<Page>

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

                                 FORM 10-Q/A

                               AMENDMENT NO. 1

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

             FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
                                    OR
   [   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934


                        COMMISSION FILE NUMBER 1-8549

                              AVATEX CORPORATION
        --------------------------------------------------------------
            (Exact Name of Registrant as Specified in its Charter)




                    DELAWARE                                  25-1425889
-----------------------------------------------------   ------------------------
          (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)


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


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



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

Number of shares of Common Stock outstanding as of July 31, 2001:  19,637,360
shares before deducting 2,364,382 shares which represent the Corporation's
47.8% equity interest in common stock of the Corporation owned by Phar-Mor,
Inc.



<Page>

EXPLANATORY NOTE

     This Amendment No. 1 on Form 10-Q/A of Avatex Corporation hereby amends,
in its entirety, the Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2001.  This amendment reflects the
restatement of our June 30, 2001 financial statements related to our equity
investment in Phar-Mor, Inc. ("Phar-Mor").

     On August 14, 2001 we issued our condensed consolidated financial
statements for the three months ended June 30, 2001.  These financial
statements included our equity in Phar-Mor's loss based on information
provided to us by Phar-Mor as of our filing date.  Subsequent to the issuance
of these financial statements, management determined that Phar-Mor had
recognized an additional loss of $33.0 million over the amount previously
reported to us which we understand was due to:

          -    a reduction in the value of goodwill of $11.1 million after a
               review of the results of stores acquired in an acquisition in
               1999,
          -    an increase in the valuation allowance of $9.6 million on its
               deferred tax asset because there was uncertainty as to its being
               able to realize its deferred tax asset, and
          -    a net reduction of $12.3 million in the value of its fixed
               assets related primarily to the closing of a number of its
               stores.

     Phar-Mor accounted for the impairment of the value of its goodwill and
fixed assets and the increase in the valuation allowance on its deferred tax
assets as fourth quarter adjustments for its fiscal year ending June 30,
2001.  As a result, we have restated our condensed consolidated financial
statements for the three months ended June 30, 2001 to recognize an
additional $7.9 million of equity in the losses of Phar-Mor, the amount
necessary to reduce our investment in Phar-Mor to zero.  We will not
recognize our equity in any additional losses of Phar-Mor except to the
extent of approximately $9 thousand as a result of additional investments we
made in Phar-Mor in July and August 2001.  Phar-Mor filed for bankruptcy
protection under Chapter 11 of the Bankruptcy Code on September 24, 2001.
Avatex Corporation did not file for bankruptcy and is not part of the
Phar-Mor bankruptcy proceeding except as it may relate to our investment in
the common stock of Phar-Mor.












                                       1

<Page>


                        PART 1.  FINANCIAL INFORMATION

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

<Table>
<Caption>
                                                                                           For the three months
                                                                                              ended June 30,
(in thousands, except per share amounts)                                                    2001         2000
----------------------------------------------------------------------------------------------------------------
                                                                                        As restated,
                                                                                        see Note 1
<S>                                                                                     <C>              <C>
OPERATING COSTS
     Operating costs, including general and administrative costs                        $  1,185         $   914
     Depreciation and amortization                                                             6               6
----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS                                                                     (1,191)           (920)
Other income                                                                               1,352               4
INTEREST AND DIVIDEND INCOME                                                                 253             466
INTEREST EXPENSE                                                                            (746)         (1,220)
----------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS BEFORE EQUITY IN LOSS OF AFFILIATES                                    (332)         (1,670)
Equity in loss of affiliates                                                             (11,678)         (5,121)
----------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS                                                          (12,010)         (6,791)
EXTRAORDINARY ITEMS:
      Gain on extinguishment of debt                                                       2,476             172
      Equity in extraordinary item of affiliates                                             -               172
----------------------------------------------------------------------------------------------------------------
NET LOSS                                                                                $ (9,534)        $(6,447)
================================================================================================================

BASIC AND DILUTED INCOME (LOSS) PER SHARE
     Loss before extraordinary items                                                    $  (0.69)        $ (0.38)
     Extraordinary items                                                                    0.14            0.02
----------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE                                                                      $  (0.55)        $ (0.36)
================================================================================================================

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

COMPREHENSIVE LOSS                                                                      $ (9,518)        $(6,230)
================================================================================================================

</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.









