<Page>

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

                                    FORM 10-Q


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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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)             INDENTIFICATION NO.)


     5910 N. Central Expressway, Suite 1780,
                Dallas, Texas                               75206
 ------------------------------------------------  -------------------------
    (Address of Principal Executive Offices)              (Zip Code)


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


Indicate by check mark whether the registrant (1) had filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
filing  requirements for the past 90 days. Yes __X__  No _____.

Number of shares of Common Stock outstanding as of January 31, 2002:
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 INCOME (LOSS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                       For the three months
                                                                                        ended December 31,
                                                                                  -----------------------------
(in thousands, except per share amounts)                                               2001               2000
---------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>
Operating income (loss)
  Gain on settlement of legal action, net of expenses                                $ 2,561             $ 980
  Operating costs, including general and administrative costs                           (634)           (1,265)
  Depreciation and amortization                                                           (6)               (7)
---------------------------------------------------------------------------------------------------------------
Total operating income (loss)                                                          1,921              (292)
Other income (expense)                                                                (1,844)                8
Interest and dividend income                                                             176               547
Interest expense                                                                        (640)           (1,284)
---------------------------------------------------------------------------------------------------------------
Loss before equity in loss of affiliates and minority interest                          (387)           (1,021)
Equity in loss of affiliates                                                            (169)           (3,874)
---------------------------------------------------------------------------------------------------------------
Loss before minority interest                                                           (556)           (4,895)
Minority interest                                                                         80                 -
---------------------------------------------------------------------------------------------------------------
Loss before extraordinary items                                                         (476)           (4,895)
Extraordinary items:
  Gain on extinguishment of debt                                                           -               100
  Equity in extraordinary item of affiliate                                                -             7,491
---------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                    $  (476)          $ 2,696
===============================================================================================================

Basic and diluted income (loss) per share:
  Loss before extraordinary items                                                    $ (0.03)          $ (0.28)
  Extraordinary items                                                                      -              0.43
---------------------------------------------------------------------------------------------------------------
Income (loss) per share                                                              $ (0.03)          $  0.15
===============================================================================================================

Average number of common shares outstanding - basic and diluted                       17,259            17,533
---------------------------------------------------------------------------------------------------------------

Comprehensive income (loss)                                                          $  (478)          $ 2,678
===============================================================================================================
</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 nine months
                                                                                        ended December 31,
                                                                                     ------------------------
(in thousands, except per share amounts)                                               2001            2000
-------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>

Operating income (loss)
      Gain on settlement of legal action, net of expenses                            $  2,561        $  1,372
      Operating costs, including general and administrative costs                      (2,510)         (4,213)
      Depreciation and amortization                                                       (18)            (19)
-------------------------------------------------------------------------------------------------------------
Total operating income (loss)                                                              33          (2,860)
Other income (expense)                                                                   (149)              7
Interest and dividend income                                                              631           1,531
Interest expense                                                                       (2,020)         (3,785)
-------------------------------------------------------------------------------------------------------------
Loss from continuing operations before equity in loss
      of affiliates and minority interest                                              (1,505)         (5,107)
Equity in loss of affiliates                                                          (14,202)        (12,746)
-------------------------------------------------------------------------------------------------------------
Loss from continuing operations before minority interest                              (15,707)        (17,853)
Minority interest                                                                          96               -
-------------------------------------------------------------------------------------------------------------
Loss from continuing operations                                                       (15,611)        (17,853)
Discontinued operations
      Gain on disposal of discontinued operations                                          48               -
-------------------------------------------------------------------------------------------------------------
Loss before extraordinary items                                                       (15,563)        (17,853)
Extraordinary items:
      Gain on extinguishment of debt                                                    2,476             384
      Equity in extraordinary item of affiliate                                             -           7,663
-------------------------------------------------------------------------------------------------------------
Net loss                                                                             $(13,087)       $ (9,806)
=============================================================================================================

Basic and diluted income (loss) per share:
      Loss from continuing operations                                                $  (0.90)       $  (1.02)
      Discontinued operations                                                               -               -
      Extraordinary items                                                                0.14            0.46
-------------------------------------------------------------------------------------------------------------
Loss per share                                                                       $  (0.76)       $  (0.56)
=============================================================================================================

Average number of common shares outstanding - basic and diluted                        17,276          17,649
-------------------------------------------------------------------------------------------------------------

