<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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8549
AVATEX CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 25-1425889
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5910 N. Central Expressway, Suite 1780, Dallas, Texas 75206
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone Number, Including Area Code 214-365-7450
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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, 1999: 13,806,375
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PART 1. FINANCIAL INFORMATION
AVATEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended December 31,
(in thousands, except per share amounts) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 2,615 $ 2,974
OPERATING COSTS
Operating costs, including general and administrative costs 3,893 4,538
Depreciation and amortization 316 251
Unusual items -- (5,592)
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OPERATING INCOME (LOSS) (1,594) 3,777
Other expense (95) (5,231)
Interest income 452 379
Interest expense 671 1,460
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LOSS FROM CONTINUING OPERATIONS BEFORE NATIONAL STEEL CORPORATION,
EQUITY IN INCOME OF AFFILIATES, INCOME TAX PROVISION AND
MINORITY INTEREST (1,908) (2,535)
National Steel Corporation net preferred dividend income -- 1,345
Loss on National Steel Corporation settlement -- (59,038)
Equity in income of affiliates 1,288 1,079
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LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION AND
MINORITY INTEREST (620) (59,149)
Income tax provision 2 38
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LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST (622) (59,187)
Minority interest in results of operations of consolidated subsidiaries 16 (11)
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NET LOSS FROM CONTINUING OPERATIONS (638) (59,176)
Discontinued operations
Gain on disposal of discontinued operations -- 3,719
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NET LOSS (638) (55,457)
Preferred stock dividends 7,127 6,474
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LOSS APPLICABLE TO COMMON STOCKHOLDERS $(7,765) $(61,931)
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BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (0.56) $ (4.76)
Discontinued operations -- 0.27
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LOSS PER SHARE $ (0.56) $ (4.49)
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Average number of common shares outstanding 13,806 13,806
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COMPREHENSIVE INCOME $ 1,876 $ 22,319
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
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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) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 7,544 $ 9,797
OPERATING COSTS
Operating costs, including general and administrative costs 11,170 11,943
Depreciation and amortization 702 703
Unusual items -- 25,996
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OPERATING LOSS (4,328) (28,845)
Other expense (2,289) (10,537)
Interest income 1,538 1,027
Interest expense 1,699 4,274
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LOSS FROM CONTINUING OPERATIONS BEFORE NATIONAL STEEL CORPORATION,
EQUITY IN INCOME (LOSS) OF AFFILIATES, INCOME TAX PROVISION
AND MINORITY INTEREST (6,778) (42,629)
National Steel Corporation net preferred dividend income -- 5,854
Loss on National Steel Corporation settlement -- (59,038)
Equity in income (loss) of affiliates 936 (1,531)
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LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION AND
MINORITY INTEREST (5,842) (97,344)
Income tax provision 39 38
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LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST (5,881) (97,382)
Minority interest in results of operations of consolidated subsidiaries 123 325
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NET LOSS FROM CONTINUING OPERATIONS (6,004) (97,707)
Discontinued operations
Gain on disposal of discontinued operations -- 3,719
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NET LOSS (6,004) (93,988)
Preferred stock dividends 20,876 18,972
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LOSS APPLICABLE TO COMMON STOCKHOLDERS $(26,880) $(112,960)
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BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (1.95) $ (8.45)
Discontinued operations -- 0.27
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LOSS PER SHARE $ (1.95) $ (8.18)
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Average number of common shares outstanding 13,806 13,806
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COMPREHENSIVE LOSS $ (7,508) $ (20,483)
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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AVATEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
(in thousands of dollars) 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 29,246 $ 34,193
Receivables - net 2,805 11,783
Other current assets 1,237 3,971
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TOTAL CURRENT ASSETS 33,288 49,947
INVESTMENTS IN AFFILIATES 26,711 25,343
PROPERTY AND EQUIPMENT 32,420 20,657
Less accumulated depreciation and amortization 2,252 1,630
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NET PROPERTY AND EQUIPMENT 30,168 19,027
DEFERRED TAX ASSET, NET OF VALUATION ALLOWANCE -- --
MISCELLANEOUS ASSETS 25,602 24,986
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TOTAL ASSETS $ 115,769 $ 119,303
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,405 $ 2,665
Other accrued liabilities 3,923 6,169
Long-term debt due within one year 476 492
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TOTAL CURRENT LIABILITIES 5,804 9,326
LONG-TERM DEBT 33,927 22,923
OTHER LONG-TERM LIABILITIES 11,893 13,402
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 481 558
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE PREFERRED STOCK 235,871 214,996
STOCKHOLDERS' DEFICIT
Common stock $5.00 par value; authorized 50,000,000 shares;
issued: 13,806,375 shares 69,032 69,032
Capital in excess of par value 119,100 119,100
Accumulated other comprehensive income (loss) (336) 1,168
Accumulated deficit (360,003) (331,202)
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TOTAL STOCKHOLDERS' DEFICIT (172,207) (141,902)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 115,769 $ 119,303
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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AVATEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months
ended December 31,
(in thousands of dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,004) $(93,988)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
Minority interest in results of operations of consolidated subsidiaries 123 325
Equity in loss (income) of affiliates (936) 1,531
Depreciation and amortization 702 703
Net preferred income from National Steel Corporation -- (5,854)
Loss on National Steel Corporation settlement -- 59,038
Gain on disposal of discontinued operations -- (3,719)
Loss on investments 2,490 10,560
Other non-cash credits (696) (4,402)
Cash provided (used) by working capital items, net of acquisitions:
Receivables 9,285 46
Other assets and restricted cash 19 33,310
Accounts payable and accrued liabilities (5,234) (8,084)
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NET CASH USED BY OPERATING ACTIVITIES (251) (10,534)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired -- (7,399)
Purchase of property and equipment (11,407) (2,773)
Purchase of investments (4,537) (8,541)
Proceeds from investments 1,590 63,714
Other (38) 140
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (14,392) 45,141
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 10,355 16,368
Debt repayments (358) (15,919)
Debt issuance costs (101) (185)
Investment by minority interest -- 800
Dividends paid to minority interest (200) (100)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 9,696 964
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NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (4,947) 35,571
Cash and short-term investments, beginning of period 34,193 7,173
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CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 29,246 $ 42,744
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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AVATEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS: Avatex Corporation is a holding company that, along
with its subsidiaries (collectively, the "Corporation"), owns interests in
hotels, an office building and other corporations and partnerships. Through
Phar-Mor, Inc. ("Phar-Mor"), its 38% owned affiliate, the Corporation is
involved in operating a chain of discount retail drugstores.