                                       2

<Page>

                     AVATEX CORPORATION AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

<Table>
<Caption>

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

INVESTMENT IN AFFILIATES                                                 2,976             14,037

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

OTHER ASSETS                                                            22,143             22,251
-------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                         $  33,546          $  52,828
=================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable                                                $     874          $     960
     Other accrued liabilities                                           1,267              1,804
     Long-term debt due within one year                                    -                  -
-------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                2,141              2,764
LONG-TERM DEBT                                                          11,824             20,915
OTHER LONG-TERM LIABILITIES                                              8,418              8,418
COMMITMENTS AND CONTINGENCIES                                              -                  -
STOCKHOLDERS' EQUITY
     Common stock $0.01 par value; authorized 50,000,000 shares;
        issued: 19,637,360 shares                                          196                196
     Capital in excess of par value                                    193,170            193,170
     Accumulated other comprehensive loss                                  (45)               (61)
     Accumulated deficit                                              (177,053)          (167,519)
-------------------------------------------------------------------------------------------------
                                                                        16,268             25,786
     Less: equity in cost of common stock of the Corporation
          held by Phar-Mor, Inc.                                        (5,105)            (5,055)
-------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                              11,163             20,731
-------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $  33,546          $  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 three months
                                                                    ended June 30,
(in thousands of dollars)                                        2001            2000
---------------------------------------------------------------------------------------
                                                             As restated,
                                                              see Note 1
<S>                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                       $(9,534)         $(6,447)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
     PROVIDED (USED) BY OPERATING ACTIVITIES:
     Equity in loss of affiliates                               11,678            4,949
     Depreciation and amortization                                   6                6
     Gain on investments                                        (1,345)             -
     Other non-cash expense items, net                             162              261
     Gain on extinguishment of debt                             (2,476)            (172)
     Cash provided (used) by working capital items:
        Receivables                                                206              541
        Other assets                                               (66)          11,688
        Accounts payable and accrued liabilities                  (713)          (2,100)
---------------------------------------------------------------------------------------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                (2,082)           8,726
---------------------------------------------------------------------------------------

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

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

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

</Table>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.





                                       4

<Page>

                     AVATEX CORPORATION AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2001
                                 (UNAUDITED)

NOTE 1 - RESTATEMENT

     On August 14, 2001 we issued our condensed consolidated financial
statements for the three months ended June 30, 2001.  These financial
statements included our equity in Phar-Mor's loss based on information
provided to us by Phar-Mor as of our filing date.  Subsequent to the issuance
of these financial statements, management determined that Phar-Mor had
recognized an additional loss of $33.0 million over the amount previously
reported to us which we understand was due to:

          -    a reduction in the value of goodwill of $11.1 million after a
               review of the results of stores acquired in an acquisition in
               1999,
          -    an increase in the valuation allowance of $9.6 million on its
               deferred tax asset because there was uncertainty as to its being
               able to realize its deferred tax asset, and
          -    a net reduction of $12.3 million in the value of its fixed
               assets related primarily to the closing of a number of its
               stores.

     Phar-Mor accounted for the impairment of the value of its goodwill and
fixed assets and the increase in the valuation allowance on its deferred tax
assets as fourth quarter adjustments for its fiscal year ending June 30,
2001.  As a result, we have restated our condensed consolidated financial
statements for the three months ended June 30, 2001 to recognize an
additional $7.9 million of equity in the losses of Phar-Mor, the amount
necessary to reduce our investment in Phar-Mor to zero.  We will not
recognize our equity in any additional losses of Phar-Mor except to the
extent of approximately $9 thousand as a result of additional investments we
made in Phar-Mor in July and August 2001.  Phar-Mor filed for bankruptcy
protection under Chapter 11 of the Bankruptcy Code on September 24, 2001 (see
Note 7).  Avatex Corporation did not file for bankruptcy and is not part of
the Phar-Mor bankruptcy proceeding except as it may relate to our investment
in the common stock of Phar-Mor.