Comprehensive loss                                                                   $(13,091)       $(11,871)
=============================================================================================================
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       2
<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                        December 31,             March 31,
(in thousands of dollars)                                                                   2001                    2001
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                     <C>
ASSETS
Current assets
         Cash and cash equivalents                                                       $   7,002                $ 13,666
         Receivables - net                                                                     232                     364
         Other current assets                                                                  696                   2,459
---------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                         7,930                  16,489

Investment in affiliates                                                                     1,416                  14,037

Property and equipment                                                                         163                     163
         Less accumulated depreciation and amortization                                        130                     112
---------------------------------------------------------------------------------------------------------------------------------
Net property and equipment                                                                      33                      51

Other assets                                                                                21,197                  22,251
---------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                             $  30,576               $  52,828
=================================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
         Accounts payable                                                                $     711               $     960
         Other accrued liabilities                                                           1,199                   1,804
         Long-term debt due within one year                                                 12,584                       -
---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                   14,494                   2,764
Long-term debt                                                                                   -                  20,915
Other long-term liabilities                                                                  8,290                   8,418
Minority interest                                                                              251                       -
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                                                  (65)                    (61)
         Accumulated deficit                                                              (180,606)               (167,519)
---------------------------------------------------------------------------------------------------------------------------------
                                                                                            12,695                  25,786
         Less equity in cost of common stock of the Corporation
                             held by Phar-Mor, Inc.                                         (5,154)                 (5,055)
---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                   7,541                  20,731
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                               $  30,576               $  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 nine months
                                                                                        ended December 31,
                                                                                   ---------------------------
(in thousands of dollars)                                                             2001             2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>
Cash flows from operating activities:
Net loss                                                                           $ (13,087)        $ (9,806)
Adjustments to reconcile net loss to net cash
     provided (used) by operating activities:
     Equity in loss of affiliates                                                     14,202            5,083
     Depreciation and amortization                                                        18               19
     Loss on investments                                                                 171              340
     Other non-cash expense items, net                                                    39              906
     Gain on extinguishment of debt                                                   (2,476)            (384)
     Minority interest                                                                   (96)               -
     Cash provided (used) by working capital items:
        Receivables                                                                      189              400
        Other assets                                                                    (283)          11,700
        Accounts payable and accrued liabilities                                      (1,319)          (2,376)
--------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities                                      (2,642)           5,882
--------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of investments                                                          (1,381)          (2,504)
     Proceeds from sale of investments                                                 3,959            9,005
     Other                                                                               414                -
--------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities                                              2,992            6,501
--------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Contributions by minority interest to consolidated subsidiary                        41                -
     Debt repurchases                                                                 (7,055)          (1,587)
--------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities                                                 (7,014)          (1,587)
--------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                  (6,664)          10,796
     Cash and cash equivalents, beginning of period                                   13,666           10,754
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                            $  7,002         $ 21,550
====================================================================================================================
</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<Page>

                      AVATEX CORPORATION AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 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.
The Company owns 48% of Phar-Mor, Inc. ("Phar-Mor") which operates 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 December 31,
2001, the condensed consolidated statements of operations and comprehensive
income (loss) for the three and nine months ended December 31, 2001 and 2000,
and the condensed consolidated statements of cash flows for the nine months
ended December 31, 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 nine  months ended
December 31, 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 nine months ended
December 31, 2001 and for the three and nine months ended December 31, 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 three and nine
months ended December 31, 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  income (loss)
and net income (loss) is due to the change in the components of other
comprehensive income (loss), the details of which follow (in thousands of
dollars):

<Table>
<Caption>
                                                For the three months ended    For the nine months ended
                                                       December 31,                  December 31,
                                                       2001          2000           2001        2000
---------------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>          <C>           <C>
Unrealized gains (losses) on  securities           $   (695)       $  (18)       $  (687)     $  1,381
Reclassification adjustment for losses
  (gains) included in net income (loss)                 693             -            683        (3,411)
---------------------------------------------------------------------------------------------------------
Net unrealized losses                                    (2)          (18)            (4)       (2,030)
---------------------------------------------------------------------------------------------------------

Minimum pension liability adjustment                      -             -              -           (35)
---------------------------------------------------------------------------------------------------------
Total other comprehensive loss                     $     (2)       $  (18)       $    (4)     $ (2,065)
=========================================================================================================
</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 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 December 31, 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 December 31, 2001 and its 47.1% ownership interest at
March 31, 2001 in the cost