BASIS OF PRESENTATION: The preparation of the consolidated financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities, at the dates of the financial statements and the
reported amounts of revenues and expenses during such reporting periods.
Actual results could differ from these estimates.
The condensed consolidated balance sheet of the Corporation as of December
31, 1998, the condensed consolidated statements of operations and
comprehensive income (loss) for the three and nine months ended December 31,
1998 and 1997, and the condensed consolidated statements of cash flows for
the nine months ended December 31, 1998 and 1997, are unaudited. In the
opinion of management, these statements have been prepared on the same basis
as the audited consolidated financial statements, and include all adjustments
necessary for the fair presentation of financial position, results of
operations and cash flows. Such adjustments were of a normal recurring
nature. The results of operations for the three and nine months ended
December 31, 1998, may not be indicative of the results for the entire year.
The condensed consolidated balance sheet as of March 31, 1998 was derived
from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The Corporation's
Annual Report on Form 10-K filed with the Securities and Exchange Commission
for the fiscal year ended March 31, 1998, contains additional information
that should be read in conjunction with this quarterly report.
RESTRICTED CASH: Use of approximately $0.3 million of cash included in
"Other current assets" at December 31, 1998 and at March 31, 1998 was
restricted in connection with certain real estate loans.
COMPREHENSIVE INCOME (LOSS): The difference in comprehensive income (loss)
and net loss is due to unrealized gains (losses) on marketable securities for
the three and nine months ended December 31, 1998 and, for the three and nine
months ended December 31, 1997, primarily to the change in the minimum
pension liability.
DISCONTINUED OPERATIONS: The Corporation recognized a gain of $3.7 million
on the sale of substantially all of the assets of US HealthData Interchange,
Inc. ("USHDI") on November 19, 1997. USHDI had been treated as a
discontinued operation since March 1997.
UNUSUAL ITEMS: The unusual items for the three months ended December 31,
1997 represented income from the settlement of certain pension and other
postretirement benefit claims of former officers and employees. For the nine
months ended December 31, 1997, unusual items also included (i) a $33.3
million charge related to the settlement of litigation between the
Corporation and the Chapter 7 Bankruptcy Trustee (the "Trustee") of FoxMeyer
Corporation ("FoxMeyer") and certain of its subsidiaries, and (ii) income of
$1.7 million from the settlement of litigation primarily with insurance
carriers related to environmental liability claims. The litigation with the
Trustee concerned the validity of the transfer of certain property from
FoxMeyer to the Corporation as a dividend on June 19, 1996.
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COMMON STOCK OF AVATEX CORPORATION HELD BY AN AFFILIATE: As of December 31,
1998, Phar-Mor had acquired 2,086,200 shares of the Corporation's common
stock during the current fiscal year through open market transactions at a
cost of approximately $5.0 million. The Corporation accounts for its
investment in Phar-Mor on an equity basis and treats Phar-Mor's investment in
the Corporation's common stock similar to treasury stock, with a charge to
the accumulated deficit of $1.9 million at December 31, 1998. The charge is
equal to the Corporation's 38.4% ownership in the cost of its common stock
held by Phar-Mor.
NOTE 2 - NET LOSS PER SHARE OF COMMON STOCK
The net loss applicable to common stockholders, and the average number of
shares outstanding, used in calculating both basic and diluted loss per share
were the same for the three and nine months ended December 31, 1998 and 1997,
respectively. Options to purchase approximately 3.9 million shares were
outstanding at December 31, 1998 and 1997, respectively. These options were
not considered in the computation of the diluted loss per share because their
inclusion would be anti-dilutive. Conversion of the convertible preferred
stock outstanding was also not considered in the calculation of diluted loss
per share as it would have been anti-dilutive as well.
NOTE 3 - NATIONAL STEEL CORPORATION SETTLEMENT
On November 25, 1997, National Steel Corporation ("NSC"), certain of its
affiliates, and the Corporation entered into an agreement whereby the
Corporation received $59.0 million in cash and a non-interest bearing $10.0
note in exchange for the redemption of the NSC preferred stock owned by the
Corporation and NSC's release of the Corporation from pension and other
various liabilities (the "NSC Settlement"). The final installment on the
note was received on November 25, 1998. The Corporation must maintain at
least $15.0 million of net worth, as defined in the NSC Settlement agreement,
through February 25, 1999. As a result of the NSC Settlement, the
Corporation recognized a $59.0 million loss for the three and nine months
ended December 31, 1997. In addition, the Corporation recognized a $79.7
million reduction in minimum pension liability reserves as a result of being
released from this liability.
NOTE 4 - LONG-TERM DEBT
One of the Corporation's consolidated real estate partnerships borrowed $10.7
million during the nine months ended December 31, 1998, under a construction
loan for the renovation of an office building into a hotel. The total
balance outstanding under the loan is currently $12.9 million at an interest
rate of 1.75% over LIBOR. The loan has been treated as long-term in the
condensed consolidated balance sheet as the partnership has already secured
permanent financing to replace the construction loan. The hotel opened in
October 1998. Interest incurred during the construction period of $0.4 million
was capitalized.