     A summary of the significant effects of the restatement is as follows
(in thousands of dollars, except per share amounts):

<Table>
<Caption>

                                                    As Previously
                                                      Reported      As Restated
--------------------------------------------------------------------------------
<S>                                                 <C>             <C>
At June 30, 2001:
--------------------------------------------------------------------------------
     Investment in affiliates                        $  10,833       $   2,976
--------------------------------------------------------------------------------
     Total assets                                       41,403          33,546
--------------------------------------------------------------------------------
     Accumulated deficit                              (169,196)       (177,053)
--------------------------------------------------------------------------------
     Total stockholders' equity                         19,020          11,163
--------------------------------------------------------------------------------
For the three months ended June 30, 2001:
--------------------------------------------------------------------------------
      Equity in loss of affiliates                   $  (3,821)      $ (11,678)
--------------------------------------------------------------------------------
      Loss before extraordinary items                   (4,153)        (12,010)
--------------------------------------------------------------------------------
      Net loss                                          (1,677)         (9,534)
--------------------------------------------------------------------------------
Basic and diluted loss per share
     for the three months ended June 30, 2001:
--------------------------------------------------------------------------------
     Loss before extraordinary items                 $   (0.24)      $   (0.69)
--------------------------------------------------------------------------------
     Loss per share                                      (0.10)          (0.55)
--------------------------------------------------------------------------------

</Table>



                                       5

<Page>

NOTE 2 - 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, our 48%-owned affiliate, we are involved in operating a
chain of discount retail drugstores. Through Phar-Mor and Chemlink
Acquisition Company, LLC ("CLAC"), we own approximately 38%, and control 50%,
of the membership interests of Chemlink Laboratories, LLC ("Chemlink").
Chemlink is primarily engaged in the development, manufacture and
distribution of effervescent tablet and granule formulations for consumers
and businesses for use in cleaning, disinfecting and sterilization
applications.

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

     These financial statements have been prepared on a going concern basis
that contemplates the realization of our assets and the settlement of our
liabilities and commitments in the normal course of business. See Note 8 for
a discussion of our ability to continue as a going concern and our plans for
addressing those issues.

     Our condensed consolidated balance sheet as of June 30, 2001, the
condensed consolidated statements of operations and comprehensive loss for
the three months ended June 30, 2001 and 2000, and the condensed consolidated
statements of cash flows for the three months ended June 30, 2001 and 2000,
are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements,
and include all adjustments necessary for the fair presentation of financial
position, results of operations and cash flows. Such adjustments were of a
normal recurring nature. The results of operations for the three months
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the entire year. The condensed consolidated balance sheet as of
March 31, 2001 was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting principles.
Additional information is contained in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the fiscal year ended March
31, 2001, and should be read in conjunction with this quarterly report.

EXTRAORDINARY ITEMS:  The extraordinary item for the three months ended June
30, 2001 represents gains realized on the early extinguishment of
approximately $11.7 million face value of the 6.75% notes issued by our
subsidiary, Avatex Funding, Inc. ("Avatex Funding"), which were purchased by
us in the open market. The extraordinary item for the three months ended
June 30, 2000 represents gains realized on the early extinguishment of
approximately $1.4 million face value of the 6.75% notes. See Note 6. Equity
in extraordinary item of affiliates represents our equity in Phar-Mor's gain
on the early extinguishment of its debt.

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





                                       6

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

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

</Table>


NEWLY ISSUED ACCOUNTING STANDARDS:  In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141 "Business Combinations" and SFAS
No.142 "Goodwill and Other Intangible Assets". 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 accounted for by the
purchase method of accounting 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
have not yet determined the impact, if any, that these statements will have
on our financial position or results of operations.

