<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 SEPTEMBER 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 October 31, 2001: 19,637,360
shares before deducting 2,378,164 shares which represent the Corporation's 48.1%
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 September 30,
                                                       -------------------------
(in thousands, except per share amounts)                   2001         2000
--------------------------------------------------------------------------------

<S>                                                    <C>          <C>
Operating costs
   Operating costs, including general and
     administrative costs                              $      691   $    1,642
   Depreciation and amortization                                6            6
--------------------------------------------------------------------------------
Total operating costs                                        (697)      (1,648)
Other income (expense)                                        343           (5)
Interest and dividend income                                  202          518
Interest expense                                             (634)      (1,281)
--------------------------------------------------------------------------------
Loss from continuing operations before equity in loss
   of affiliates and minority interest                       (786)      (2,416)
Equity in loss of affiliates                               (2,355)      (3,751)
--------------------------------------------------------------------------------
Loss from continuing operations before minority
   interest                                                (3,141)      (6,167)
Minority interest                                              16            -
--------------------------------------------------------------------------------
Loss from continuing operations                            (3,125)      (6,167)
Discontinued operations
   Gain on disposal of discontinued operations                 48            -
--------------------------------------------------------------------------------
Loss before extraordinary item                             (3,077)      (6,167)
   Extraordinary item, gain on extinguishment of debt           -          112
--------------------------------------------------------------------------------
Net loss                                               $   (3,077)  $   (6,055)
================================================================================

Basic and diluted income (loss) per share:
   Loss from continuing operations                     $    (0.18)  $    (0.35)
   Discontinued operations                                      -            -
   Extraordinary item                                           -         0.01
--------------------------------------------------------------------------------
Loss per share                                         $    (0.18)  $    (0.34)
================================================================================

Average number of common shares outstanding - basic
   and diluted                                             17,268       17,678
--------------------------------------------------------------------------------

Comprehensive loss                                     $   (3,095)  $   (8,319)
================================================================================
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        1
<Page>

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

<Table>
<Caption>
                                                          For the six months
                                                          ended September 30,
                                                       -------------------------
(in thousands, except per share amounts)                   2001         2000
--------------------------------------------------------------------------------

<S>                                                    <C>          <C>
Operating costs
   Operating costs, including general and
     administrative costs                              $    1,876   $    2,556
   Depreciation and amortization                               12           12
--------------------------------------------------------------------------------
Total operating costs                                      (1,888)      (2,568)
Other income (expense)                                      1,695           (1)
Interest and dividend income                                  455          984
Interest expense                                           (1,380)      (2,501)
--------------------------------------------------------------------------------
Loss from continuing operations before equity in loss
   of affiliates and minority interest                     (1,118)      (4,086)
Equity in loss of affiliates                              (14,033)      (8,872)
--------------------------------------------------------------------------------
Loss from continuing operations before
   minority interest                                      (15,151)     (12,958)
Minority interest                                              16            -
--------------------------------------------------------------------------------
Loss from continuing operations                           (15,135)     (12,958)
Discontinued operations
   Gain on disposal of discontinued operations                 48            -
--------------------------------------------------------------------------------
Loss before extraordinary items                           (15,087)     (12,958)
Extraordinary items:
   Gain on extinguishment of debt                           2,476          284
   Equity in extraordinary item of affiliate                    -          172
--------------------------------------------------------------------------------
Net loss                                               $  (12,611)  $  (12,502)
================================================================================

Basic and diluted income (loss) per share:
   Loss from continuing operations                     $    (0.87)  $    (0.73)
   Discontinued operations                                      -            -
   Extraordinary items                                       0.14         0.02
================================================================================
Loss per share                                         $    (0.73)  $    (0.71)
--------------------------------------------------------------------------------

Average number of common shares outstanding -
   basic and diluted                                       17,282       17,707
--------------------------------------------------------------------------------

Comprehensive loss                                     $  (12,613)  $  (14,549)
================================================================================
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        2
<Page>

                      AVATEX CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<Table>
<Caption>
                                                       September 30,   March 31,
(in thousands of dollars)                                  2001          2001
--------------------------------------------------------------------------------
<S>                                                    <C>          <C>
ASSETS
Current assets
   Cash and cash equivalents                           $    6,299   $   13,666
   Receivables - net                                          173          364
   Other current assets                                     1,282        2,459
--------------------------------------------------------------------------------
Total current assets                                        7,754       16,489

Investment in affiliates                                    1,396       14,037

Property and equipment                                        163          163
   Less accumulated depreciation and amortization             124          112
--------------------------------------------------------------------------------
Net property and equipment                                     39           51

Other assets                                               22,366       22,251
--------------------------------------------------------------------------------
Total assets                                           $   31,555   $   52,828
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable                                    $    1,175   $      960
   Other accrued liabilities                                1,484        1,804
   Long-term debt due within one year                           -            -
--------------------------------------------------------------------------------
Total current liabilities                                   2,659        2,764
Long-term debt                                             12,201       20,915
Other long-term liabilities                                 8,392        8,418
Minority interest                                             284            -
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                       (63)         (61)
   Accumulated deficit                                   (180,130)    (167,519)
--------------------------------------------------------------------------------
                                                           13,173       25,786
   Less: equity in cost of common stock of the
     Corporation held by Phar-Mor, Inc.                    (5,154)      (5,055)
--------------------------------------------------------------------------------
Total stockholders' equity                                  8,019       20,731
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity             $   31,555   $   52,828
--------------------------------------------------------------------------------
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        3
<Page>

