to determine whether it will reconsider and/or modify the 
terms of the merger.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

OPERATING LOSS

Revenues from real estate operations decreased $587 to $2,576 for the quarter 
ended June 30, 1998 compared to $3,163 for the quarter ended June 30, 1997. 
The decrease was the result of the disposal of a property in fiscal 1998. 
Revenues at the remaining two properties approximated their revenues for the 
prior period.  Revenues relating to the opening of a hotel currently under 
renovation are expected to commence in November 1998.

Operating costs including depreciation and amortization increased $432 to 
$3,775 for the quarter ended June 30, 1998 compared to $3,343 for the quarter 
ended June 30, 1997.  A reduction in real estate operating costs of $331, 
primarily attributable to the property disposed of in fiscal 1998, was offset 
by an increase in corporate overhead costs of $763.  Such increased corporate 
expenses related to costs associated with the proposed merger, as discussed 
above, of $650 as well as increased compensation, legal and insurance costs.

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<PAGE>

The unusual item for the three months ended June 30, 1997 was the charge 
related to the settlement of litigation between the Corporation and the 
Chapter 7 Bankruptcy Trustee of FoxMeyer Corporation ("FoxMeyer") and certain 
of its subsidiaries.

OTHER EXPENSE

Other expense of $1,612 for the three months ended June 30, 1998 related to a 
$1,915 reduction in the carrying value of the Corporation's investment in 
Imagyn Technologies, Inc. ("Imagyn") to its market value and a write-down of 
$800 in the carrying value of an investment in a non-public company partially 
offset by $1,103 in gains principally from the recovery on an investment 
which had been written-off in a prior period.  In the prior year, other 
expense of $4,980 for the three months ended June 30, 1997 was the result of 
a $5,151 loss from a reduction in the carrying value of Imagyn partially 
offset by $171 in gains principally from recoveries on investments.

INTEREST INCOME (EXPENSE)

Interest income decreased $28 to $565 for the three months ended June 30, 
1998 compared to $593 for the three months ended June 30, 1997.   While the 
rate of interest earned on average invested funds increased slightly as 
compared to the prior year, the average amount invested decreased 
approximately $3.6 million.

Interest expense decreased $857 to $505 for the three months ended June 30, 
1998 compared to $1,362 for the three months ended June 30, 1997. 
Approximately $249 of the decrease related to real estate operations 
primarily due to the absence of debt related to the properties disposed of in 
fiscal 1998.  Interest expense related to corporate activities decreased $608 
due primarily to the termination or settlement of certain employee deferred 
compensation plans and other benefit plans of subsidiaries of the 
Corporation, which obligations had originally been recorded at a discount, 
and the repayment of a secured debt during fiscal 1998.  This decrease in 
interest expense for corporate activities was partially offset by additional 
expense related to the note payable to the FoxMeyer Chapter 7 Bankruptcy 
Trustee.

NATIONAL STEEL CORPORATION ("NSC")

The decrease in net preferred dividend income is due to the November 1997 
redemption of the NSC preferred stock by NSC and the settlement of all 
related liabilities.

EQUITY IN INCOME OF AFFILIATES

Equity in income was $256 for the quarter ended June 30, 1998 compared to 
equity in income of $318 for the quarter ended June 30, 1997.  The decrease 
was primarily due to a real estate partnership carried on the equity basis 
only in the first quarter of fiscal 1998 partially offset by an increase in 
Phar-Mor's net income in the current year as compared to the prior year.

INCOME TAXES

The Corporation recorded no federal income tax provision for the current or 
prior year.  Any income tax benefit related to the current or prior year's 
loss was offset by a corresponding change in the deferred tax asset valuation 
allowance.  The tax expense for the current year represents state income 
taxes related to real estate operations.

MINORITY INTEREST IN RESULTS OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES

The minority interest decreased $232 to $69 for the quarter ended June 30, 
1998 compared to $301 for the quarter ended June 30, 1997.  Approximately 
$194 of the decline in minority interest related to decreased income from 
real estate operations principally related to the property sold in fiscal 
1998.  The remainder of the decline related to the minority interest in 
Hamilton Morgan LLC which was purchased during fiscal 1998.

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<PAGE>

PREFERRED STOCK DIVIDENDS

Preferred stock dividends have increased to $6,792 for the three months ended 
June 30, 1998 compared to $6,175 for the three months ended June 30, 1997.  
The increase was due to (i) an increase of $96 in the amortization of 
discount on the Series A preferred stock and (ii) an increase of $521 in the 
dividend on the Series A preferred stock attributable to the required 
compounding of dividends on previously unpaid amounts.

                        LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1998, the Corporation had cash and short-term investments of 
approximately $30,085. During the quarter, the Corporation committed 
approximately $1,842 to new investments and $486 to real estate development.

The debt of the Corporation consists of a note payable to the FoxMeyer 
Chapter 7 Bankruptcy Trustee and the debt of consolidated real estate 
partnerships, which debt is without recourse to the parent company, Avatex 
Corporation.  The Corporation has two issues of redeemable preferred stock 
outstanding. Beginning with the quarterly payments due January 15, 1997, the 
Corporation has not declared nor paid any cash dividends on its Series A 
preferred stock or its convertible preferred stock.  The Corporation also did 
not make the annual sinking fund payment on the convertible preferred stock 
due January 1998.