COMMON STOCK OF AVATEX CORPORATION HELD BY AN AFFILIATE:  Phar-Mor currently
owns 4,948,600 shares or 25.2% of our issued Class A common stock. We account
for our investment in Phar-Mor on an equity basis and treat Phar-Mor's
investment in our common stock similar to treasury stock, with a reduction
in our stockholders' equity of approximately $5.1 million at June 30, 2001
(the equivalent of 2,355,281 shares of our common stock) and $5.1 million at
March 31, 2001 (the equivalent of 2,332,241 shares of our  common stock). The
reduction was based on our 47.6% ownership interest at June 30, 2001 and our
47.1% ownership interest at March 31, 2001 in the cost and number of shares
of our common stock held by Phar-Mor.

     In addition, the weighted average number of shares outstanding used in
calculating earnings per share was reduced by 2,340,747 and 1,900,263 for the
three months ended June 30, 2001 and 2000, respectively. The reduction was
equal to our ownership interest in our common stock since its acquisition by
Phar-Mor.

NOTE 3 - INCOME (LOSS) PER SHARE OF COMMON STOCK

     The loss per share before extraordinary items for basic and diluted
earnings per share was calculated by dividing the loss before extraordinary
items for the three month period ended June 30, 2001 and 2000, respectively,
by the weighted average number of common shares outstanding. The weighted
average number of shares outstanding was reduced by our equity in the number
of shares of our stock held by Phar-Mor as explained in Note 2.

     Options to purchase approximately 3.9 million shares of common stock
outstanding during the three month periods ended June 30, 2001 and 2000 were
not included in the computation of diluted earn-

                                       7

<Page>

ings per share because the average market price of our common stock was less
than the exercise price of the options or the effect of including the options
in the calculation would be anti-dilutive. Warrants to purchase
approximately 2.3 million shares of our Class A common stock at $2.25 per
share were outstanding at June 30, 2001 and 2000. These warrants were not
included in the computation of diluted earnings per share because the average
market price of our common stock was less than the exercise price of the
warrants.

NOTE 4 - SUPPLEMENTAL CASH FLOW AND BALANCE SHEET INFORMATION

     The following supplemental cash flow information is provided for
interest and income taxes paid and for non-cash transactions (in thousands of
dollars):

<Table>
<Caption>

                                                        For the three months ended
                                                                   June 30,
                                                                2001      2000
----------------------------------------------------------------------------------
<S>                                                     <C>               <C>
Interest paid                                                  $ 764      $ 993
Income taxes paid                                                  -          -
Non-cash transactions:
     Stock of WD-40 Company received on sale of an investment     45          -
----------------------------------------------------------------------------------

</Table>

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

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

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

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


</Table>

NOTE 5 - COMMITMENTS AND CONTINGENCIES

     We have retained responsibility for certain potential environmental
liabilities attributable to former operating units. We are subject to
federal, state and local environmental laws, rules and regulations, including
the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended, and similar state superfund statutes related to sites of
these former operating units. These statutes generally impose joint and
several liability on present and former owners and operators, transporters
and generators for remediation of contaminated properties regardless of
fault. We and our subsidiaries received

                                       8

<Page>

various claims and demands from governmental agencies relating to
investigations and remedial actions to address environmental clean-up costs
and in some instances have been designated as a potentially responsible
party by the Environmental Protection Agency.

     At June 30, 2001, we had reserves of approximately $1.2 million for
environmental assessments, remediation activities, penalties or fines at
seven sites that may be imposed for non-compliance with such laws or
regulations. Reserves are established when it is probable that liability for
such costs will be incurred and the amount can be reasonably estimated. Our
estimates of these costs are based upon currently available facts, existing
technology, presently enacted laws and regulations and the professional
judgment of consultants and counsel. Where the available information is
sufficient to estimate the amount of the liability, that estimate has been
used. Where the information is only sufficient to establish a range of
probable liability and no point within the range is more likely than the
other, the lower end of the range was used.