NOTE 5 - CAPITAL STOCK
The Corporation has not declared or paid any dividends on its preferred stock
since October 15, 1996. The two issues of preferred stock are cumulative.
Therefore, the dividends have been shown in the condensed consolidated
statements of operations as if they had been declared, with a corresponding
charge to the accumulated deficit. The liability for cumulative unpaid
dividends has been added to the carrying amount of the redeemable preferred
stock in the condensed consolidated balance sheets. The cumulative dividends
accrued but not paid at December 31, 1998 were $7.3 million ($11.25 per
share) for the convertible preferred stock and $45.3 million ($10.51 per
share) for the Series A preferred stock.
On January 28, 1999, the New York Stock Exchange ("NYSE") informed the
Corporation that it no longer met the continued listing requirements of the
NYSE and that trading of its common, convertible preferred and Series A
preferred stocks would be suspended prior to the opening of the NYSE on Monday,
February 1, 1999. The Corporation's common and preferred stocks started
trading on the OTC Bulletin Board system effective February 1, 1999.
6
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NOTE 6 - 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,
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 1,055 $ 2,503
Income taxes paid 67 38
Non-cash transactions:
Book value of note received in NSC Settlement - 9,442
Capitalized leases 99 -
Cumulative dividends in arrears accrued 18,736 17,130
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</TABLE>
The following supplemental information is provided for miscellaneous assets
and other long-term liabilities (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous assets:
Prepaid pension cost $ 10,535 $ 9,440
Securities available for sale 8,708 7,212
Other investments, at cost 3,622 6,028
Other 2,737 2,306
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Total $ 25,602 $ 24,986
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Other long-term liabilities:
Pension and postretirement benefits $ 5,038 $ 5,290
Environmental liabilities 1,217 1,417
Liabilities related to discontinued
operations 3,361 4,334
Other 2,277 2,361
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Total $ 11,893 $ 13,402
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</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On April 14, 1998, the Corporation announced that it would merge with and
into its wholly-owned subsidiary, Xetava Corporation ("Xetava"). Under the
proposed merger, the Corporation's existing common and preferred stockholders
would receive new common stock of Xetava, which upon consummation of the
merger would be renamed Avatex. In late April 1998, a preferred stockholder
of the Corporation and a putative class of preferred stockholders filed a
total of three lawsuits in the Delaware Court of Chancery (the "Delaware
Court") against the Corporation, Xetava and seven of the Corporation's
directors. In May 1998, the Delaware Court consolidated the lawsuits under
the caption IN RE AVATEX CORPORATION SHAREHOLDERS LITIGATION, C.A. No. 16334.
The lawsuits challenge the merger of the Corporation with and into Xetava,
contend that the merger is subject to a separate class vote by the holders of
the Corporation's preferred stock and that the exchange ratios for the merger
are unfair to the preferred stockholders. Plaintiffs seek a declaration that
the defendant directors have breached their fiduciary duties, injunctive
relief and damages and costs. In August 1998, the Delaware Supreme Court
ruled that the holders of the Corporation's convertible preferred stock have
the right to vote separately as a class on the proposed merger of the
Corporation into Xetava, as it was structured and announced by the
Corporation on April 14, 1998. Following this decision, the Corporation
announced that its Board of Directors would consider the appropriate
7
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course of action to take with respect to the merger, which may include
proceeding forward with a modified structure or different terms of a merger,
or taking other action that the Board deems in the best interests of all of
its stockholders. The Board has not yet taken any further action related to
the merger.
The Corporation has retained responsibility for certain potential
environmental liabilities attributable to former operating units. As a
result, the Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, and similar
state superfund statutes. These statutes generally impose joint and several
liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault.
The Corporation and its subsidiaries have received various claims and demands
from governmental agencies relating to investigations and remedial actions to
address environmental clean-up costs and in some instances have been
designated as a potentially responsible party by the Environmental Protection
Agency.
The Corporation's reserves for environmental assessments, remediation
activities, penalties or fines that may be imposed for non-compliance with
such laws or regulations have not changed materially since March 31, 1998.
The Corporation's estimates of these costs are based upon currently available
facts, existing technology, presently enacted laws and regulations and the
professional judgment of consultants and counsel.
The amounts of reserves for environmental liabilities are difficult to
estimate due to such factors as the unknown extent of the remedial actions
that may be required and, in the case of sites not owned by the Corporation,
the unknown extent of the Corporation's probable liability in proportion to
the probable liability of other parties. Moreover, the Corporation may have
environmental liabilities that the Corporation cannot in its judgment
estimate at this time and losses attributable to remediation costs that may
arise at other sites. Management recognizes that additional work may need to
be performed to ascertain the ultimate liability for such sites, and further
information could ultimately change management's current assessment. A
change in the estimated liability could have a material impact on the
financial condition and results of operations of the Corporation.
On March 1, 1994, the Corporation and FoxMeyer announced that the Corporation
had proposed a merger in which FoxMeyer would be merged with and into a
wholly-owned subsidiary of the Corporation, thereby making FoxMeyer a
wholly-owned subsidiary of the Corporation. Shortly after the announcement,
class action lawsuits were filed against the Corporation, FoxMeyer and
certain of FoxMeyer's officers and directors. Following a number of
procedural matters, and the execution (and subsequent withdrawal) of a
Memorandum of Understanding dated June 30, 1994 under which the litigation
would be dismissed, the litigation was consolidated and an amended complaint
was filed on February 13, 1996 in IN RE FOXMEYER CORPORATION SHAREHOLDER
LITIGATION, No. 13391, in the Delaware Court. The amended complaint alleges
that the defendants breached their fiduciary duties to FoxMeyer's
stockholders by agreeing to the merger at an unfair price and at a time
designed so that the Corporation could take advantage of, among other things,
an alleged substantial growth in the business of FoxMeyer. The complaint
also alleges that the proxy statement issued in connection with the merger
failed to disclose certain matters relating to the proposed merger. In
October 1998, a stipulation was entered that governs certain scheduling
matters, including briefing of plaintiff's class certification motion. The
Corporation is unable at this time to estimate the possible loss, if any,
which may accrue from this lawsuit.