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

<Table>
<Caption>
                                                          For the six months
                                                          ended September 30,
                                                       -------------------------
(in thousands of dollars)                                 2001         2000
--------------------------------------------------------------------------------
<S>                                                    <C>          <C>
Cash flows from operating activities:
Net loss                                               $  (12,611)  $  (12,502)
Adjustments to reconcile net loss to net cash
   provided (used) by operating activities:
   Equity in loss of affiliates                            14,033        8,700
   Depreciation and amortization                               12           12
   Loss (gain) on investments                              (1,680)         341
   Other non-cash expense items, net                          307          576
   Gain on extinguishment of debt                          (2,476)        (284)
   Minority interest                                          (16)           -
   Cash provided (used) by working capital items:
     Receivables                                              241          477
     Other assets                                            (291)       4,613
     Accounts payable and accrued liabilities                (771)      (1,514)
--------------------------------------------------------------------------------
Net cash provided (used) by operating activities           (3,252)         419
--------------------------------------------------------------------------------

Cash flows from investing activities:
   Purchase of investments                                 (1,190)      (1,750)
   Proceeds from sale of investments                        3,716        9,005
   Other                                                      414            -
--------------------------------------------------------------------------------
Net cash provided by investing activities                   2,940        7,255
--------------------------------------------------------------------------------

Cash flows from financing activities:
   Debt repurchases                                        (7,055)      (1,241)
--------------------------------------------------------------------------------
Net cash used by financing activities                      (7,055)      (1,241)
--------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents       (7,367)       6,433
   Cash and cash equivalents, beginning of period          13,666       10,754
--------------------------------------------------------------------------------
Cash and cash equivalents, end of period               $    6,299   $   17,187
================================================================================
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        4
<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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"), a 48%-owned affiliate, the Company is
involved in operating a chain of discount retail drugstores. Phar-Mor filed for
bankruptcy protection under Chapter 11 of the Bankruptcy Code on September 24,
2001 (see Note 6). The Company also controls 50% of the voting interests of
Chemlink Laboratories, LLC ("Chemlink") through the Company's 59% interest in
Chemlink Acquisition Company, LLC ("CLAC"). 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.

BASIS OF PRESENTATION: The preparation of the consolidated financial statements,
in conformity with generally accepted accounting principles, requires management
of the Company 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 the Company's assets and the settlement of
its liabilities and commitments in the normal course of business. See Note 7 for
a discussion of the Company's ability to continue as a going concern and
management's plans for addressing those issues.

         The Company's condensed consolidated balance sheet as of September 30,
2001, the condensed consolidated statements of operations and comprehensive loss
for the three and six months ended September 30, 2001 and 2000, and the
condensed consolidated statements of cash flows for the six months ended
September 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 and six months ended September 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 the Company's 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.

MINORITY INTEREST: The minority interest represents the approximate 41% interest
in CLAC that the Company does not own. CLAC's only material asset is its
investment in Chemlink (see Note 6).

EXTRAORDINARY ITEMS: The extraordinary items for the six months ended September
30, 2001 and for the three and six months ended September 30, 2000 represent
gains realized on the early extinguishment of the 6.75% notes issued by the
Company's subsidiary, Avatex Funding, Inc. ("Avatex Funding"). See Note 5.
Equity in extraordinary item of affiliate for the six months ended September 30,
2000 represents the Company's equity in Phar-Mor's gain on the early
extinguishment of its debt.

DERIVATIVES: The Company 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 the
Company's results of operations or financial condition.

                                        5
<Page>

COMPREHENSIVE INCOME (LOSS): The difference in comprehensive loss and net 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    For the six months ended
                                                             September 30,                September 30,
                                                           2001        2000              2001      2000
   ---------------------------------------------------------------------------------------------------------
   <S>                                                   <C>       <C>                 <C>       <C>
   Unrealized gains (losses) on  securities              $   (8)   $   1,146           $    8    $   1,398
   Reclassification adjustment for gains included
   in net loss                                              (10)      (3,410)             (10)      (3,410)
   ---------------------------------------------------------------------------------------------------------
   Net unrealized losses                                    (18)      (2,264)              (2)      (2,012)
   ---------------------------------------------------------------------------------------------------------

   Minimum pension liability adjustment                       -            -                -          (35)
   ---------------------------------------------------------------------------------------------------------
   Total other comprehensive loss                         $ (18)   $  (2,264)           $  (2)    $ (2,047)
   =========================================================================================================
</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". These pronouncements
significantly change the accounting for business combinations, goodwill and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of SFAS
No. 141 are effective for any business combination that is completed after
June 30, 2001. SFAS No. 142 requires that goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed for impairment at
least annually. The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after June 30, 2001. With respect to goodwill
and intangibles acquired prior to July 1, 2001, companies are required to
adopt the pronouncement in their fiscal years beginning after December 15,
2001. The Company applied these statements to its acquisition of additional
voting interests in CLAC (see Note 6). Management of the Company does not
believe that the adoption of these statements for goodwill or intangibles
acquired prior to July 1, 2001 will have a material effect on its financial
condition or results of operations.