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

     We and certain of our current and former officers and directors have
been named in a series of purported class action lawsuits that were filed and
subsequently consolidated under ZUCKERMAN, ET AL. V. FOXMEYER HEALTH
CORPORATION, ET AL., in the United States District Court for the Northern
District of Texas, Dallas Division, Case No. 396-CV-2258-T. The lawsuit
purports to be brought on behalf of purchasers of our common and formerly
outstanding preferred stocks during the period July 19, 1995 through August
27, 1996. In May 1997, plaintiffs in the lawsuit filed a consolidated amended
class action complaint, which alleges that we and the defendant officers and
directors made misrepresentations of material facts in public statements or
omitted material facts from public statements, including the failure to
disclose purportedly negative information concerning our National
Distribution Center and Delta computer systems and the resulting impact on
our existing and future business and financial condition. In March 1998, the
court denied our motion to dismiss the amended complaint in the lawsuit. We
intend to continue to vigorously defend ourselves in the lawsuit. We are
unable at this time to estimate the possible loss, if any, which may accrue
from this lawsuit.

     In 1997, the bankruptcy trustee and certain creditors of our former
17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben Franklin"),
filed lawsuits against us, certain former officers and directors of Ben
Franklin and certain of our current and former officers and directors. We
along with our officers and directors have since been dropped as defendants
in the lawsuits. In connection with paying our own defense costs and those of
our officers and directors, we also initially paid a portion of the defense
costs of certain individuals who are named as defendants in these lawsuits by
reason of the fact that they may have been serving at our request as a
director or officer of Ben Franklin. The bankruptcy trustee and creditors of
Ben Franklin are still litigating these cases against the remaining
defendants. If liability is ever imposed in any of the lawsuits, we may, if
appropriate, agree at a future date to indemnify certain of the remaining
defendants in the lawsuit in accordance with Delaware law. We are unable to
estimate the possible loss, if any, which may accrue from these lawsuits.

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

                                       9

<Page>

or officer of FoxMeyer. In September 1999, the Delaware Bankruptcy Court
entered an order establishing procedures for a joint insolvency trial in the
lawsuit and in certain other lawsuits brought by the Trustee against other
persons and entities related to the FoxMeyer bankruptcy cases.

     In June 2001, we received a copy of an order entered by a Pennsylvania
state court with respect to Reliance Insurance Company ("Reliance"). Our
primary directors and officers' liability insurance carrier for the
three-year period ending on or about April 25, 1998 was United Pacific
Insurance Company  ("UPIC"), which is a subsidiary of Reliance. The May 29,
2001 order stated, among other things, that Reliance is being placed into
"Rehabilitation" under Pennsylvania's Insurance Department Act, and that all
actions pending against Reliance and/or UPIC, such as the lawsuit filed by
UPIC against us and the lawsuit filed by the Trustee against UPIC and us, are
stayed. The May 29, 2001 order also stated that all actions pending against
an insured of Reliance and/or UPIC, such as the Zuckerman lawsuit, are stayed
for at least 60 days. On August 2, 2001, the Pennsylvania state court entered
an order stating that all actions and proceedings in certain specified
cases, including the Zuckerman lawsuit, should be stayed for 180 days from
the date of the order, and that the order constituted the court's request for
comity in the extension of the stay by courts outside of Pennsylvania and the
federal courts. We cannot estimate at this time the impact, if any, which
might result from Reliance being placed into Rehabilitation on any of our
litigation.

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

NOTE 6 - DEBT

     The extraordinary item for the three months ended June 30, 2001 and
2000, represents gains realized on the early extinguishment of approximately
$11.7 million and $1.4 million face value, respectively, of the 6.75% notes
issued by our subsidiary, Avatex Funding, which were purchased by us in the
open market. The notes were purchased for approximately $7.1 million and $0.8
million, respectively. The gains of $2.5 million and $0.2 million,
respectively, represent the difference in the purchase price and the
discounted carrying value of the notes at the time of purchase. The remaining
principal amount of the notes is approximately $14.3 million.

NOTE 7 - INVESTMENTS

     We purchased an additional 57,000 shares of Phar-Mor common stock in the
open market during the three month period ended June 30, 2001 for less than
$0.1 million, which brings our ownership percentage to approximately 47.6%
at June 30, 2001 from 47.1% at March 31, 2001. As a result of the increase in
our equity ownership, the amount and number of shares of our common stock
held by Phar-Mor that are considered treasury stock has also increased (see
Note 2).