The Corporation and certain of its current and former officers and directors
have been named in a series of purported class action lawsuits that were
filed and subsequently consolidated under ZUCKERMAN, ET AL. V. FOXMEYER
HEALTH CORPORATION, ET AL., in the United States District Court for the
Northern District of Texas, Dallas Division, Case No. 396-CV-2258-T. The
lawsuit purports to be brought on behalf of purchasers of the Corporation's
common and its Series A and convertible preferred stocks during the period
July 19, 1995 through August 27, 1996. On May 1, 1997, plaintiffs in the
lawsuit filed a consolidated amended class action complaint, which alleges
that the Corporation and the defendant officers and directors made
misrepresentations of material facts in public statements or omitted material
facts from public statements,
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including the failure to disclose purportedly negative information concerning
its National Distribution Center and Delta computer systems and the resulting
impact on the Corporation's existing and future business and financial
condition. On March 31, 1998, the court denied the Corporation's motion to
dismiss the amended complaint in the lawsuit. The Corporation intends to
continue to vigorously defend itself in the lawsuit. The Corporation is
unable at this time to estimate the possible loss, if any, which may accrue
from this lawsuit.
The Corporation and its Co-Chairmen and Co-Chief Executive Officers have also
been named as defendants in GROSSMAN V. FOXMEYER HEALTH CORP., ET AL., Cause
No. 96-10866-J, in the 191st Judicial Court of Dallas County, Texas. The
lawsuit purports to be brought on behalf of all holders of the Corporation's
common stock during the period October 30, 1995 through July 1, 1996, and
seeks unspecified money damages. Plaintiff asserts claims of common law
fraud and negligent misrepresentation, based on allegations that she was
induced not to sell her shares by supposed misrepresentations and omissions
that are substantially the same as those alleged in the ZUCKERMAN action
described above. On September 28, 1997, the court denied the Corporation's
motion for summary judgment in the lawsuit. The Corporation intends to
continue to vigorously defend itself in the lawsuit. The Corporation is
unable at this time to estimate the possible loss, if any, which may accrue
from this lawsuit.
In fiscal 1998, the bankruptcy trustee and certain creditors of the
Corporation's 17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben
Franklin"), filed lawsuits against certain former officers and directors of
Ben Franklin, the Corporation and certain current and former officers and
directors of the Corporation. The Corporation and its officers and directors
have since been dropped as defendants in the lawsuits. In connection with
paying its own defense costs and those of its officers and directors, the
Corporation also initially paid a portion of the defense costs of certain
individuals who are named as defendants in these lawsuits by reason of the
fact that they may have been serving at the request of the Corporation as a
director or officer of Ben Franklin. In accordance with Delaware law, the
Corporation may, if appropriate, agree at a future date to indemnify certain
of the remaining defendants in the lawsuit. In October 1998, the United
States Bankruptcy Court for the Northern District of Illinois issued
Memorandum Opinions that granted motions to dismiss two of the lawsuits
against all but one defendant. On December 1, 1998, the Bankruptcy Court
issued another Memorandum Opinion in one of these two lawsuits denying a
motion for reconsideration. The plaintiffs in these two lawsuits are now
attempting to object to or to appeal from the Opinions. The third remaining
lawsuit is still pending in Illinois state court and is subject to a similar
motion to dismiss that was filed in January 1999.
In April 1998, the Trustee filed a lawsuit against the five former directors
of FoxMeyer, in which the Trustee alleges that the defendants breached their
fiduciary duty in connection with the June 19, 1996 dividend of certain
assets to the Corporation. In October 1997, in connection with the
settlement of a separate lawsuit brought by the Trustee against the
Corporation, the Corporation was released by the Trustee from all liability
and the director-defendants in this lawsuit received covenants not to execute
from the Trustee. The Corporation has agreed to pay the initial defense
costs of the individuals who are named as defendants in the lawsuit by reason
of the fact that they may have been serving at the request of the Corporation
as a director or officer of FoxMeyer.
In June 1998, Stephen Mizel IRA and Anvil Investment Partners, L.P. filed a
lawsuit, allegedly on behalf of the Corporation, against seven of the
directors of the Corporation and three of its former directors who were
members of the Corporation's Personnel and Compensation Committee. The
lawsuit is styled STEPHEN MIZEL IRA ET. AL. V. BUTLER, ET. AL., No.
602773198, in the Supreme Court of the State of New York, County of New York.
The plaintiffs are holders of the Corporation's Series A preferred stock,
and the lawsuit relates primarily to agreements and transactions between the
Corporation and its Co-Chairmen and Co-Chief Executive Officers, Abbey J.
Butler and Melvyn J. Estrin. The Corporation is paying the initial defense
costs of the defendants in accordance with Delaware General Corporation Law,
the Corporation's charter and by-laws, and the terms and conditions of
indemnification agreements between the Corporation and certain of the
defendants. On January 29, 1999, a stipulation was executed providing that
the
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<PAGE>
litigation, in so far as brought by Stephen Mizel IRA, was voluntarily
discontinued with prejudice.