         The FASB also issued SFAS No. 143 "Accounting for Asset Retirement
Obligations" in June 2001. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and amortized over the remaining life of the asset. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002. In August
2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions relating to the disposal of a segment of
a business contained in APB Opinion No. 30 "Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 eliminates the two accounting models that existed for long-lived assets
under SFAS No. 121 and APB Opinion No. 30 by establishing a single model based
on the framework originally established in SFAS No. 121 for long-lived assets to
be disposed of by sale and resolving implementation issues related to SFAS No.
121. SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. Management does not believe the adoption of either statement will have a
material effect on its financial condition or results of operations.

COMMON STOCK OF AVATEX CORPORATION HELD BY AN AFFILIATE: Phar-Mor currently owns
4,948,600 shares or 25.2% of the Company's issued Class A common stock. The
Company accounts for its investment in Phar-Mor on an equity basis and treats
Phar-Mor's investment in the Company's common stock similar to treasury stock,
with a reduction in its stockholders' equity of approximately $5.2 million at
September 30, 2001 (the equivalent of 2,378,164 shares of its common stock) and
$5.1 million at March 31, 2001 (the equivalent of 2,332,241 shares of its common
stock). The reduction was based on the Company's 48.1% ownership interest at
September 30, 2001 and its 47.1% ownership interest at March 31,

                                        6
<Page>

2001 in the cost and number of shares of its common stock held by Phar-Mor.
Depending on the outcome of Phar-Mor's bankruptcy proceeding (see Note 6), the
Company may lose all or part of its investment in the common stock of Phar-Mor.

         In addition, the weighted average number of shares outstanding used in
calculating earnings per share was reduced by 2,369,702 and 1,959,228 for the
three months ended September 30, 2001 and 2000, respectively, and 2,355,304 and
1,929,907 for the six months ended September 30, 2001 and 2000, respectively.
The reduction was equal to the Company's ownership interest in its common stock
since its acquisition by Phar-Mor.

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

         The loss per share from continuing operations for basic and diluted
earnings per share was calculated by dividing the loss from continuing
operations for the three and six month periods ended September 30, 2001 and 2000
by the weighted average number of common shares outstanding. The weighted
average number of shares outstanding was reduced by the Company's equity in the
number of shares of its stock held by Phar-Mor as explained in Note 1.

         Options to purchase approximately 4.0 million and 3.9 million shares of
common stock were outstanding at September 30, 2001 and 2000, respectively.
These options were not included in the computation of diluted earnings per share
because the average market price of the Company's 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 the Company's Class A common stock at $2.25 per share were
outstanding at September 30, 2001 and 2000. These warrants were not included in
the computation of diluted earnings per share because the average market price
of the Company's 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 six months ended
                                                                          September 30,
                                                                      2001           2000
   -------------------------------------------------------------------------------------------
   <S>                                                                <C>          <C>
   Interest paid                                                      $ 764        $  1,003
   Income taxes paid (refund)                                           (46)              -
   Non-cash transactions:
      Stock of WD-40 Company received on sale of an investment           45               -
   ===========================================================================================
</Table>

                                        7
<Page>

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

<Table>
<Caption>
                                                                  September 30,     March 31,
                                                                      2001            2001
         -------------------------------------------------------------------------------------
          <S>                                                       <C>            <C>
          Other assets:
             Prepaid pension cost                                   $   14,589     $   14,183
             Securities available for sale                               4,303          4,304
             Other investments, at cost                                  1,288          1,288
             Other                                                       2,186          2,476
         -------------------------------------------------------------------------------------
               Total                                                $   22,366     $   22,251
         =====================================================================================

          Other accrued liabilities:
             Accrued interest payable                               $      284     $      517
             Liabilities related to discontinued operations                445            428
             Salaries, wages and employee benefits                         542            608
             Other                                                         213            251
         -------------------------------------------------------------------------------------
               Total                                                $    1,484     $    1,804
         =====================================================================================

          Other long-term liabilities:
             Pension and postretirement benefits                    $    4,751     $    4,812
             Environmental liabilities                                   1,188          1,153
             Liabilities related to discontinued operations                453            453
             Other                                                       2,000          2,000
         -------------------------------------------------------------------------------------
               Total                                                $    8,392     $    8,418
         =====================================================================================
</Table>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

         The Company has retained responsibility for certain potential
environmental liabilities attributable to former operating units. The Company 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 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. The
Company 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.

         At September 30, 2001, the Company had reserves of approximately $1.3
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. The
Company's estimates of these costs are based upon currently available facts,
existing technology, presently enacted laws and regulations and the professional
judgment of consultants and counsel. Where the available information is
sufficient to estimate the amount of the liability, that estimate has been used.
Where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than the other, the lower
end of the range was used.

         The 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 the Company, the
unknown extent of the Company's probable liability in proportion to the probable
liability of other parties. Moreover, the Company may have environmental
liabilities that cannot, in management's judgment, be estimated at this time and
losses attributable to remediation costs may arise at

                                        8
<Page>

other sites. The Company recognizes that additional work may need to be
performed to ascertain the ultimate liability for such sites, and further
information could ultimately change the current assessment. A change in the
estimated liability could have a material impact on the Company's financial
condition and results of operations.