     The carrying value of Phar-Mor on our books at June 30, 2001 was reduced
to zero as a result of its losses during this quarter. The market value of
our investment, based on Phar-Mor's closing price at June 29, 2001, of $0.90
on the NASDAQ National Market, was $5.2 million. Phar-Mor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code on September 24,
2001. We are unable to currently determine the market value of our holdings
in Phar-Mor common stock.

     During the three months ended June 30, 2001, we also invested an
additional $0.6 million in CLAC in exchange for a Series B membership in CLAC
that entitles us to a preferred return. CLAC in turn invested $0.8 million in
Chemlink in exchange for a Series B membership in Chemlink which entitles
CLAC to a preferred return. We also disposed of our interest in HPD Holding
Corp. ("HPD") for $2.6 million, including the value of the shares of WD-40
Company we received, resulting in a gain of approximately $0.6 million which
is included in "Other income" for the three months ended June 30, 2001.







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<Page>

NOTE 8 - GOING CONCERN

     We will likely continue to report operating losses, which together with
the remaining pending litigation, as discussed in Note 5, continue to raise
substantial doubt as to our ability to continue as a going concern. See Note
O to the consolidated financial statements at March 31, 2001.

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

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


















                                       11

<Page>

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



OVERVIEW

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

     On August 14, 2001 we issued our condensed consolidated financial
statements for the three months ended June 30, 2001. These financial
statements included our equity in Phar-Mor's loss based on information
provided to us by Phar-Mor as of our filing date. Subsequent to the issuance
of these financial statements, management determined that Phar-Mor had
recognized an additional loss of $32,942 over the amount previously reported
to us which we understand was due to:

          -    a reduction in the value of goodwill of $11,070 after a review
               of the results of stores acquired in an acquisition in 1999,
          -    an increase in the valuation allowance of $9,565 on its deferred
               tax asset because there was uncertainty as to its being able to
               realize its deferred tax asset, and
          -    a net reduction of $12,307 in the value of its fixed assets
               related primarily to the closing of a number of its stores.

     Phar-Mor accounted for the impairment of the value of its goodwill and
fixed assets and the increase in the valuation allowance on its deferred tax
assets as fourth quarter adjustments for its fiscal year ending June 30,
2001. As a result, we have restated our condensed consolidated financial
statements for the three months ended June 30, 2001 to recognize an
additional $7,857 of equity in the losses of Phar-Mor, the amount necessary
to reduce our investment in Phar-Mor to zero. We will not recognize our
equity in any additional losses of Phar-Mor except to the extent of
approximately $9 as a result of additional investments we made in Phar-Mor
in July and August 2001. Phar-Mor filed for bankruptcy protection under
Chapter 11 of the Bankruptcy Code on September 24, 2001. Avatex Corporation
did not file for bankruptcy and is not part of the Phar-Mor bankruptcy
proceeding except as it may relate to our investment in the common stock of
Phar-Mor. See Notes 1, 2 and 7 to the condensed consolidated financial
statements. The effects of the restatement have been reflected herein.

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








                                       12

<Page>

RESULTS OF OPERATIONS

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


OPERATING COSTS

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

OTHER INCOME

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

INTEREST AND DIVIDEND INCOME

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

INTEREST EXPENSE

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

EQUITY IN LOSS OF AFFILIATES

     Equity in loss of affiliates was $11,678 for the three months ended June
30, 2001 compared to equity in loss of $5,121 for the three months ended
June 30, 2000. The $6,557 increase in our equity loss of affiliates was
primarily due to our equity in Phar-Mor's loss being $6,507 more than in the
prior year. Our equity in investment income earned by Phar-Mor for the three
months ended June 30, 2001 was $5,612 better than in the prior year primarily
due to a substantial write-down of Phar-Mor's investments in the prior year.
Our equity in Phar-Mor's operating loss was $12,119 worse than in the prior
year due primarily to Phar-Mor reporting (i) lower sales revenue and lower
profit margins in the current year; (ii) a write-down of its goodwill and fixed
assets as a result of its proposed store closings related to its bankruptcy
filing; and (iii) establishing additional reserves against its deferred tax
asset (see Overview above). The increased losses were partially offset by lower
interest expense as a result of Phar-Mor's retirement of a portion of its debt.

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.