Thomas L. Anderson, the former president of FoxMeyer, is the defendant in a
lawsuit brought by Midwest Freight Systems, Inc. ("Midwest") and Leo Glynn in
the United States District Court for the Western District of Missouri, Case
No. 97-0089CV-W-2. The lawsuit relates to Midwest's purchase in 1991 of
substantially all of the assets of Healthcare Transportation System, Inc.,
which was then a subsidiary of FoxMeyer. Midwest has asserted claims against
Mr. Anderson for breach of contract, fraud, negligent misrepresentation and
tortious interference with contract. Mr. Anderson has denied all liability
in the lawsuit. In December 1998, a verdict was rendered and a judgment was
entered in favor of the plaintiff in the amount of $50,000, and Mr. Anderson
has filed a post-trial motion challenging the judgment. Mr. Anderson has
asserted that the Corporation is required to indemnify him under the terms of
the 1994 Merger Agreement between the Corporation and FoxMeyer. The
Corporation is currently paying Mr. Anderson's defense costs in the lawsuit.
There are various other pending claims and lawsuits arising out of the normal
conduct of the Corporation's businesses. In the opinion of management, the
ultimate outcome of these claims and lawsuits will not have a material effect
on the consolidated financial condition or results of operations of the
Corporation.
10
<PAGE>
AVATEX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
OVERVIEW
Avatex Corporation is a holding company that, along with its subsidiaries
(collectively, the "Corporation"), owns interests in hotels, an office
building and other corporations and partnerships. Through Phar-Mor, Inc.
("Phar-Mor"), its 38% owned affiliate, the Corporation is involved in
operating a chain of discount retail drugstores.
On April 14, 1998, the Corporation announced that it would merge with and
into its wholly-owned subsidiary, Xetava Corporation ("Xetava"). Under the
proposed merger, the Corporation's existing common and preferred stockholders
would receive new common stock of Xetava, which upon consummation of the
merger would be renamed Avatex. In late April 1998, a preferred stockholder
of the Corporation and a putative class of preferred stockholders filed a
total of three lawsuits in the Delaware Court of Chancery (the "Delaware
Court") against the Corporation, Xetava and seven of the Corporation's
directors. In May 1998, the Delaware Court consolidated the lawsuits under
the caption IN RE AVATEX CORPORATION SHAREHOLDERS LITIGATION, C.A. No. 16334.
The lawsuits challenge the merger of the Corporation with and into Xetava,
contend that the merger is subject to a separate class vote by the holders of
the Corporation's preferred stock and that the exchange ratios for the merger
are unfair to the preferred stockholders. Plaintiffs seek a declaration that
the defendant directors have breached their fiduciary duties, injunctive
relief and damages and costs. In August 1998, the Delaware Supreme Court
ruled that the holders of the Corporation's convertible preferred stock have
the right to vote separately as a class on the proposed merger of the
Corporation into Xetava, as it was structured and announced by the
Corporation on April 14, 1998. Following this decision, the Corporation
announced that its Board of Directors would consider the appropriate course
of action to take with respect to the merger, which may include proceeding
forward with a modified structure or different terms of a merger, or taking
other action that the Board deems in the best interests of all of its
stockholders. The Board has not yet taken any further action related to the
merger.
On January 28, 1999, the New York Stock Exchange ("NYSE") informed the
Corporation that it no longer met the continued listing requirements of the
NYSE and that trading of its common, convertible preferred and Series A
preferred stocks would be suspended prior to the opening of the NYSE on
Monday, February 1, 1999. The Corporation's common, convertible preferred
and Series A preferred stocks started trading on the OTC Bulletin
Board system effective February 1, 1999 under the symbols AVAX, AVAXP and
AVAXO, respectively.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE AND NINE
MONTHS ENDED DECEMBER 31, 1997
OPERATING INCOME (LOSS)
Revenues from real estate operations decreased $359 to $2,615 for the quarter
ended December 31, 1998 compared to $2,974 for the quarter ended December 31,
1997. Revenues also decreased by $2,253 to $7,544 for the nine months ended
December 31, 1998 compared to $9,797 for the nine months ended December 31,
1997. The decreases were primarily the result of the disposal of a property
in fiscal 1998 partially offset by revenues from a new hotel opened in
October 1998.
11
<PAGE>
Operating costs, including depreciation and amortization, decreased $580 to
$4,209 for the quarter ended December 31, 1998 compared to $4,789 for the
quarter ended December 31, 1997. The decrease was a result of a reduction in
real estate operating costs of $459, primarily attributable to the property
disposed of in fiscal 1998 partially offset by increased expenses for the
hotel opened in October 1998, and a decrease in corporate overhead costs of
$121. The decrease in corporate expenses related primarily to lower expenses
for pensions, consulting, travel and certain other operating costs partially
offset by increased costs associated with the proposed merger, as discussed
above, as well as compensation costs.
For the nine months ended December 31, 1998, operating costs, including
depreciation and amortization, decreased $774 to $11,872 compared to $12,646
for the nine months ended December 31, 1997. A reduction in real estate
operating costs of $1,956, primarily attributable to the property disposed of
in fiscal 1998 partially offset by increased expenses for the hotel opened in
October 1998, was partially offset by an increase in corporate overhead costs
of $1,182. Such increased corporate expenses were primarily the result of
costs associated with the proposed merger as well as compensation, legal and
insurance costs, partially offset by lower expenses for pensions,
consultants, travel and certain other operating costs.
The unusual items for the three months ended December 31, 1997 represented
income from the settlement of certain pension and other postretirement
benefit claims of former officers and employees. For the nine months ended
December 31, 1997, unusual items also included (i) a $33,292 charge related
to the settlement of litigation between the Corporation and the Chapter 7
Bankruptcy Trustee of FoxMeyer Corporation ("FoxMeyer") and certain of its
subsidiaries, and (ii) income of $1,704 from the settlement of litigation
primarily with insurance carriers related to environmental liability claims.