         The Company 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 Company's 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 the Company 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 Company's existing and
future business and financial condition. In March 1998, the court denied the
Company's motion to dismiss the amended complaint in the lawsuit. The Company
intends to continue to vigorously defend itself in the lawsuit and is unable at
this time to estimate the possible loss, if any, which may accrue from this
lawsuit.

         In 1997, the bankruptcy trustee and certain creditors of the Company's
former 17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben Franklin"),
filed lawsuits against the Company, certain former officers and directors of Ben
Franklin and certain of the Company's current and former officers and directors.
The Company along with its officers and directors have since been dropped as
defendants in the lawsuits. In connection with paying the Company's own defense
costs and those of its officers and directors, the Company 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
Company's 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,
the Company may, if appropriate, agree at a future date to indemnify certain of
the remaining defendants in the lawsuit in accordance with Delaware law. The
Company is unable to estimate the possible loss, if any, which may accrue from
these lawsuits.

         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 the Company. In October 1997, in connection with the settlement of a
separate lawsuit brought by the Trustee against the Company, the Trustee
released the Company from all liability and provided the director-defendants in
this lawsuit with covenants not to execute. The Company 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 Company's
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, the Company received a copy of an order entered by a
Pennsylvania state court with respect to Reliance Insurance Company
("Reliance"). The Company's 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
29, 2001 order stated, among other things, that Reliance is being placed into
"Rehabilitation" under Pennsylvania's Insurance Department Act. On October 3,
2001, the court entered an Order of Liquidation that superseded the May 29, 2001
order, terminated the rehabilitation of Reliance and UPIC and appointed the
insurance commissioner of the State of Pennsylvania as liquidator. The Company
cannot estimate at this time the impact, if any, which might result from
Reliance and UPIC being liquidated on any of the Company's litigation.

                                        9
<Page>

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

NOTE 5 - DEBT

         The extraordinary item for the six months ended September 30, 2001
represents a gain realized on the early extinguishment of approximately $11.7
million face value of the 6.75% notes issued by the Company's subsidiary, Avatex
Funding, that were purchased by the Company for approximately $7.1 million. The
gain of $2.5 million represents the difference in the purchase price and the
discounted carrying value of the notes at the time of purchase. The remaining
face value of the notes is approximately $14.3 million.

         The extraordinary items for the extinguishment of debt for the three
and six months ended September 30, 2000 represent gains on the early
extinguishment of $0.7 million and $2.1 million face value, respectively, of the
6.75% notes of Avatex Funding. The notes were purchased for $0.4 million and
$1.2 million, respectively.

NOTE 6 - INVESTMENTS

         The Company purchased an additional 113,600 shares of Phar-Mor common
stock in the open market during the six month period ended September 30, 2001
for approximately $0.1 million, which brings the Company's ownership percentage
to approximately 48.1% at September 30, 2001 from 47.1% at March 31, 2001. As a
result of the increase in the Company's equity ownership, the amount and number
of shares of its common stock held by Phar-Mor that are considered treasury
stock has also increased (see Note 1).

         The carrying value of Phar-Mor on the Company's books at June 30,
2001 was reduced to zero as a result of Phar-Mor's losses during that
quarter. The Company will not recognize any additional losses in Phar-Mor
after June 30, 2001 except that, in the current quarter, the Company
recognized a loss of $9 thousand due to the investments the Company made in
Phar-Mor common stock in July and August 2001. Phar-Mor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code on September 24,
2001. Depending on the outcome of Phar-Mor's bankruptcy proceeding, the
Company may lose all or part of its investment in the common stock of
Phar-Mor.  The Company is unable to currently determine the market value of
its holdings in Phar-Mor common stock. Our Co-Chairmen and Co-Chief Executive
Officers, Abbey J. Butler and Melvyn J. Estrin, continue to serve as
Co-Chairmen and Co-Chief Executive Officers of Phar-Mor.

         The Company disposed of its interest in HPD Holding Corp. ("HPD") for
$2.6 million, including the value of the shares of WD-40 Company it received,
resulting in a gain of approximately $0.6 million which is included in "Other
income" for the six months ended September 30, 2001. The Company has
subsequently sold all the WD-40 Company shares it received for a gain of
approximately $10 thousand.

         Before September 1, 2001, the Company owned 41% of the voting rights
in CLAC and accounted for its investment in CLAC on an equity basis. During
the quarter ended September 30, 2001, and prior to the purchase discussed
below, management of the Company determined that the $5.6 million value CLAC
assigned to various Chemlink's patents had become impaired. The Company
recognized a loss of $2.2 million for its equity in the write-down of those
patents to their estimated net realizable value. The impairment in value was
a result of new patents Chemlink is obtaining which limit the market for
products based on these older patents.

         In order to provide additional financing to Chemlink until it is able
to generate sufficient cash flow from its operations, CLAC made a $1.4 million
investment in Chemlink during the six months ended September 30, 2001. The
additional investment in Chemlink was part of an overall restructuring of the

                                       10
<Page>

membership interests in Chemlink. The membership interests received by CLAC for
its additional investment during the current fiscal year will earn a preferred
return and have preference in liquidation over the other membership interests.
In addition, CLAC's prior investments in Chemlink were modified and will also
earn a preferred return and have preference in liquidation to other members'
interests in Chemlink. CLAC's voting interest in Chemlink remains at 50% of the
total membership interests entitled to vote on most matters.