                                       6
<Page>

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 2,378,164 and 2,104,334 for the
three months ended December 31, 2001 and 2000, respectively, and 2,361,799
and 1,988,260 for the nine months ended December 31, 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 nine month periods ended December 31, 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 December 31, 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 common stock at $2.25 per share were
outstanding at December 31, 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 nine months ended
                                                                                    December 31,
                                                                             2001                  2000
----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                    <C>
Interest paid                                                               $1,246               $  1,896
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>
                                                        December 31,      March 31,
                                                            2001            2001
-------------------------------------------------------------------------------------
<S>                                                   <C>                <C>
Other assets:
     Prepaid pension cost                                 $  14,791      $   14,183
     Securities available for sale                            3,606           4,304
     Other investments, at cost                                  78           1,288
     Cash surrender value of life insurance                   2,011           1,782
     Accrued dividends on preferred stock                       633             430
     Other                                                       78             264
-------------------------------------------------------------------------------------
          Total                                           $  21,197      $   22,251
=====================================================================================

Other accrued liabilities:
     Accrued interest payable                             $      43      $      517
     Liabilities related to discontinued operations             445             428
     Salaries, wages and employee benefits                      510             608
     Other                                                      201             251
-------------------------------------------------------------------------------------
          Total                                            $  1,199      $    1,804
=====================================================================================

Other long-term liabilities:
     Pension and postretirement benefits                  $   4,649      $   4,812
     Environmental liabilities                                1,188          1,153
     Liabilities related to discontinued operations             453            453
     Liabilities for potential claims                         2,000          2,000
-------------------------------------------------------------------------------------
          Total                                            $  8,290       $  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 December 31, 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

                                       8
<Page>

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 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 filed a lawsuit against McKesson Corporation ("McKesson") and
certain pharmaceutical manufacturers in January 1997 related to the actions
the Company alleged they took to drive our pharmaceutical distribution
subsidiary, FoxMeyer Drug Company, out of business. The Company previously
settled with the various pharmaceutical manufacturers and, in December 2001,
the Company settled with McKesson. After payment of contingent attorneys'
fees and other expenses and the distributions described below, the Company
retained $2.6 million in the current fiscal year relating to the litigation.
Under the terms of the June 1999 merger agreement between the Company and
Xetava Corporation, certain of the Company's former preferred stockholders
had elected to exchange their preferred shares for cash, notes, warrants and
a deferred contingent cash right. The deferred contingent cash right entitled
the former shareholders to a percentage of the Company's net recovery in the
McKesson litigation. The amount distributed to these stockholders in December
2001 was approximately $0.4 million. In addition, in fiscal 1998, the Company
granted certain current and former employees awards under its Performance
Incentive Plan relating to the litigation. The amount distributed to the
current and former employees in December 2001 was 17.5% of the net proceeds
of the litigation or approximately $0.4 million.

    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. All of the cases have been dismissed at
least once, and the plaintiffs have appealed the dismissal orders. As a
result of the liquidation proceedings involving United Pacific Insurance
Company ("UPIC"), as discussed below, we are paying the appeal costs of
certain 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 direc-

                                       9
<Page>

tor-defendants in this lawsuit with covenants not to execute. The Company has
paid 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 UPIC, which is a subsidiary of Reliance. The May 29, 2001 order stated,
among other things, that Reliance and UPIC were 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.

    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 other 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 nine months ended December 31, 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 face value of the remaining notes is approximately $14.3 million.

    The extraordinary items for the extinguishment of debt for the three and
nine months ended December 31, 2000 represent gains on the early
extinguishment of $0.6 million and $2.7 million face value, respectively, of
the 6.75% notes of Avatex Funding. The notes were purchased for $0.3 million
and $1.6 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 December 31, 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 quarter ended September 30, 2001, 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.

                                       10
<Page>

    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 (expense)" for the nine months ended December 31, 2001. The Company
has subsequently sold all the WD-40 Company shares it received for a gain of
approximately $10 thousand.

    During the quarter ended December 31, 2001, the Company wrote down its
investment in ILife Systems, Inc. ("ILife") by $2.1 million to reflect an
other than temporary decline in the value of the investment. ILife is
undergoing certain structural changes which have decreased the value of the
Company's investment. As part of the restructuring, the Company loaned an
additional $0.2 million to a newly formed subsidiary of ILife in January 2002.