OTHER EXPENSE
Other expense of $95 for the three months ended December 31, 1998 related to
a reduction of $156 in the carrying value of certain of the Corporation's
investments offset by $61 of income primarily from dividends accrued on
investments. Other expense of $5,231 for the three months ended December 31,
1997 related primarily to the reduction in the carrying value of certain of
the Corporation's investments of $5,725 partially offset by $494 of income
primarily from a gain on property sold.
Other expense of $2,289 for the nine months ended December 31, 1998 related
to a $4,081 reduction in the carrying value of certain of the Corporation's
investments offset by $1,792 in gains primarily from recoveries on
investments which had been written-off in a prior year, a royalty payment
from a property sold in the prior fiscal year and dividends accrued on
investments. In the prior year, other expense of $10,537 for the nine months
ended December 31, 1997 related primarily to the reduction in the carrying
value of certain of the Corporation's investments of $11,207 partially offset
by $670 of income primarily from recoveries on investments which had been
written-off in a prior year and gains on property sold.
INTEREST INCOME (EXPENSE)
Interest income increased $73 to $452 for the three months ended December 31,
1998 compared to $379 for the three months ended December 31, 1997. For the
nine months ended December 31, 1998, interest income increased $511 to $1,538
compared to $1,027 for the nine months ended December 31, 1997. For both
periods, the amount of funds invested increased compared to the prior year
due to cash received from the National Steel Corporation ("NSC") settlement
and sale of US HealthData Interchange, Inc. ("USHDI") in November 1997 and
interest earned on the note received as part of the NSC settlement.
Interest expense decreased $789 to $671 for the three months ended December
31, 1998 compared to $1,460 for the three months ended December 31, 1997.
For the nine months ended December 31, 1998, interest expense decreased
$2,575 to $1,699 compared to $4,274 for the nine months ended December 31,
1997. For the three and nine months ended December 31, 1998, $79 and $578,
respectively, of the decrease related to real estate operations. The decrease
was due to the absence of debt on the property disposed of in fiscal 1998
partially offset by interest incurred in the current fiscal year in
connection with the
12
<PAGE>
property opened in October 1998. Interest expense related to corporate
activities declined $710 and $1,997, respectively, for the three and nine
months ended December 31, 1998, due primarily to the termination or
settlement of certain employee deferred compensation plans and other benefit
plans of subsidiaries of the Corporation, which obligations had originally
been recorded at a discount, and the repayment of a secured debt facility
during fiscal 1998. This decline in interest expense for corporate
activities was partially offset for both periods by additional interest
expense related to the note payable to the FoxMeyer Chapter 7 Bankruptcy
Trustee.
NATIONAL STEEL CORPORATION
The decrease in net preferred dividend income for the three and nine months
ended December 31, 1998 as compared to the prior year and the loss on the NSC
Settlement are due to the November 1997 redemption of the NSC preferred stock
by NSC and the settlement of all related liabilities (see Note 3).
EQUITY IN INCOME (LOSS) OF AFFILIATES
Equity in income of affiliates was $1,288 compared to an equity in income of
$1,079 for the three months ended December 31, 1997. The increase primarily
related to the results of operations of Phar-Mor for the period. Equity in
income was $936 for the nine months ended December 31, 1998 compared to an
equity in loss of $1,531 for the nine months ended December 31, 1997. The
increase was primarily due to an improvement in Phar-Mor's operating results
for the current year compared to the prior year. For the most part, the
improved results primarily related to severance expense paid to Phar-Mor's
former chief executive officer in the prior fiscal year.
INCOME TAXES
The Corporation recorded no federal income tax provision for the current or
prior year. Any income tax benefit related to the current or prior year's
loss was offset by a corresponding change in the deferred tax asset valuation
allowance. The tax expense for the current and prior year represent state
income taxes related to real estate operations.
MINORITY INTEREST IN RESULTS OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
The minority interest in results of operations of consolidated subsidiaries
for the three months ended December 31, 1998 was not significantly different
than for the three months ended December 31, 1997. For the nine months ended
December 31, 1998, the minority interest decreased $202 to $123 compared to
$325 in the prior year. The decrease related primarily to reduced earnings on
real estate still owned as well as a result of a property sold in fiscal 1998.
DISCONTINUED OPERATIONS
The gain on discontinued operations resulted from the sale of USHDI in
November 1997.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends have increased to $7,127 and $20,876 for the three
and nine months ended December 31, 1998, respectively, compared to $6,474 and
$18,972 for the three and nine months ended December 31, 1997, respectively.
The increase was due to (i) an increase of $104 and $300, respectively, in
the amortization of discount on the Series A preferred stock, and (ii) an
increase of $549 and $1,604, respectively, in the dividend on the Series A
preferred stock attributable to the required compounding of dividends on
previously unpaid amounts.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Corporation had cash and short-term investments
of approximately $29,246. During the nine months ended December 31, 1998, the
Corporation committed approximately $4,537 to new investments and $1,412 to
real estate development.
The debt of the Corporation consists of a note payable to the FoxMeyer
Chapter 7 Bankruptcy Trustee and the debt of consolidated real estate
partnerships, which debt is without recourse to the parent company, Avatex
Corporation. The Corporation has two issues of redeemable preferred stock
outstanding. Beginning with the quarterly payments due January 15, 1997, the
Corporation has not declared nor paid any cash dividends on its Series A
preferred stock or its convertible preferred stock. The Corporation also did
not make the annual sinking fund payments on the convertible preferred stock
due January 1998 and January 1999.