                                       13

<Page>

EXTRAORDINARY ITEMS

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



                       LIQUIDITY AND CAPITAL RESOURCES


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

     Our debt consists of the 6.75% notes issued by Avatex Funding. The 6.75%
notes issued by Avatex Funding require semi-annual cash interest payments of
approximately $482 with the remaining principal balance of approximately
$14,281 due in December 2002. Since we have guaranteed the 6.75% notes and
Avatex Funding has no assets other than the Phar-Mor common stock securing
the notes, we have made and may make additional capital contributions to
Avatex Funding so it can satisfy its interest and principal obligations on
the notes.

     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) is not expected to have any
impact on our future cash flow, but it will reduce any potential value of
that investment to us from a possible sale.

     We will rely on cash on hand, any cash payments from our investments
and, if necessary, the sale of our investments to meet future obligations. We
are involved in litigation which, if we were to lose, could have a material
impact on our financial condition, liquidity and results of operations. These
financial statements have been prepared on a going concern basis which
contemplates the realization of our assets and the settlement of our
liabilities and commitments in the normal course of business.  See Note 8 to
the condensed consolidated financial statements for the quarter ended June
30, 2001 for a discussion of our ability to continue as a going concern and
management's plans for addressing those issues.

                                    OTHER

     In June 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No.142 "Goodwill and Other Intangible Assets". 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 accounted for by the
purchase method of accounting 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
have not yet determined the impact, if any, that these statements will have
on our financial position or results of operations.


                                       14

<Page>

     Cautionary Statement under the Private Securities Litigation Reform Act
of 1995:  This Quarterly Report on Form 10-Q contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that are based on the assumptions, beliefs and
opinions of our management. When used in this document, the words
"anticipate," "believe," "continue," "estimate," "expect," "intend," "may,"
"should," and similar expressions are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks and uncertainties, including, but not
limited to, the risk that we may be unable to implement our strategies to
continue as a going concern. In industries in which we operate or invest, we
also face risks associated with competitive pressures; the ability of the
management of the companies in which we have invested to develop, implement
and market their products and services; and other such risks. These other
risks include decreased consumer spending, customer concentration issues and
the effects of general economic conditions. In addition, our business,
operations and financial condition are subject to the risks, uncertainties
and assumptions which are described in our reports and statements we have
filed from time to time with the Securities and Exchange Commission,
including this report. Should one or more of those risks or uncertainties
materialize, or should underlying assumptions prove incorrect, our actual
results may vary materially from those described herein. The forward-looking
statements made in this document speak only to the date on which such
statements are made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events.

          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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










                                       15

<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:

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

RELIANCE INSURANCE ISSUES.  The May 29, 2001 order entered by a Pennsylvania
state court with respect to Reliance Insurance Company ("Reliance") and its
subsidiary, United Pacific Insurance Company ("UPIC"), stated, among other
things, that Reliance is being placed into "Rehabilitation" under
Pennsylvania's Insurance Department Act, and that all actions pending
against Reliance and/or UPIC, such as the lawsuit filed by UPIC against us
and the lawsuit filed by the FoxMeyer Corporation bankruptcy trustee against
UPIC and us, are stayed. The May 29, 2001 order also stated that all actions
pending against an insured of Reliance and/or UPIC, such as our 1996
Shareholder Litigation, are stayed for at least 60 days. On August 2, 2001,
the Pennsylvania state court entered an order stating that all actions and
proceedings in certain specified cases, including our 1996 Shareholder
Litigation, should be stayed for 180 days from the date of the order, and
that the order constituted the court's request for comity in the extension of
the stay by courts outside of Pennsylvania and the federal courts. We cannot
estimate at this time the impact, if any, that might result from Reliance
being placed into Rehabilitation on any of our litigation.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS

               None



     (b)  REPORTS ON 8-K

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

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







                                       16

<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



October 16, 2001                        By: /s/ Grady E. Schleier
                                           -----------------------------------
                                           Grady E. Schleier
                                           Senior Vice President, Chief
                                           Financial Officer and Treasurer
                                           (Principal Financial and Accounting
                                           Officer)








                                       17