    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
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. 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.

                                       11
<Page>

    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 nine months ended December 31, 2001 (in thousands of dollars):

<Table>
<Caption>
                                                            For the nine months ended
                                                                  December 31,
------------------------------------------------------------------------------------------
                                                        As reported        Pro forma
------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>
Loss from continuing operations before equity in
     loss of affiliates and minority interest             $  (1,505)     $  (1,513)
Equity in loss of affiliates                                (14,202)       (17,643)
Loss from continuing operations before minority
     interst                                                (15,707)       (19,156)
Minority interest                                                96          3,534
Loss from continuing operations                             (15,611)       (15,622)
Loss before extraordinary items                             (15,563)       (15,574)
Net loss                                                    (13,087)       (13,098)
Basic and diluted loss per share:
     Loss from continuing operations                      $   (0.90)     $   (0.90)
     Discontinued operations                                      -              -
     Extraordinary items                                       0.14           0.14
     Loss per share                                       $   (0.76)     $   (0.76)
==========================================================================================
</Table>

There is no impact on the reported amounts for the three months ended
December 31, 2001 as these amounts reflect the increase in our voting rights
during the whole period.

    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 nine month
periods ended December 31, 2000 (in thousands of dollars):

<Table>
<Caption>
                                                     For the three months ended   For the nine months ended
                                                          December 31, 2000            December 31, 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       $  (1,021)     $ (1,036)     $  (5,107)     $ (5,152)
Equity in loss of affiliates                              (3,874)       (3,996)       (12,746)      (13,100)
Loss from continuing operations before minority
     interest                                             (4,895)       (5,032)       (17,853)      (18,252)
Minority interest                                              -           120              -           360
Loss from continuing operations                           (4,895)       (4,912)       (17,853)      (17,892)
Net income (loss)                                          2,696         2,679         (9,806)       (9,845)
Basic and diluted loss per share:
     Loss from continuing operations                   $   (0.28)     $  (0.28)     $   (1.02)     $  (1.02)
     Discontinued operations                                   -             -              -             -
     Extraordinary items                                    0.43          0.43           0.46          0.46
     Income (loss) per share                           $    0.15     $    0.15      $   (0.56)     $  (0.56)
=============================================================================================================
</Table>

    In addition, CLAC made additional investments in Chemlink of $0.2 million
at the end of December 2001 (of which $41 thousand was contributed by the
minority interest in CLAC). This contribution did not change the percentage
voting rights of CLAC in Chemlink and did not materially change the Company's
voting rights in CLAC.

                                       12
<Page>

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. In addition, the 6.75% notes issued by Avatex Funding, and
guaranteed by the Company, mature in December 2002 and are now classified as
current liabilities. The Company had previously anticipated that its lawsuit
against McKesson and others, as described in Note 4, and its 48% ownership
interest in Phar-Mor, as described in Note 6, might generate funds to assist
in funding the payoff of the 6.75% notes in December 2002. During the quarter
ended December 31, 2001, however, the Company settled the McKesson lawsuit
which resulted in the Company retaining approximately $2.6 million after
payment of contingent litigation and other expenses and distributions. Also,
as previously reported, Phar-Mor filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in September 2001. Finally, the $14.8
million in prepaid pension costs included in the amount of "Other assets" at
December 31, 2001 cannot be converted into funds that would be available to
the Company.

    The Company had adequate funds at December 31, 2001 to meet its
obligations then due and believes it has adequate funds to continue to pay
its debts as they become due until the maturity date of the 6.75% notes in
December 2002. As discussed above, it is unlikely that any value exists in
the McKesson litigation or in the Company's ownership interest in Phar-Mor
beyond the amount the Company already received in the McKesson settlement.
Therefore, the assets of the Company may be inadequate to repay the notes in
full at maturity in December 2002.

    Management of the Company continues to investigate strategies and
alternatives to address these issues. In addition, the Company will continue
its vigorous defense of the remaining litigation until those matters are
finally resolved. There is no assurance, however, that the Company will be
able to resolve its lawsuits in a favorable manner, or that any of the
Company's investments will produce adequate returns to overcome the Company's
operating losses and provide adequate funds for debt repayment or future
operations. Finally, there is no assurance that the Company will be able to
continue to buy back its debt at substantial discounts to face value or that
it will be able to renegotiate the terms on its debt to prevent a default on
that debt.