See the "Overview" section above for a discussion of a proposed merger of the
Corporation with its Xetava subsidiary. If the proposed merger is approved
as originally proposed, the preferred stockholders would receive common stock
of Xetava in exchange for their preferred stock. As discussed above, the
Corporation announced that its Board of Directors would review the proposed
merger and may consider other appropriate courses of action. The Board has
not yet taken any further action related to the merger.
The Corporation believes that its real estate operations will provide
adequate cash flow to fund recurring real estate operating expenses,
including required payments on related debt. Cash required for necessary
real estate capital improvements may be funded from excess cash flow from
real estate operations, additional borrowings, or contributions from the
Corporation or minority interests. For corporate operations other than real
estate, cash requirements include the funding of monthly operating
activities, the payment of benefit obligations, and the funding of
environmental liabilities of previously owned businesses, the amounts and
timing of which are uncertain.
The Corporation continuously evaluates current and potential investments in
connection with an ongoing review of its investment strategies and, as
opportunities arise, will continue to invest in real estate and other
publicly and privately held companies which the Corporation believes would be
a strategic fit. The Corporation may also decide to sell those investments
which no longer fit its investment criteria. In addition, the Corporation
may pursue the acquisition of an operating company.
The Corporation will rely on cash on hand, any excess cash from its real
estate operations and, if necessary, the sale of real estate or other
investments to meet its future obligations. The Corporation is involved in
litigation which, if the Corporation were to lose, would have a material
impact on the Corporation's financial condition, liquidity and results of
operations. These financial statements have been prepared on a going concern
basis which contemplates the realization of the Corporation's assets and the
settlement of its liabilities and commitments in the normal course of
business.
OTHER
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which is effective
for the current fiscal year. SFAS No. 131 does not have any impact on the
financial results or financial condition of the Corporation, but will result
in certain changes in required disclosure of segment information.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. There-
14
<PAGE>
fore, the Corporation will be required to adopt SFAS No. 133 for its fiscal
year beginning April 1, 2000. The Corporation has not yet determined the
impact, if any, from the adoption of SFAS No. 133.
What is commonly referred to as the "Year 2000" issue relates, in part, to
many hardware and software systems that use only two digits to represent the
year being unable to recognize dates beyond 1999. The Corporation's internal
systems, both hardware and software, are Year 2000 compliant. The Year 2000
readiness of the Corporation's vendors, and companies in which the
Corporation has invested, however may vary. The Corporation is currently
trying to ascertain and monitor the Year 2000 readiness of these companies.
If any of the companies in which the Corporation has made a significant
investment are not Year 2000 compliant, there may be a material impact on the
value of that investment and, correspondingly, on the Corporation's results
of operations and financial condition. If certain vendors are not Year 2000
compliant, especially vendors that provide electricity, telephone services,
food and management services, the Corporation may suffer reduced revenues and
increased costs at its real estate operations as well as potentially
significant disruptions to its overall operations, depending upon the length
and severity of the problems. At this time, it is still uncertain to what
extent the Corporation may be affected by such matters at these other
entities.
15
<PAGE>
PART II - OTHER INFORMATION
AVATEX CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
With respect to the matters reported in the Corporation's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 and the Quarterly Reports
on Form 10-Q for the quarters ended June 30, 1998 and September 30, 1998, the
following additional information is provided:
MCKESSON/VENDOR LITIGATION. With reference to the Delaware lawsuit that
seeks to enjoin the Corporation from prosecuting its Texas lawsuit against
McKesson Corporation ("McKesson") and certain pharmaceutical manufacturers,
(i) on August 24, 1998, the Delaware Bankruptcy Court denied the plaintiffs'
first motion for summary judgment and ruled that the parties should return to
Texas and move the Texas lawsuit forward as much as possible, and (ii) on
November 12 and 16, 1998, the Delaware Bankruptcy Court granted in part and
denied in part the plaintiffs' second motion for summary judgment and ruled
that the Corporation is judicially estopped from pursing counts one, two and
three of the Texas lawsuit (for fraud, negligent misrepresentation and
conspiracy). The Delaware Bankruptcy Court also indicated that, if discovery
shows that there is "substantial overlap" between the factual allegations
underlying counts one, two and three and those underlying the remaining
counts (for breach of confidential relationship, tortious interference with
contract, interference with business and business disparagement), those
counts may be barred as well. The Corporation has filed a motion to revise
the November 12 and 16, 1998 order and a motion for leave to appeal the
order. The plaintiffs have moved to stay the Texas lawsuit described below
pending final resolution of the Delaware Bankruptcy Court proceedings and
have filed a renewed motion for summary judgment asserting that the
Corporation should be judicially estopped from pursuing the remaining counts
in the Texas lawsuit.
In the Texas lawsuit, on November 17, 1998, the Dallas Bankruptcy Court
issued a Memorandum Opinion and Order that granted the Corporation's motion
to remand the Texas lawsuit back to Texas state court. As a result of the
Delaware Bankruptcy Court's November 12 and 16, 1998 decision, the Dallas
Bankruptcy Court dismissed counts one, two and three of the Texas lawsuit to
the extent that the claims were brought by the Corporation, and remanded the
remaining counts to state court. The defendants in the Texas lawsuit have
appealed the remand order and the Corporation has cross-appealed the
dismissal order. On December 3, 1998, McKesson filed a counterclaim in the
Texas lawsuit against the Corporation and a third party complaint against
Bart A. Brown, Jr., the Chapter 7 Trustee of FoxMeyer Corporation
("FoxMeyer"), and three of the Corporation's officers: Abbey Butler, Melvyn
Estrin and Edward Massman, alleging claims of fraudulent misrepresentation,
negligent misrepresentations, breach of letter agreement and inducing breach
of contract. On January 7, 1999, the Dallas Bankruptcy Court denied the
defendants' motion to stay the Texas lawsuit pending final resolution of the
Delaware Bankruptcy Court proceedings. If the Corporation is successful in
its appeal of the Delaware Bankruptcy Court's November 12 and 16, 1998
decision, then the Corporation will request the state court to reinstate
counts one, two and three in the Texas lawsuit.