         In order to provide the Company's portion of the funds used by CLAC to
make its additional investment in Chemlink, as described above, the Company
invested $1.1 million in CLAC during the six months ended September 30, 2001.
The additional investment by the Company in CLAC was part of an overall
restructuring of CLAC's membership interests. The membership interests received
by the Company for its additional investment will earn a preferred return. The
Company also increased its ownership interest in CLAC's voting rights from 41%
to 59% as of September 1, 2001 as a result of the restructuring. The only
material asset of CLAC is its investment in Chemlink.

         Therefore, since September 1, 2001, because the Company has owned 59%
of the voting rights in CLAC, it has reported CLAC's results on a consolidated
basis. The remaining 41% of the voting rights in CLAC that the Company does not
own are accounted for as a minority interest from that date.

         Assuming that the Company had increased its interest in CLAC's voting
rights to 59% on April 1, 2001 by making its $1.1 million contribution as of
that date, the following are the Company's estimated pro forma results for the
three and six months ended September 30, 2001 (in thousands of dollars):

<Table>
<Caption>
                                                   For the three months ended     For the six months ended
                                                       September 30, 2001            September 30, 2001
-------------------------------------------------------------------------------------------------------------
                                                   As reported       Pro forma     As reported    Pro forma
-------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>            <C>            <C>
Loss from continuing operations before equity
in loss of affiliates and minority interest        $    (786)       $    (788)     $  (1,118)     $  (1,126)
Equity in loss of affiliates                          (2,355)          (5,631)       (14,033)       (17,474)
Loss from continuing operations before
minority interest                                     (3,141)          (6,419)       (15,151)       (18,600)
Minority interest                                         16            3,284             16          3,451
Loss from continuing operations                       (3,125)          (3,135)       (15,135)       (15,149)
Loss before extraordinary items                       (3,077)          (3,087)       (15,087)       (15,101)
Net loss                                              (3,077)          (3,087)       (12,611)       (12,625)
Basic and diluted loss per share:
   Loss from continuing operations                 $   (0.18)       $   (0.18)     $   (0.87)     $   (0.87)
   Discontinued operations                                 -                -              -              -
   Extraordinary items                                     -                -           0.14           0.14
   Loss per share                                  $   (0.18)       $   (0.18)     $   (0.73)     $   (0.73)
=============================================================================================================
</Table>

                                       11
<Page>

         Assuming the Company had increased its interest in CLAC's voting right
to 59% and made its investment of $1.1 million on April 1, 2000, the following
are the Company's estimated pro forma results for the three and six month
periods ended September 30, 2000 (in thousands of dollars):

<Table>
<Caption>
                                                   For the three months ended       For the six months ended
                                                       September 30, 2000               September 30, 2000
-------------------------------------------------------------------------------------------------------------
                                                   As reported      Pro forma      As reported    Pro forma
-------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>            <C>            <C>
Loss from continuing operations before equity
in loss of affiliates and minority interest        $  (2,416)       $ (2,431)      $   (4,086)    $   (4,116)
Equity in loss of affiliates                          (3,751)         (3,891)          (8,872)        (9,104)
Loss from continuing operations before minority
interest                                              (6,167)         (6,322)         (12,958)       (13,220)
Minority interest                                          -             146             -               244
Loss from continuing operations                       (6,167)         (6,176)         (12,958)       (12,976)
Net loss                                              (6,055)         (6,064)         (12,502)       (12,520)
Basic and diluted loss per share:
   Loss from continuing operations                 $   (0.35)       $   (0.35)     $    (0.73)    $    (0.73)
   Discontinued operations                                 -                -            -                -
   Extraordinary items                                  0.01             0.01            0.02           0.02
   Loss per share                                  $   (0.34)       $   (0.34)     $    (0.71)    $    (0.71)
=============================================================================================================
</Table>

NOTE 7 - GOING CONCERN

         The Company 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 the Company's ability to continue as a going
concern. See Note O to the consolidated financial statements at March 31, 2001.

         To overcome these remaining matters, management of the Company will
continue its vigorous defense of its remaining litigation until these matters
are finally resolved. However, there is no assurance that the Company will be
able to settle these lawsuits in a favorable manner. In addition, there is no
assurance that any of the Company's investments will produce adequate returns to
overcome the Company's operating losses and provide adequate funds for its debt
repayments or for future operations. The Company will continue to manage its
investments and look for additional opportunities to try to successfully return
to profitability. Finally, there is no assurance that the Company will be able
to continue to buy back its debt at substantial discounts to face value.

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

                                       12
<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                               SEPTEMBER 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, a 48%-owned affiliate, we are involved in operating a chain of
discount retail drugstores. Phar-Mor filed for bankruptcy protection under
Chapter 11 of the Bankruptcy Code on September 24, 2001. We also control 50% of
the voting interests of Chemlink through our 59% interest in CLAC. 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.