    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.











                                       13
<Page>

                       AVATEX CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                DECEMBER 31, 2001
                             (DOLLARS IN THOUSANDS)

OVERVIEW

    Avatex  Corporation is a holding company that, along with its
subsidiaries, owns interests in other corporations and partnerships. We own
48% of Phar-Mor which operates 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.

    We filed a lawsuit against McKesson and certain pharmaceutical
manufacturers in January 1997 related to the actions we alleged they took to
drive our pharmaceutical distribution subsidiary, FoxMeyer Drug Company, out
of business. We previously settled with the various pharmaceutical
manufacturers and, in December 2001, we settled with McKesson. After payment
of contingent attorneys' fees and other expenses and the distributions
described below, we retained approximately $2,561 in the current fiscal year
relating to the litigation. Under the terms of the June 1999 merger agreement
between us and Xetava Corporation, certain of our former preferred
stockholders had elected to exchange their preferred shares for cash, notes,
warrants and a deferred contingent cash right. The deferred contingent cash
right entitled the former shareholders to a percentage of our net recovery in
the McKesson litigation. The amount distributed to these stockholders in
December 2001 was approximately $386. In addition, in fiscal 1998, we granted
certain current and former employees awards under our Performance Incentive
Plan relating to the litigation. The amount distributed to current and former
employees in December 2001 was 17.5% of the net proceeds of the litigation or
approximately $401.

    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 nine months ended December 31, 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.

                                       14
<Page>

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE AND NINE
MONTHS ENDED DECEMBER 31, 2000

GAIN ON SETTLEMENT OF LEGAL ACTION

    Gain on settlement of legal action for all periods reflects the net
proceeds received from our settlement with McKesson in fiscal year 2002 and
with certain pharmaceutical manufacturers in fiscal year 2001 after certain
contingent legal and other expenses paid directly from the settlement. See
the discussion above.

OPERATING COSTS

    Total operating costs including depreciation and amortization decreased
$632 to $640 for the three months ended December 31, 2001 compared to $1,272
for the three months ended December 31, 2000. Operating costs decreased
primarily as a result of a decrease in legal expenses of $387, a decrease of
$84 in travel expenses and a decrease of $161 in other expenses principally
from the settlement of the McKesson litigation.

    Total operating costs decreased $1,704 to $2,528 for the nine months
ended December 31, 2001 compared to $4,232 for the nine months ended December
31, 2000. Operating costs decreased primarily as a result of decreased legal
expenses of $1,695, a decrease in travel expenses of $102 and a decrease in
other expenses of $242 principally from a franchise tax refund and the
settlement of the McKesson litigation. These were partially offset by an
increase of $335 in expenses related to our pension plans.

OTHER INCOME (EXPENSE)

    Other expense of $1,844 for the three months ended December 31, 2001 was
primarily due to a loss of $2,094 for the decline in value of our investment
in ILife partially offset by a gain of $242 related to a payment received on
a receivable written off in a prior year. Other income was $8 for the three
months ended December 31, 2000.

    Other expense of $149 for the nine months ended December 31, 2001 was
primarily due to a loss of $2,094 for the decline in value of our investment
in ILife partially offset by $566 of gains on the sale of securities and
investments and $1,357 in payments received on assets sold or written off in
prior fiscal years. Other income of $7 for the nine months ended December 31,
2000 was due primarily to gains on the sale of our investment in Carson, Inc.
of $3,411 and on a payment received on an asset written off in a prior fiscal
year of $325, offset by the $3,751 write-down of our investment in Phar-Mor.

INTEREST AND DIVIDEND INCOME

    Interest and dividend income decreased $371 to $176 for the three months
ended December 31, 2001 compared to $547 for the three months ended December
31, 2000. The decrease was due to a decline of $328 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 $56 in interest on notes receivable which
were either redeemed or converted to preferred stock. Dividend income
increased $13 as compared to the prior year primarily from earning a higher
dividend rate on the preferred stock of RAS Holding Corp. ("RAS") and from
the additional investment we made in the preferred stock of ILife less the
impact of the sale of the preferred stock of HPD.