BEN FRANKLIN LITIGATION. With reference to the three pending lawsuits filed
by the bankruptcy trustee and certain creditors of the Corporation's
17%-owned subsidiary, Ben Franklin Retail Stores, Inc. ("Ben Franklin"),
against certain former officers and directors of Ben Franklin, on October 13,
1998, the United States Bankruptcy Court for the Northern District of
Illinois issued Memorandum Opinions in two of the lawsuits. The Opinions,
which were submitted in accordance with 28 U.S.C. 157(c)(1) in lieu of
proposed findings of fact and conclusions of law, granted motions to dismiss
two of the lawsuits against all of the defendants except David Brainard. On
December 1, 1998, the Bankruptcy Court issued another Memorandum Opinion in
one of these two lawsuits denying a motion for reconsideration. The
plaintiffs in these two
16
<PAGE>
lawsuits are now attempting to object to or to appeal from the Opinions. The
third lawsuit that is pending in Illinois state court is subject to a similar
motion to dismiss that was filed in January 1999.
PREFERRED STOCKHOLDER LITIGATION. With reference to the litigation filed by
certain preferred stockholders of the Corporation against the Corporation and
certain of its directors, in August 1998, the Delaware Supreme Court ruled
that the holders of the Corporation's convertible preferred stock have the
right to vote separately as a class on the proposed merger of the Corporation
into Xetava Corporation, as it was structured and announced by the
Corporation on April 14, 1998. Following this decision, the Corporation
announced that its Board of Directors would consider the appropriate course
of action to take with respect to the merger, which may include proceeding
forward with a modified structure or different terms of a merger, or taking
other action that the Board deems in the best interests of all of its
stockholders. The Board has not yet taken any further action related to the
merger.
DERIVATIVE ACTION. With reference to the purported derivative litigation
filed by certain preferred stockholders of the Corporation against ten of its
current and former directors, the Corporation has been paying the initial
defense costs of the defendants in accordance with Delaware General
Corporation Law, the Corporation's charter and by-laws, and the terms and the
conditions of indemnification agreements between the Corporation and certain
of the defendants. On January 29, 1999, a stipulation was executed providing
that the litigation, insofar as brought by Stephen Mizel IRA, one of the two
parties that commenced the litigation, was voluntarily discontinued with
prejudice.
1994 MERGER LITIGATION. With reference to the lawsuit filed in connection
with the merger of FoxMeyer into a wholly-owned subsidiary of the
Corporation, a stipulation was entered in October 1998 that governs certain
scheduling matters, including briefing of plaintiffs' class certification
motion.
MIDWEST FREIGHT LITIGATION. Thomas L. Anderson, the former president of
FoxMeyer, is the defendant in a lawsuit brought by Midwest Freight Systems,
Inc. ("Midwest") and Leo Glynn in the United States District Court for the
Western District of Missouri, Case No. 97-0089CV-W-2. The lawsuit relates to
Midwest's purchase in 1991 of substantially all of the assets of Healthcare
Transportation System, Inc., which was then a subsidiary of FoxMeyer.
Midwest has asserted claims against Mr. Anderson for breach of contract,
fraud, negligent misrepresentation and tortious interference with contract.
Mr. Anderson has denied all liability in the lawsuit. In December 1998, a
verdict was rendered and a judgment was entered in favor of the plaintiff in
the amount of $50,000, and Mr. Anderson has filed a post-trial motion
challenging the judgment. Mr. Anderson has asserted that the Corporation is
required to indemnify him under the terms of the 1994 Merger Agreement
between the Corporation and FoxMeyer. The Corporation is currently paying Mr.
Anderson's defense costs in the lawsuit.
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
The Corporation did not declare, nor did it pay, the dividends due for the
quarterly periods since October 15, 1996 on either the convertible preferred
stock or the Series A preferred stock. These two issues are cumulative. The
cumulative dividends accrued and unpaid at December 31, 1998 were
approximately $7.3 million ($11.25 per share) for the convertible preferred
stock and $45.3 million ($10.51 per share) for the Series A preferred stock.
In addition, the annual sinking fund payments to purchase 88,000 shares of
the convertible preferred stock in January 1998 and January 1999 were not
made.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 - Financial Data Schedule
(b) REPORTS ON 8-K
No Current Reports on Form 8-K were filed by the Corporation
during the three months ended December 31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVATEX CORPORATION
February 5, 1999 By: /s/ Edward L. Massman
-------------------------------------------------
Edward L. Massman
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
February 5, 1999 By: /s/ Scott E Peterson
-------------------------------------------------
Scott E Peterson
Vice President Finance and Controller
(Principal Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AVATEX CORPORATION FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 29,246
<SECURITIES> 383
<RECEIVABLES> 2,832
<ALLOWANCES> 27
<INVENTORY> 0
<CURRENT-ASSETS> 33,288
<PP&E> 32,420
<DEPRECIATION> 2,252
<TOTAL-ASSETS> 115,769
<CURRENT-LIABILITIES> 5,804
<BONDS> 33,927
235,871
0
<COMMON> 69,032
<OTHER-SE> (241,239)
<TOTAL-LIABILITY-AND-EQUITY> 115,769
<SALES> 7,544
<TOTAL-REVENUES> 7,544
<CGS> 0
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<INTEREST-EXPENSE> 1,699
<INCOME-PRETAX> (5,965)
<INCOME-TAX> 39
<INCOME-CONTINUING> (6,004)
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<NET-INCOME> (6,004)
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