          Our investment in Phar-Mor was reduced to zero at June 30, 2001 as a
result of the recognition of our equity in Phar-Mor's losses during that
quarter. Therefore, there was no immediate impact on our financial condition as
a result of the bankruptcy filing by Phar-Mor in September 2001. Depending on
the outcome of Phar-Mor's bankruptcy proceeding, we may lose all or part of our
investment in the common stock of Phar-Mor. We did not file for bankruptcy and
are not part of the Phar-Mor bankruptcy proceeding except as it may relate to
our investment in the common stock of Phar-Mor. Our Co-Chairmen and Co-Chief
Executive Officers, Abbey J. Butler and Melvyn J. Estrin, continue to serve as
Co-Chairmen and Co-Chief Executive Officers of Phar-Mor. See Notes 1 and 6 to
the condensed consolidated financial statements.

         The extraordinary item for the six months ended September 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 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 AND SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE AND SIX MONTHS
ENDED SEPTEMBER 30, 2000

OPERATING COSTS

         Total operating costs decreased $951 to $697 for the three months ended
September 30, 2001 compared to $1,648 for the three months ended September 30,
2000. Operating costs decreased primarily as a result of decreased legal
expenses of $1,355 and other expenses of $89, principally from a franchise tax
refund. These were partially offset by an increase of $93 in expenses related to
our pension plans and $400 of settlements received on our McKesson Corporation
lawsuit in the prior year.

         Total operating costs decreased $680 to $1,888 for the six months ended
September 30, 2001 compared to $2,568 for the six months ended September 30,
2000. Operating costs decreased primarily as a result of decreased legal
expenses of $1,316 and other expenses of $122, principally from a franchise tax
refund. These were partially offset by an increase of $358 in expenses related
to our pension plans and $400 of settlements received on our McKesson
Corporation lawsuit in the prior year.

                                       13
<Page>

OTHER INCOME

         Other income of $343 for the three months ended September 30, 2001 was
primarily due to a gain of $325 related to a payment received on an asset sold
in a prior year and $10 in gains on the sale of securities. Other expense of $5
for the three months ended September 30, 2000 was related primarily to the
write-down of $3,751 in the value of our investment in Phar-Mor partially offset
by a gain on the sale of our investment in Carson, Inc. of $3,410 and a gain of
$325 related to an asset sold in a prior fiscal year.

         Other income of $1,695 for the six months ended September 30, 2001 was
primarily due to gains on the sale of securities and investments of $565 and
payments received of $1,115 on assets sold or written-off in prior fiscal years.
Other expense of $1 for the six months ended September 30, 2000 was due
primarily to those same items as in the three month period ending September 30,
2000.

INTEREST AND DIVIDEND INCOME

         Interest and dividend income decreased $316 to $202 for the three
months ended September 30, 2001 compared to $518 for the three months ended
September 30, 2000. The decrease was due to a decline of $285 in interest income
as a result of lower cash balances and lower interest rates in the current
versus prior fiscal year and a decline of $47 in interest on notes receivable
which were either redeemed or converted to preferred stock. Dividend income
increased $16 as compared to the prior year primarily from earning a higher
dividend rate on the preferred stock of RAS Holding Corp. and from the
additional investment we made in the preferred stock of iLife Systems, Inc. less
the impact of the sale of the preferred stock of HPD.

         Interest and dividend income decreased $529 to $455 for the six months
ended September 30, 2001 compared to $984 for the six months ended September 30,
2000. The decrease was due to a decline of $493 in interest income as a result
of lower cash balances and lower interest rates in the current versus prior
fiscal year and a decline of $96 in interest on notes receivable which were
either redeemed or converted to preferred stock. Dividend income increased $60
as compared to the prior year primarily from earning a higher dividend rate on
the preferred stock of RAS Holding Corp. and from the additional investment we
made in the preferred stock of iLife Systems, Inc. less the impact of the sale
of the preferred stock of HPD.

INTEREST EXPENSE

         Interest expense decreased $647 to $634 for the three months ended
September 30, 2001 from $1,281 for the three months ended September 30, 2000.
Interest expenses decreased $1,121 to $1,380 for the six months ended September
30, 2001 compared to $2,501 for the six months ended September 30, 2000. The
decrease for both periods was principally due to the payoff of the note to the
Trustee in February 2001 and the purchase and subsequent cancellation of $12,323
face value of the 6.75% notes of Avatex Funding since the second quarter of the
prior year.

EQUITY IN LOSS OF AFFILIATES

         Equity in loss of affiliates was $2,355 for the three months ended
September 30, 2001 compared to equity in loss of affiliates of $3,751 for the
three months ended September 30, 2000. The $1,396 decrease in our equity loss of
affiliates was due to the following:

         (i)    Our equity in Phar-Mor's loss was $3,496 less than in the prior
                year. The decrease is due to the reduction in the value of our
                investment to zero as a result of equity losses in Phar-Mor
                recognized in the first quarter of fiscal 2002. As a result, we
                will not recognize any additional losses in Phar-Mor after June
                30, 2001 except that, in the current quarter, we recognized a
                loss of $9 due to the investments we made in Phar-Mor common
                stock in July and August 2001.

                                       14
<Page>

         (ii)   Our equity loss in CLAC increased by $2,174 due primarily to the
                write-down of the value of certain of Chemlink's patents (see
                Note 6 to the condensed consolidated financial statements).
         (iii)  We recognized an equity loss of $71 from our investment in
                Chemlink for the month of September as a result of CLAC being
                consolidated since September 1, 2001 (see Note 6 to the
                condensed consolidated financial statements).
         (iv)   Our equity loss from other investments decreased by $145
                primarily from losses incurred in the prior year from our
                investment in Cyclone Acquisition Company, LLC ("Cyclone").