    Interest and dividend income decreased $900 to $631 for the nine months
ended December 31, 2001 compared to $1,531 for the nine months ended December
31, 2000. The decrease was due to a decline of $812 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 $161 in interest on notes receivable which
were either redeemed or

                                       15
<Page>

converted to preferred stock. Dividend income increased $73 as compared to
the prior year primarily from earning a higher dividend rate on the preferred
stock of RAS and from the additional investment we made in the preferred
stock of ILife less the impact of the sale of the preferred stock of HPD.

INTEREST EXPENSE

    Interest expense decreased $644 to $640 for the three months ended
December 31, 2001 from $1,284 for the three months ended December 31, 2000.
Interest expense decreased $1,765 to $2,020 for the nine months ended
December 31, 2001 compared to $3,785 for the nine months ended December 31,
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 $11,744 face value of the 6.75% notes of Avatex Funding.

EQUITY IN LOSS OF AFFILIATES

    Equity in loss of affiliates was $169 for the three months ended December
31, 2001 compared to equity in loss of affiliates of $3,874 for the three
months ended December 31, 2000. The $3,705 decrease in our equity loss of
affiliates was due to the following:

     (i)   Our equity in Phar-Mor's loss was $3,787 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 prior quarters of fiscal 2002. As a result, we did
           not recognize any additional losses in the current quarter (see
           Note 6 to the condensed consolidated financial statements).

     (ii)  We did not recognize an equity loss in CLAC in the current quarter
           compared to a loss of $91 in the prior year due to the consolidation
           of CLAC effective September 2001 (see Note 6 to the condensed
           consolidated financial statements).

     (iii) We recognized an equity loss of $173 from our investment in Chemlink
           for the current quarter as a result of CLAC being consolidated since
           September 1, 2001 (see Note 6 to the condensed consolidated financial
           statements).

     Equity in loss of affiliates was $14,202 for the nine months ended
December 31, 2001 compared to equity in loss of affiliates of $12,746 for the
nine months ended December 31, 2000. The $1,456 increase in our equity loss of
affiliates was primarily due to the following:

     (i)   Our equity in Phar-Mor's loss was $776 less than in the prior year.
           The decrease was due primarily to Phar-Mor's losses being recognized
           only until our basis was reduced to zero in the current year (see
           Note 6 to the condensed consolidated financial statements) compared
           to three quarters of losses in the prior year.

     (ii)  There was an increase in our equity loss of $2,128 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 $244 from our investment in Chemlink
           for the period since September 1, 2001 (see Note 6 to the condensed
           consolidated financial statements).

     (iv)  Our equity loss from other investments decreased by $140 primarily
           from losses incurred in the prior year from our investment in
           Cyclone Acquisition Company, LLC.

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.

                                       16
<Page>

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 quarter and for the year-to-date period since September 2001 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 nine months ended December
31, 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 nine months ended December 31, 2001. We recognized a gain of $100
and $384 on the purchase and subsequent cancellation of $579 and $2,651 face
value, respectively, of the 6.75% notes during the three and nine months
ended December 31, 2000. We also recognized our equity in Phar-Mor's gain on
the early extinguishment of its debt of $7,491 for the three months and
$7,663 for the nine months ended December 31, 2000.

                         LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 2001, we had cash and cash equivalents of
approximately $7,002. During the nine months ended December 31, 2001, we
purchased $1,267 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 $2,602 and received $1,357 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.
However, dividends on the preferred stock of RAS and ILife have never been
paid in cash and may continue to be deferred.

    We will likely continue to report operating losses, which together with
the remaining pending litigation, as discussed in Note 4 to the condensed
consolidated financial statements, continue to raise substantial doubt as to
our ability to continue as a going concern. In addition, the 6.75% notes
issued by Avatex Funding, and guaranteed by us, mature in December 2002 and
are now classified as current liabilities. We had previously anticipated that
our lawsuit against McKesson and others, as described in Note 4, and our 48%
ownership interest in Phar-Mor, as described in Note 6, might generate funds
to assist in funding the payoff of the 6.75% notes in December 2002. During
the quarter ended December 31, 2001, however, we

                                       17
<Page>

settled the McKesson lawsuit which resulted in our retaining approximately
$2,561 after payment of contingent litigation and other expenses and
distributions. Also, as previously reported, Phar-Mor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in September
2001. Finally, the $14,791 in prepaid pension costs included in the amount of
"Other assets" at December 31, 2001 cannot be converted into funds that would
be available to us.