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

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

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

The Corporation will rely on cash on hand, any excess cash from its real 
estate operations and, if necessary, the sale of real estate or other 
investments to meet its future obligations.  The Corporation is involved in 
litigation which, if the Corporation were to lose, would have a material 
impact on the Corporation's financial condition, liquidity and results of 
operations.  These financial statements have been prepared on a going concern 
basis which contemplates the realization of the Corporation's assets and the 
settlement of its liabilities and commitments in the normal course of 
business.

                                     OTHER

In June 1997, the Financial Accounting Standards Board (the "FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures 
about Segments of an Enterprise and Related Information" which is effective 
for the current fiscal year.  SFAS No. 131 does not have any impact on the 
financial results or financial condition of the Corporation, but will result 
in certain changes in required disclosure of segment information.

                                       12
<PAGE>

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative 
Instruments and Hedging Activities" which is effective for all fiscal 
quarters of all fiscal years beginning after June 15, 1999.  Therefore, the 
Corporation will be required to adopt SFAS No. 133 for its fiscal year 
beginning April 1, 2000.  The Corporation has not yet determined the impact, 
if any, from the adoption of SFAS No. 133.

What is commonly referred to as the "Year 2000" issue relates, in part, to 
many hardware and software systems that use only two digits to represent the 
year being unable to recognize dates beyond 1999.  The Corporation's internal 
systems, both hardware and software, are Year 2000 compliant.  The Year 2000 
readiness of the Corporation's vendors, and companies in which the 
Corporation has invested, however may vary.  The Corporation is currently 
trying to ascertain and monitor the Year 2000 readiness of these companies.  
If any of the companies in which the Corporation has made a significant 
investment are not Year 2000 compliant, there may be a material impact on the 
value of that investment and, correspondingly, on the Corporation's results 
of operations and financial condition.  If certain vendors are not Year 2000 
compliant, especially vendors that provide electricity, telephone services, 
food and management services, the Corporation may suffer reduced revenues and 
increased costs at its real estate operations as well as potentially 
significant disruptions to its overall operations, depending upon the length 
and severity of the problems.  At this time, it is still uncertain to what 
extent the Corporation may be affected by such matters at these other 
entities.











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<PAGE>

                          PART II - OTHER INFORMATION

                      AVATEX CORPORATION AND SUBSIDIARIES



ITEM 1.  LEGAL PROCEEDINGS

With respect to the matters reported in the Corporation's Annual Report on 
Form 10-K for the fiscal year ended March 31, 1998, the following additional 
information is provided:

PREFERRED STOCKHOLDER LITIGATION.  With reference to the litigation filed by 
certain preferred stockholders of the Corporation against the Corporation, 
Xetava Corporation and seven of the Corporation's directors, the preferred 
stockholders have appealed the decision of the Delaware Court of Chancery 
that the preferred stockholders do not have the right to vote separately as a 
class on the proposed merger between the Corporation and Xetava Corporation.  
The Delaware Supreme Court heard oral arguments in the appeal on July 14 and 
21, 1998.

DERIVATIVE ACTION.  With reference to the purported derivative litigation 
filed by certain preferred stockholders of the Corporation against ten of its 
current and former directors, the Corporation is paying the initial defense 
costs of the defendants in accordance with Delaware General Corporation Law, 
the Corporation's charter and by-laws, and the terms and conditions of 
certain indemnification agreements between the Corporation and certain of the 
defendants.

ITEM 3.  DEFAULTS UNDER SENIOR SECURITIES

The Corporation did not declare, nor did it pay, the dividends due for the 
quarterly periods since October 15, 1996 on either the Convertible Preferred 
Stock or the Series A Preferred Stock.  These two issues are cumulative.  The 
cumulative dividends accrued and unpaid were approximately $5.7 million 
($8.75 per share) and $34.3 million ($7.95 per share) on the Convertible 
Preferred Stock and Series A Preferred Stock, respectively.  In addition, the 
annual sinking fund payment due January 1998 for 88,000 shares of the 
Convertible Preferred Stock was not made.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS

         
         27  - Financial Data Schedule


     (b)  REPORTS ON 8-K
     
              The following Current Report on Form 8-K was filed by the
              Corporation during the three months ended June 30, 1998:
     
              The Corporation filed a Current Report on Form 8-K on April 15,
              1998 which announced the proposed merger of the Corporation with 
              and into its wholly-owned subsidiary, Xetava Corporation.
     
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                                  SIGNATURES
     
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                          AVATEX CORPORATION



August 14, 1998           By: /s/ Edward L. Massman
                              -------------------------------------------------
                              Edward L. Massman
                              Senior Vice President and Chief Financial Officer
                              (Principal Financial Officer)

August 14, 1998           By: /s/ Scott E Peterson
                              -------------------------------------------------
                              Scott E Peterson
                              Vice President Finance and Controller
                              (Principal Accounting Officer)






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