         Equity in loss of affiliates was $14,033 for the six months ended
September 30, 2001 compared to equity in loss of affiliates of $8,872 for the
six months ended September 30, 2000. The $5,161 increase in our equity loss of
affiliates was primarily due to the following:

         (i)    Our equity in Phar-Mor's loss was $3,011 more than in the prior
                year. The increase was due primarily to the substantial losses
                incurred by Phar-Mor in the three month period ending June 30,
                2001 due to higher operating losses, the write-down of goodwill
                and fixed assets and the reduction in the carrying value of
                their deferred tax asset. As a result of these losses, our
                equity in their losses reduced our investment to zero. We did
                not recognize any additional losses in Phar-Mor after June 30,
                2001 except that, in the current quarter, we recognized a loss
                of $9 due to the investments we made in Phar-Mor common stock in
                July and August 2001.
         (ii)   There was an increase in our equity loss of $2,220 from our
                investment in Chemlink due primarily to the write-down of the
                value of certain of Chemlink's patents (see Note 6 to the
                condensed consolidated financial statements).
         (iii)  We recognized an equity loss of $71 from our investment in
                Chemlink for the month of September as a result of CLAC being
                consolidated since September 1, 2001 (see Note 6 to the
                condensed consolidated financial statements).
         (iv)   Our equity loss from other investments decreased by $141
                primarily from losses incurred in the prior year from our
                investment in Cyclone.

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.

MINORITY INTEREST

         As a result of the change in our accounting for CLAC (see Note 6 to the
condensed consolidated financial statements), CLAC's results are consolidated
with our results starting September 1, 2001. Therefore, this caption in the
statement of operations represents the portion of the equity loss in Chemlink
for the month of September that was allocated to CLAC's minority interest. There
was no corresponding minority interest in the prior year as CLAC was carried on
an equity basis.

DISCONTINUED OPERATIONS

         The gain on discontinued operations for the three and six months ended
September 30, 2001 was due to a tax refund received on one of our former real
estate investments.

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 six months ended September 30, 2001. We recognized a gain of $112 and $284
on the purchase and subsequent cancellation of $716 and $2,072 face value,

                                       15
<Page>

respectively, of the 6.75% notes during the three and six months ended September
30, 2000. We also recognized our equity in Phar-Mor's gain on the early
extinguishment of its debt of $172 for the six months ended September 30, 2000.

                         LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 2001, we had cash and cash equivalents of
approximately $6,299. During the six months ended September 30, 2001, we
purchased $1,076 of membership interests in CLAC and purchased $114 in
Phar-Mor common stock raising our ownership from 47.1% to 48.1%. We also sold
our investment in HPD for $2,601 and received $1,115 on investments that were
written off or sold 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.

         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. The bankruptcy of Phar-Mor (see
Overview above) will likely reduce any potential future value of that investment
to us.

         We will rely on cash on hand, any cash payments from our investments
and, if necessary, the proceeds from the sale of our investments to meet
future obligations. We are involved in litigation which, if we were to lose,
could have a material adverse 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 September 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". These pronouncements
significantly change the accounting for business combinations, goodwill and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of SFAS
No. 141 are effective for any business combination that is completed after
June 30, 2001. SFAS No. 142 requires that goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed for impairment at
least annually. The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after June 30, 2001. With respect to goodwill
and intangibles acquired prior to July 1, 2001, companies are required to
adopt the pronouncement in their fiscal years beginning after December 15,
2001. We applied these statements to our acquisition of additional voting
interests in CLAC (see Note 6 to the condensed consolidated financial
statements). We do not believe that the adoption of these statements for
goodwill or intangibles acquired prior to July 1, 2001 will have a material
effect on our financial condition or results of operations.

                                       16
<Page>

         The FASB also issued SFAS No. 143 "Accounting for Asset Retirement
Obligations" in June 2001. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and amortized over the remaining life of the asset. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002. In August
2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions relating to the disposal of a segment of
a business contained in APB Opinion No. 30 "Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 eliminates the two accounting models that existed for long-lived assets
under SFAS No. 121 and APB Opinion No. 30 by establishing a single model based
on the framework originally established in SFAS No. 121 for long-lived assets to
be disposed of by sale and resolving implementation issues related to SFAS No.
121. SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. Management does not believe the adoption of either statement will have a
material effect on our financial condition or results of operations.

         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 effects on our investment as a result of the Phar-Mor
bankruptcy filing; 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
including the changes resulting from the effects of the events of September 11,
2001 and their aftermath. 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.

           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 decreased to $2 from $4.

         The carrying value of long-term debt maturing in fiscal year 2003
decreased to $12,201 as a result of the repurchase of $11,744 face value of
Avatex Funding 6.75% notes during the six months ended September 30, 2001
partially offset by the amortization of the original issue discount on the
notes. The fair value of the long-term debt at March 31, 2001 was its carrying
value. Management believes that the carrying value of the long-term debt at
September 30, 2001 still represents fair value.