    We had adequate funds at December 31, 2001 to meet our obligations then
due and believe we have adequate funds to continue to pay our debts as they
become due until the maturity date of the 6.75% notes in December 2002. As
discussed above, it is unlikely that any value exists in the McKesson
litigation or in our ownership interest in Phar-Mor beyond the amount we
already received in the McKesson settlement. Therefore, our assets may be
inadequate to repay the notes in full at maturity in December 2002.

    The principal development stage companies in which we have invested are
RAS, Chemlink and ILife. None of these companies has yet reached a stage
where cash flows from ongoing operations are positive. Each of these
companies has had to meet its respective liquidity needs by raising
additional capital. No assurances can be made that they will either be
successful in generating positive operational cash flows or in raising
additional capital if needed. Additionally, while these companies had minimal
revenues during their latest fiscal year, none have yet been successful in
firmly establishing products in its respective market.

    Our management continues to investigate strategies and alternatives to
address these issues. In addition, we will continue our vigorous defense of
the remaining litigation until those matters are finally resolved. There is
no assurance, however, that we will be able to resolve our lawsuits in a
favorable manner, or that any of our investments will produce adequate
returns to overcome our operating losses and provide adequate funds for debt
repayment or future operations. Finally, there is no assurance that we will
be able to continue to buy back our debt at substantial discounts to face
value or that we will be able to renegotiate the terms on our debt to prevent
a default on that debt.

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

                                     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.

    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-

                                       18
<Page>

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 strategies to continue as a going
concern. Management believes that assets may be inadequate to fund the payoff
of the 6.75% notes when they mature in December 2002 and that we may be
unable to develop any strategies that will allow the Company to operate after
that date. 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

    Certain material changes have taken place which have changed the values
reported in Item 7A. of the Form 10-K for the year ended March 31, 2001. We
sold our preferred stock and debentures related to HPD. The sale had the
effect of reducing the amount outstanding of 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. We also believe the fair value of the remaining $4,300
of fixed rate securities held for sale at March 31, 2001 has decreased to
approximately $3,600. All the other available for sale equity securities have
been sold.

     The carrying value of long-term debt maturing in fiscal year 2003
reported in Item 7A at December 31, 2001 decreased to $12,584 as a result of
the repurchase of $11,744 face value of Avatex Funding 6.75% notes during the
nine months ended December 31, 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
fair value of the long-term debt at December 31, 2001 is substantially below
its carrying value (see "Liquidity and Capital Resources" section above).



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                           PART II - OTHER INFORMATION

                       AVATEX CORPORATION AND SUBSIDIARIES

ITEM 1.  LEGAL

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

MCKESSON LITIGATION. In December 2001, we settled all of our claims against
McKesson Corporation ("McKesson") and all claims asserted by McKesson against
us and certain of our officers in the lawsuit we had filed against McKesson
and various pharmaceutical manufacturers in 1997. We had previously settled
with all of the other defendants 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. In addition, the
Zuckerman court granted the plaintiffs' unopposed motion to certify a class
of purchasers of common stock as to federal claims and reserved judgment on
all other class certification issues.

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 buyout amount, NAC
expects to receive a refund of approximately $316,000 in February 2002.

GREEN RIVER. On August 10, 2001, the Environmental Protection Agency ("EPA")
issued a special notice letter to various PRPs, including NAC, with respect
to the EPA's August 2001 record of decision for the Green River Disposal
site. The EPA and various PRPs, including NAC, are currently negotiating the
terms of a Consent Decree with respect to the special notice letter and
record of decision.

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. ("Ben Franklin") 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. Due to the
Reliance liquidation described above, we are paying the appeal costs of
certain individuals who are named as defendants in these lawsuits by reason
of the fact that they may have been serving at our request as a director or
officer of Ben Franklin.

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   EXHIBITS
                  None

         (b)   REPORTS ON 8-K

                  The following Current Report on Form 8-K was filed by us
         during the three months ended December 31, 2001:

                  Form 8-K dated December 7, 2001 announced the settlement of
         our lawsuit against McKesson Corporation.






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                                   SIGNATURES

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

                                  AVATEX CORPORATION



February 12, 2002            By:  /s/ Grady E. Schleier
                                  ----------------------------------------------
                                  Grady E. Schleier
                                  Senior Vice President, Chief Financial Officer
                                  and Treasurer
                                  (Principal Financial and Accounting Officer)


















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