                                       17
<Page>

                           PART II - OTHER INFORMATION

                       AVATEX CORPORATION AND SUBSIDIARIES

ITEM 1.  LEGAL

         With respect to the matters reported in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2001, the following additional information
is provided:

MCKESSON LITIGATION. In October 2001, the 192nd Judicial District Court of
Dallas County, Texas, denied McKesson Corporation's first amended no evidence
motion for summary judgment. The court has set a hearing on November 26, 2001
on McKesson Corporation's affirmative motion for summary judgment and various
other motions in the case.

1996 SHAREHOLDER LITIGATION. Following the entry of the Order of Liquidation
with respect to Reliance Insurance Company ("Reliance"), as discussed below, we
withdrew our motion to stay the Zuckerman lawsuit.

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 immediately 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 ("NAC") previously prepaid its share of costs based on earlier cost
estimates that were significantly higher than the current estimate, NAC believes
that it will receive a refund once the structured financing arrangement is fully
funded by the PRPs.

GREEN RIVER. On August 10, 2001, the Environmental Protection Agency ("EPA")
issued a special notice letter to various PRPs, including NAC, with respect to
EPA's August 2001 record of decision for the Green River Disposal site. In
addition, the PRP with the largest allocated share of liability at the site,
W.R. Grace & Co., has filed for relief under the Bankruptcy Code. We are unable
to estimate the impact, if any, that this bankruptcy filing may have on NAC's
obligations at the site.

RELIANCE INSURANCE ISSUES. On May 29, 2001, a Pennsylvania state court entered
an order with respect to Reliance and its subsidiary, United Pacific Insurance
Company ("UPIC"), placing Reliance and UPIC into "Rehabilitation" under
Pennsylvania's Insurance Department Act. On October 3, 2001, the court entered
an Order of Liquidation, which superseded the May 29 order, terminated the
rehabilitation of Reliance and UPIC and appointed the insurance commissioner of
the State of Pennsylvania as liquidator. We cannot estimate at this time the
impact, if any, that might result from Reliance and UPIC being liquidated on any
of our litigation.

BEN FRANKLIN LITIGATION. In the lawsuits filed by the chapter 7 trustee of Ben
Franklin Retail Stores, Inc. and certain of its creditors, on August 31, 2001,
the United States District Court for the Northern District of Illinois entered
two orders that accepted the recommendations of the Bankruptcy Court and
dismissed the lawsuits against all of the defendants except for two counts in
one case against David Brainard. The plaintiffs in these cases have appealed the
dismissal orders to the United States Court of Appeals for the Seventh Circuit.

                                       18
<Page>

ITEM 4.  RESULTS OF VOTES OF SECURITY HOLDERS

                         We held our annual meeting of stockholders on September
                25, 2001. At that meeting, the following two individuals were
                elected by our stockholders to serve as directors until the
                annual meeting of stockholders in the year 2004, and the number
                of votes cast for or withheld for each of these individuals was
                as follows:

<Table>
<Caption>
                         -------------------------------------------------
                                                      For       Withheld
                         -------------------------------------------------
                            <S>                   <C>           <C>
                            William A. Lemer      18,037,141    512,305
                         -------------------------------------------------
                            John L. Wineapple     18,037,432    512,014
                         -------------------------------------------------
</Table>

                         In addition, Abbey J. Butler, Melvyn J. Estrin, Hyman
                H. Frankel, Fred S. Katz and Charles C. Pecarro are the
                continuing directors of the Company who did not stand for
                re-election at this annual meeting and whose terms of office do
                not expire until 2002 or 2003.

                         Our stockholders also approved an Amended and Restated
                Stock Option and Performance Award Plan that amended and
                restated the National Intergroup, Inc. 1993 Stock Option and
                Performance Award Plan in its entirety. The number of votes cast
                for, against or abstaining for the amended plan was as follows:

<Table>
<Caption>
                         -------------------------------------------------------
                                                       For     Against   Abstain
                         -------------------------------------------------------
                            <S>                    <C>        <C>        <C>
                            Amended and Re-
                              stated Plan          7,944,704  1,384,559  51,189
                         -------------------------------------------------------
</Table>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS

                10-A     Second Amendment to Employment Agreement, dated
                         September 25, 2001 between the registrant and John G.
                         Murray.
                10-B     Third Amendment to Employment Agreement, dated
                         September 25, 2001 between the registrant and Grady E.
                         Schleier.
                10-C     Third Amendment to Employment Agreement, dated
                         September 25, 2001 between the registrant and Robert H.
                         Stone.
                10-D     Avatex Corporation Amended and Restated Stock Option
                         and Performance Award Plan

         (b) REPORTS ON 8-K

                The following Current Report on Form 8-K was filed by us during
         the three months ended September 30, 2001:

                Form 8-K dated September 24, 2001 announced that Phar-Mor, our
         48%-owned affiliate, had filed a voluntary petition for relief under
         Chapter 11 of the Bankruptcy Code on that date.

                                       19
<Page>

                                   SIGNATURES

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

                                      AVATEX CORPORATION

         November 14, 2001            By:  /s/ Grady E. Schleier
                                           -----------------------
                                           Grady E. Schleier
                                           Senior Vice President,
                                           Chief Financial Officer
                                           and Treasurer
                                           (Principal Financial and
                                           Accounting Officer)

                                       20